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1 – 10 of 246This study mainly explores how ESG performance (ESG stands for Environment, Social, and Governance) affects corporate downside risk through innovation input and innovation output…
Abstract
Purpose
This study mainly explores how ESG performance (ESG stands for Environment, Social, and Governance) affects corporate downside risk through innovation input and innovation output, thereby promoting sustainable development of enterprises.
Design/methodology/approach
Using Chinese A-share listed companies from 2014 to 2022 as research samples, a stepwise regression method is used to empirically test the impact of ESG performance on corporate innovation and downside risk by constructing multiple multivariate primary regression models.
Findings
ESG performance is beneficial for obtaining external resources and alleviating principal-agent problems. It can promote enterprises to increase innovation input and improve innovation output, thereby enhancing their core competitiveness, and suppressing their downside risk. This inhibitory effect is more significant in non-state-owned enterprises, non-high-tech enterprises, and enterprises where the chairman and the general manager are not combined in one. Further additional analysis has found that equity concentration weakens the inhibitory effect of ESG performance on corporate downside risk, equity balance strengthens the inhibitory effect of ESG performance on corporate downside risk, indicating that a mutually restrictive equity structure is conducive to promoting enterprises to actively fulfill ESG responsibility, thereby improving corporate innovation level and resolving their downside risk.
Practical implications
Enterprise managers, policy makers, and other practitioners can clearly see the benefits of implementing ESG measures, further strengthen their confidence in sustainable development, actively apply ESG concepts to the entire production and operation process of enterprises, increase attention and implementation of ESG elements, and promote the healthy and vigorous development of enterprises and macroeconomics.
Originality/value
The research conclusions reveal the inherent mechanism by which ESG performance empowers enterprises to improve their innovation level and reverse their performance decline, effectively expanding the theoretical achievements of ESG performance in enterprise innovation and risk management.
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Paulo Roberto Guimarães and Herbert Kimura
Asset pricing literature is facing a credibility crisis, given debates associated with publication biases, data mining, replicability, crowding and lack of theoretic foundations…
Abstract
Purpose
Asset pricing literature is facing a credibility crisis, given debates associated with publication biases, data mining, replicability, crowding and lack of theoretic foundations. This study proposes that emerging markets (EMs), with their specific socioeconomic characteristics and lesser financial integration with developed markets (DMs), might provide useful arguments to the debate and improve our understanding of asset pricing. Beyond out-of-sample evidence for DM findings, EM research can unveil regional-specific factors overlooked by mainstream literature and investigating reasons behind differences can reveal epistemological elements for proposing and testing theories, and clarifying causal mechanisms.
Design/methodology/approach
The present work conducts an EM-focused systematic review, by applying the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) protocol, a transparent and replicable procedure, to gather a representative collection of papers and using bibliometric methods to analyze bibliographic data.
Findings
Besides summarizing and contextualizing scientific production, revealing most important themes and actors, we confirm a clear bias toward DM and identify low scientific collaboration among EM. Additionally, we assess to which extent current studies fulfills EM research potential.
Originality/value
There is a home bias in literature, with most studies focusing on DM. This systematic review is exclusive to EM literature and suggests how EM research can improve literature credibility.
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This chapter tries to hedge extreme financial risk of entrepreneurs who work with wheat by combining wheat with four stock indices of developed and emerging European markets in a…
Abstract
This chapter tries to hedge extreme financial risk of entrepreneurs who work with wheat by combining wheat with four stock indices of developed and emerging European markets in a portfolio. Extreme risk of the portfolios is measured by the parametric and historical value-at-risk (VaR) metrics. Portfolios that target maximum return-to-VaR ratio are also constructed because different market participants prefer different goals. Preliminary equicorrelation results indicate that integration between wheat and emerging markets is lower (0.218) vis-á-vis the combination of wheat and developed markets (0.307), which gives preliminary advantage to emerging markets in diversification efforts. The results show that portfolios with emerging stock indices have significantly lower parametric (–0.816) and historical (–0.831) VaR than portfolios with developed indices, –1.080 and –1.295, respectively. As for optimal portfolios, the portfolios with developed indices have a slight upper hand. This chapter shows that parametric VaR is not a good measure of extreme risk, because it neglects the third and fourth moments.
