Showing papers in "Accounting and Finance in 2021"
TL;DR: This paper reviewed alternative accounts for the relationship between ESG performance and corporate financial performance and found that the weight of empirical evidence shows a positive, statistically significant but economically modest ESGP-CFP link, consistent with theoretical expectations.
Abstract: Interest in why firms conduct environmental, social and governance (ESG) activity is longstanding and increasing. Our understanding, however, remains fragmented with alternative accounts that seek to explain the relationship between ESG performance (ESGP) and corporate financial performance (CFP). This paper reviews alternative accounts for the relationship and finds that the weight of empirical evidence shows a positive, statistically significant but economically modest ESGP-CFP link, consistent with theoretical expectations. This economically modest relationship suggests ESG activity is unlikely to be primarily motivated by narrow measures of CFP. Further scholarship viewing ESG as part of overall firm activity would be constructive.
113 citations
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54 citations
TL;DR: In this article, the authors investigated the effect of mandatory corporate social responsibility disclosure on firms' investment efficiency in China and found that firms subject to the mandatory CSR regulation have decreased investment inefficiency subsequent to the mandate, especially in cases of overinvestment.
Abstract: This study investigates the effect of mandatory corporate social responsibility (CSR) disclosure on firms’ investment efficiency in China. Using the CSR regulation that mandates a group of listed firms to disclose stand‐alone CSR reports after 2008 as a natural experiment, we find that firms subject to the mandatory CSR regulation have decreased investment inefficiency subsequent to the mandate, especially in cases of overinvestment. This effect is more pronounced for firms with a control‐ownership wedge, state‐owned enterprises (SOEs), and firms having lower institutional ownership. Further analyses find that the reduction of overinvestment is much more significant in industries with high pollution and that the reduction in investment is not due to the CSR spending siphoning off capital used in other projects. We argue that mandatory corporate social responsibility disclosure improves monitoring over firms in China, especially when firms are characterised as having severe agency problems.
47 citations
TL;DR: In this article, the impact of COVID-19 on changes in firm value and the moderating role of firm-level sustainability performance on this relationship was examined, and it was found that firms domiciled in countries where the COVID19 impact is more devastating experienced a greater decline in the firm value.
Abstract: We examine the impact of COVID-19 on changes in firm value, and the moderating role of firm-level sustainability performance on this relationship. We find that firms domiciled in countries where the COVID-19 impact is more devastating experienced greater decline in firm value. The negative impact of COVID-19 on firm value is less pronounced for firms with better sustainability performance. Firms domiciled in countries with higher levels of environmental- and stakeholder-value-oriented culture experienced less decline in firm value from the impact of COVID-19. Findings suggest a firm?s stakeholder-value orientation contributes to preserving a firm?s value when general stakeholder value declines.
44 citations
TL;DR: In this paper, the authors investigated whether corporate governance (CG) leads to improved corporate social responsibility (CSR) in relation to carbon performance and found that the relationship between CG and carbon performance is significantly moderated by carbon strategy and managerial awareness of carbon risk.
Abstract: This study investigates whether corporate governance (CG) leads to improved corporate social responsibility (CSR) in relation to carbon performance. We draw on multiple theoretical lenses for CSR and use a sample of the top 350 listed UK companies. Our results show that overall CG quality has a discernible influence on carbon performance, based on outcome‐based carbon emissions. Our empirical findings and inferences still hold with an action‐based performance measure as well. In addition, we find that the relationship between CG and carbon performance is significantly moderated by carbon strategy and managerial awareness of carbon risk. Our evidence supports the claim that reforms of CG in the UK have promoted CSR behaviour in carbon performance, and this insight is not documented elsewhere.
40 citations
TL;DR: In this article, the joint effect of capital structure and corporate social responsibility (CSR) activities on firm risk during COVID-19 was examined, and the effect was more prevalent among firms with poor CSR performance.
