Government audit supervision,financialization, and executives' excess perks: Evidence from Chinese state-owned enterprises

In recent years, the phenomenon of corporate financialization has become increasingly prevalent in China. This paper uses data from Chinese state-owned listed firms from 2006 to 2018 to investigate whether large-scale financial investments by companies facilitate executives' excess perk consumption, and whether government auditing, as an important component of the national governance system, can play a governance role in this behavior. The results show that corporate financialization behavior significantly exacerbates executives' excess perks, and government auditing can mitigate the effect of corporate financialization on executives' excess perk consumption. We find that increased cash flow is the mechanism by which financialization behavior positively affects executives' excess perks. Furthermore, this study reveals that the implicit corruption of state-owned enterprise executives through corporate financialization is primarily based on compensation psychology, which will reduce the effectiveness of monetary compensation contracts. However, government auditing can effectively constrain this influence.     

官员晋升压力会增加国有企业股价崩盘风险吗？

以2007-2016年我国A股国有上市公司为样本,考察官员晋升压力对国有企业股价崩盘风险的影响。研究发现：官员晋升压力加剧了国有企业的股价崩盘风险,尤其是在政府干预程度较大的地区;进一步作用机制检验显示,官员晋升压力是通过国有企业管理层隐藏负面消息、增加过度投资以及降低环境治理水平而加剧股价崩盘风险的。本文的研究丰富了股价崩盘风险影响因素的理论成果,进一步揭示了官员晋升压力对微观企业的干预作用,并为地方官员晋升考核机制的完善提供了政策启示。     

海归高管抑制了股价崩盘风险吗？

以我国A股上市公司2009—2017年数据为样本,研究高管的海外经历对公司未来股价崩盘风险的影响。发现海归高管有助于降低公司未来股价的崩盘风险,在多种稳健性检验并控制内生性问题后,以上结论仍然成立。另外,海归高管降低股价崩盘的效果在分析师关注较少的企业以及外部审计质量较弱的企业中表现得更加明显。机制分析表明,海归高管通过降低公司过度投资以及提高会计信息质量来抑制股价崩盘风险。     

Party leadership,corporate governance and stock price crash risk: Evidence from China

In this paper, we provide evidence supporting the negative effect of corporate party organizations on Chinese state-owned enterprises' stock price crash risk. To illustrate the underlying mechanisms, we verify the impact of corporate party organizations on chairmen of different ages and positions and find that the restraining effect only exists in companies with strong promotion incentives for senior executives, supporting the governance role of the corporate party committee. Further, the impact of corporate party organization is weakened when the chairman is more powerful and alternative governance mechanisms work. In contrast, the governance effect is more pronounced in the companies controlled by local governments and after the new anti-corruption policy. We adopt several methods to address endogeneity concerns and find our results robust. Overall, this paper contributes to the mixed evidence on governance and stock price crash risk from the perspective of a unique arrangement, corporate party organizations.     

The use and consequences of perquisite types in nonprofit organizations

We document perquisite use in the nonprofit sector, the determinants of that use, and the ensuing consequences. Relative to the for-profit sector, the nonprofit sector is characterized by a lack of residual ownership rights and less detailed disclosure requirements, factors that have the potential to influence this piece of the compensation package. Using a sample of over 126,000 organization-year observations from 2008 to 2018, we document that approximately 24% of organizations report providing one or more of their executives with perquisites. We find that perks are more likely in larger nonprofits with excess endowments and fewer governance policies, and less likely at organizations with more outside monitors. We also find that perk disclosure has a negative impact on future donations. However, when we decompose our analysis by type of perk, we find evidence that some perks have a positive effect on future donations. Our results are robust to a variety of alternative formulations and provide useful insights for nonprofit regulators, boards, and donors.     

Parent-subsidiary dispersion and executive excess perks consumption

We investigate the impact of parent-subsidiary dispersion on the corporate executives' excess perks consumption using comprehensive data of 1784 Chinese listed firms over the 2003–2017 period (i.e., total firm-year observations of 24,976). We argue that firms with greater geographic and institutional environment dispersion are subject to an acute information asymmetry problem, which makes it difficult and costly for shareholders and the public to monitor managerial actions and hence, facilitates managers to consume perks excessively. Consistent with this assertion, we find a positive relationship between parent-subsidiary company dispersion and executives' excess perks consumption. These patterns are not likely to be driven by the firms' endogenous choice and remain robust to various proxies for parent-subsidiary dispersion and executives' excess perks consumption. In addition, our results also show that firms with a greater dispersion between parent and subsidiary companies have higher investor recognition. However, investor recognition does not appear to negatively impact the rate of executives' excess perks consumption, which may explain why executives' excess perks consumption is not mitigated in firms with greater parent-subsidiary dispersion.     