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Rama K. Malladi, Theodore P. Byrne and Pallavi Malladi
We propose an alternative rationale for why some firms employ veterans, driven not solely by benevolence but also by the prospect of enhanced outcomes. Financially, hiring…
Abstract
Purpose
We propose an alternative rationale for why some firms employ veterans, driven not solely by benevolence but also by the prospect of enhanced outcomes. Financially, hiring veterans could correlate with improved stock market performance for the hiring company while aligning with corporate social responsibility (CSR) initiatives. Our study centers on the stock market performance of companies hiring veterans. It aims to underscore a lesser-known facet of the veteran employment discourse and its connection to the hiring firm's financial performance.
Design/methodology/approach
This paper evaluates the stock market performance of three VETS portfolios (made of companies that hire veterans) compared to the benchmark SPDR S&P 500 ETF. Using a modular approach, we create three VETS passive indices: VETSEW (equal-weighted index), VETSPW (price-weighted index) and VETSVW (value-weighted index). The study analyzes the annual returns, portfolio allocations, risk-adjusted performance metrics and style analysis of the portfolios from January 1, 2020, to December 31, 2022.
Findings
The findings indicate that all three VETS portfolios outperformed the benchmark, with higher ending balances and superior risk-adjusted ratios such as the Sharpe and Sortino ratios. Notably, the portfolios demonstrated resilience during challenging periods, including the COVID-19 pandemic, subsequent recovery and an inflationary period.
Research limitations/implications
Limitations include the paper's focus solely on stock returns, suggesting a need for broader financial and management ratios. Moreover, a deeper exploration into how veterans contribute during turbulent times is suggested for further investigation. Although the study touches upon the financial performance of veteran-focused companies during challenging economic times, it does not extensively delve into the specific ways in which veterans add value under such circumstances, presenting an opportunity for further exploration.
Practical implications
Firms that employ veterans amid the COVID-19 pandemic demonstrate favorable risk-adjusted returns, underscoring the potential of veterans as valuable crisis-time assets. Our research further underscores the correlation between veteran hiring and enhanced financial prowess. These insights carry significant policy implications, including CSR initiatives for hiring veterans, skill translation and training and collaboration with veteran organizations.
Social implications
The paper's findings suggest significant implications: (1) Policymakers could incentivize firms to hire veterans through tax benefits or grants, leveraging their skills for organizational resilience. (2) Collaborative efforts between policymakers and firms can promote responsible hiring, boosting a company's reputation through diversity and inclusion, positively impacting society. (3) Support for skill translation from military to civilian jobs is crucial. Programs certifying skills and tailored education aid veterans' successful transition into the workforce. (4) Collaborations between policymakers, veteran organizations and private sector entities can create networks, job placements and support systems for veterans' employment.
Originality/value
Numerous prior studies within the domain of corporate social responsibility have predominantly neglected the contributions veterans offer to businesses and the underlying reasons behind firms' decisions to employ them. Our research uniquely concentrates on the stock market performance of companies that choose to hire veterans.
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Su Li, Tony van Zijl and Roger Willett
Prior studies have found that managers adjust operational activities to tackle climate risk. However, the effects of climate risk on accounting practices are largely ignored in…
Abstract
Purpose
Prior studies have found that managers adjust operational activities to tackle climate risk. However, the effects of climate risk on accounting practices are largely ignored in the literature. This paper investigates whether and how climate risk influences managers’ decision-making on the level of accounting conservatism and explains the results based on two competing channels: valuation demand and contracting demand.
Design/methodology/approach
Using firm level climate risk measures, we build a modified Basu (1997) model to conduct our econometric tests. In the baseline model, we use earnings before extraordinary items as the dependent variable, referred to as the earnings model. We control for different levels of fixed effect to identify the shocks of climate risk and mitigate potential concerns on endogeneity and bias in the model. A series of robustness tests provide supporting evidence for our baseline results and our explanation.