Abstract: COVID-19 has severely constricted the global economic activities. This paper examines the joint effect of capital structure and corporate social responsibility (CSR) activities on firm risk during COVID-19. We find that firms having excessive debt beyond the optimal level experienced high firm risk during the pandemic and the effect is more prevalent among firms with poor CSR performance. In contrast, firms with a debt level below the optimum are self-protected regardless of their CSR practices. Our study provides businesses with insights of post-pandemic directions on capital structure and CSR policies to build up sustainability and resilience in a volatile market.
35 citations
31 citations
28 citations
TL;DR: Wang et al. as mentioned in this paper investigated the impact of coronavirus disease 2019 (COVID-19) on the Chinese stock market and showed that the outbreak not only hurt the stock returns but also affects the stock price sensitivity to firm-specific information.
Abstract: This paper investigates the impact of coronavirus disease 2019 (COVID-19) on the Chinese stock market We show that the COVID-19 outbreak not only hurts the stock returns but also affects the stock price sensitivity to firm-specific information We document heterogeneous effects of the epidemic infection scale and the public attention about the pandemic The stock market response to firm-specific information is decelerated (accelerated) by the public attention (infection scale) Moreover, the decreasing (increasing) effect of the public attention (infection scale) on such response is more intensive to positively toned (negatively toned) firm-specific news articles Finally, we observe price reversal (momentum) following the public attention (infection scale) © 2020 Accounting and Finance Association of Australia and New Zealand
28 citations
TL;DR: The authors investigated the impact of economic policy uncertainty (EPU exposure on the earnings management behavior of Chinese firms and found a significantly positive relation between EPU exposure and firms' earnings management.
Abstract: We investigate the impact of economic policy uncertainty (EPU) exposure on the earnings management behaviour of Chinese firms. We find a significantly positive relation between EPU exposure and firms’ earnings management. In addition, the EPU exposure effect is more pronounced for firms with weaker external monitoring mechanisms. We also find that the financial leverage and growth rate of individual stocks have significant predictive ability for EPU exposure. When we examine the potential mechanisms linking EPU exposure to earnings management, we find that financial distress is the dominant mechanism for firms with high leverage, while it is cash flow volatility for the high‐growth firms.
TL;DR: In this paper, the authors examined the association of mandatory CSR expenditure and financial inclusion with the performance of Indian banks in the period after the introduction of the legislation and found a significant negative association when performance was measured by stock market return.
Abstract: Motivated by legislation mandating CSR expenditure to improve social equality and economic development in India, we examine the association of CSR expenditure and financial inclusion with the performance of banking firms in the period after introduction of the legislation. We study whether mandated CSR expenditure and/or financial inclusion measures are associated with better financial performance, using both accounting and stock market measures of performance, for Indian banks during 2015–2017. Our results demonstrate that level of CSR expenditure and degree of financial inclusion is not associated with banks’ financial performance when performance is measured in accounting terms. However, a significant negative association is found when performance is measured by stock market return. These results suggest that the current design of the legislation is unlikely to achieve its purpose. This is the first study to present clear evidence on the associations of mandatory CSR spending and firm‐level financial inclusion with accounting‐based and market‐based bank performance.
TL;DR: The authors found that lower cash effective tax rates (ETRs) are associated with higher future return volatility, supporting the traditional view of tax risk-return trade-off, and that tax avoidance activities do not affect firm-specific risk.
Abstract: Prior literature documents puzzling evidence revealing that tax avoidance activities do not affect firm‐specific risk. Using an extended US sample, we find that lower cash effective tax rates (ETRs) are associated with higher future return volatility, supporting the traditional view of tax risk–return trade‐off. In sharp contrast to the US evidence, our analysis of Chinese firms suggests that Chinese state‐owned enterprises (SOEs) with lower cash and GAAP ETRs tend to have lower future risk. In addition, we adopt a difference‐in‐differences approach based on the variations generated by two exogenous, anti‐tax avoidance regulations in China but find no evidence suggesting a causal relationship between tax avoidance and firm risk. Overall, our results suggest that the relationship between tax avoidance and risk varies across countries, sample periods and tax aggressiveness measures, and we highlight the importance of addressing the endogenous nature in future research.
