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This paper examines how a firm's hierarchical complexity, which is determined by the way it organizes its subsidiaries across the hierarchical levels, can impact its stock price crash risk.

The authors employ a measure of hierarchical complexity that captures the depth and breadth of how subsidiaries are organized within a firm. This measure is calculated using information about firms' subsidiaries extracted from the Bureau van Dijk (BvD) database that allows the authors to construct each firm's hierarchical structure. The data sample includes 2,461 USA firms for the period from 2012 to 2017 (11,006 firm-year observations). Univariate tests and panel regression are used for the main analysis. Two-stage-least-squares (2SLS) instrumental variable regression and various other tests are employed for robustness check.

The results show a positive relationship between hierarchical complexity and stock price crash risk. This relationship is amplified in firms with a greater number of subsidiaries that are hierarchically distanced from the parent company as well as in firms with a greater number of foreign subsidiaries in countries with weaker rule of law.

This paper is the first to investigate the impact hierarchical complexity has on crash risk. The results highlight the role that a firm's organizational structure can have on asset pricing behavior.

This paper contributes to the literature as follows. First, it examines if option and stock compensations raise creditor's risk, and which one is more important than the other. Second, it explores if CEO's compensation interacts with CEO overconfidence to raise creditor's risk. Third, it investigates how banks use different loan terms to alleviate their credit risk.

This study used advanced regression analysis and use of generalized methods of moment methodology.

The results show that option compensation is more important than stock compensation in raising credit risk; option compensation interacts with CEO overconfidence, giving rise to a much higher credit risk; and covenant usage is more important than other loan contract terms in mitigating credit risk given that covenant use could not be substituted away by using other loan contract terms such as increasing interest rate, reducing principal or shortening loan duration. This paper has practical implications for credit markets.

The main implication is that hand-collect data are available up to 2010.

It informs creditors the potential sources of loan risk emanating from option rather than stock incentives; it informs creditors that option incentive interacts with CEO overconfidence rendering the credit risk bigger than expected, and it informs creditors the importance of using covenants vis-à-vis other loan contract terms for mitigating compensation and overconfidence risk.

Banks are alerted to the risk due to the interaction between overconfidence and compensations, implying that overconfident managers remunerated with options compensations are more risky than overconfident managers who are not remunerated as such.

This paper is original: (1) The authors show that option compensation is more risky than stock compensation from viewpoint of creditors. This has not been assessed. (2) Interaction between managerial compensation and managerial overconfidence has not been assessed before. (3) Use of different loan contract terms to alleviate risk from overconfident managers (who are prone to over investment but who are innovative according to the literature) has not been evaluated.

Motivated by rapidly increasing CEO age in the USA, the purpose of this study is to analyze the effect of CEO age on financial reporting quality and consider the moderating role of clawback provisions.

This study uses a data set of 18,492 US firm-year observations from 2003 to 2019. Financial reporting quality is proxied with accruals-based and real activities earnings management measures, and with financial statement irregularities, measured by applying Benford’s law to financial statement line items. A number of sensitivity tests are conducted including the use of an instrumental variable.

The results provide evidence that financial statement irregularities are more prevalent when CEOs are older, and they suggest a complex relation between CEO age and real activities earnings management. The results also suggest that the effect of CEO age on financial reporting quality is moderated by the presence of clawback provisions which became mandatory for US-listed firms in October 2022.

This study is the first, to the best of the authors’ knowledge, to consider the effect of CEO age on financial statement irregularities and earnings management. This study has important implications for stakeholders evaluating the determinants of financial reporting quality, for boards of directors considering CEO age limitations and for policymakers considering mandating clawback provisions, which recently occurred in the USA.

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze whether the impact of financial constraints on the CEO stock options compensation changes at certain level of financial constraints or not.

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-linearity, the authors use a panel threshold method.

Using different measures of financial constraints [KZ index (Baker et al., 2003), SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019)], the results reveal that the impact of the financial constraints (SA index and FCP index) is positive below the threshold value and it becomes negative above.

The non-linearity between financial constraints and CEO stock options shows that the level of financial constraints can be a major determinant of the CEO compensation structure. More specifically, this study sheds light on the key role played by the level of financial constraints and how this latter influence management decisions.

This paper is the first to the best of the authors' knowledge to examine the nonlinear relationship between financial constraints and the CEO stock options compensation using a panel threshold model.

The authors examine if CEO education level and quality impacts firm's corporate social performance (CSP). Additionally, the authors investigate whether other CEO characteristics such as age, busyness, compensation and firm's governance quality moderate the relationship between CEO education and CSP.

The authors use panel regression framework amid set of controls for their analysis. The authors additionally use two-stage least squares regression (2SLS) for robustness tests.

The authors show that CEOs with a post-graduate business degree (PGBUS) impact firm's CSP positively, whereas other educational degree directly do not influence CSP. However, CEO's age, busyness, compensation and firm's governance quality are found negatively moderating such relationship. The results survive set of robustness tests, and results are consistent the roles of upper echelons in Indian firms' strategic behaviors.

The results seek for an integration of more ethics and social responsibility discussions in the different education levels including undergraduate degree in India to help engender a stronger sense of moral consciousness toward firms' stakeholders as the Indian economy continues to develop.

