Corporate non‐financial misconduct and accounting conservatism

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Abstract

This study shows that shareholders demand a higher level of conservatism when the firm commits non-financial misconduct. This positive relationship between corporate non-financial misconduct and accounting conservatism is more pronounced for firms with higher information asymmetry, worse financial conditions and greater monitoring by shareholders. Further analyses reveal that corporate non-financial misconduct is associated with less efficient managerial control over operations, lower employee satisfaction, worse performance and higher information uncertainties in the future. These results are robust to alternative measures, endogeneity concerns and controls for the potential influence arising from financial misconduct and internal control weakness.

Cultural tightness–looseness and inter‐regional mergers and acquisitions: Evidence from China

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Abstract

We investigated the role of culture in inter-regional mergers and acquisitions (M&As) within national borders, using a dataset that includes M&As conducted by Chinese listed firms from 2005 to 2019. Our research provides compelling evidence that the likelihood of an acquirer initiating a merger proposal – and the subsequent probability of reaching an agreement – decreases as the cultural tightness gap between the acquiring and target firms widens. Furthermore, we found that this negative impact of cultural tightness distance is more pronounced in non-state-owned firms and firms led by younger CEOs.

Renewable Energy and Economic Growth: Evidence from India

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The Indian Economic Journal, Volume 72, Issue 2, Page 220-242, March 2024.
This article examines the nexus between economic growth and two renewable energy sources, namely wind and solar, to separate out the contrast between these two sources, for India deploying system generalised method of moments and vector error correction method suitable to capture the dynamic nature of panel data. Unlike most of the earlier studies, it takes into account cross-sectional dependence and addresses the issue of endogeneity. India has been chosen because despite India being one of the largest producers of renewable energy globally; the nexus is under-studied. This article finds the installation of solar energy capacity positively influences the Gross State Domestic Product (GSDP) growth. Moreover, there is a bi-directional positive relation between the installation of wind energy capacity and GSDP growth. Hence the adoption of renewable energy is helping the states to grow faster. However, the study found not much difference in the nature of the nexus between solar energy growth and wind energy growth for India.JEL Codes: O13, P28, P44, Q56

Performance evaluation of academics: A social influence theory perspective

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Abstract

This study examines the associations between academics' perceptions of their institutions' performance management systems, and in particular their performance evaluation, and academics' attitudes and behaviours. Responses from over 1000 New Zealand academics reveal that those who perceive their performance evaluation as outcomes-focused and process-focused are more likely to exhibit compliance-based behaviour. In contrast, when performance evaluation is perceived as being values-driven and supportive of collegiality, the academics exhibit internalised behaviours. This study further shows that academics with internalised attitudes score higher in research assessment exercises than academics with compliance-based attitudes.

Strategic earnings management in family firms

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Abstract

We examine how family firms strategically manage earnings by using discretionary accruals (AEM) and real activities (REM). Using a sample of privately controlled but publicly listed firms in China between 2007 and 2018, we find that, under normal circumstances, family firms are less (more) likely than nonfamily firms to use REM (AEM) for earnings management, and they use REM and AEM as substitutes. However, when firms are under pressure to meet important earnings benchmarks that are critical to the survival of their businesses, family firms increase their use of REM more than do nonfamily firms. Finally, family firms strategically use REM to improve their future firm performance. This study challenges the unidirectional relationship between family firms and earnings management that is typically documented in existing studies.

Economic Policy Uncertainty and Equity Fund Flows to India: A Bayesian Approach

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The Indian Economic Journal, Volume 72, Issue 2, Page 259-269, March 2024.
We compare the impacts of economic policy uncertainty (EPU) and global economic policy uncertainty (GEPU)-related shocks on equity fund flows (EFFs) to India using a Bayesian vector autoregression approach. We find that (a) Indian EPU and GEPU are strongly and negatively related to EFF; (b) EFF are more sensitive to GEPU relative to Indian EPU; (c) evidence of trend-chasing behaviour by fund managers in India; and (d) GEPU is an important factor for forecasting returns on the Bombay Stock Exchange. Taken together, our findings indicate that EPU is important to understanding equity allocation decisions and returns in India.JEL Codes: F21, F39, G11

Do innovator CEOs matter in IPOs?

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Abstract

This paper examines the impact of innovator CEOs on their firms' IPO underpricing, long-run performance and post-IPO innovation. Firstly, we find that IPO firms led by innovator CEOs experience lower first-day returns (indicating lower IPO underpricing). This phenomenon can be attributed to a CEO's innovative ability, as it plays a pivotal role in mitigating information asymmetry within the IPO market. Secondly, we observe that IPO firms with innovator CEOs have greater IPO long-run performance. Lastly, our analysis reveals that IPO firms led by innovator CEOs demonstrate greater firm-wide innovation up to 4 years after the IPO. Overall, our study highlights the effect of CEO characteristics on firm performance in the IPO market.

Family control, institutional investors, and financial distress: Evidence from China

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Abstract

The effect of family control on corporate governance and risk-taking behaviours remains disputed worldwide. We examine how family control affects the financial distress of firms listed on the Chinese stock market. Our empirical findings suggest that family firms, particularly those with descendant CEOs, face significantly higher financial distress risk. Higher debt levels and more diversified acquisitions of family firms can partially explain their higher financial risk. Further analysis indicates that institutional investors help reduce the financial distress risk of Chinese family firms. We contend that institutional investors play vital roles in enhancing the corporate governance of family firms in China. Taken together, our study urges attention to the financial distress risk of family firms in a transient economy.

Impact of Product and Process Adoption Strategies on Business Expectations: Evidence from India During the Pandemic

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The Indian Economic Journal, Volume 72, Issue 2, Page 323-339, March 2024.
Using a unique survey of Indian firms conducted in June 2020, we analyse whether innovating into a new product line or adapting e-commerce platforms improved business outlook. A structural equation framework is used to address the endogenous relationship between six-month advance expectations of key demand (new orders) and supply (labour costs and raw material costs) variables to the two innovation strategies. Innovation strategies are in turn determined by unobservable latent variables, that is, shocks experienced due to the COVID-19-associated national lockdown. Both innovation strategies had a positive and significant impact on demand-side sentiments but had a mixed impact on the supply side.JEL Codes: M21, O31

Unveiling the Relationship Between Oil Price and Exchange Rate: New Insight from Time-varying Versus Fixed Coefficient Cointegration

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The Indian Economic Journal, Ahead of Print.
This study provides a brief analysis of time-varying cointegration between the INR–USD bilateral exchange rate and Brent crude oil prices in the post–subprime crisis period. Prior studies established this relationship using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not be feasible. To address this issue and to go beyond the restrictive time-invariant environment, we employed the time-varying cointegration framework of Bierens and Martins (2010), which was assessed through orthogonal Chebyshev time polynomials. The result shows that the Rupee was decoupled from oil price shocks in the first two samples. However, the oil price pass-through effect will become stronger in the third and fourth samples. The endogenous structural break test suggests the presence of serious parameter instabilities due to fluctuations in oil prices and the exchange rate over the period under study. This indicates the ability of international crude oil prices to influence domestic economic activities through the exchange rate. Policymakers should consider this factor while making monetary and foreign exchange policies.JEL Codes: E44, G14, G15