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1 – 10 of over 1000Bilal Haider Subhani, Umar Farooq, Khurram Ashfaq and Mosab I. Tabash
This study aims to explore the potential impact of country-level governance in corporate financing structures.
Abstract
Purpose
This study aims to explore the potential impact of country-level governance in corporate financing structures.
Design/methodology/approach
A two-step system generalized method of moment was used due to the endogeneity issue. The whole sample comprises 3,761 firms in five economies – China, India, Pakistan, Singapore and South Korea – from 2007 to 2016.
Findings
The results indicate that the debt option for financing is not favorable under governments with an adequate governance arrangement. However, there is a direct and significant link between country governance and equity financing because in adequate governance arrangements, the possibilities of information asymmetry are minimal and businesses consider equity a more appropriate and safer financing instrument. In contrast, firms prefer to trade-credit financing in poor governance economies, which confirms an adverse link between trade credit and adequate governance.
Practical implications
The country’s governance should be considered a sensitive matter when deciding about corporate financing.
Originality/value
This arrangement of variables has not been previously analyzed in the literature, suggesting the study’s novelty.
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Abstract
Purpose
This study investigates the relationships among digital transformation, technological innovation, industry–university–research collaborations and labor income share in manufacturing firms.
Design/methodology/approach
The relationships are tested using an empirical method, constructing regression models, by collecting 1,240 manufacturing firms and 9,029 items listed on the A-share market in China from 2013 to 2020.
Findings
The results indicate that digital transformation has a positive effect on manufacturing companies’ labor income share. Technological innovation can mediate the effect of digital transformation on labor income share. Industry–university–research cooperation can positively moderate the promotion effect of digital transformation on labor income share but cannot moderate the mediating effect of technological innovation. Heterogeneity analysis also found that firms without service-based transformation and nonstate-owned firms are better able to increase their labor income share through digital transformation.
Originality/value
This study provides a new path to increase the labor income share of enterprises to achieve common prosperity, which is important for manufacturing enterprises to better transform and upgrade to achieve high-quality development.
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This study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.
Abstract
Purpose
This study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.
Design/methodology/approach
For the period 2006–2020, the t-test, fixed-effect and generalised method of moment (GMM) model have been applied to a sample of 1878 (1,165 Australian and 713 Malaysian) firms.
Findings
The empirical results reveal that firms in developed financial markets hold higher cash compared to the developing financial markets. The findings confirm that motives to hold cash differ between developed and developing financial markets. The GMM findings further show that cash holdings (CH) in Australia are higher due to higher ratios of cash flow, research and development (R&D) and return on assets (ROA), and lower due to larger dividend payments. In the Malaysian market, however, cash flows and R&D are ineffectual, ROA falls and dividend payments rise CH.
Practical implications
The study helps managers, practitioners and investors understand that firms' distinct economic, institutional, accounting and financial environments are important. To attain the desired outcomes, they must thus comprehend and consider these considerations while developing suitable liquidity strategies.
Originality/value
To the authors' best knowledge, this is the initial research demonstrating how varied cash motives and their ramifications are in developed and developing financial markets. Therefore, this study identifies the importance that CH motives varied among financial markets and that findings from a particular market cannot be generalised to other markets because of the market and financial structural variations.
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Marwa Elnahass, Xinrui Jia and Louise Crawford
This study aims to examine the mediating effects of corporate governance mechanisms like the board of directors on the association between disruptive technology adoption by audit…
Abstract
Purpose
This study aims to examine the mediating effects of corporate governance mechanisms like the board of directors on the association between disruptive technology adoption by audit clients and the risk of material misstatements, including inherent risk and control risk. In particular, the authors study the mediating effects of board characteristics such as board size, independence and gender diversity.
Design/methodology/approach
Based on a sample of 100 audit clients listed on the FTSE 100 from 2015 to 2021, this study uses structural equation modelling to test the research objectives.