Local speculative culture and stock price crash risk

Using unique city gambling conviction data in China as a proxy for a local speculative culture, we examine the impact of such a culture on stock price crash risk. We find that firms in regions with a stronger speculative culture are more likely to experience future stock price crash risk. The results are consistent after using 2SLS regression analysis (IV) and staggered difference-in-difference (DID) analysis to mitigate endogeneity concerns. Further analysis shows that overinvestment, excessive debt, accounting conservatism and charitable donations are the main channels through which local speculative culture affects stock price crash risk. We also find that the positive relationship between local speculative culture and stock price crash risk is more salient for small firms and firms with managers with a cultural backgrounds similar to the local culture. Our study implies that the local culture plays an important role in the practice of corporate governance.     

Shifting from the incurred to the expected credit loss model and stock price crash risk

Using a difference-in-differences (DID) design, this study examines the effect of shifting from the incurred credit loss model (ICL model) to the expected credit loss model (ECL model) on banks’ future stock price crash risk. We find that switching to the ECL model decreases the stock price crash risk of commercial banks. Inspired by Onali et al. (2021), we proceed with cross-sectional tests from the perspectives of opportunistic incentives, information environments, and compliance costs and find that the effect is more pronounced for (i) banks with less opportunistic incentives, proxied by state-owned property rights and managerial ownership; (ii) banks with opaque internal and external information environments, proxied by weak internal control, weak board governance, low analyst coverage, and short auditor tenure; and (iii) banks with lower implementation costs, proxied by less day-one impact and higher levels of accounting conservatism. Channel analyses show that banks increase their asset impairment provisions and the timeliness of loan loss recognition, and there is an increase in the value relevance of earnings and bank efficiency after the adoption of the ECL model. Overall, our evidence suggests that the flexibility of principle-based accounting standards influences banks’ stock price crash risk and provides implications that could be helpful to regulators and standard setters.     

Corporate Governance and Accounting Conservatism in China

A principal-agent relationship exists among creditors, shareholders and management, and information asymmetry among them leads to asymmetric loss functions, which induces conservative accounting. This paper investigates the determinants of accounting conservatism using accrual-based measures and data from 2001 to 2006 in China. We find that a higher degree of leverage, lower level of control of ultimate shareholders and lower level of management ownership lead to more conservative financial reporting. We also find that political concerns and pressures among state-owned enterprises are greater than those among non-state owned enterprises, which leads to more conservative financial reporting among the former. However, a decrease in such concerns leads to a decrease in accounting conservatism. Overall, we find that among the determinants of conservatism in China, debt is the most important, followed by ownership, and that board has little influence.     

Employee relations and stock price crash risk: Evidence from employee lawsuits

In this paper, we examine the effect of firms' employee relations, measured by the number of employee lawsuits divided by the total number of employees, on stock price crash risk. Firms with higher employee lawsuit ratios tend to have higher stock price crash risk. Our results are robust after addressing possible endogeneity and using alternative measures of employee relations and stock price crash risk. We also find that the association between the employee lawsuit ratio and stock price crash risk is less prominent for state-owned enterprises, for firms with stringent external monitoring, and for firms with positive earnings news. Finally, earnings aggressiveness appears to be the channel through which the employee lawsuit ratio affects stock price crash risk. Collectively, our study is in line with the stakeholder theory, and highlights the importance of employee lawsuit for preventing crash of stock price.     

Top executives’ early-life experience and financial disclosure quality: impact from the Great Chinese Famine

This study investigates the impact of top executives’ Great Chinese Famine experience on firm financial disclosure quality. We find firms led by top executives who experienced the great famine in early life are less likely to conduct fraudulent financial reporting. The famine effect is more pronounced in state-owned enterprises (SOEs), smaller-cap, lower-profitability level firms and firms with weaker external monitoring. Further evidence suggests that top executives with great famine experience show greater tendency to implement secured debt structure, effective internal control and spend less on entertainment and travel costs, which in turn reduce the likelihood of fraudulent financial reporting.     

中国上市公司高管学术经历对企业现金持有的影响

依据沪深A股上市公司2008-2017年数据,考量高管学术经历对企业现金持有的影响。结果表明：高管学术经历通过风险特质和创新活动影响现金持有水平;高管学术经历与现金持有水平正相关,行业竞争的缓和会削弱二者的正相关关系;相对于国有企业,高管学术经历对非国有企业现金持有水平的影响更显著。     

Does economics and management education make managers more cautious? Evidence from R&D of Chinese listed firms

This paper uses the innovation data of Chinese listed firms for 2015–2019 to investigate whether and how executives with economics and management educations influence firm innovation. We find that executives with economics and management educations are characterized by conservatism and risk avoidance and their firms undertake less innovative activity than other firms. This conclusion remains robust after excluding potential reverse causality. Further analysis finds that executives with an educational background in economics and management adopt a more conservative attitude toward risk when they have a low shareholding ratio or face high performance pressure. Moreover, a mechanism analysis shows that executives with an educational background economics and management are more radical and less conservative in their fields of expertise, i.e., are not blindly conservative. Finally, we determine that non-financial knowledge compensate for some of the inhibitory effects that economic and management educational backgrounds have on innovation.     

