Interdependent capital structure choices and the macroeconomy

This study shows that capital structure choices of US corporations are interdependent across time. We follow a two-step estimation approach. First, using a large cross-section of firms we estimate year-by-year average capital structure choices, i.e., the average firm’s percentage of new funding that is secured through debt, its term composition, and the percentage of new equity represented by retained earnings. Second, these time series are included in a Factor Augmented Vector Autoregressive model in which three factors representing real economic activity, expected future funding conditions, and prices, are included. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions.     

Consumer Standards as a Strategic Device to Mitigate Ratchet Effects in Dynamic Regulation

Strategic delegation to an independent regulator with a pure consumer standard improves dynamic regulation by mitigating ratchet effects associated with short‐term contracting. A pure consumer standard alleviates the regulator's myopic temptation to raise output after learning the firm is inefficient. Anticipating this tougher regulatory behavior, efficient firms find it less attractive to exaggerate costs. This reduces the need for long‐term rents and mitigates ratchet effects. A welfare standard biased toward consumers entails, however, allocative costs arising from partial separation of the firms' cost types. A trade‐off results, which favors strategic delegation when efficient firms are relatively likely.     

Long‐term economic consequences of corporate environmental responsibility: Evidence from heavily polluting listed companies in China

In this study, we aim to investigate the long‐term economic consequences of corporate environmental responsibility (CER) by companies from the perspective of earnings persistence and investors' response. Based on firm‐level data of 1,010 heavily polluting listed companies in China, the empirical results are as follows. First, the CER of China's heavily polluting listed companies has significantly improved their earnings persistence, that is, earnings quality. Second, the positive long‐term economic effect of CER has been achieved through two paths: improving companies' operational efficiency and reducing their credit costs. Third, CER increases investors' response to heavily polluting companies' accounting earnings. Moreover, state‐owned listed companies achieve more significant positive long‐term economic effects from CER than others. The results suggest that heavily polluting companies should correctly identify the long‐term value of CER rather than pay excessive attention to the impact of CER on their current costs and benefits.     

Integrated reporting and cost of capital: The moderating role of cultural dimensions

Since its introduction, integrated reporting (IR) has triggered a rich debate covering several aspects, from the structure and the features of a document to the effects of its publication. Very recently, scholars have examined the negative relationship between IR and the cost of capital for firms, completely missing the opportunity to understand whether this fact is contingent on the cultural context that adopting companies operate in. We fill this gap by resorting to a panel sample of 211 adopters from 31 countries over the period spanning 2009–2017, counting 1,455 observations. Our evidence confirms that adopters, on average, benefit from a 1.4% decrease in the cost of capital. Yet, more importantly, IR effectiveness is exalted in countries with low power distance, strong collectivism values, and high level of masculinity, while uncertainty avoidance, long‐term orientation, and indulgence do not seem to play any moderating role.     

Determinants of Conflict Minerals Disclosure Under the Dodd–Frank Act

This paper examines conflict minerals disclosure (CMD) as mandated by the Dodd–Frank Act. We rely on a thorough content analysis conducted by the Responsible Sourcing Network on a sample of 122 firms that filed CMDs with the US Securities and Exchange Commission in 2015. We document that firms with long‐term oriented incentives, a greater number of board meetings, strong corporate governance systems and inclusion in a sustainability index are associated with higher levels of CMD. Our results suggest that in the presence of enforcement leniency, both internal and external firm‐specific factors affect strategic (non‐)compliance with a mandatory social disclosure regime. We provide implications for supply chain managers, corporate reporters and policy‐makers involved in the adoption of responsible sourcing strategies. © 2018 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd     

Strategic HR system differentiation between jobs: The effects on firm performance and employee outcomes

The purpose of this research was to understand whether firms apply different human resource management systems to different occupations within the same organization (HR differentiation) and how the extent to which they do so may influence firm and employee outcomes. We conducted two studies pertaining to these questions. The first study was based on data collected from managers, and the results suggest that firms differentiate their HR investments based on the strategic value of occupations to the firm, which was further associated with the human capital of those occupations. Differentiation in human capital was also associated with firm performance. The second study was based on data obtained from nonmanagement employees. The findings indicated that employees who were recipients of less HR system investment had lower fairness perceptions, which were further associated with higher turnover intentions and lower organizational citizenship behavior. Although the evidence from these studies suggests that firms may realize benefits from strategic HR system differentiation, managers should carefully consider how to balance the effects of differentiation on firm performance and employee well‐being before implementing such systems.