A multi-organizational cross-sectoral collaboration: empirical evidence from an ‘Empty Homes’ project

This paper analyses the processes, outcomes and tensions of a cross-sectoral collaborative venture involving several organizations with multiple logics and is based on empirical evidence from a collaborative ‘Empty Homes’ project. While, paradoxically, multiple logics are a basis for the partnership's existence (for example ‘value for money’ and local community benefit) to achieve these different aims simultaneously, its other aims or logics at times conflicted, resulting in intra-partnership tensions. Hence we offer novel insights into the practical aspects of collaboration at a local level and on multi-organizational relationships.     

Farmers’ crop insurance perception and participation decisions: empirical evidence from Hunan,China

The measurement of risk perception and risk attitudes, and their link to actual risk behaviors have been extensively discussed. However, the potential impact of perception of risk management instruments on the decision to use those instruments has rarely been addressed. This article hypothesizes that the degree of perception of insurance contracts and participation decisions could have substantial mutual influence depending on the development of the market. An empirical work is carried out based on a survey of data for paddy rice farmers in Hunan Province, China. It shows that the sampled farmers’ crop insurance perception was surprisingly low despite years of pilot programs and tens of billions of expenditure in government subsidies. The result of simultaneous equations model indicates that crop insurance perception and participation are simultaneously determined and mutually improving. Moreover, empirical evidence indicates that the impact of crop insurance participation on perception is slightly stronger than that of perception on participation, and thus provides weak evidence of a ‘learning-by-doing’ stage in China at present. Together with evidence of substantial local disparities in perception, implications for the Chinese government in further cultivating the crop and rural insurance market are discussed.     

Bank debt covenants and firms’ responses to FAS 150 liability recognition: evidence from trust preferred stock

We examine the relation between accounting-based debt contracts and the economic response of firms with trust preferred stock (TPS) to mandated liability recognition under Financial Accounting Standard (FAS) 150. Our results show that firms’ financial covenants significantly affect their choice to redeem versus reclassify their outstanding TPS. Specifically, firms with bank debt covenants that would be adversely impacted by recognizing TPS as a debt liability are 26.88% more likely to redeem their TPS after FAS 150. We also find that firms are significantly more likely to redeem versus reclassify their TPS after FAS 150 if they used the original TPS proceeds to retire existing debt (id est, to enhance their balance sheets). Our findings suggest that when bank debt contracts use “floating” Generally Accepted Accounting Principles (GAAP) to construct financial covenant terms, changes in the underlying GAAP measure significantly influence firms’ economic behavior.     

Societal trust and firm-level trust: Substitute or complement? An international evidence

Using an international sample of 30,060 observations of firms from 32 countries, covering the period from 2004 to 2018, combined with a country-level index for societal trust, this study provides evidence that societal trust is negatively associated with corporate social responsibility (CSR), which in turn is a proxy for firm-level corporate trust-building investment. Further analyses show that firms in low-trust countries tend to invest more in CSR when they are owned by large foreign shareholders originating from low-trust countries. The negative impact of societal trust on CSR is pronounced for firms located in less stable countries. Overall, the results suggest that societal trust acts as a substitute to firm-level trust. From the perspective of risk management, the results confirm this study's argument that the marginal benefits of CSR-as-insurance are more crucial for firms located in low-trust countries.     

Banks’ lending behavior and monetary policy: evidence from Sweden

The main purpose of this paper is to investigate the aggregate data about bank loans which may hide significant information about the monetary transmission mechanism. This study, by disaggregating bank loans data and using the relevant interest rates in Sweden, investigates the behaviour of banks after a monetary policy tightening. By using an unrestricted VAR model and impulse response analysis, our results show that a shock on the policy rate affects the main components of the banks’ loan portfolios differently. Initially, banks do not reduce lending to firms and households and they present a sluggish reaction concerning the relevant interest rates. On the contrary, they reduce lending to mortgage credit institutions significantly since real estate lending can be considered as a risky long-term investment. Moreover mortgage credit institutions reduce lending for housing purposes to non-bank public. This reduction is mainly driven by flexible rate loans and loans secured on tenant owned apartments. Consequently, theses actions have a significant effect on real economic activity, by amplifying the initial shock from the tightening monetary policy. The latter result provides evidence of the bank lending channel in Sweden working via mortgage lending and could be very important for policy makers.     