TL;DR: The authors explored whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid-19 outbreak and found evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conservative reporting have lower declines in stock return performance during the outbreak relative to other firms.
Abstract: We explore whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid-19 outbreak We find evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conditionally conservative reporting have lower declines in stock return performance during the Covid-19 outbreak relative to other firms We also find that the beneficial role of conditional conservatism is higher when firms have greater information asymmetry following the Covid-19 pandemic Our results are robust to various model specifications with four different measures of conservatism and an alternative return window
TL;DR: In this paper, the authors investigated the effect of COVID-19 on the global stock market and found that an increase in the growth rate of the number of confirmed cases increases volatility and jumps while reducing return.
Abstract: This paper investigates the effect of COVID-19 on the global stock market. Specifically, we test whether the growth in the number of confirmed cases/deaths affects market quality, measured by return, realised volatility, jumps and co-jumps for 43 stock indices around the world. We find that an increase in the growth rate of the number of confirmed cases increases volatility and jumps while reducing return. Further, we explore whether economic, financial and political risks play any significant role in the relation between the number of confirmed cases/deaths and market quality. Overall, we find the risk from COVID-19 overshadows these risks.
TL;DR: In this paper, the authors examined how institutional shareholding affects the relationship between financial slack and corporate investment in innovation for Chinese A-share listed companies and found that financial slack significantly increases corporate innovation investment.
Abstract: This study examines how institutional shareholding affects the relationship between financial slack and corporate investment in innovation for Chinese A-share listed companies We find that financial slack significantly increases corporate innovation investment Pressure-resistant institutions do not moderate the relation but pressure-sensitive institutions do moderate the relation negatively We further find that financial slack affects beneficially results because of the employment of slack resources after an exogenous negative shock like COVID-19/Global Financial Crisis Our findings contribute to the literature on the cross-sectional variation on the relationship between companies’ strategies and accounting choices in China © 2020 Accounting and Finance Association of Australia and New Zealand
TL;DR: The authors showed that during the Global Financial Crisis (GFC) US firms with high corporate social responsibility (CSR) ratings increased in value relative to firms with low CSR ratings.
Abstract: Lins, Servaes and Tamayo (2017) (LST) show that during the Global Financial Crisis (GFC) US firms with high corporate social responsibility (CSR) ratings increased in value relative to firms with low CSR ratings. Our study raises questions about the internal and external validity of the inferences in LST. For a similar sample of US stocks, we find no evidence that high CSR firms outperformed low CSR firms during the GFC when we use a calendar‐time portfolio analysis that controls for industry, or uses value‐weighted portfolios. For a sample of Japanese stocks, we also fail to confirm the results reported in LST.
TL;DR: In this paper, the authors examined the factors affecting the issuance, accuracy and usefulness of analysts' cash flow forecasts (CFFs) in Australia and found that analysts are likely to provide CFFs for mining firms with poor financial health and high default risk.
Abstract: This study examines the factors affecting the issuance, accuracy and usefulness of analysts' cash flow forecasts (CFFs) in Australia. Given the economic importance of the mining industry in Australia, we find that analysts are likely to provide CFFs for mining firms with poor financial health and high default risk. In contrast, analysts' provision of CFFs increases with the degree of financial health for non‐mining firms. The determinants of the issuance and accuracy of analysts' CFFs also differ in pre‐ and post‐IFRS adoption periods. Our results add new evidence on the effect of IFRS adoption on analysts' cash flow forecasting behaviours.
TL;DR: In this paper, the authors examined the relation between trade credit and cost behavior and further investigated the moderating effects on this relation of agency problem, product market competition, and customer concentration.
Abstract: Using a large sample of US data, we examine the relation between trade credit and cost behaviour and further investigate the moderating effects on this relation of agency problem, product market competition, and customer concentration. We find that firms using high levels of trade credit exhibit lower cost stickiness and this is prevalent in the high agency problem sub‐sample. In addition, in a non‐competitive market, where the agency problem arises owing to lack of competition, trade credit plays an external monitoring role by attenuating cost stickiness. However, high customer concentration curtails this monitoring ability.
