Do corporate tax cuts increase investments?

This paper studies the effect of corporate taxes on investment. Since firms with a foreign parent have more cross-country profit shifting opportunities than domestically owned firms do, their effective tax rate and, consequently, their tax-induced costs to investment are lower. We therefore expect capital investment responses to a corporate tax cut to be heterogeneous across firms. Using firm-level data on German corporations, we exploit the 2008 tax reform, which substantially cut corporate taxes as an exogenous policy shock and expect domestically owned firms' investments to be more responsive to the reform. We show exactly this in a difference-in-differences setting. We find that the reduction in corporate tax payments led to a one-to-one increase in the real investments of domestic firms. The effect is stronger for domestic firms relying more on internal funds. Correspondingly, labor investment increased more for domestic firms, ensuring a constant mix of input factors. In addition, we show that domestic firms' sales grew faster after the tax cut than the sales of foreign-owned firms. Our results imply that corporate tax changes can increase corporate investment but that domestic firms benefit more than foreign-owned firms from a tax cut through higher investment responses resulting in greater sales growth.     

Venture capital investment and the performance of entrepreneurial firms: Evidence from China

We examine the contributions of venture capital investment to entrepreneurial firms in China. Based on a panel dataset of Chinese manufacturing firms, we investigate the performance and R&D activities of venture capital-backed (VC-backed) and non-VC-backed firms during the period 1998 to 2007. We explore whether VC-backed firms in China generally outperform their non-VC-backed counterparts, and if so, whether this outperformance is mainly attributed to the ex-ante screening or ex-post monitoring efforts of venture capitalists (VCs). We then determine whether the different types of VCs and investment approaches affect the ex-post monitoring efforts of VCs, and consequently, the performance and R&D activities of the VC-backed firms. Our analysis shows that VC-backed firms outperform non-VC-backed firms in terms of profitability, labor productivity, sales growth, and R&D investment. First, VCs select firms with higher profitability, labor productivity, and sales growth, as well as firms that invest more in R&D activities. Moreover, the differences in profitability and labor productivity are significantly magnified after VC entry. After receiving investment from VCs, firms on average achieve magnified higher ROS, ROE, and labor productivity compared to non-VC-backed firms. However, no evidence demonstrates the magnified improvement in sales growth or R&D investment of the VC-backed firms after the venture investment is made. We distinguish the screening and value added effects by using propensity score matching. We also use instrumental variables to determine whether the post-investment performance improvements of the firms are driven by the venture capital investment. Finally, we find different types of VCs and investment approaches affect the performance of the firms after the investment is made. Foreign VCs add more value to the firms they invest in compared to domestic VCs. Firms backed by syndicated investment perform better and invest more in R&D after the investment is made compared to those backed by non-syndicated investment and non-VC-backed firms.     

Capital structure effects of international expansion

This study investigates and qualifies the impact of internationalization on the capital structure of a firm. Previous studies have associated firm internationalization with foreign sales or foreign assets. However, an increase in sales volume generated abroad does not necessarily mean that a firm has actually invested in a new foreign country. This study examines non-financial firms included in the main developed stock indexes that report a new geographical area of operation. It reveals that, at less advanced levels of internationalization, growth in foreign volumes and new geographic expansion lead to differential decision-making in capital structure choices.This study concludes that (1) when the target foreign market is developed, the new market entry does not lead to significant changes in capital structure, whatever the past experience of the firm. (2) The capital structure of well-diversified firms is not significantly modified following a new foreign entry. (3) Both domestic firms and firms only active in developed markets significantly increase their debt to equity ratio when expanding into a region or country where they had no operation before. Well-diversified firms clearly exhibit a different behavior compared to firms in less advanced levels of internationalization.     

Social Capital,Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

During the 2008–2009 financial crisis, firms with high social capital, as measured by corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High‐CSR firms also experienced higher profitability, growth, and sales per employee relative to low‐CSR firms, and they raised more debt. This evidence suggests that the trust between a firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.     

