Category Archives: Original Article

Giving the Benefit of the Doubt: Investigating the Insurance‐Like Effect of CSR in Mitigating Negative Employee Reactions to Psychological Contract Breach

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Abstract

Many studies document employees’ value-creating reactions to perceptions of their organization's corporate social responsibility (CSR) initiatives. Unknown, however, is whether perceived CSR can have value-protecting effects by mitigating employees’ negative responses when they believe the organization's other actions harm their interests, as proposed by theory on the insurance-like effect of CSR. In this respect, we develop hypotheses about the moderating role of CSR-based moral capital, such that higher levels mitigate the effect of psychological contract breach (PCB) on employees’ negative assessment of the organization (i.e., corporate hypocrisy) and associated value-eroding responses (i.e., lower loyal boosterism and higher turnover intentions). In Study 1, we use data from time-lagged employee surveys. In Study 2, we conduct two experiments in a causal-chain design. The findings support nuanced hypotheses from our theorized model and provide new insights that contribute to the broader CSR literature on value-protection and insurance-like effects, micro-CSR scholarship, and PCB research.

Are sustainability‐linked loans designed to effectively incentivize corporate sustainability? A framework for review

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Abstract

This paper analyzes sustainability-linked loans (SLLs), a new category of debt instrument that incorporates environmental, social, and governance (ESG) considerations. Using a large sample of loans issued between 2017 and 2022, we assess the design of SLLs by evaluating their key performance indicators (KPIs) using a comprehensive quality score. Our findings suggest that SLLs only partially rely on KPIs that generate credible sustainability incentives. We document that SLL borrowers do not significantly improve their ESG performance post issuance and show that stock markets are rather indifferent to the issuance of SLLs by EU borrowers, while SLL issuance announcements by US borrowers are met with significantly negative abnormal returns by investors. These findings call into question the beneficial sustainability and signaling effects that borrowers may hope to achieve by issuing ESG-linked debt.

The asset‐pricing implications of carbon risk in Korea

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Abstract

This study examines the relationship between carbon risk and stock returns for listed firms in Korea, where firms are legally obligated to disclose their carbon emissions. While previous research mostly focuses on major markets like the United States and the European Union, demonstrating the impact of climate change on asset prices, there is a scarcity of studies examining emerging markets. Using data from Korean-listed firms from 2011 to 2021, we investigate the association between a firm's exposure to carbon risk and cross-sectional stock returns. We find that stocks with high exposure to carbon risk exhibit higher average returns and the abnormal returns associated with carbon risk are statistically significant and cannot be explained by the Fama-French three- or five-factor models. Furthermore, this phenomenon is more evident among stocks with high foreign ownership. Finally, the carbon factor commands a significantly positive risk premium, suggesting that carbon risk is an important risk factor even in emerging markets like Korea.

Home Political Connections and Outward FDI of Emerging Market Firms

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Abstract

While political connections are a critical non-market strategy for emerging market firms (EMFs) to achieve success, how they affect EMFs’ outward foreign direct investment (OFDI) remains controversial. Building on the institution-based view, we examine how home-country political connections facilitate or impede EMFs’ OFDI. Using a panel dataset of listed private firms in China, we find that home political connections have an inverted U-shaped effect on firms’ OFDI level; the effect becomes flatter as pro-market reforms proceed in the home country, but becomes steeper for firms with strong technological capability. By revealing a nonlinear effect, our study helps reconcile inconsistencies regarding the role of home political connections in OFDI and has important implications for EMFs’ internationalization.

Growing Institutional Complexity and Field Transition: Towards Constellation Complexity in the German Energy Field

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Abstract

By applying a dynamic approach to field-level institutional complexity, we explore how growing institutional complexity affects fields over time. We examine field transition processes, which are shaped by the number of logics, the nature of their relationships and the shifts in dominance. Focusing on Germany's energy field, our analysis identifies a variety of conflicts that arose among up to seven institutional logics in the context of the German energy transition, i.e., the transition towards a low carbon energy market. The paper makes two theoretical contributions to the institutional complexity and field literature. First, we develop a process model explaining the field-level consequences of two different types of growing complexity, namely increasing and accelerating complexity. Second, we identify conflicting logic constellations as a distinct form of complexity that we term constellation complexity. We discuss our contributions in light of the literature on institutional logics and fields and show how applying a dynamic perspective to institutional complexity supports scholars in conceptualizing field transition processes.