Findings
The findings indicate a significant and negative association between disruptive technology adoption by audit clients and inherent risk. However, there is no significant evidence observed for control risk. The utilisation of disruptive technology by the audit client has a significant impact on the board characteristics, resulting in an increase in board size, greater independence and gender diversity. The authors also find strong evidence that board independence mediates the association between disruptive technology usage and both inherent risk and control risk. In addition, board size and gender exhibit distinct and differential mediating effects on the association and across the two types of risks.
Research limitations/implications
The study reveals that the significant role of using disruptive technology by audit clients in reducing the risk of material misstatements is closely associated with the board of directors, which makes audit clients place greater emphasis on the construction of effective corporate governance.
Practical implications
This study offers essential primary evidence that can assist policymakers and standard setters in formulating guidance and recommendations for board size, independence and gender quotas, ensuring the enhancement of effective governance and supporting the future of audit within the next generation of digital services.
Social implications
With respect to relevant stakeholders, it is imperative for audit clients to recognise that corporate governance represents a fundamental means of addressing the ramifications of applying disruptive technology, particularly as they pertain to inherent and control risks within the audit client.
Originality/value
This study contributes to the existing literature by investigating the joint impact of corporate governance and the utilisation of disruptive technology by audit clients on inherent risk and control risk, which has not been investigated by previous research.
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Wang Dong, Weishi Jia, Shuo Li and Yu (Tony) Zhang
The authors examine the role of CEO political ideology in the credit rating process.
Abstract
Purpose
The authors examine the role of CEO political ideology in the credit rating process.
Design/methodology/approach
This study adopts a quantitative method with panel data regressions using a sample of 5,211 observations from S&P 500 firms from 2001 to 2012.
Findings
The authors find that firms run by Republican-leaning CEOs, who tend to have conservative political ideologies, enjoy more favorable credit ratings than firms run by Democratic-leaning CEOs. In addition, the association between CEO political ideology and credit ratings is more pronounced for firms with high operating uncertainty, low capital intensity, high growth potential, weak corporate governance and low financial reporting quality. Finally, the authors find that CEO political ideology affects a firm's cost of debt incremental to credit ratings, consistent with debt investors incorporating CEO political ideology in their pricing decisions.
Research limitations/implications
Leveraging CEO political ideology, the authors document that credit rating agencies incorporate managerial conservatism in their credit rating decisions. This finding suggests that CEO political ideology serves as a meaningful signal for managerial conservatism.
Practical implications
The study suggests that credit rating agencies incorporate CEO political ideology in their credit rating process. Other capital market participants such as auditors and retail investors can also use CEO political ideology as a proxy for managerial conservatism when evaluating firms.
Social implications
The paper carries practical implications for practitioners, firm executives and regulators. The results on the association between CEO political ideology and credit ratings suggest that other financial institutions could also incorporate CEO political ideology in their evaluation in their evaluation of firms. For example, when evaluating audit risk and determining audit pricing, auditors may add CEO political ideology as a risk factor. For firms, especially those that have Democratic-leaning CEOs, the authors suggest that they could reduce the unfavorable effect of CEO political ideology on credit ratings by improving their corporate governance and financial reporting quality, as demonstrated in the cross-sectional analyses. Finally, this study shows that CEO political ideology, as measured by CEOs' political contributions, is closely related to a firm's credit ratings. This finding may inform regulators that greater transparency for CEOs' political contributions is needed as information on contributions could help capital market participants perform risk analyses for firms.
Originality/value
Credit rating agencies release their research methodologies for determining corporate credit ratings and identify managerial conservatism as an important factor that affects their risk assessments. The extant literature, however, has not empirically investigated the relation between credit ratings and managerial conservatism, which, according to behavioral consistency theory, can be proxied by CEO political ideology. This study provides novel empirical evidence that identifies CEO political ideology as an important input factor in the credit rating process.