When does comparability better enhance relevance? Policy implications from empirical evidence

This study investigates the user-specific contexts under which comparability better enhances relevance of accounting information. We first confirm the intuition in the FASB’s (2010) current conceptual framework by documenting that the short-window earnings response coefficient (ERC) is positively associated with the pre-determined level of comparability. Using the cross-sectional variation in the positive relation between ERC and comparability, we show that the link between ERC and comparability is more pronounced for firms with higher investor sophistication and lower information asymmetry among investors. We further support our predictions using analysts’ earnings forecast revisions and various alternative measures of earnings informativeness. In sum, our paper shows that comparability improves information users’ ability to identify similarities and differences across different firms to a greater extent when investor base is more sophisticated and private information is less prevalent. These results suggest that standard setters, regulators, and practitioners should devote more attention to the role of comparability in firms whose investors are less sophisticated and information environment is more opaque.     

Accounting and litigation risk: evidence from Directors’ and Officers’ insurance pricing

We study whether and how financial reporting concerns are priced by insurers that sell Directors’ and Officers’ (D&O) insurance to public firms. As D&O insurers typically assume the liabilities arising from shareholder litigation, the premiums they charge for D&O coverage reflect their assessment of a company’s litigation risk. Using a sample of public firms in the 2001–2004 Tillinghast D&O insurance surveys, we document that firms with lower earnings quality or prior accounting restatements pay higher premiums after controlling for other factors impacting litigation risk. In addition, insurers’ concerns about financial reporting are most evident for firms with restatements that are not revenue or expense related, are greater in the period following the passage of the Sarbanes–Oxley Act of 2002, and are greater for firms with financial reporting problems that linger. Our results are consistent with past restatements being viewed as evidence of chronic problems with a firm’s financial statements. By analyzing archival data, we can also quantify the effects of other determinants of D&O premiums (such as business risk, corporate governance, etc.) identified by Baker and Griffith (Univ Chic Law Rev 74(2):487–544, 2007a) through interviews regarding the D&O underwriting process.     

Directors’ share dealings and corporate insolvencies: evidence from the UK

This paper investigates the relation between insider trading and the likelihood of insolvency with a specific focus on the directors’ sale and purchase transactions preceding insolvency. We use a unique data set on directors’ dealings in 474 non-financial UK firms, of which 117 filed for insolvency, over the period 2000–2010. We show that the directors of insolvent firms increase their purchase transactions significantly as the insolvency approaches. The results also reveal a significant relation between three different measures of insider trading activity and the likelihood of insolvency, which is observed to be positive only during the last six-month trading period. The relation is negative for the earlier trading periods. While the earlier purchase transactions appear to be motivated by superior information held by insiders, the purchase trades closer to the insolvency date are possibly initiated by directors’ motives to influence the market's perception of the firm in an attempt to avert or delay insolvency.     

Directors’ education and corporate liquidity: evidence from boards in Taiwan

This study relates a firm’s cash holdings and their value to the board of directors’ level of education. Using a sample of firms on the Taiwan Stock Exchange during the period from 2006 to 2012, we find that firms with a highly educated board tend to hold more cash and are associated with a higher value of cash. This fact is especially evident among financially constrained firms. Our findings suggest that highly educated boards provide more efficient monitoring and advisory functions, and thus complement corporate governance.     

Electoral cycles in MPs’ salaries: evidence from the German states

Members of parliament (MPs) often set their own salaries. Voters dislike self-serving politicians, and politicians are keen to please voters. In line with political business cycle theories, politicians thus may delay giving themselves a salary increase until after elections. We investigate electoral cycles in the salary increases of German state MPs. Using data for 15 states over the period 1980–2014, we find no evidence that increases in MP salaries are influenced by election cycles. Politicians can increase their salaries at any point during the legislative period without negative consequences. We posit that this may be because even those voters who are most disenchanted with politics likely understand that all politicians benefit from a salary increase and thus do not punish the governing party at the polls.     

Does CEO duality constrain board independence? Some evidence from audit pricing

This study examines whether CEO duality affects the association between board independence and demand for higher quality audits, proxied by audit fee. The findings show that there is a positive association between board independence and audit fees. This result is consistent with findings of Carcello et al. (2002) that more independent boards demand higher audit quality and effort. However, this positive association is only present in firms without CEO duality, thus suggesting that CEO duality constrains board independence. The results support recommendations against CEO duality by showing that dominant CEOs may compromise the independence of their board of directors. Additionally, evidence is provided that board size (the number of directors on the board) is positively associated with audit fee pricing. This is consistent with prior studies that indicate that larger board sizes are associated with inefficiency and negative firm performance.     

Major shareholders’ trust and market risk: Substituting weak institutions with trust

This study examines the impact of foreign controlling shareholder trust on firm market risk using two measures of total and idiosyncratic risk. An extensive global sample of 12,496 firm-year observations from 43 countries is employed. The results show that firms controlled by foreign trusting shareholders display lower levels of risk in both market measures. Trust appears more important for firms based in countries with a less favourable institutional environment, whereby it varies with the investment horizon of foreign controlling shareholders. The results are robust after controlling for cultural measures, endogeneity, selection bias and alternate model specifications.     

