Category Archives: Original Article

The downside of blockholder exit threats: Increasing excess cash holdings

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Abstract

This study examines the impact of blockholder exit threats on excess cash holdings following China's split-share structural reform. Previous studies have confirmed the governance role of blockholder exit threats, but their effectiveness is limited to companies with greater private benefits. Using a sample of 2340 firm-year observations of Chinese listed firms between 2002 and 2009, we find that the exit threat of blockholders increases the level of excess cash holdings. These results suggest that blockholders view exit threats as a means of collaborating with controlling shareholders to boost excess cash holdings and diversify corporate resources for private benefits. The collusion effect is more pronounced in firms with poorer investor protections, lower shareholding concentrations, and more severe agency conflicts. Additionally, in terms of economic consequences, blockholder exit threats decrease buy-and-hold abnormal returns and increase the occurrence of corporate scandals. Overall, this study provides empirical evidence of collusion among large shareholders, which harms small shareholders' interests from the perspective of excess cash holdings.

Does Social Capital Enhance Stock Liquidity? An Investigation of the Resilience of the Trading Environment During a Crisis of Trust

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We investigate whether social capital and trust provide a form of liquidity/trading resilience, more specifically, whether social capital and trust played a role in the speed of stock recovery following activation of the market-wide circuit breaker (MWCB) that occurred at the beginning of the COVID-19 pandemic in March 2020. Our finding that high-social capital firms rebounded more swiftly in terms of stock liquidity and quality of the stock trading environment provides new evidence that social capital and trust can safeguard firms’ stocks against a potential liquidity drain and rapid deterioration in the stock trading environment under extreme market conditions.

Generating, Grading, and Ghosting: How Organizing Experts Shapes Expertise

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Abstract

Experts increasingly refine their expertise into specialties as they labour in and around organizations. Yet, previous research assumes that experts are organized in the workplace in ways that passively accommodate or mirror pre-existing specialties and focuses on organizational structures that codify the content of experts’ knowledge as an encroachment. Drawing on a qualitative field study in an aeronautical organization's engineering unit, this paper examines the organizational structures that chart the area of experts’ knowledge, i.e., their specialties. The findings show that organizational structures are generative, defining the contours of existing expertise and catalysing the formation of new ones (generating). However, organizational structures also encode criteria that implicitly rank some forms of expertise over others, thereby reinforcing status hierarchies (grading), and misalignment across organizational structures renders some forms of expertise invisible (ghosting). By showing the active role of organizational structures in shaping expertise rather than simply housing it, this paper contributes to our understanding of expertise development as well as status dynamics and access to resources among experts. Further, the paper reveals how misalignments across multiple organizational structures may impact the management of knowledge and human capital.

Prescriptive Theorizing to Tackle Societal Grand Challenges: Promises and Perils

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Abstract

Descriptive and prescriptive theorizing are two sides of the same coin and fundamentally complementary, if not reciprocal in their relationship. Both have a place in management theorizing, yet this Point-Counterpoint debate takes issue with how they are currently performed in research. The Point makes the case for prescriptive theorizing to help tackle societal grand challenges and meaningfully impact practice, and it offers a recipe for doing this on a solid normative foundation. The Counterpoint cautions against the impact that such prescriptions may have and calls for more contextualized approaches. In this introduction to the debate, I intend to take the conversation that both the Point and Counterpoint have provoked even further by highlighting some under-emphasized but important theoretical avenues to examine the (un)intended consequences of both prescriptive and descriptive theorizing; namely by mobilizing research on performativity and counter-performativity.

Evaluation of Fair Value Relevance and Sensitivity to Valuation Assumptions

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This paper evaluates whether the relevance of investment properties measured using Level 3 inputs is impacted by the assumptions underpinning the determination of fair values. Evidence is provided of investors generally finding investment property fair values determined with Level 3 inputs to be relevant, and the values are not discounted in market price. However, this is not the case when there is evidence of firms using optimistic assumptions in the determination of fair values. Specifically, there is a material price discount of recognized investment property values as well as fair value gains for these observations. Our research setting of real estate investment firms has several advantages as these firms typically have as their major assets investment properties whose fair value and rental income can be observed from financial reports. This allows investors to easily infer and compare the key valuation assumptions as captured by the capitalization rate. The implication for more general circumstances where valuation assumptions cannot be inferred from financial reports is that detailed disclosures of assumptions are necessary for users to assess the reliability of fair values determined with Level 3 inputs.