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Miroslav Mateev, Ahmad Sahyouni, Syed Moudud-Ul-Huq and Kiran Nair
This study investigates the role of market concentration and efficiency in banking system stability during the COVID-19 pandemic. We empirically test the hypothesis that market…
Abstract
Purpose
This study investigates the role of market concentration and efficiency in banking system stability during the COVID-19 pandemic. We empirically test the hypothesis that market concentration and efficiency are significant determinants of bank performance and stability during the time of crises, using a sample of 575 banks in 20 countries in the Middle East and North Africa (MENA).
Design/methodology/approach
The main sources of bank data are the BankScope and BankFocus (Bureau van Dijk) databases, World Bank development indicators, and official websites of banks in MENA countries. This study combined descriptive and analytical approaches. We utilize a panel dataset and adopt panel data econometric techniques such as fixed/random effects and the Generalized Method of Moments (GMM) estimator.
Findings
The results reveal that market concentration negatively affects bank profitability, whereas improved efficiency further enhances bank performance and contributes to the banking sector’s overall stability. Furthermore, our analysis indicates that during the COVID-19 pandemic, bank stability strongly depended on the level of market concentration, but not on bank efficiency. However, more efficient banks are more profitable and stable if the banking institutions are Islamic. Similarly, Islamic banks with the same level of efficiency demonstrated better overall financial performance during the pandemic than their conventional peers did.
Research limitations/implications
The main limitation is related to the period of COVID-19 pandemic that was covered in this paper (2020–2021). Therefore, further investigation of the COVID-19 effects on bank profitability and risk will require an extended period of the pandemic crisis, including 2022.
Practical implications
This study provides information that will enable bank managers and policymakers in MENA countries to assess the growing impact of market concentration and efficiency on the banking sector stability. It also helps them in formulating suitable strategies to mitigate the adverse consequences of the COVID-19 pandemic. Our recommendations are useful guides for policymakers and regulators in countries where Islamic and conventional banking systems co-exist and compete, based on different business models and risk management practices.
Originality/value
The authors contribute to the banking stability literature by investigating the role of market concentration and efficiency as the main determinants of bank performance and stability during the COVID-19 pandemic. This study is the first to analyze banking sector stability in the MENA region, using both individual and risk-adjusted aggregated performance measures.
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Sarah Herwald, Simone Voigt and André Uhde
Academic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized…
Abstract
Purpose
Academic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized under the concentration-stability/fragility view. We provide empirical evidence that the mixed results are due to the difficulty of identifying reliable variables to measure concentration and market power.
Design/methodology/approach
Using data from 3,943 banks operating in the European Union (EU)-15 between 2013 and 2020, we employ linear regression models on panel data. Banking market concentration is measured by the Herfindahl–Hirschman Index (HHI), and market power is estimated by the product-specific Lerner Indices for the loan and deposit market, respectively.
Findings
Our analysis reveals a significantly stability-decreasing impact of market concentration (HHI) and a significantly stability-increasing effect of market power (Lerner Indices). In addition, we provide evidence for a weak (or even absent) empirical relationship between the (non)structural measures, challenging the validity of the structure-conduct-performance (SCP) paradigm. Our baseline findings remain robust, especially when controlling for a likely reverse causality.
Originality/value
Our results suggest that the HHI may reflect other factors beyond market power that influence banking stability. Thus, banking supervisors and competition authorities should investigate market concentration and market power simultaneously while considering their joint impact on banking stability.
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Maria Neves, Catarina Proença, Beatriz Cancela and Zelia Serrasqueiro
The purpose of this study is to examine the determinants of the level of indebtedness in the health sector in Portugal, taking into account the effects of the COVID-19 pandemic…
Abstract
Purpose
The purpose of this study is to examine the determinants of the level of indebtedness in the health sector in Portugal, taking into account the effects of the COVID-19 pandemic. At the same time, an attempt is made to understand whether the effect of a pandemic crisis is similar to that of a financial crisis.