TL;DR: In this article, the authors investigate the risk contagion among global stock markets during the COVID-19 pandemic and analyse its source, and explore its effects on different frequency bands, which allows them to explore its speed and channels.
Abstract: COVID-19 spread throughout the world during 2020, bringing an increase in global financial risk We use connectedness network to investigate the risk contagion among global stock markets during the COVID-19 pandemic and analyse its source Furthermore, we use spectrum analysis to explore the risk contagion effects on different frequency bands, which allows us to explore its speed and channels We find that the United Kingdom and Italy are core transmitters of risks, and connectedness is mainly driven by low-frequency components, which demonstrates that the risks are spread by affecting supply chains in global markets and investors? long-term expectations for the economy
TL;DR: In this article, the authors focus on the impact of these changes for corporate social responsibility (CSR) reporting, including managers' decisions on the preparation and use of CSR information, demand for CSR assurance, and the effect of reports and assurance on investors' judgments.
Abstract: Judgment and decision making (JDM) research in accounting focuses on the judgments and decisions of preparers, users and auditors/assurance providers of financial and non-financial information, including sustainability information. However, the environment in which these judgments are made and how groups interact has changed substantially during the COVID-19 pandemic, and likely post-pandemic. We focus on the impact of these changes for corporate social responsibility (CSR) reporting, including managers? decisions on the preparation and use of CSR information, demand for CSR assurance, and the effect of CSR reports and assurance on investors? judgments. We then outline implications for the research questions addressed and experimental designs used.
TL;DR: Wang et al. as discussed by the authors investigated the relationship between the intensity of share pledging activities and the level of financial constraint in publicly listed firms in China and found that the high financial constraint level may motivate insiders to use share pledging as an alternative funding source and an expropriation mechanism.
Abstract: We investigate the relationship between the intensity of share pledging activities and the level of financial constraint in publicly listed firms in China. We show that the high financial constraint level may motivate insiders to use share pledging as an alternative funding source and an expropriation mechanism. Although overall share collateralisation can cause a subsequently more constrained financing condition, we find evidence that share pledging made by the controlling shareholder is likely to mitigate financial constraints in the following year. Our findings are robust to alternative measures and an instrumental variable for dealing with endogeneity problems.
TL;DR: In this paper, the authors present the results of the 2016 ACEDE Conference in Vigo (2016) for helpful comments and suggestions and gratefully acknowledge the support of the Spanish Ministry of Economy and Competitiveness via Project ECO2015-66184-R and financial support from the Government of the Principality of Asturias via the Severo Ochoa programme of predoctoral grants.
Abstract: We wish to thank participants at the ACEDE Conference in Vigo (2016) for helpful comments and suggestions. Funding from the Spanish Ministry of Economy and Competitiveness via Project ECO2015-66184-R and financial support from the Government of the Principality of Asturias via the Severo Ochoa programme of predoctoral grants are gratefully acknowledged.
TL;DR: In this paper, the authors assess the existing archival research on audit partners and provide recommendations for future research, concluding that the audit partner characteristics with the biggest impact are industry specialisation and client importance.
Abstract: In this paper, we assess the existing archival research on audit partners and provide recommendations for future research. Our empirical analyses suggest that the audit partner characteristics with the biggest impact are industry specialisation and client importance. We demonstrate that audit partner studies may suffer from omitted variable bias if they study audit partner characteristics in isolation, as they have often done. We also show that, for most audit partner characteristics, there is little within-company and within-partner variation. We therefore caution against routinely including company and audit partner fixed effects in audit partner studies. We also examine the importance of properly adjusting for dependence in the data in audit partner studies and suggest to cluster standard errors at the client firm level. Finally, we provide detailed descriptive information at the audit partner level in order to demonstrate how researchers could improve the reporting of audit partner level data.