Findings
Using a sample of 35,832 firm-year observations on listed US firms over the period 2002 to 2019, we find that the perception of climate risk drives managers to choose the less conservative accounting policies. We conclude that the results are consistent with the valuation demand explanation but inconsistent with the contracting demand explanation.
Originality/value
The study provides additional evidence on how managers respond to climate risk by adjusting their corporate polices, specifically accounting policies. Our findings contradict the results of prior studies. We explain our results from a unique perspective. Overall, the study provides valuable insights for academics, investors, managers and policymakers.
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Hassan Bruneo, Emanuela Giacomini, Giuliano Iannotta, Anant Murthy and Julien Patris
Biotech companies stand as key actors in pharmaceutical innovation. The high risk and long timelines inherent with their R&D investments might hinder their access to funding…
Abstract
Purpose
Biotech companies stand as key actors in pharmaceutical innovation. The high risk and long timelines inherent with their R&D investments might hinder their access to funding, potentially stifling innovation. This study aims to explore into the appeal of biotech companies to capital market investors, whose financial backing could bolster the growth of the biotechnology sector.
Design/methodology/approach
This paper uses a dataset of 774 US publicly listed biotech firms to investigate their risk and return characteristics by comparing them to pharmaceutical firms and a sample of matched non-biotech R&D-intensive firms over the sample period 1980–2021. Tests show that the conclusions remain consistent across diverse methodological approaches.
Findings
The paper shows that biotech companies are riskier than the average firm in the market index but outperform on a risk-adjusted basis both the market and a matched group of R&D-intensive firms. This is particularly true for large capitalization biotech, which is also shown to provide a diversification benefit by reducing the downside risk in past crisis periods.
Originality/value
This paper provides insight relevant to the current debate about the overall performance of the biotech industry in terms of policy changes and their impact on small, early-stage biotech firms. While small and early-stage biotech firms are playing an increasing role in scientific innovation, this study confirms their greater vulnerability to financial risks and the importance of access to capital markets in enabling those companies to survive and evolve into larger biotech.
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Ho Hoang Gia Bao, Thi Hai Ly Tran and Thi Thu Hong Dinh
This paper scrutinizes the relationship between idiosyncratic risks and stock returns at different quantiles, especially the extremely low and high ones, to explore the…
Abstract
Purpose
This paper scrutinizes the relationship between idiosyncratic risks and stock returns at different quantiles, especially the extremely low and high ones, to explore the applicability of the Prospect Theory’s rationale in Vietnam’s stock market.
Design/methodology/approach
The Prospect Theory demonstrates that investors’ attitudes towards risks can change from risk-seeking in the loss domain to risk-averse in the gain domain. This can be observed by the negative (positive) connection between idiosyncratic risks and returns for the losing (winning) stocks. To explore if the aforesaid patterns occur in Vietnam’s stock market, this paper employs the quantile regression method which is suitable for inspecting the relationship at the high and low tails of the stock returns.
Findings
The estimation results acknowledge the changes in attitudes towards risks as mentioned by the Prospect Theory.
Practical implications
The negative relationship between idiosyncratic risks and stock returns confirms investors’ risk-seeking behavior in the loss domain, which is in line with the prediction of the Prospect Theory. This behavior may cause worse investment performance as the losing stocks in investors’ portfolios remain overvalued, leading to subsequent negative returns. Therefore, investors should establish and follow their investment disciplines to protect themselves from larger losses.
Originality/value
Existing research found little evidence for the Prospect Theory’s rationale in Vietnam’s stock market, which can stem from the usage of the conditional-mean regression methods. Different from the prior studies, this paper is the first to apply the quantile regression method and provide new evidence supporting the Prospect Theory’s rationale in Vietnam’s stock market.
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Wei Huang and Rui-Zhong (R.Z.) Zhang
This study examines the implications of real asset liquidity for accounting conservatism. We investigate whether the liquidity of a firm’s physical assets mitigates lenders’…
Abstract
Purpose
This study examines the implications of real asset liquidity for accounting conservatism. We investigate whether the liquidity of a firm’s physical assets mitigates lenders’ demand for conservatism by increasing the amount lenders can recover if the firm is liquidated, a theoretical prediction in Göx and Wagenhofer (2009).
