Category Archives: RESEARCH ARTICLE

Relationship investment and local corruption environment: Evidence from China

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Abstract

We examine how firms interact with government officials within a corruption environment. Using corruption convictions to measure the extent of political corruption at the province level and a sample of Chinese listed firms, we find that firms located in more corrupt provinces invest more in building connections than firms located in less corrupt provinces. These results are robust to the instrumental variable approach, adjacent province matching, propensity score matching and alternative measurement of political corruption. We also show that the effect of political corruption is more pronounced in non-state-owned enterprises (non-SOEs), smaller firms, firms with financial constraints and firms without political connections. Additionally, we find that those firms that invest more on connection building are less likely to restate financial reports and have lower financial statement comparability. Overall, the evidence from China is consistent with the political connection view that firms respond to political corruption by investing in relationship building, which contrasts with the evidence from the US.

Country environmental, social and governance performance and economic growth: The international evidence

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Abstract

This study documents a significant and positive impact of country-level environmental, social and governance (ESG) improvement on economic growth using an international sample of 109 countries through improving energy efficiency, promoting human-capital accumulation and attracting foreign investments. The economic benefits of country-level ESG improvement are robust after alleviating possible endogeneity concerns. Further analysis shows that the positive influence of country ESG performance on economic growth is most pronounced in high-income countries and for high-greenhouse gas emitters but weaker in countries whose national income relies on natural resources. Our findings provide policy implications for promoting sustainable economic growth.

Financial constraints and political catering disclosures of non‐state‐owned firms: Evidence from textual analysis

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Abstract

Using textual analysis techniques, we construct a novel measure to quantify the level of political information in forward-looking disclosures of privately controlled firms. Our results show that private firms with serious financial constraints are more likely to reveal more political information in forward-looking disclosures. Plausible mechanisms driving our findings are firms' high growth, under-investment, and weaker political connections, suggesting that firms cater to governments in the expectation of more financing resources. Finally, we show the economic consequences of political catering strategy on corporate performance.

A CEO’s expertise power and bank diversification

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Abstract

We examine the effect of a chief executive officer (CEO)'s expertise power on bank diversification. Using US bank data from 1990 to 2020, we find that a CEO's expertise power is positively associated with bank diversification. Market competition and board composition (size and independence) positively affect this relationship. We also find that CEO delta and vega are the underlying mechanisms through which expertise power leads to greater diversification. We address endogeneity concerns using the two-stage least squares, Heckman estimation and the difference-in-differences approaches and check result robustness in several ways. We provide a new explanation for bank diversification that is useful for policymakers in developing a bank strategy concerning CEO behaviour in diversification.

Non‐GAAP earnings and executive compensation: An experiment

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Abstract

Literature suggests investors react to the presence, presentation and prominence of non-GAAP earnings disclosures. We extend this literature by considering the purpose of non-GAAP earnings disclosures and their effect on investors' judgements and decisions. We find when non-GAAP earnings are used to determine executive compensation, investors assign a higher evaluation of financial performance and invest more capital. Consistent with attribution theory, our mediation model finds that using non-GAAP earnings to remunerate executives strengthens the informative perception of non-GAAP earnings disclosures, influencing their evaluation and investment decision. Contrary to prior literature, we find investors intentionally rely on non-GAAP earnings in decision-making.

From natural language to accounting entries using a natural language processing method

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Abstract

Bookkeeping is crucial in both accounting and auditing. However, a substantial quantity of accounting information initially recorded using unstructured natural language, which restricts the efficiency and accuracy of bookkeeping. In this study, we exploit proprietary transaction data from three firms to demonstrate the capacity of a word embedding approach based on a neural network model (i.e., Word2vec) for processing transaction-related natural language and automating bookkeeping practice. Our study contributes to accounting practice and literature by demonstrating a practical application of Word2vec to the construction of an automated bookkeeping system.

Impact investment deal flow and Sustainable Development Goals: “Mind the gap?”

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Abstract

We examine the linkage between the available impact investment deals and Sustainable Development Goals (SDGs) to ascertain to what extent those deals are likely to achieve the aims of the SDGs, that of a sustainable and prosperous world. Drawing on 292 available deals, we find that most deals are directly or indirectly linked to only four of the 17 SDGs and are concentrated in two regions of the world. Accordingly, we conclude that impact investing has a significant imbalance in the SDG–deal flow–region nexus. Without addressing such an imbalance, impact investing will have only a limited impact on overall SDG attainment. Therefore, we also share some thoughts on addressing the imbalance.

Government provided rating, alleviation of financial constraints, and corporate investment

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Abstract

The State Taxation Administration (STA) of China established the tax credit rating system in 2015. Together with the banking regulatory authorities, STA entitles the higher-level firms to favourable bank lending. We find that higher-level firms are positively associated with capital investment, R&D expenditures and employment. These effects are more pronounced in private firms, small firms, and financially constrained firms. We identify that firms rated higher-level receive more debt financing at lower cost, and hoard less cash for the precautionary reasons. Our findings highlight the importance of the government rating, especially a developed credit rating market in which is absence in emerging economies.

Exploring the determinants of carbon management system quality: The role of corporate governance and climate risks and opportunities

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Abstract

We examine whether board governance dimensions, carbon risks and opportunities, and environmental management affect carbon management system quality (CMSQ). Based on 1035 firm-year observations from UK companies from 2011 to 2018, we find that internal governance is significantly related to CMSQ. In addition, firms with a heightened degree of carbon risks and/or opportunities are motivated to adopt a high-quality carbon management system to mitigate exposure and harness opportunities. Finally, climate risk and opportunity have an interactive and complementary effect on CMSQ (i.e., both climate risk and opportunity can strengthen the effect of the other on CMSQ). This study contributes significantly to a growing body of research on how corporate governance, carbon risks and carbon opportunities may simulate proactivity of corporate sustainability in general and carbon management strategy in particular. Our results provide insights for investors, policymakers, managers and regulators on the combined effect of greenhouse gas emissions and corporate governance practice.

The effectiveness of sanctions on disclosure regulation: Australian evidence

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Abstract

We investigate the deterrent effects of securities law enforcement sanctions with different levels of severity. Our setting is Australia's Continuous Disclosure Regulation, which features a range of sanctions from light through to more punitive. We find that after civil and administrative sanctions are imposed on a firm, market liquidity of industry-peer firms significantly improves relative to non-industry-peers. Our results are robust to alternative measures, tests and models. The findings suggest that less costly and lighter sanctions are useful enforcement tools, providing important policy implications for securities regulators on the selection of sanctions to enforce disclosure regulation.