This paper aims to investigate how a US firm’s political landscape affects the integration of environmental, social and governance (hereafter ESG) measures in CEO compensation contracts, thereby affecting the firm’s ESG performance and credit rating.

Based on the results of state senatorial and presidential elections and the location of a US firm’s headquarters, the authors categorize whether a firm has a political environment that is predominantly Democratic (blue) or Republican (red). The empirical analyses are based on a sample of US firms in the period 2014–2021.

The authors find that firms in blue states are more likely to link CEO compensation to ESG performance measures. Further, the results show that firms in blue states with ESG-linked compensation contracts have better ESG performance. Lastly, the authors find evidence that a firm’s ESG performance has a positive impact on its credit rating, but the impact is weakened if firms in red states link ESG performance to executive compensation.

To the best of the authors’ knowledge, this is the first research that explores how a firm’s political environment affects the use of ESG performance measures in CEO compensation contracts. Furthermore, the authors contribute to the literature by showing evidence that the political environment interacts with the impact of ESG-linked compensation incentives on the firm’s ESG performance and, thus, its credit rating.

The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints.

This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not.

Using SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms.

This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.

It is documented that companies and government agencies in the USA invest more in the fourth fiscal quarter without having higher investment opportunities. While previous studies focus on the agency conflicts and information asymmetry within organizations, this study is motivated by Scharfstein and Stein's (2000) two-tiered agency model and aims to examine how firms' external business environment affects the “fourth quarter effect.”

The authors implement this study in a sample of 41 countries and observe similar seasonality in firm investment as documented in the US market.

More importantly, using country characteristics, this study finds that firms from countries with better investor rights and protection, and more developed financial markets show less severe over-investment in the fourth fiscal quarter.

This paper contributes to the literature of law and finance, and the internal capital market, by investigating the quarterly investment patterns of firms from 41 countries. The authors find that similar to the results in earlier studies on the US market, firms in the global market increase their capital expenditure in the fourth fiscal quarter, indicating that the internal agency conflicts between the headquarters and divisional managers are widespread across the world. The authors also find that firms that operate in countries with higher investor rights and protection, and more developed financial markets, tend to show less severe “fourth quarter effect”.

In this fast-changing world, digitization has become crucial to organizations, allowing decision-makers to alter corporate processes. Companies with a higher corporate social responsibility (CSR) level not only help encourage employees to focus on their goals, but they also show that they take their social responsibility seriously, which is increasingly important in today’s digital economy. So, this study aims to examine the relationship between digital transformation and CSR disclosure of Chinese A-share companies. Furthermore, this research investigates the moderating impact of governance heterogeneity, including CEO power and corporate internal control (INT) mechanisms.

This study used fixed effect estimation with robust standard errors to examine the relationship between digital transformation and CSR disclosure and the moderating effect of governance heterogeneity among Chinese A-share companies from 2010 to 2020. The whole sample consists of 17,266 firms, including 5,038 state-owned enterprise (SOE) company records and 12,228 non-SOE records. The whole sample data is collected from the China Stock Market and Accounting Research, the Chinese Research Data Services and the WIND databases.

The regression results lead us to three conclusions after classifying the sample into non-SOE and SOE groups. First, Chinese A-share businesses with greater levels of digitalization have lower CSR disclosures. Both SOE and non-SOE are consistent with these findings. Second, increasing CEO authority creates a more centralized company decision-making structure (Breuer et al., 2022; Freire, 2019), which improves the negative association between digitalization and CSR disclosure. These conclusions, however, also apply to non-SOE. Finally, INT reinforces the association between corporate digitization and CSR disclosure, which is especially obvious in SOEs. These findings are robust to alternative HEXUN CSR disclosure index. Heterogeneity analysis shows that the negative relationship between corporate digitalization and CSR disclosures is more pronounced in bigger, highly levered and highly financialized firms.

Digitalization and CSR disclosure are well studied, but few have examined their interactions from a governance heterogeneity perspective in China. Practitioners and policymakers may use these insights to help business owners implement suitable digital policies for firm development from diverse business perspectives.

This study aims to examine the effects of dialect connectedness between the chairman and the chief executive officer (CEO) (DCCC) on the tunneling activities of controlling shareholders.

This study uses abnormal related-party transactions (ARPT) as a proxy for tunneling activities and traces dialects of chairmen and CEOs based on the respective birthplace information. Baseline results are examined using a fixed-effects model. The results remain robust when using the instrumental variable approach, propensity score matching (PSM) technique, changing the measurement of tunneling and Heckman two-step selection model.

The results show that DCCC reduces tunneling activities. This negative association is more pronounced for non-state-owned enterprises and firms whose chairmen and CEOs work in the respective hometowns. DCCC restrains tunneling activities through mechanisms by establishing an informal supervisory effect on CEOs because the CEOs fear reputational damage and strengthening cooperation between chairmen and CEOs. Further analyses suggest that this negative association is more significant when chairmen and CEOs are non-controlling shareholders, but the association is weakened during the coronavirus disease 2019 (COVID-19) crisis.

As dialect is a carrier of culture, this study's results imply that cultural proximity can replace formal mechanisms to enhance corporate governance.