Analysts’ role in shaping non-GAAP reporting: evidence from a natural experiment

Review of Accounting Studies - We examine how exogenous changes in analyst coverage influence (1) the likelihood that managers will voluntarily disclose customized (non-GAAP) performance metrics...     

Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland

This paper focuses on the effects of a corporate income flat tax reform on businesses’ investment decisions. Since 1990, several Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform both on the number of establishments (i.e. extensive margin of investment) and on the number of employees (i.e. intensive margin) in a given jurisdiction by computing a difference-in-differences estimation. Our results suggest that the introduction of a flat tax reform on corporate income taxes has a negative and statistically significant impact on both margins of investment. Moreover, the effect is considerably larger for riskier firms, suggesting that progressive taxation acts as an insurance effect for risk-averse entrepreneurs.     

Leading the herd: evidence from mutual funds’ buy and sell decisions

This article investigates whether a mutual fund’s performance is related to its herding behavior. Using the methodology of Sias (Rev Finance Stud 17:165–206, 2004), we develop a measure to capture the magnitude that a fund’s buy (sell) decisions are leading other funds’ buys (sells), and find that a fund’s performance is positively (negatively) related to its “buy leading” (“sell leading”). We interpret these findings as evidence that “buy leaders” (“sell leaders”)’ performance benefits (suffers) from the positive (negative) price effect associated with buy (sell) herds. Additionally, we find a positive relationship between fund performance and valuation-motivated “buy leading”, while we find weak evidence on the relationship between performance and valuation-motivated “sell leading”. We interpret these results as evidence that leading funds’ outperformance is due, in part, to their ability to value stocks.     

Does money matter in developing economies? Some evidence from the Solow estimator

Building on the Solow seminal approach for estimating the output elasticity of money stock and on Startz's (1984) implementation of it, this article explores the role of money in the production process in Kuwait, Saudi Arabia, and the United Arab Emirates. Due to lack of necessary data on interest rates in these countries, we use alternative measures of credit constraints as proxies. In contrast to Startz's conclusion for the U.S., our empirical results systematically reveal significant output elasticities of money in each of the three developing countries under study. This is consistent with the neoclassical monetary theory and its incorporation of real money balances as an important input in the production function. Moreover, as the McKinnon-Shaw hypothesis contends, money appears to be complementary to physical capital in the three developing countries. Hence, policy-makers must not hinder the development of their money (financial) markets if they desire to promote economic growth.     

Investors’ perception of CEO overconfidence: evidence from the cost of equity capital

Prior literature documents that CEO overconfidence plays an important role in corporate financial reporting and accounting decisions. However, an unexplored issue is how investors perceive the risks associated with CEO overconfidence. This study examines the effect of CEO overconfidence on the cost of equity capital. We find that the association between CEO overconfidence and the cost of equity is nonlinear: a moderate level of CEO overconfidence results in the lowest cost of equity capital after controlling for other known determinants of the cost of equity. We also find an inverted nonlinear relation between CEO overconfidence and equity issuance, which corroborates our main conclusion of the nonlinear effect of CEO overconfidence on the cost of equity. Our results are robust to alternative overconfidence measures, cost of equity measures, and change analysis.     

Green M&A,legitimacy and risk-taking: evidence from China’s heavy polluters

Green merger and acquisition (M&A) activities may improve heavy polluters’ regulatory and organisational legitimacy, allowing greater access to resources and enhancing risk-taking capacity. Adopting a proprietary 2008–2013 dataset, we examine outcomes from green M&A for China’s heavy-polluting firms. We find that heavy polluters’ green M&A is associated with greater risk-taking. Greater access to resources, and reduced financing constraints and tax liabilities suggest improved legitimacy. These effects are positively related to state ownership and government intervention in the M&A process. Our findings support the Porter hypothesis and have policy implications for green management of heavy polluters in emerging markets.     

Do VCs use inside rounds to dilute founders? Some evidence from Silicon Valley

In the bank-borrower setting, a firm's existing lender may exploit its positional advantage to extract rents from the firm in subsequent financings. Analogously, a startup's existing venture capital investors (VCs) may dilute the founder through a follow-on financing from these same VCs (an “inside” round) at an artificially low valuation. Using a hand-collected dataset of Silicon Valley startup firms, we find little evidence that VCs use inside rounds to dilute founders. Instead, our findings suggest that inside rounds are generally used as “backstop financing” for startups that cannot attract new money, and these rounds are conducted at relatively high valuations (perhaps to reduce litigation risk).