The bright side of the internal labor market: Evidence from the labor cost stickiness of firms affiliated with privately owned business groups in China

We examine whether having an internal labor market can help a firm affiliated with a privately owned business group (POBG) reduce labor cost stickiness. Our findings suggest that, when a POBG-affiliated firm experiences a decrease in sales, it has lower labor cost stickiness than an otherwise equivalent firm that is not affiliated with a POBG. Specifically, we find that, on average, a POBG-affiliated firm entirely mitigates labor cost stickiness when it has a decrease in sales. In addition, we document that, to adjust its labor cost downward, a POBG-affiliated firm hires fewer employees, rather than paying lower wages. We show that the lower labor cost stickiness is due to movement of employees from the focal firm to other firms within the same POBG. When sales fall, the POBG reallocates excess employees at the focal firm to other firms within the business group via an internal labor market, and the focal firm thereby increases its per capita profit. Moreover, we find that agency cost mediates the impact of a POBG on labor cost stickiness. When the external market is less effective or the POBG headquarters have strong incentives, the effect of POBG affiliation on the reduction in an affiliated firm's labor cost stickiness is more salient.     

慈善捐赠、广告营销与企业绩效—— 考虑行业竞争因素

基于消费者视角,利用2007~2012年我国沪深两市 A 股上市公司的数据,实证检验了在考虑行业竞争的条件下,慈善捐赠行为对广告营销活动与企业销售增长之间关系的影响机制。研究发现,广告营销投入、慈善捐赠水平和行业竞争程度之间的三项交互作用显著。这一结论表明,对于那些在激烈竞争行业环境中运营的企业来说,慈善捐赠水平高而非低时,广告营销投入对企业销售增长的正向影响更强,因此,与处于弱竞争行业的企业相比,处于强竞争行业的企业更应充分利用好慈善捐赠在改善传统营销方式市场效果方面的杠杆作用。     

最低工资标准提高对企业资本劳动比的影响研究

资本劳动比的提高对企业发展、经济增长和结构转型都具有重要意义。本文利用2002—2011年中国工业企业数据和283个地级市统计数据,探讨了最低工资标准提高对企业资本劳动比的影响。研究发现,最低工资标准提升对制造业企业资本劳动比具有显著的正向影响。平均而言,最低工资标准每提升10%,企业资本劳动比将提高2%,该结果在工具变量回归、双重差分法等多项稳健性检验下均成立。机制分析表明,最低工资标准提高会使企业增加资本投入和减少劳动力雇佣,这一结论为企业用资本替代劳动力的事实提供了直接证据。异质性分析表明,最低工资标准提升对企业资本劳动比的影响主要集中于非国有企业、较低工资水平企业和劳动密集型企业。进一步研究发现,随着最低工资标准提升,企业生产率和盈利能力显著提高,从而佐证了企业用资本替代劳动力的积极效应。本文的研究为进一步完善最低工资制度,促进经济转型升级提供了经验依据与政策启示。     

The Impact of Mandatory International Financial Reporting Standards Adoption on Investment Efficiency: Standards,Enforcement, and Reporting Incentives

This paper investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) is followed by a decline in firms’ suboptimal investments. On average, we find that the probability of under‐investment in capital expenditure declines for firms from 23 countries requiring mandatory adoption of IFRS relative to firms from countries that do not have such requirements; meanwhile the probability of over‐investment remains unchanged. However, this real effect becomes smaller when we control for concurrent changes to the enforcement of financial reporting along with the introduction of IFRS in some countries, suggesting that the switch in standards is only one of the drivers for the observed benefits. Moreover, we find that the reduction in suboptimal investments is driven by firms with high reporting incentives to provide transparent financial reports from countries where the existing legal and enforcement systems are strong. We further show that the real effect increases with the predicted changes in accounting comparability. Finally, we find that after mandatory IFRS adoption, capital investment becomes more value‐relevant, less sensitive to the availability of free cash flows, and more responsive to growth opportunities. Our findings provide new insights into the real effects of mandatory IFRS adoption.     

Is corporate social responsibility engagement influenced by nearby firms? Evidence from China

This paper explores whether the CSR engagement of a focal firm is influenced by the CSR density formed by nearby firms. Using a sample of listed firms from 2010 to 2019 in China, we find a positive relationship between the local CSR density and the CSR engagement of a focal firm. Based on the heterogeneous analysis, we find that the impact of local CSR density is more pronounced for firms with worse financial conditions (i.e., lower profits, cash to debt, sales to inventory, and higher leverage), less corporate investment (i.e., lower capital expenditure growth, organization capital investment, employee growth) and fewer market shares. The primary findings are robust after addressing potential concerns. Overall, our findings provide evidence of the effect of firms' locations in the context of CSR engagement and have insightful implications for managers and governments seeking CSR improvement in emerging markets.     

