Search results
1 – 10 of 29This study aims to examine the impact of stock market valuation on corporate investment. Specifically, it attempts to understand the influence of both the fundamental and…
Abstract
Purpose
This study aims to examine the impact of stock market valuation on corporate investment. Specifically, it attempts to understand the influence of both the fundamental and non-fundamental components of stock price on firms’ investment decisions.
Design/methodology/approach
The study decomposes the market-to-book (MB) ratio into three components, namely, firm-level mispricing, industry mispricing and growth component to examine the effect of each of these components on corporate investment decisions. Based on the literature review, four testable hypotheses concerning the relationship between market valuation and corporate investment have been generated. These hypotheses have been tested on the panel data of 1,311 Indian Public Limited Manufacturing Firms using a pooled data regression model.
Findings
The study finds that both the fundamental and non-fundamental components of stock price influence the investment decisions along with the cash flow variable. The market valuation–investment nexus is more pronounced in the case of equity-dependent firms, which shows that stock valuation affects corporate investment predominantly through the equity transaction channel. Further, the positive relationship between industry mispricing and corporate investment demonstrates that the market sentiment also affects firms’ investment decisions.
Originality/value
The relationship between the different components of market value and corporate investment decisions has not been explored in India. Hence, the present study is unique because it breaks the MB ratio down into growth and mispricing components and examines the impact of each of these components on corporate investment.
Details
Keywords
The purpose of this paper is to examine whether independent directors reduce corporate overinvestment and improve investment efficiency in an emerging market.
Abstract
Purpose
The purpose of this paper is to examine whether independent directors reduce corporate overinvestment and improve investment efficiency in an emerging market.
Design/methodology/approach
First, the author developed a research model in which corporate investment is a function of Tobin’s Q, the proportion of independent directors in the board and an interaction between them. Second, the author divided the full sample into groups of firms with a low- and high-financial constraint to compare the effects of independent directors between financially unconstrained and constrained firms.
Findings
With a full sample of 1,281 observations collected from 193 firms listed in Ho Chi Minh Stock Exchange during the period from 2009 to 2017, the author find that the proportion of independent directors is negatively related to firm investment but its interactive term with Tobin’s Q is positively related to corporate investment. These findings imply that independent directors can help firms reduce overinvestment and improve investment efficiency. Moreover, the research findings indicate that these effects of independent directors are stronger for financially constrained firms.
Originality/value
The extant literature shows that independent directors are an effective mechanism to reduce agency problems in firm decisions and operating performance. However, there has been no research on the role of independent directors in corporate investment policy.
Details
Keywords
Runze Ling, Ailing Pan and Lei Xu
This study examines the impact of China’s mixed-ownership reform on the innovation of non-state-owned acquirers, with a particular focus on the impact on firms with high financing…
Abstract
Purpose
This study examines the impact of China’s mixed-ownership reform on the innovation of non-state-owned acquirers, with a particular focus on the impact on firms with high financing constraints, low-quality accounting information or less tangible assets.
Design/methodology/approach
We use a proprietary dataset of firms listed on the Shanghai and Shenzhen Stock Exchanges to investigate the impact of mixed ownership reform on non-state-owned enterprise (non-SOE) innovation. We employ regression analysis to examine the association between mixed ownership reform and firm innovation.
Findings
The study finds that non-state-owned firms can improve innovation by acquiring equity in state-owned enterprises (SOEs) under the reform. Eased financing constraints, lowered financing costs, better access to tax incentives or government subsidies, lowered agency costs, better accounting information quality and more credit loans are underlying the impact. Additionally, cross-ownership connections amongst non-SOE executives and government intervention strengthen the impact, whilst regional marketisation weakens it.
Originality/value
This study adds to the literature on the association between mixed ownership reform and firm innovation by focussing on the conditions under which this impact is stronger. It also sheds light on the policy implications for SOE reforms in emerging economies.
Details
Keywords
Yura Kim, Jeongsun Yun, Hyun Woo Choi and Gyuyoung Hwang
Literature documents that executives' inside debt holdings (debt-based managerial compensation) such as defined-benefit pensions and retirement funds are often unfunded and…
Abstract
Literature documents that executives' inside debt holdings (debt-based managerial compensation) such as defined-benefit pensions and retirement funds are often unfunded and unsecured and have long maturities, and thus provide managerial incentives to pursue strategies to avoid the overall firm risk. This study investigates the effect of managerial inside debt compensation relative to equity-based compensation on a firm's dividend payout policy. We find that a inside debt holdings are positively associated with various measures of a firm's dividend payout policy. Additionally, we find empirical evidence in firms with inside debt holdings that the inverse relationship between high default risk measured by KZ index and dividend payout weakens as the portion of inside debt relative to equity-based compensation rises. This finding indicates that the needs for the firm to restrain dividend payouts to equity holders is reduced as the executive's debt-to-equity compensation ratio becomes larger. Overall, the results suggests the mitigating effect of executives' inside debt holdings on the conflicts between bondholders and shareholders can lead to generous payout policy.
