Category Archives: RESEARCH ARTICLE

Business strategy, cash holdings, and dividend payouts

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Abstract

Business strategy's impact on firm cash holdings and dividend payouts has largely remained unexplored. We identify a fundamental and direct link between a firm's business strategy and its cash holdings and dividend payouts. Analysing two large samples of data on US firms over the period 1992–2017, we find strong evidence that prospectors (defenders) are likely to hold more (less) cash and pay less (more) dividends than other firms. Further analysis suggests that prospectors pay dividends less frequently than do defenders. The results are robust to a battery of robustness checks and additional analysis. Overall, the results suggest that identifying a firm's business strategy significantly helps to understand a firm's cash holdings and dividend payout decisions.

Institutional and individual investors’ short‐term reactions to the COVID‐19 crisis in China

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Abstract

This study examines how the severity of the local COVID-19 crisis affected the investment divergence between institutional and individual investors in China. The COVID-19 crisis significantly increased both environmental uncertainty and fear sentiment. We predict that individual investors, who are at an information disadvantage and rely more on heuristics, are more likely than institutional investors to decrease their investments in stocks of firms headquartered in provinces with more severe COVID-19 crisis. We find that the number of newly confirmed local COVID-19 cases is positively associated with the investment divergence between institutional and individual investors. Further analysis shows that the investment divergence is much lower for firms that have higher information disclosure quality, are followed by more analysts and engage Big 4 auditors. We also find that subsequent price reversals are faster for stocks with higher net investments by institutional investors and slower for stocks with higher net investments by individual investors. Lastly, we find that institutional investors increase their investments in undervalued stocks of firms located in provinces with more severe COVID-19 crisis and firms less affected by the pandemic, whereas individual investors decrease such investments. The results suggest that institutional investors are more sophisticated in identifying undervalued stocks and analysing the impact of the information about the pandemic prevention policies on firms' operations. Our main results hold after a battery of robustness tests.

Blockchain technology adoption and accounting information quality

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Abstract

The study investigates the implications of companies' adoption of blockchain technology on accounting information quality. Based on a sample of 33,242 firm-year observations from A-share companies listed on China's stock exchanges in 2007–2019, we find evidence that blockchain technology adoption significantly improves accounting information quality. Further, additional tests demonstrate that the mechanism of blockchain exerting its positive effect include strengthening corporate governance and realising synergies with large audit firms, while cross-sectional tests show that its positive effect on accounting information quality is attenuated if the company is in an industry with high IT development or has experienced an audit firm change. Economic consequence tests show that the adoption of blockchain is conducive to companies' financing behaviour, as well as to overall firm value. Consequently, our results suggest the positive effect of blockchain technology on accounting information quality.

The balanced scorecard: Do managers need a strategy map when evaluating performance?

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Abstract

Prior research establishes a judgemental bias towards common measures when managers evaluate performance using the balanced scorecard. In an experimental study, I examine the role of a strategy map when evaluating performance in a boundary condition setting for this bias with performance measures strategically linked and both narrative strategy information and a strategy map provided. I manipulate the presence of a strategy map and find that managers who receive a strategy map develop greater strategic causal relationship knowledge when evaluating performance than managers who receive narrative strategy information only. Additional analyses indicate the bias is absent from managers' judgements in both conditions.

How management control systems can enable, constrain, and embed integrated reporting

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Abstract

This study examines how management control systems (MCSs) may enable, constrain and embed the integrated reporting process within organisations. We analyse in-depth, semi-structured interview evidence using Tessier and Otley's MCS framework and institutional work. We find that organisational culture, clear responsibilities and ongoing stakeholder dialogue support the development of an integrated reporting process. In addition, an ongoing multi-stage process with regular stakeholder interaction helps to embed the integrated reporting process. Our paper provides comprehensive detail about the MCS associated with the process for preparing an integrated report that will be of interest to current integrated reporting (IR) practitioners and organisations considering adopting IR.

Institutional investors’ corporate site visits and firm management earnings forecasts

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Abstract

Institutional investors' site visits may reduce investors' demand for information, resulting in managers' reluctance to disclose earnings forecasts and exacerbating information asymmetry in the capital market. However, institutional investors may also monitor management through site visits, which increases voluntary management earnings forecasts disclosure and thus reduces information asymmetry. Using a sample of Chinese listed firms from 2012 to 2018, we find that firm management is more likely to voluntarily disclose earnings forecasts after the institutional investors' site visits. Specifically, increasing from the 25th to the 75th percentile of institutional site visits is associated with an increase in the odds of voluntary management earnings forecasts by 24%. We use instrumental variables and Heckman two-step method to address the endogeneity problems and report similar findings. Additional tests show that the governance effect is amplified among firms with severe type I and type II agency problems or firms with no need for refinancing and alleviating stock price synchronicity. Furthermore, we find that voluntary earnings forecasts are more accurate and more precise after site visits, which means institutional investors' site visits in fact improve the quality of management earnings forecasts. Our findings complement the institutional investors' governance effects on earnings forecasts from the perspective of information acquisition.

The value of personal professional financial advice to clients: A systematic quantitative literature review

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Abstract

Financial advice is perceived to be inaccessible and complicated with consumers at the mercy of a sector under sustained scrutiny, raising questions about value for clients. This study systematically reviews the literature on the value of financial advice. Extant research focuses on financial benefits and lacks a holistic view of value and the factors impacting it. Gaps exist across non-financial benefits, geographic regions and over time. We call for a sustained and coordinated approach to research in this field. The findings inform consumer engagement strategies, policies concerning the uptake of professional financial advice and development of the profession.

Buddhism and M&A performance: Evidence from China

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Abstract

This research explores the effect of Buddhism on mergers & acquisitions (M&As) performance, using 4622 M&A transactions of Chinese public firms from 2004 to 2018. Herein, we offer sufficient evidence that the acquirers located in higher Buddhism intensity regions performed better for both short- and long-term after merger. Furthermore, we show that state ownership also plays an essential role in mitigating its effect, whilst our channel analysis indicates that the source of value creation is driven by higher deal completion rates and fewer violation cases for acquiring firms. Finally, we address the endogeneity issue, and the results remain unaffected.

Cultural accountability in the annual report: The case of First Nations entities in Australia

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Abstract

Australia's Aboriginal and Torres Strait Islander not-for-profit organisations (NFPs) are vital to the cultural and social fabric of the communities they represent. Yet while such entities are obligated to publish annual financial and non-financial information, little is known about the role of these reports in terms of delivering accountability to culturally diverse stakeholders. This benchmark study is among the first to use grounded accountability theory to compare the results from quantitative content and qualitative thematic analysis of annual reporting across 100 Aboriginal and Torres Strait Islander NFPs. Our analysis reveals the communication of ‘cultural accountability’ that sets these entities apart from other NFPs. Implications of these findings for accountability practices in non-Anglo-Saxon cultural contexts are discussed.

Board interlocks, career prospects and corporate social responsibility

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Abstract

This paper investigates how director career concerns affect the relation between board interlocks and corporate social responsibility (CSR). We first document that firms with central or well-connected boards of directors tend to invest more in CSR. We then show that the positive relation between board connectedness and CSR is significantly more pronounced for firms whose directors' future careers would benefit more from CSR, such as those with better corporate governance, firms with larger investments in research and development or firms with high product market threats. Our findings suggest that director career concerns play an important role in the board of directors' decision on CSR investments.