Board diversity,firm risk,and corporate policies

We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multidimensional measure, we find that greater board diversity leads to lower volatility and better performance. The lower risk levels are largely due to diverse boards adopting more persistent and less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity also invest persistently more in research and development (R&D) and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.     

Corporate tax cuts,merger activity,and shareholder wealth

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.     

Risk,resilience, and Shariah-compliance

Despite the popularity of Islamic Finance, the effects of Shariah-compliance on non-financial firm operations have never been studied. Shariah-compliance requirements presents unique conditions to examine how firms perform under restricted conditions. This paper seeks to examine the effects of Shariah-compliance on the risk and resilience of non-financial firms. Using a dynamic panel system GMM and a host of firm-specific attributes, and a global sample of 2,160 firms across six geographic regions, the results suggest that Shariah-compliant firms have lower firm risk as measured by total and idiosyncratic risk, and greater firm resilience as measured by the percent deviation from the maximum values of sales, cost of goods sold, operating expenses, and share price. These effects are more profound in the years following the U.S. subprime crisis. Results also show socio-cultural norms to have a moderating effect. Further testing shows firms face stiff penalties for losing their Shariah-compliance status. This paper is the first to study the effects of Shariah-compliance on non-financial firm operations on a global scale. This paper also contributes to the capital structure and corporate governance literature as it provides evidence that suggest resource restraints may be beneficial for a firm. The findings of this paper also provide significant value to firms looking to capitalize on the 1.8 billion-strong Muslim market with further insight on the intricacies of Shariah-compliance.     

Does corporate tax avoidance promote managerial empire building?

We examine the association between corporate tax avoidance and empire building using 35,060 firm-year observations from the United States (US) for the period 1991–2015. We build a composite empire building measure by conducting a factor analysis on four popular empire building proxies used in the literature. We find a positive association between this composite measure and the four proxies used to represent the tax avoidance of firms in our sample. As our results suggest, agency problems are inflicted upon firms employing tax avoidance strategies which, in turn, facilitate managerial rent extraction through aggressiveness in growth and the accumulation of assets. Furthermore, the relationship of corporate tax avoidance to managerial empire building is found to be more pronounced in firms with weak governance, poor monitoring mechanisms, greater Chief Executive Officer (CEO) power and weak corporate social responsibility (CSR) performance. We also find that empire building-motivated tax avoidance leads to lower firm valuation. Our results remain insensitive even when employing several robustness tests.     

A tale of two cities: Economic development,corporate governance and firm value in Vietnam

This study examines the moderating effect of financial and economic development on the relation between corporate governance and firm value in Vietnam, which has two exchanges, one located in the business center in the South, and the other located in the center of government in the North. This unique setting allows an investigation of corporate governance dynamics controlling for legal jurisdiction. The results show a positive relation between corporate governance and firm value in Ho Chi Minh City but not in Hanoi. The finding suggests that financial and economic development play critical roles in enhancing the benefits of corporate governance in emerging markets.     

Trade credit and company performance during the 2008 financial crisis

We investigate whether the 2008 financial crisis had an impact on companies’ trade credit, and whether changes in trade credit mitigated the crisis’s impact on firm profitability. We document that the availability of trade credit decreased, and that this decline is more pronounced, the higher the companies’ pre‐crisis reliance on short‐term debt. We further report evidence that the redistribution hypothesis holds during crisis periods. Finally, we show that the crisis had a negative impact on company performance, but that this impact was lower (greater) for firms that report an increase in trade receivables (payables) in crisis compared to pre‐crisis periods.     

The financing and growth of firms in China and India: Evidence from capital markets

This paper studies the extent to which firms in China and India use capital markets to obtain financing and grow. Using new data on domestic and international capital raising and firm performance, it finds that financial market activity has expanded less since the 1990s than aggregate figures suggest. Relatively few firms raise capital and even fewer attract most of the financing. Moreover, firms that issue equity or bonds are different and behave differently from other publicly listed firms. Among other things, they are typically larger and grow faster. The differences between users and nonusers exist before the capital raising, are associated with the probability of raising capital, and become more pronounced afterward. The size distribution of issuing firms shifts more over time than the distribution of those that do not issue, suggesting little convergence in size among listed firms.     

控股股东和财务杠杆的激励功能

以上海证券交易所的747家上市公司2003年的横截面数据为样本,检验了财务杠杆与公司价值之间的经验关系,考察了控股股东性质对财务杠杆价值效应的影响.结果发现,财务杠杆对公司价值(成长性)具有显著的积极效应;另外,控股股东性质对财务杠杆的价值效应和激励功能具有显著的影响,财务杠杆在法人控股的公司中能够发挥更有效的激励作用.     

Do corporate boards matter during the current financial crisis?

This study examines the impact of corporate boards on firm performance during the current financial crisis. Using buy-and-hold abnormal returns over the crisis to measure firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we redefine independent directors as outside directors who are less connected with current CEOs, a measure we call strong independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. We find that the positive impact of outside financial experts on firm performance is more significant than that of strong independence. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards.     

Firm life cycle,corporate risk‐taking and investor sentiment

This study investigates the corporate risk‐taking and the performance consequences at different stages of the firm life cycle. We find that risk‐taking is higher in the introduction and decline stages of the life cycle, but lower in the growth and mature stages. We also find that risk‐taking during introduction and decline stage (growth and maturity stage) affects future performance adversely (positively). We also document that managerial risk‐taking propensities increase during periods of high investor sentiment and firms in different life cycle stages respond to sentiment differently. Collectively, these results suggest that the firm life cycle has explanatory power for corporate risk‐taking behaviour.     

