Category Archives: RESEARCH ARTICLE

New bottle or new label? Distinguishing impact investing from responsible and ethical investing

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Abstract

A common topic of debate in academic scholarship on impact, ethical, and responsible investing is definitional clarity around the motivations and applications of each form of investment strategy. We ask, how does the subfield of impact investing differentiate itself from more established ethical and responsible investing – and do these differences necessitate yet another field of study? Adopting a combination of bibliometric and content analyses, we identify four distinct features of impact investing – positive impact targeting, novelty of governance structures, long time horizons, and the importance of philanthropy.

Supply chain concentration and cost of capital

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Abstract

This study examines the impact of supply chain concentration on a firm's financing costs. We show purchasing firms with multiple supplier relationships are subject to higher information asymmetry and cost of equity. This effect is more pronounced when the supplier's financial performance deteriorates. We also find that lower supply chain concentration increases a firm's cost of debt. We believe that the purchaser's supply chain represents a source of material private information and that investors require a higher rate of return as compensation for increased information asymmetry. Our results are robust to combining the suppliers producing similar output and endogeneity issues.

Career concerns and earnings management in government‐owned banks

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Abstract

We examine how government ownership in banks affects earnings management to determine whether competing political or agency interests prevail. Using bank ownership data for 171 Chinese commercial banks from 2006 to 2018, we find more accruals management in government-owned banks, especially to reduce earnings. This effect is stronger in banks with less influence from controlling shareholders, more concentrated ownership structures, and in more developed provinces. Overall, our results find support for the agency view, where managers in government-owned banks use accruals management to reduce social and political responsibilities, leading to increases in their promotion prospects.

The fatter the tail, the shorter the sail

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Abstract

Guided by the extreme value theory, this study empirically investigates the impact of tail risk measures on financial distress of publicly traded bank holding companies (BHCs) in the United States. Our results show that tail risk measures namely, value-at-risk and expected shortfall, are significantly and positively related to banks distress risk. Implying that BHCs with more frequent extreme negative daily equity returns induce higher tail risks, thereby increasing their likelihood of experiencing financial distress. Our results also show that tail risk measures enhance the explanatory power of traditional models explaining banks distress risk based on accounting information. These results indicate that market discipline is generally beneficial in managing and regulating banks, bolstering claims of the importance of macro-prudential supervision of financial institutions.

Employer ratings in social media and firm performance: Evidence from an explainable machine learning approach

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Abstract

This study examines the ability of crowdsourced employee opinions about their workplace to reveal value-relevant information about corporate culture. We investigate the employee-friendly (EF) corporate culture values that are strongly associated with firm value and operating performance using a unique social media dataset of approximately 250,000 crowdsourced employee reviews to evaluate 18 distinct characteristics of a firm's corporate culture. The explainable machine learning model is used to examine the nonlinear associations and relative importance of employee-friendly cultural values. We find that several employee-friendly corporate culture features are associated with firms' value (Tobin's Q) and operating performance (ROA). Our findings reveal two features whose association is clearly superior to other EF culture variables in our explainable machine learning model: pride in the company for Tobin's Q and job security for ROA. Based on the SHAP values, their effects are positive, significant, and relatively linear.

Political ranking in hierarchy and receipt of a comment letter: Evidence from China

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Abstract

This study investigates the effect of political ranking in hierarchy on the probability that a firm will receive comment letters in China. We find that state-owned enterprises (SOEs) are less likely to receive comment letters compared to non-SOE firms, and the probability of receiving a letter is even lower for central government-controlled firms. These results demonstrate that political hierarchy is a significant factor in determining the receipt of comment letters. In addition, alternative proxies for political ranking yield similar findings. Lastly, our further analysis suggest that the level of marketisation and media coverage can significantly influence the results, indicating that a highly developed market may alleviate the negative effect of political ranking.

Production similarity and the cross‐section of stock returns: A machine learning approach

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Abstract

This paper employs a machine learning approach to capture firm-pair production similarity, which depicts how firms' production processes resemble each other using textual data in corporate MD&As. We show that production-linked firms' average return has strong predictive power on focal firm's future stock return. A hedging portfolio yields an annualised return of 11.69%, which cannot be subsumed by existing factor models. For mechanism tests, we find that the main findings are stronger in firms with higher information asymmetry and higher costs of arbitrage. The production-linkage measure also predicts future unexpected earnings, suggesting it possibly includes valuable information on firm fundamentals.

Plus Token and investor searching behaviour – A cryptocurrency Ponzi scheme

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Abstract

In July 2020, the Chinese government warned that the Plus Token was a Ponzi scheme based on blockchain. More than 200 million investors were involved in this scam. We investigate how investors' search behaviour is associated with their decision making. We find that the bitcoin bag of words Baidu index is positively and significantly related to bitcoins transferred to Plus Token addresses, suggesting that public prominence of searches about bitcoin and blockchain tends to be related to investor decisions regarding the Plus Token project.

Deleveraging for talents: Human capital reliance and corporate leverage

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Abstract

Using data from Chinese listed firms, we develop a measure of a firm's reliance on human capital that is based on its demand for highly educated employees. We find that a high reliance on human capital is linked to low corporate leverage, and this effect is more pronounced among firms at a high risk of human capital mobility and those facing high skilled-labour adjustment costs. Our results indicate that firms strategically manage their capital structure to maintain financial flexibility, enabling them to effectively respond to the labour-related costs associated with human capital losses and costly labour adjustments.

Cultural diversity and Indigenous participation on Australian corporate boards: Harder but better decisions

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Abstract

This study explores Indigenous Australians' participation on corporate boards. We confirm the significant under-representation of Indigenous Australians on corporate boards. Using data collected from semi-structured interviews with business leaders, we explore their perceptions of cultural diversity and pathways to directorships provided by corporate Australia for Indigenous Australians. Australian business leaders perceive the importance of cultural diversity (particularly in terms of its myriad benefits such as enhanced decision making), acknowledge the problem of limited diversity, and provide insights to improve diversity. Key pathways for Indigenous Australians include skills and experience, education and training, reputation, networking and organisational support.