Design/methodology/approach
To achieve this aim, two subperiods were analyzed: a global period between 2011 and 2020 that includes the pandemic crisis and the period between 2011 and 2014, designated as the financial assistance period by the “Troika” in Portugal. For a sample of 514 companies belonging to the NACE code: 86100 – activities of the health sector with hospitalization, the panel data methodology was applied, specifically, the generalized method of moments system proposed by Arellano and Bover (1995) and Blundell and Bond (1998).
Findings
The results of the study are in line with the Pecking-order explanatory theory, demonstrating that companies in this sector follow a financing hierarchy, preferentially resorting to internally generated funds and external debt. Additionally, the results reveal that the capital structure of companies has changed due to the COVID-19 pandemic. As for the period of financial assistance, there are no major differences in evidence when the total debt ratio is considered. The results suggest different impacts when it comes to a bear market period caused by a health crisis or a period of growing economic slowdowns.
Originality/value
As far as we know, this is the first study that analyses the debt levels in the context of the health sector in a country with a financial system based on the bank sector, using short- and long-term debt ratios, taking into account the particularities of two different moments considered to be bear market that may eventually be useful for comparison with other bear market moments in other macroeconomic environments.
Propósito
El objetivo principal de este estudio es examinar los determinantes del nivel de endeudamiento en el sector de la salud en Portugal, teniendo en cuenta los efectos de la pandemia de COVID-19. Al mismo tiempo, se intenta comprender si el efecto de una crisis pandémica es similar al de una crisis financiera.
Diseño/metodología/enfoque
Para lograr este objetivo, se analizaron dos subperíodos: un período global entre 2011 y 2020 que incluye la crisis pandémica y el período entre 2011 y 2014, designado como el período de asistencia financiera por la “Troika” en Portugal. Para una muestra de 514 empresas pertenecientes al código NACE: 86100 – actividades del sector de la salud con hospitalización, se aplicó la metodología de datos de panel, específicamente, el método generalizado de momentos (GMM)-sistema propuesto por Arellano y Bover (1995) y Blundell y Bond (1998).
Resultados
Los resultados del estudio están en línea con la teoría explicativa del “Pecking-order”, demostrando que las empresas en este sector siguen una jerarquía de financiamiento, recurriendo preferentemente a fondos generados internamente y deuda externa. Además, los resultados revelan que la estructura de capital de las empresas ha cambiado debido a la pandemia de COVID-19. En cuanto al período de asistencia financiera, no hay diferencias significativas en la evidencia cuando se considera la proporción total de deuda. Los resultados sugieren impactos diferentes cuando se trata de un período de mercado bajista causado por una crisis de salud o un período de crecimiento económico más lento.
Originalidad/valor
Hasta donde sabemos, este es el primer estudio que analiza los niveles de deuda en el contexto del sector de la salud en un país con un sistema financiero basado en el sector bancario, utilizando ratios de deuda a corto y largo plazo, teniendo en cuenta las particularidades de dos momentos diferentes considerados como momentos de mercado bajista que eventualmente pueden ser útiles para comparar con otros momentos de mercado bajista en otros entornos macroeconómicos.
Objetivo
O principal objetivo deste estudo é examinar os determinantes do nível de endividamento no setor de saúde em Portugal, levando em consideração os efeitos da pandemia de COVID-19. Ao mesmo tempo, tenta-se compreender se o efeito de uma crise pandêmica é semelhante ao de uma crise financeira.
Design/metodologia/abordagem
Para atingir esse objetivo, foram analisados dois subperíodos: um período global entre 2011 e 2020, que inclui a crise pandêmica, e o período entre 2011 e 2014, designado como o período de assistência financeira pela “Troika” em Portugal. Para uma amostra de 514 empresas pertencentes ao código NACE: 86100 – atividades do setor de saúde com hospitalização, foi aplicada a metodologia de dados em painel, especificamente o método generalizado de momentos (GMM)-sistema proposto por Arellano e Bover (1995) e Blundell e Bond (1998).