Design/methodology/approach
We use an asset redeployability index as a proxy for firm-level real (physical) asset liquidity and adopt ordinary least squares (OLS) regressions in the test. We also investigate the differential impact of real asset liquidity on conservatism in two unique settings where lenders’ demand for accounting conservatism varies (loan initiation and bank deregulation).
Findings
We find that accounting conservatism decreases as real asset liquidity increases. The negative effect of real asset liquidity on conservatism increases as the quantity of the firm’s real assets increases, and the negative association is strengthened when firms face high financing constraints and have access to public debt markets. The moderating effect of real asset liquidity on lenders’ demand for conservatism increases (decreases) when real asset liquidity is more (less) important to lenders.
Originality/value
This study provides direct empirical evidence for the theoretical prediction in Göx and Wagenhofer (2009). Prior research shows that real asset liquidity impacts a firm’s capital structure and investment decisions (Campello and Giambona, 2013; Kim and Kung, 2017; Ortiz-Molina and Phillips, 2014; Williamson, 1988). We complement this literature by providing evidence that real asset liquidity also plays a role in financial reporting by reducing accounting conservatism.
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The purpose of this paper is to propose a new vulnerability to income and multidimensional poverty estimation index (VIMPI). This index is designed to measure the likelihood of…
Abstract
Purpose
The purpose of this paper is to propose a new vulnerability to income and multidimensional poverty estimation index (VIMPI). This index is designed to measure the likelihood of individuals falling into and remaining in poverty.
Design/methodology/approach
The paper introduces a new methodology that integrates the concepts of the well-being gap, individual and indicator-specific weighting, and vulnerability. This approach is simple to apply and accurately measures vulnerability with less susceptibility to measurement error and outliers. The index satisfies all poverty and vulnerability axioms, including transferability and monotonicity. The newly proposed method has been applied to Namibian and Ghanaian data and compared with similar techniques.
Findings
The results showed that Ghana's vulnerability to income and multidimensional poverty was 37.9% and 56%, respectively. Of the 37.9% of vulnerable individuals, 23.4% were at risk of falling into poverty, while 14.57% were at risk of remaining in poverty. These findings demonstrate the effectiveness of VIMPI in accurately estimating vulnerability to poverty and its potential to inform targeted policies to alleviate poverty.
Originality/value
This paper proposes a new methodology to estimate vulnerability to income and multidimensional poverty.
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This paper aims to propose a Shariah-compliant multi-period fuzzy portfolio optimization model that accounts for Shariah compliance through purification processes and incorporates…
Abstract
Purpose
This paper aims to propose a Shariah-compliant multi-period fuzzy portfolio optimization model that accounts for Shariah compliance through purification processes and incorporates various Shariah constraints, including sustainability constraints. This model aims to ensure both ethical alignment and robust portfolio management while navigating modern financial complexities and fostering responsible and sustainable investment practices.
Design/methodology/approach
The methodology involves a dynamic programming method to solve the proposed program, with returns of the assets assumed to be trapezoidal fuzzy variables. This approach allows for the quantification of portfolio return and risk by the possibilistic mean and semivariance of the fuzzy returns, respectively. A numerical study based on real stock market data tests the efficiency of the proposed algorithm.
Findings
The research showcases the model’s effectiveness in managing Shariah-compliant portfolios under financial uncertainties and supports the importance of incorporating ethical and sustainability constraints in investment decisions. It highlights the capability of the proposed model to offer a structured approach to ethical investing within the Islamic finance framework.
Research limitations/implications
While the paper provides a solid foundation for Shariah-compliant portfolio optimization, it acknowledges the complexity and computational demands of the model. Future research could explore simplifying the model without compromising its ethical and Shariah-compliant principles.
Originality/value
This work introduces a novel integration of Shariah compliance with fuzzy portfolio optimization techniques, addressing the need for dynamic, ethical investment strategies in Islamic finance. The incorporation of purification processes and sustainability constraints into a fuzzy portfolio optimization model represents a unique contribution to the field.
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