Central bank communication and macro information in analyst forecasts: Evidence from Chinese listed firms

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Abstract

The paper examines how central bank communication affects the macro information in analyst forecasts. Using quarterly data of Chinese-listed firms from 2007 to 2018, we find that richer and more frequent central bank communication increases the macro information contained in analyst forecasts. This effect is realized through the employment of in-house economists by security firms. In addition, we document that the effect of central bank communication on macroeconomic information in analyst forecasts is more salient under a contractionary monetary policy regime, during a bear market, or when the economic policy is more uncertain. We also show that analyst forecasts are more sensitive to central bank communication when firms that they follow are state-owned enterprises, have larger leverage ratios, or are located in more developed regions. In addition, analyst forecasts are more susceptible to central bank communication when the communication is in an informal oral format, when the public has more trust in the credibility of the central bank communication, and when the central bank pays more attention to expectation management after 2010. Finally, we show that richer and more frequent central bank communication also improves the accuracy of analyst forecasts.

How does ESG performance impact corporate outward foreign direct investment?

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Abstract

In recent decades, environmental, social, and governance (ESG) factors have received increasing attention in the literature of corporate internationalization. While prior studies have extensively examined how ESG initiatives implemented in the host country enhance corporate international performance, less attention has been paid to the facilitating role of previously accumulated ESG performance in the internationalization process. Drawing on a sample of 2083 unique publicly listed Chinese firms from 2010 to 2019, we explore whether and how ESG performance promotes corporate outward foreign direct investment (OFDI). Our findings indicate a positive association between corporate ESG performance and both the propensity and scale of OFDI. We also identify financial constraints and corporate reputation as two mechanisms through which ESG performance influences OFDI. Our additional analysis suggests that the reputation-strengthening mechanism of ESG performance is more pronounced for family firms, whereas no significant difference is observed between family and nonfamily firms in terms of the financial mechanism. These findings have important implications for managers and policymakers seeking to promote sustainable development and internationalization.

The Impact of CEO Successions Involving a Change of Gender on Strategic Change: The Moderating Role of Environmental Factors

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Abstract

Prior research highlights the disruptive and detrimental effects of chief executive officer (CEO) successions that involve a change of gender, i.e., from a male CEO to a female CEO and vice versa. In contrast, we contend that the effects of CEO successions with gender change depend on the context in which they take place. Drawing on expectation states theory, we identify contexts in which each type of CEO succession with gender change can have positive effects on strategic change and subsequent firm performance, depending on whether the degree of gender parity in the context is sufficient for the new CEO to enact strategic changes. Consistent with our arguments, we report findings from Chinese and US samples showing that in the presence of high environmental dynamism female-to-male CEO succession yields greater strategic change. Conversely, when environmental dynamism is low, it is male-to-female CEO succession that brings about greater strategic change. Furthermore, in the Chinese context, we found that female-to-male CEO succession in state-owned companies results in greater strategic change, whereas male-to-female CEO succession has the same effect in privately-owned settings. Moderated mediation analysis showed that the significant interaction effects on strategic change affect long-term downstream performance (i.e., Tobin's Q). We discuss implications for theory and practice related to CEO successions.

Does Firm‐level Political Uncertainty Affect the Mispricing of Earnings? A Natural Experiment through Government‐to‐business Revolving Door

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We utilize a unique setting associated with the mandatory closure of the government-to-business revolving door to examine whether and how an exogenous rise in firm-level political uncertainty affects the mispricing of earnings. The tension that underlies our study stems from two opposing effects. To the extent that such uncertainty can trigger opinion divergence (rational attention) among investors, it is expected to delay (accelerate) price discovery and increase (decrease) security mispricing. Our identification strategy draws on the difference-in-differences analysis associated with the Chinese regulation in 2013 that mandated the resignation of corporate independent directors with a government background. Consistent with the dominance of the opinion divergence effect, we observe that these involuntary resignations unintentionally increase delays in share price responses following earnings announcements. These findings are more evident among firms that enjoy more benefits from independent directors with a government background. Further analyses confirm that these involuntary resignations trigger more opinion divergence rather than rational attention among investors by showing significant increases in analyst forecast diversity but no changes in analyst coverage following such resignations. We provide novel evidence that market information efficiency could deteriorate as an unintended consequence of the escalation of firm-level political uncertainty.

How Political Actors Co‐Construct CSR and its Effect on Firms’ Political Access: A Discursive Institutionalist View

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Abstract

This paper explores how corporate social responsibility (CSR) can incentivize political actors to increase firms' political access. Taking a discursive institutional perspective, I argue that the types of access negotiated depend on how political actors co-construct the multiplicity of CSR meanings. To study this process, I focus on the empirical case of the European Union (EU), offering a novel analysis of event observations, policy documents, and interviews with Commission officials, Euro-parliamentarians, and other stakeholders. I find that the value of CSR is highly contested in the EU political arena. I then elucidate four discursive strategies through which political actors interactively refined, reframed, and reinterpreted the meaning of CSR and its relevance for firm access in ways beneficial to their perceived interests. The findings highlight the importance for nonmarket strategy studies to conceptualize CSR as a co-constructed idea and access as negotiated, putting the micro-dynamic relationship between firms and political actors centre stage.