Resultados
Os resultados do estudo estão de acordo com a teoria explicativa da ordem de preferência (“Pecking-order”), demonstrando que as empresas neste setor seguem uma hierarquia de financiamento, recorrendo preferencialmente a fundos gerados internamente e dívida externa. Além disso, os resultados revelam que a estrutura de capital das empresas mudou devido à pandemia de COVID-19. No que diz respeito ao período de assistência financeira, não há diferenças significativas na evidência quando se considera a proporção total de dívida. Os resultados sugerem impactos diferentes quando se trata de um período de mercado em baixa causado por uma crise de saúde ou um período de desaceleração econômica.
Originalidade/valor
Até onde sabemos, este é o primeiro estudo que analisa os níveis de dívida no contexto do setor de saúde em um país com um sistema financeiro baseado no setor bancário, utilizando índices de dívida de curto e longo prazo, levando em consideração as particularidades de dois momentos diferentes considerados como momentos de mercado em baixa que eventualmente podem ser úteis para comparação com outros momentos de mercado em baixa em outros ambientes macroeconômicos.
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The purpose of this paper is to explore how variations in management’s tone within management’s discussion and analysis (MD&A) sections of 10-K reports can serve as an indicator…
Abstract
Purpose
The purpose of this paper is to explore how variations in management’s tone within management’s discussion and analysis (MD&A) sections of 10-K reports can serve as an indicator of tax avoidance and highlight the complex relationship between such linguistic shifts and the tax avoidance decisions within firms.
Design/methodology/approach
The paper uses a textual analysis approach to identify linguistic cues in MD&A sections of 10-K filings related to tax avoidance, going beyond traditional quantitative measures. The study uses differences in negative word occurrences in MD&A to measure management’s tone change and examines various measures of tax avoidance. The sample covers the period from 1993 to 2017 and comprises all firms with 10-K filings available on EDGAR, totaling over 30,000 firm-year observations.
Findings
The findings indicate a complementary relationship between tax avoidance and other drivers of firm performance. When firms have more negative management’s tone, they are less willing to engage in tax avoidance and vice versa. The study’s approach with management’s tone change provides a different and statistically significant improvement in model fit for detecting tax avoidance.
Practical implications
This paper provides actionable insights for detecting tax avoidance through the analysis of management’s tone in corporate disclosures, offering a new tool for researchers, investors and tax authorities. It highlights the importance of linguistic cues as indicators of tax avoidance behavior, complementing traditional financial metrics.
Originality/value
The paper contributes to the literature by using management’s tone change as a time-varying factor to explain tax avoidance behavior. It uncovers a larger set of linguistic cues in MD&A that can be used to detect tax avoidance. This research provides a complementary approach to traditional quantitative tax avoidance measures and offers insights into the overall relationship between tax avoidance and firm performance, going beyond one-dimensional measures typically used in prior literature.
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Wunhong Su and Chen Yin
This study aims to investigate the association between executives with foreign backgrounds and the audit fees paid by the Chinese-listed firms over the period from 2010 to 2020.
Abstract
Purpose
This study aims to investigate the association between executives with foreign backgrounds and the audit fees paid by the Chinese-listed firms over the period from 2010 to 2020.
Design/methodology/approach
To examine the association between executives’ foreign experience and audit fees, this study constructs the following empirical model: Lnfeei,t = β0 + β1Foreign backgroundi,t + ∑βj Controli,t + YearFE + IndFE + εi,t (1).
Findings
This study finds that auditors charge higher fees for firms hiring more executives with foreign backgrounds. The results are robust to a battery of robustness checks, including fixed effects, alternative measures of independent variable, controlling for other characteristics of executives and auditors and entropy balancing method.
Originality/value
This study sheds light on how executives’ foreign backgrounds affect audit fees, enriching the literature on executive heterogeneity and audit fees and providing important implications for audit practitioners.
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