Net Operating Working Capital Behavior: A First Look

Net operating working capital captures multiple dimensions of firms’ adjustments to operating and financial conditions. Sales growth, uncertainty of sales, costly external financing, and financial distress encourage firms to pursue more aggressive working capital strategies. Firms with greater internal financing capacity and superior capital market access employ more conservative working capital policies. Results are robust to unobserved heterogeneity and industry effects. The evidence suggests that operating and financing conditions should be considered when evaluating working capital behavior, not just industry averages. Additionally, industry concentration magnifies the effect of sales growth.     

会计信息可比性与劳动收入份额北大核心

利用2006-2019年沪深A股数据,本文考察了会计信息可比性对企业劳动收入份额的影响。研究发现,会计信息可比性的增强显著提高了企业的劳动收入份额,表明会计信息质量的提高有助于员工更好地分享企业的发展成果。进一步研究结果表明,(1)降低资本成本及增大自主研发强度是会计信息可比性提高企业劳动收入份额的两大作用路径;(2)会计信息可比性的增强主要提高了普通雇员的劳动收入份额,对高管劳动收入份额的影响并不显著;(3)会计信息可比性对劳动收入份额的影响存在一定异质性,当企业自身融资约束程度较高、信息透明度较低,或可比公司的会计盈余质量较强时,会计信息可比性与劳动收入份额的正相关关系更强;(4)会计信息可比性通过提高劳动收入份额,提升了企业的价值创造能力。     

Technological change and the growing inequality in managerial compensation

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades. This increased sensitivity of compensation to performance provides large, successful firms with the glue to retain their managers and the organizational capital embedded in them.     

An investigation of the asymmetric link between credit re-ratings and corporate financial decisions: “Flicking the switch” with financial flexibility

Using a large sample of non-financial US listed firms over the period from 1985 to 2009, we analyze the interactive effect of financial flexibility and credit re-ratings on corporate investment and financing decisions. Essentially, we document that financial flexibility (inflexibility) “flicks the switch” in the re-rating upgrades (downgrades) scenario. Specifically, a credit rating upgrade (downgrade) for financially flexible firms is followed by a reduction (no change) in their cost of capital, an increase (no change) in their capital expenditure and an increase (no change) in their net debt versus net equity issuance. In contrast, a rating upgrade (downgrade) for financially inflexible firms is followed by an insignificant change (an increase) in their cost of capital, an insignificant change (a decrease) in their capital expenditure and an insignificant change (a decrease) in their net debt versus net equity issuance. We offer plausible explanations for these asymmetric relations.     

Related-party transactions and corporate governance: The evidence from the Taiwan stock market

In this study we explore how corporate governance affects the level of related-party transactions (RPTs) and how it moderates the motives of using RPTs in Taiwan, an ownership-concentrated economy. The empirical results show that good corporate governance is effective in constraining RPTs with the negative relation being sustainable across different measures of RPTs (raw, residual and industry-adjusted RPTs) and across different types of RPTs (related sales, lending and guarantee, and related borrowings). The propping-up hypothesis indicates that the level of related sales is positively correlated with the condition that firms plan to issue seasoned equity next period and the condition of a decrease in the reported earnings. The internal capital market hypothesis indicates that the level of related lending and guarantee (related borrowing) is negatively (positively) correlated with the condition of an increase in capital expenditure and an increase in net working capital. The empirical results lend partial support to the two hypotheses. More importantly, we find that corporate governance moderates the relation between the motives and the level of RPTs.     

The Voluntary Restructuring of Large Firms In Response to Performance Decline

Much of the research on corporate restructuring has examined the causes and aftermath of extreme changes in corporate governance such as takeovers and bankruptcy. In contrast, we study restructurings initiated in response to product market pressures by “normal” corporate governance mechanisms. Such “voluntary” restructurings, motivated by the discipline of the product market and internal corporate controls, will play a relatively more important role in the 1990s due to a weakening in the discipline of the takeover market. Our data suggest that the firms retrenched quickly and, on average, increased their focus. There is no evidence of abnormally high levels of forced turnover in top managers. There is, however, a significant and rapid cut of 5% in the labor force. Further, the cost of goods sold to sales and labor costs to sales ratios both decline rapidly, more than 5% in the first two years after the negative earnings. The firms cut research and development, increased investment, and also reduced their debt/asset level by over 8% in the first year after the negative earnings. We also document the reasons management and analysis reported for the negative earnings. Overwhelmingly the firms blame bad economic conditions and, to a lesser extent, foreign competition.     

