Category Archives: Accounting & Finance

Competition, liquidity creation and bank stability

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Abstract

We examine the conditioning role of competition in affecting the relationship between liquidity creation and bank risk in a sample of US banks from 2001 to 2016. We find aggregate evidence that competition is related to bank fragility as proxied by the Z-score both directly and indirectly through its interaction with liquidity creation. However, when the ex-ante level of liquidity creation is low and/or competition is low to moderate, competition is associated with an improvement in bank risk at a given level of liquidity creation. In addition, the joint fragility effect of competition and liquidity creation manifests more strongly, in an economic sense, in poorly capitalised banks and large banks with assets of more than $3 billion. Our findings emphasise the crucial role of targeted competition regulations in ensuring bank solvency and systemic stability while maintaining a robust level of competition.

Economic consequences of new accounting standards in UK charities

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Abstract

This study examines the effect of changes to the 2015 UK charities accounting standards on financial reporting timeliness and audit fees. Utilising 62,785 observations (9351 charities) from 2010 to 2017, we report a significant decrease in financial reporting timeliness following the new accounting standards regime. The decrease is more pronounced in charities with audited financial statements because of their lengthier audit report lag. Audit fees are also substantially higher following the new accounting standards implementation. Sensitivity tests reveal charities are more likely to have an unusual reporting lag following the introduction of the new accounting standards.

How does climate risk affect corporate innovation? Evidence from China

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Abstract

This paper investigates the effects of climate risk on corporate innovation in China. Employing a city-level climate risk indicator that we constructed and a sample of 21,430 firm-year observations of Chinese-listed companies, we find that climate risk is negatively associated with corporate innovation investment and outcome. These results are robust to alternative empirical designs and identifications. Our mechanism analyses reveal that climate risk impedes corporate innovation by motivating firms to increase cash holdings as financial reserves. Additional analyses suggest that the adverse impact of climate risk on corporate innovation is more pronounced for high-tech firms, and less salient for firms with higher financial constraints and female Chairperson or CEO. Furthermore, the decrease in corporate innovation due to climate risk can lead to a reduction in firm value. These findings contribute to the existing literature on climate risk and corporate innovation and inform regulators and listed firms concerning climate risk.

Trust and corporate debt maturity mismatch: Evidence from China

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Abstract

This study explores the relationship between social trust and firm debt maturity mismatch in the Chinese context. Additionally, we investigate the economic mechanisms through which social trust affects debt maturity mismatch, and the differential roles played by social trust among firms with different characteristics. We employ enterprise trustworthiness scores and provincial blood donation rates as our measures of regional social trust level and find a negative relationship between local trust and firm debt maturity mismatch, suggesting that social trust which promotes ethical norms acts as a restraint on firms' propensity for excessive risk. An alternative but consistent explanation is higher social trust increases debtors' willingness to lend, hence it reduces firms' funding costs and consequently the potential cost-saving motivation behind such a mismatch. We further document evidence that social trust improves the firm information environment and consequently risk-taking and/or the ability to reduce funding costs. The study also reveals variations in the role of social trust based on firm characteristics, such as leverage and profitability, and the ownership structure (state-owned enterprises vs. non-state-owned enterprises). The findings contribute to the literature by highlighting the increasing importance of social capital for policy and governance.

Heterogeneity in needs and purchases in Australian retirees

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Abstract

To plan for retirement, it is important to understand how needs and purchases may change. We use data from a survey of elderly Australians to see how needs and purchases changed in different categories of goods and services. We looked especially at those who had experienced financial or health shocks. Our analysis shows variation in people's experiences, particularly for health costs, which increase with age. Having private health insurance appears to increase the level and volatility of health costs – presumably as a result of out-of-pocket costs. This information can be useful for financial advisors and superannuation trustees.

Emotions and inventor productivity: Evidence from terrorist attacks

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Abstract

We examine whether the emotional shocks associated with terrorist attacks affect local inventors' productivity. We find that high-fatality attacks make inventors less innovative, and low-fatality attacks make them more innovative. Inventors living in high risk-taking environments have greater increase in productivity following low-fatality attacks, while less decrease in productivity following high-fatality attacks. Further, the effect of terrorist attacks on inventor productivity comes mainly from exploratory innovation which involves more risks. Inventors affected by high-fatality attacks are also more likely to move to places without any significant terrorist attack history, but there is no such effect for low-fatality attacks.

On the state of financial research: Is it in a silo?

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Abstract

This study on the state of financial research analysed the citations made in leading business and economics journals in the period 1997–2020. It found that, contrary to other business fields, and despite citing more references, finance researchers overlooked the fruitful mode of knowledge creation by integrating advances from disciplines other than economics. Additionally, citations in economics became disproportionate to older papers. Furthermore, intradisciplinary citations remained predominantly in the same four journals, although others became prominent. These findings on the state of financial research supplement other issues inhibiting finance knowledge progression and have inferences regarding the training of future scholars.

Management accountants with a growth mindset and changes in the design of costing systems: The role of organisational culture

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Abstract

Based on implicit person theories, this paper investigates the relationship between the growth mindset of management accountants and changes in the design of costing systems, as well as the role that organisational culture plays in this relationship. Using survey data from 146 management accountants of manufacturing companies, we find that management accountants who have a growth mindset increase the complexity, inconclusiveness, and functionality of their firm's costing system, compared to those who have a fixed mindset. Additionally, our results show that innovation-oriented culture (a dimension of organisational culture) strengthens the relationship between growth mindset and changes in the design of the costing system.

Does corporate ESG disclosure enhance investor relationship management? Evidence from China

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Abstract

This study investigates the enhancing effect of environmental, social, and governance (ESG) disclosure on investor relations management (IRM). The better the ESG disclosure, the higher the level of IRM. furthermore, this enhancement is achieved by reducing information asymmetry, improving information dissemination efficiency, and attracting investors attention, and it is more prominent in a sound institutional environment and a concentrated shareholding structure. Moreover, institutional investors show greater receptivity to ESG-driven IRM compared to individual investors. Finally, we indicate that IRM is enhanced by ESG disclosure, ultimately fostering high-quality corporate development. These findings provide valuable insights for promoting the standardisation of ESG disclosure and optimising IRM practices.

Corporate transparency among government suppliers: Implications for firm valuation

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Abstract

Corporate transparency has a positive impact on firm valuation, as predicted by agency theory; however, the transparency of strategically important government suppliers is not rewarded with higher valuations as the market expects politically sensitive firms to be inherently more transparent. The association between transparency and valuation among politically sensitive firms is consistent with the political cost hypothesis. We address endogeneity concerns using propensity score matching, Heckman's self-selection models and entropy balancing. Our findings offer novel insights, suggesting that the influence of transparency on corporate valuation varies with political sensitivity – a significant consideration for both finance professionals and scholars.