Details
Keywords
Ziyu Jiang, Guojian Ma and Wenyue Zhu
The purposes of this paper are to analyze whether digital finance can contribute to enterprises' innovation performance and to determine the mediating effect of government…
Abstract
Purpose
The purposes of this paper are to analyze whether digital finance can contribute to enterprises' innovation performance and to determine the mediating effect of government subsidies.
Design/methodology/approach
This paper empirically examines the impacts of digital finance on enterprises' innovation performance by looking at Chinese companies listed on the SME and GEM boards from 2011 to 2018 to build an econometric model to test our hypotheses. The mediating effect of government subsidies, the moderating effect of financial constraints are examined, as well as shareholding of the largest shareholders in each selected company and the asset-liability ratio.
Findings
The results show that digital finance has a significant promotional effect on firms' innovation performance and that government subsidies play a partial mediating role in digital finance's contribution to firms' innovation performance. In addition, financial constraints and the shareholding of the largest shareholders in each selected company have a negative moderating effect on the relationship between government subsidies and firms' innovation performance. On the contrary, the asset-liability ratio is found to positively affect the relationship.
Originality/value
There has been limited research to date on the relationship between digital finance and firms' innovation performance, particularly with regard to the extent to which digital finance can influence innovation performance and the mechanisms for doing so. Therefore, it is of great significance to examine the relationship between digital finance and enterprises' innovation performance, which can also provide guidance for both the Chinese government and enterprises.
Details
Keywords
David Folsom, Iftekhar Hasan, Yinjie (Victor) Shen and Fuzhao Zhou
The aim of the paper is to investigate the associations between hedge fund activism and corporate internal control weaknesses.
Abstract
Purpose
The aim of the paper is to investigate the associations between hedge fund activism and corporate internal control weaknesses.
Design/methodology/approach
In this paper, the authors identify hedge fund activism events using 13D filings and news search. After matching with internal control related information from Audit Analytics, the authors utilize ordinary least square (OLS) and propensity score matching (PSM) to analyze the data.
Findings
The authors find that after hedge fund activism, target firms report additional internal control weaknesses, and these identified internal control weaknesses are remediated in subsequent years, leading to better financial-reporting quality.
Originality/value
The findings indicate that both managers and activists have incentives to develop a stronger internal control environment after targeting.
Details
Keywords
This paper investigates the effect of economic policy uncertainty on value of cash before and after the global financial crisis.
Abstract
Purpose
This paper investigates the effect of economic policy uncertainty on value of cash before and after the global financial crisis.
Design/methodology/approach
We investigate the relationship between economic policy uncertainty and value of excess cash based on the valuation model of Fama and French (1998). Baker et al. (2016) news-based index (BBD index) is employed to calculate measures of economic policy uncertainty. Our research sample includes 103,474 observations from 11,000 firms across 19 countries over the period 2004–2016.
Findings
We find that economic policy uncertainty is negatively “positively” related to value of cash in the pre-crisis “post-crisis” period. Moreover, we also document that the positive effect of economic policy uncertainty in the post-crisis period is stronger in financially constrained firms.
Originality/value
While prior studies find a relationship between economic policy uncertainty and cash levels or the effect of firm-level uncertainty on value of cash, this paper shows how economic policy uncertainty as an institutional environment factor affects value of cash. Moreover, it documents that economic policy uncertainty has opposite effects on value of cash before and after the global financial crisis.
研究目的
本研究旨在探討經濟政策不確定性在全球金融危機之前及之後對現金價值的影響。
研究設計/方法/理念
我們基於法馬及佛倫奇(1998) (Fama and French (1998)) 的估值模型,來探討經濟政策不確定性與過剩現金價值的關係。我們採用了貝克等人(2016) (Baker et al. (2016)) 以新聞訊息為基礎的指數 (BBD指數) 、來計算經濟政策不確定性的程度。我們的研究樣本包括橫跨19個國家、涵蓋期為2004年至2016年、取自11,000間公司之103,474個觀察。
研究結果
我們發現經濟政策不確定性與現金價值在危機前時期成負相關,在危機後時期則成正相關。而且,我們也記錄了在危機後時期經濟政策不確定性的正面影響於財務受限的公司會較大的情況。
原創性/價值
過去的研究發現了經濟政策不確定性與現金水平之間存有關係、及企業層面的不確定性對現金價值的影響。唯本研究顯示了經濟政策不確定性作為一機構環境因素,如何影響現金價值;同時,亦記錄了經濟政策不確定性在全球金融危機之前及之後對現金價值會有相反影響的情況。
Details
Keywords
Radwan Alkebsee, Ahsan Habib and Junyan Li
This paper aims to examine the association between green innovation and the cost of equity in China. This study relies on the investors’ base perspective and shareholders’…
Abstract
Purpose
This paper aims to examine the association between green innovation and the cost of equity in China. This study relies on the investors’ base perspective and shareholders’ perceived risk perspective to investigate the relation between green innovation and the cost of equity in China.