Ultimate Government Control Structures and Firm Value: Evidence from Chinese Listed Companies

We show that 70% of Chinese listed companies are ultimately controlled by government agencies, thereby indicating that state ownership remains widespread in China's stock markets. Three questions are considered that are related to government control structures and their impact on firm value: (1) how do government agencies maintain their control of listed companies; (2) what are the impacts of different government control structures on firm value; and (3) are these impacts different in local government and central government-controlled firms? We find that the Chinese government controls listed companies directly or indirectly through solely state-owned enterprises (SSOEs). Taking into account the trade-off between political and agency costs, we show that firm value increases when some control rights are decentralized from the government to state-owned enterprises (SOEs). Moreover, decentralization improves significantly the performance of local government- controlled, but not central government-controlled firms.     

Earnings quality and firm valuation: international evidence*

This study uses a sample of over 7000 firms in 38 countries to investigate the relation between firm valuation and earnings quality. We find a positive and significant relation between firm valuation and an aggregate earnings quality measure based on seven earnings attributes (accruals quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism). This relation is particularly strong for firms with greater investment opportunities and more need for external finance, and for firms in low investor protection countries. Thus, firms are able to compensate for a weak legal environment by adopting higher earnings quality standards, particularly when they need to gain access to global capital markets. Overall, our findings suggest that firms with higher earnings quality are valued more highly in stock markets, supporting the idea that investors require a premium for the information risk associated with lower‐quality earnings.     

Employment protection, firm selection, and growth

How do firing costs affect aggregate productivity growth? To address this question, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and on the importance of reallocation for productivity growth. In the model, growth is driven by selection among heterogeneous incumbent firms and is sustained as entrants imitate the best incumbents. In this framework, firing costs not only induce misallocation of labor, but also affect growth by affecting firms’ exit decisions. Importantly, charging firing costs only to continuing firms raises growth by promoting selection. Also charging them to exiting firms is akin to an exit tax, hampers selection, and reduces growth—by 0.1 percentage points in a calibrated version of the model. With job turnover very similar in the two settings, this implies that the treatment of exiting firms matters for growth. In addition, the impact on growth rates is larger in sectors where firms face larger idiosyncratic shocks, as in services. This fits evidence that recent EU-U.S. growth rate differences are largest in these sectors and implies that firing costs can play a role here.     

CEO compensation structure and firm performance

The objectives of our study are to estimate a model of ‘efficient’ compensation structure based on firm characteristics and test the performance consequences of deviation from the efficient compensation structure. Our results are based on 3503 firm years for the period from 1999 to 2005. The results suggest that firms whose CEOs receive compensation inconsistent with their firm characteristics have a lower performance compared to those firms whose CEOs’ compensation is consistent with their firms’ characteristics. Our measure of performance is based on both accounting and market‐based performance measures. Overall, our study provides some important new insights into the links between CEO compensation structure and firm performance.     

Exchange rate fluctuations, financing constraints, hedging, and exports: Evidence from firm level data

This paper examines whether exchange rate fluctuations are significantly related to the export quantities of firms. We build a simultaneous structural model with external financing costs, and estimate the model on 14 separate Japanese four-digit level industries. We find that export volumes at the firm level are significantly affected by exchange rate fluctuations. We find higher elasticities of exports with respect to exchange rates than in previous work. Our results cast some doubt on the prevailing wisdom that exchange rates have no effect on trade. Finally, we find in our data that financing constraints play an important role in affecting the sensitivity of exports to exchange rate fluctuations. Firms that are less financially constrained tend to have lower exchange rate elasticities, which is consistent with our model.     

Does cooperation among women enhance or impede firm performance?

Based on the notion that women cooperate more with women than with men, we investigate whether women managers work more effectively when monitored by women directors. We find that when a firm has women as its top managers, its accounting profitability increases with the proportion of women on the board of directors. However, the improvement in profitability is associated with earnings management. We show that women are likely to be appointed to precarious leadership positions, which puts pressure on them to ameliorate the weak earnings performance. Finally, consistent with the interaction between women resulting in an unfavourable response from investors, we document a negative stock market reaction to the appointment of female top managers in the presence of women on the board.     

金融发展、企业创新与经济增长

本文通过在一般均衡模型中引入银行部门,考察了金融发展对企业创新和经济增长的影响。基于模型的理论分析表明,在均衡状态下,金融发展可以提高经济中储蓄向投资转化的效率、缓解信息不对称,有效降低了研发部门的外部融资成本,从而促进企业增加研发投入,并推动经济实现更高速的增长。在此基础上,本文以中国31个省份2008—2016年的面板数据对上述结论进行了实证检验,相关结果表明:(1)金融发展对企业研发投入具有显著的促进效应;(2)在工业化程度、外商投资水平较高的地区以及政府支出水平较低、人才资源相对短缺的地区,金融发展的促进作用更加明显;(3)企业研发创新可以有效推动经济增长,且在金融支持实体经济中发挥了重要的中介作用。本文的理论和实证分析揭示了“金融发展—企业创新—经济增长”的内生性传导机理及其在中国的体现,从而为金融支持创新型经济增长的改革逻辑奠定了初步的理论和经验基础。