The Double‐Edged Sword of Error Sharing in Organizations: From A Self‐Disclosure Perspective

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Abstract

Extant research highlights the importance of error sharing for managing errors in organizations, but little work examines what happens to employees who disclose errors. Treating errors as sensitive information, we draw on the self-disclosure literature to propose that error sharing can influence leaders’ evaluations of employee ability and integrity, which affect leader trust in the employee; error visibility and severity work as contingency factors in the above links. We conducted two field studies and one experimental study to test our hypotheses. We used data collected in China from manufacturing companies (560 employees from 71 teams in Study 1), a high-reliability organization (359 employees from 104 teams in Study 2), and an online sample (356 participants in Study 3). Results show that error sharing impairs leader trust via the negative evaluation of the employee's ability but enhances trust via the positive evaluation of the employee's integrity; error visibility and severity moderate the relationships between error sharing and leader evaluation of employee integrity and leader trust such that the positive relationships are enhanced when errors are of lower visibility or higher severity. Our study offers a novel perspective to understand the relational consequences of error sharing at work.

Investor attention and stock price efficiency: Evidence from quasi‐natural experiments in China

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Abstract

We examine whether increasing investor attention affects stock price efficiency. To identify the causal effect, we employ daily repeated quasi-natural experiments in China where investor attention difference is purely driven by price rounding effect without information regarding stock fundamentals. Stocks tend to draw significant more attention and show higher price efficiency after being exposed to the Winner List. We also find supporting evidence for two nonexclusive channels through which investor attention enhance stock price efficiency: increasing stock liquidity and stronger net inflows from large orders. The positive relationship between investor attention and price efficiency is more pronounced among stocks with lower institutional shareholdings, stocks without overseas or Big Four audit firms, and stocks without B- or H-shares. Our findings further shed light on the significant impact of saliency on the capital market.

Ex‐military Top Executives and Corporate Violations: Evidence from China

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We examine the association between corporate violations and executives who formerly served in the military, using a sample of A-share listed firms in China from 2004 to 2018. We find that firms led by ex-military executives are less likely to incur corporate violations. Further tests indicate that where there is a negative relationship this association is more pronounced for non-financial corporate violations than for cases involving financial fraud. We also confirm that the association between corporate misconduct and firms with ex-military executives is more significant if the firm has insufficient external oversight. The results are robust to a series of robustness tests. Overall, our results suggest that executives’ exposure to military culture has a governance effect in regulating corporate behaviour and outcomes in emerging economies.

The Management of Socio‐Political Issues and Environments: Toward a Research Agenda for Corporate Socio‐Political Engagement

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Abstract

Socio-political issues and environments are becoming more complex and challenging. In this introduction to the special issue on ‘The Management of Socio-Political Issues and Environments: Organizational and Strategic Perspectives’, we take stock of the burgeoning research on how firms interact with socio-political actors and environments over the last few decades, specifically research on Corporate Political Activity and Corporate Social Responsibility. We then argue that the socio-political environments and actors with which firms interact are in a state of flux, such that issues are more interrelated and dynamic, and actors are more diverse and demanding. As such, we propose a new concept of corporate socio-political engagement (CSPE), which represents a more holistic perspective to understanding complex interactions among firms and their social/political stakeholders, incorporating and transcending conventional notions and tactics documented in the extant nonmarket strategy literature. Using a two-dimensional framework that captures the identity of socio-political actor or the nature of socio-political issues (political, social, or both) as well as the relevant level of analysis at which the interactions unfold, we showcase the contributions of the special issue articles to this research agenda. Finally, we discuss and specify future research directions for revealing the multifaceted nature of CSPE.

Corporate Governance Reforms and Analyst Forecasts: International Evidence

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In this study, we examine the effect of worldwide corporate governance reforms on analyst forecasts using data on firms from 41 countries that have implemented such reforms. Employing a difference-in-differences design, we find robust evidence of a significant positive effect of these reforms, which mainly promote the independence of the audit committee and auditors, on analyst forecast accuracy. We also find significant improvements in post-reform corporate governance structure and the quantity and quality of corporate disclosure, which validates the predicted economic mechanism of the impact of these reforms. Moreover, the reforms are effective in reducing analyst forecast bias and dispersion, suggesting an overall improvement in analyst forecast quality after reform implementation. Furthermore, we find a moderating effect of analyst general experience on the relationship of interest, which is consistent with the conjecture that improved corporate disclosures following reforms could be more beneficial for analysts with less experience. Overall, our findings shed new insights into how country-level corporate governance reforms worldwide shape firms’ information environment.