Design/methodology/approach
The paper uses firm-fixed effect regression for a sample of Chinese public companies for the period 2008–2018.
Findings
The authors find a negative relationship between green innovation and the cost of equity capital. This negative association is found to be more pronounced for less financially constrained firms, during periods of high economic policy uncertainty, and for firms with a strong internal control environment. Finally, the paper shows that the negative association became more pronounced after the passage of the Environmental Protection Law of China in 2012. The results remain robust to possible endogeneity concerns.
Originality/value
This study contributes to the green innovation literature by documenting that shareholders favorably view firms implementing green innovation policies. The study also has policy implications for Chinese regulators in improving the green credit policy.
Details
Keywords
Ijaz Ur Rehman, Faisal Shahzad, Muhammad Abdullah Hanif, Ameena Arshad and Bruno S. Sergi
This study aims to empirically examine the influence of financial constraints on firm carbon emissions. In addition to the role of financial constraints in firm-level carbon…
Abstract
Purpose
This study aims to empirically examine the influence of financial constraints on firm carbon emissions. In addition to the role of financial constraints in firm-level carbon emissions, this study also examines this influence in the presence of governance, environmental orientation and firm-level attributes.
Design/methodology/approach
Using pooled ordinary least square, this study examines the impact of financial constraints on firm-level carbon emissions using a panel of 1,536 US firm-year observations from 2008 to 2019. This study also used two-step generalized method of moment–based dynamic panel data and two-stage least square approaches to address potential endogeneity. The results are robust to endogeneity and collinearity issues.
Findings
The results suggest that financial constraints enhance the carbon emissions of the firms. The economic significance of financial constraints on carbon emissions is more pronounced for the firms that do not report environment-related expenditure investment and those that are highly leveraged. The authors further document that firms with a nondiverse gender board signify a statistically significant impact of financial constraints on carbon emissions. These results are also economically significant, as one standard deviation increase in financial constraints is associated with a 3.340% increase in carbon emissions at the firm level.
Research limitations/implications
Some implicit and explicit factors like corporate emissions policy and culture may condition the relationship of financial constraints with carbon emissions. Therefore, it would be worthwhile to consider these factors for future research. In addition, it is beneficial to identify the thresholds and/or quantiles at which financial constraints may significantly make a difference in enhancing carbon emissions.
Practical implications
The findings offer policy implications for investment in stakeholder engagement for capital acquisitions, thereby effectively enforcing environmental innovation and leading to a reduction in carbon emissions.
Originality/value
This study integrated governance and environment-oriented variables in the model to empirically examine the role of financial constraints on the carbon emissions of the firms in the USA over and above what has already been documented in the earlier literature.
Details
Keywords
Daniele Cerrato, Maurizio La Rocca and Todd Alessandri
The purpose of this paper is to examine the financial factors across multiple levels of analysis that influence the performance effects of the unrelated diversification strategy…
Abstract
Purpose
The purpose of this paper is to examine the financial factors across multiple levels of analysis that influence the performance effects of the unrelated diversification strategy, including institutional-, industry- and firm-levels.
Design/methodology/approach
Using a unique panel dataset of Italian firms from 1980 to 2010, the paper tests hypotheses on how industry external financial dependence and the firm's financial constraints both separately and jointly alter the performance benefits of unrelated diversification in contexts with financial market inefficiencies.
Findings
Unrelated diversification increases performance in weak financial contexts and such positive effect is enhanced by greater industry external financial dependence and greater firm financial constraints. However, as financial markets develop, the moderating effects of firm financial constraints shrink.
Practical implications
The study highlights the importance of recognizing the multiple financial contingencies that may alter the benefits of the unrelated diversification strategy, suggesting caution in its pursuit to boost firm performance.
Originality/value
The authors develop a theoretical framework that explains the performance outcomes of unrelated diversification, linking the benefits of an internal capital market (ICM) with the financial context of the firm and offering a fine-grained analysis that moves beyond the advanced/emerging economy dichotomy. Furthermore, leveraging on the unprecedented time frame of the empirical analysis, the paper highlights the crucial role of industry- and firm-level financial contingencies and demonstrates that their effects change at varying levels of development of the financial context.
Details