管理层权力、高管人力资本激励与企业绩效

合理的高管人力资本激励机制是发挥高管人力资本效用进而提高企业绩效的有效途径。本文通过实证检验管理层权力、高管人力资本激励与企业绩效的关系,结果表明:高管货币薪酬与企业绩效显著正相关,与国有企业相比,非国有企业的相关性更明显;管理层权力削弱了高管货币薪酬对企业绩效的激励作用。国有企业的在职消费与企业绩效显著负相关,但非国有企业其二者之间的相关性并不显著;管理层权力加大了在职消费对企业绩效的负向影响。高管团队内部薪酬差距与企业绩效显著正相关,且非国有企业比国有企业的相关性更明显;管理层权力削弱了高管团队内部薪酬差距对企业绩效的激励作用。     

The winner's curse in high-tech enterprise certification: Evidence from stock price crash risk

Exploiting the High and New Technology Enterprise (HNTE) certification program in China, we find a significant increase in firm-specific stock price crash risk for certified firms relative to non-certified firms. The result holds after a battery of robustness tests. Importantly, we find that the increase in stock price crash risk is concentrated in firms with poor innovation records before receiving HNTE certification, with less innovation improvement after obtaining HNTE certification, with weak external governance, and for state-owned enterprises. Our findings uncover a novel and substantial cost of HNTE certification as it can stimulate strategic bad news hoarding and release, being associated with greater crash risk, especially for firms less likely to engage in fact-based innovation.     

Abnormal real operations,real earnings management,and subsequent crashes in stock prices

We study the impact of firms’ abnormal business operations on their future crash risk in stock prices. Computed based on real earnings management (REM) models, firms’ deviation in real operations (DROs) from industry norms is shown to be positively associated with their future crash risk. This association is incremental to that between discretionary accruals (DAs) and crash risk found by prior studies. Moreover, after Sarbanes–Oxley Act (SOX) of 2002, DRO’s predictive power for crash risk strengthens substantially, while DA’s predictive power essentially dissipates. These results are consistent with the prior finding that managers shift from accrual earnings management to REM after SOX. We further develop a suspect-firm approach to capture firms’ use of DRO for REM purposes. This analysis shows that REM-firms experience a significant increase in crash risk in the following year. These findings suggest that the impact of DRO on crash risk is at least partially through REM.     

Do geographically nearby major customers mitigate suppliers’ stock price crash risk?

This study examines the impact of geographically nearby major customers on suppliers' stock price crash risk. Using a sample of Chinese A-share listed firms and their top five (major) customers during the period 2008–2019, we find a significantly negative association. This association is robust in a series of robustness checks, including the use of instrumental variables estimations, propensity score matching procedure, and Heckman two-step sample selection model. The mitigating effect of supplier?customer proximity on crash risk is more pronounced for suppliers with lower corporate transparency and greater operational uncertainty. Finally, we identify two possible mechanisms through which geographically nearby major customers reduce suppliers’ crash risk: fewer financial restatements and higher accounting conservatism of suppliers. The findings of this study indicate that listed firms may choose geographically nearby customers to reduce crash risk.     

强制性分红:压力下移与盈余管理——基于央企控股上市公司的经验证据

国有资本收益上缴制度是一项强制性分红制度,这种政策带来的强制性分红压力会沿着企业控制层级往下转移.本文实证检验了强制性分红对中央企业盈余管理行为的影响.研究发现,中央企业会通过减少盈余的方式规避该政策带来的压力,尤其是,金子塔层级越低的中央企业这种规避行为越明显.进一步,中央企业面临强制性分红压力与业绩考核压力时,更注重业绩考核的影响.本研究有助于更加全面、准确地评价国有资本收益分配制度的实施效果,为政策优化提供经验证据.     

Economic policy uncertainty and stock price crash risk

This paper studies the impact of economic policy uncertainty on stock price crash risk using data from China. We develop a new index to measure Chinese economic policy uncertainty and find that economic policy uncertainty has a remarkable positive effect on stock price crash risk. However, the effect reverses later. The results also indicate that the positive effect of economic policy uncertainty on stock price crash risk is more prominent for state‐owned enterprises. Moreover, this effect is more prominent for firms with higher information asymmetry and firms with greater disagreement among investors, indicating that economic policy uncertainty affects crash risk through two mechanisms: managers’ concealment of bad news and investors’ heterogeneous beliefs.     

Earnings management and stock price crashes post U.S. cross-delistings

We examine whether cross-delisted firms from the major U.S. stock exchanges experience an increase in crash risk associated with earnings management. Consistent with our prediction, we find that earnings management has a greater positive impact on stock price crash risk post cross-delisting when compared to a control group of firms that remain cross-listed. More importantly, we find that this effect is more pronounced for cross-delisted firms from countries with weaker investor protection, poorer quality of their information environment and less conservative accounting practices. Our findings are robust to the potential endogenous nature of the cross-delisting decision, alternative measures of stock price crash risk and information asymmetry. We interpret our results as evidence of a “reverse bonding effect” following cross-delistings from U.S. stock exchanges.