注册制改革会产生溢出效应吗?——基于企业投资行为的视角北大核心

提高资本市场资源配置效率是注册制推行的重要目标之一,本文以此为出发点,构建了多期倍分法(DID)模型,探究了科创板(试点注册制)公司信息披露对同行业公司的溢出效应。研究发现,科创板公司信息披露会促使同行业公司提高研发投入,且该效应随着信息披露内容的丰富、精确度的增加而有所提高。机制分析表明,该溢出效应源自信息不确定性的降低和竞争压力的产生。同时,创板信息披露提高了同行业公司管理层对创新的认知程度以及增加了媒体关注度,进而促进公司研发投入。进一步研究发现,同行业公司研发投入受到正向溢出效应影响的同时,固定资产投入有所降低,投资结构的改变最终导致投资效率提升,显著抑制了过度投资。本文为强制性信息披露的溢出效应研究提供了因果证据,也为注册制改革政策效果的全面评估提供了支持。     

The relationship between capital structure and product markets: evidence from New Zealand

The main purpose of this paper is to investigate whether the capital structure of New Zealand firms influences their product-market performance in the period from 1984 to 2008. Our main findings are that the use of leverage by publicly listed New Zealand companies leads to an increase in relative-to-industry sales growth, but a decrease in relative-to-industry return on assets (ROA). We also conduct a reverse causality test by examining whether sales growth and ROA influence leverage. We find no evidence that sales growth has an impact on the use of debt, but significant evidence that ROA is negatively correlated with its use. Our results suggest that New Zealand firms use debt to compete more aggressively in their product markets, even though this strategy comes at a cost of lower relative-to-industry profitability. A possible explanation for this behavior is the more competitive trading environment that has developed in New Zealand over the last 25 years.     

Financial factors and firm growth: evidence from financial data on Taiwanese firms

We investigate the possible predictability of firm growth in Taiwan using cross-sectional data of financial factors for the years 1997 and 2003 via principal component analysis. Our results reveal that the 18 financial variables (sales growth rate, total assets, total sales, return on assets, return on equity, gross margin, operating cost minus depreciation divided by sales plus other trading income, acid test ratio, debt–equity ratio, time interest earned, average receivables per average daily sales, inventory, average payables per average daily sales, working capital, working capital as a fraction of total assets, long-term liabilities as a fraction of total assets, and sales as a fraction of net worth of the firm) that we employ bunch together into five different financial ratios for the years 1997 and 2003 that are stable between these years. These financial factors are short-term liquidity, return on investment, long-term liquidity, firm size and capital turnover. Regressing these ratio groups (extracted principal components) on firm growth, we find return on investment in the year 1997 was positively and significantly related to firm growth, while long-term solvency was negatively related to firm growth. In addition, smaller firms tended to grow faster. By 2003, larger firms grew faster than smaller ones and short-term liquidity was positively and significantly related to firm growth, while return on investment was no longer a significant determining factor. Our findings suggest that firms that finance internally or do not rely too heavily on indebtedness may end up growing slower during boom periods but they are the ones that survive and outperform after the bust.     

Made in the U.S.A.? A Study of Firm Responses to Domestic Production Incentives

How do U.S. companies respond to incentives intended to encourage domestic manufacturing? I study the Domestic Production Activities Deduction (DPAD), which was enacted in the American Jobs Creation Act (AJCA) of 2004 and was the third largest U.S. corporate tax expenditure as of 2017. Using confidential data from the U.S. Bureau of Economic Analysis, I find greater average domestic investment spending of $95.5–$143.6 million, but only within the sample of domestic‐only firms and not until 2010, when the greatest statutory DPAD benefits were available. Additional evidence suggests that U.S. multinational claimants invest abroad rather than in the United States and that the increased investment by DPAD firms is accompanied by a reduction in the domestic workforce, consistent with a substitution of capital for labor. I also show that the delayed investment response is due to firms engaging in other responses first, such as changing corporate reporting to shift income across time and borders. Quantifying the extent of these effects contributes to the literature that studies this tax deduction and informs policy makers as to the effectiveness of both manufacturing incentives and U.S. corporate income tax rate reductions in stimulating real domestic activity.     

R&D investments,capital expenditures,and earnings thresholds

Prior studies find that firms cut research and development (R&D) expense in response to earnings considerations. We extend this stream of research by documenting that firms narrowly achieving an earnings threshold also report unusually high capital expenditures. In addition, these firms’ total investments (R&D expense plus capital expenditures) do not vary in response to earnings thresholds, which suggests that, on average, reductions in R&D expense are offset by concurrent increases in capital expenditures. Lastly, our research design allows us to infer that the increased capital expenditures are largely R&D investments that are capitalized instead of non-R&D capital expenditures, suggesting that overall investments in R&D are relatively unchanged.