Does managerial ownership influence corporate social responsibility (CSR)? The role of economic policy uncertainty

To explore the drivers of corporate social responsibility (CSR), we investigate how managerial ownership influences CSR in the presence of economic policy uncertainty. Our results demonstrate that, when facing more economic policy uncertainty (EPU), firms with larger managerial ownership invest significantly more in CSR. This is in agreement with the risk mitigation hypothesis, where CSR offers insurance‐like protection against adverse events. When economic policy uncertainty is not considered, however, we find that managers with higher ownership stakes invest significantly less in CSR, suggesting that CSR is driven by the agency conflict. As managers own more equity, they are subject to greater costs of CSR. Additional analyses confirm the results, including dynamic GMM, propensity score matching and instrumental‐variable analysis.     

Policy uncertainty and peer effects: Evidence from corporate investment in China

This study investigates whether economic policy uncertainty (EPU) magnifies peer effects in corporate investment in China and the economic mechanisms through which EPU may act upon this property. We examine this relationship by analysing a large sample of publicly listed companies in China for the period of 2009–2019, adopting the peer-firm-average idiosyncratic stock return to capture exogenous variations in peer firms’ investment activities. We demonstrate that peer effects are stronger when EPU is increasing in intensity. We also find that high EPU magnifies peer effects by decreasing the accuracy of firms’ signals regarding their investment opportunities, asymmetrically impacting their capacity to acquire information and exacerbating managers’ career concerns. We further show that increased EPU magnifies peer effects only for underinvesting firms, causing underinvestment to persist and retarding recovery from an economic downturn. Our investigation provides original evidence of how EPU influences corporate investment decisions through peer effects, contributing to the continuing debate on the role of EPU and corporate investment efficiency by establishing that the adoption of consistent and transparent economic policies optimize returns on a company’s investments, especially during an economic downturn.     

Corporate social network and corporate social responsibility: A perspective of interlocking directorates

This study aims to analyze the role of the corporate social network (CSN) derived from interlocking directors on a firm's corporate social responsibility (CSR) and further investigate the moderating role of economic policy uncertainty (EPU) in the institutional background of China. Empirical results show that an advantageous network position in a CSN can significantly encourage firms to undertake CSR. However, this effect is a nonlinear one. The increase in CSR is at a decreasing rate as CSN increases. Furthermore, the effect of CSN on CSR is less salient when EPU is high. This research guides managers on using the advantages of firms in CSNs and actively undertaking CSR to improve social and environmental sustainability substantially. In addition, this study also helps the government issue reasonable CSR evaluation standards and incentive policies and stabilize macroeconomic policies.     

Economic policy uncertainty and corporate financialization: Evidence from China

Using a quarterly sample of Chinese non-financial listed firms from 2007 to 2020, we find a U-shaped relationship between economic policy uncertainty (EPU) and corporate financialization. When economic policy uncertainty (EPU) is in an appropriate range, the increase of economic policy uncertainty (EPU) is unlikely to make firms increase financial assets investment. In contrast, the operational risk induced by too high economic policy uncertainty (EPU) will make firms more willing to invest in financial assets. Additionally, we show that the effect is more noticeable when firms are non-state-owned, have lower financing constraints, or are located in lower marketization regions. The results are robust after various specifications of variables, possible endogeneity issues, and sub-samples are considered.     

Do Chinese firms speculate during high economic policy uncertainty? Evidence from wealth management products

It has been well-documented that policy-related uncertainty has significant economic consequences. Studies show that US firms tend to delay investments and be conservative during periods of high economic policy uncertainty (EPU), but findings regarding Chinese firms suggest that they seem to act speculatively. This study examines the impact of policy uncertainty on firms' bank wealth management product (WMP) purchasing and helps better understand firm behaviour during high EPU. Using Chinese listed firms' bank WMPs purchasing data, we find that high EPU is associated with a higher probability of bank WMPs being purchased. Moreover, a 100% increase in EPU is associated with an 11.14% increase in average bank WMP holdings in the sample. We provide evidence that Chinese firms are not speculative, but prudent, and use bank WMP holdings to hedge the risk of policy uncertainty. Additionally, we show that financial constraints are the channels through which EPU affects bank WMP holdings.     

ECONOMIC POLICY UNCERTAINTY AND BOARD MONITORING: EVIDENCE FROM CEO TURNOVERS

We examine whether economic policy uncertainty (EPU) affects a board's chief executive officer (CEO) replacement decision. We find that high EPU reduces the likelihood of forced CEO turnover. Our results support the idea that performance assessment may be more difficult when uncertainty is high. We provide evidence that succession planning may be important to firms in reducing the effects of EPU, as firms with an identifiable heir apparent are not influenced by high EPU. Likewise, voluntary CEO turnovers are not affected by EPU. Overall, our results provide evidence that boards make personnel decisions in response to external macroeconomic pressures.     

Informative or distracting: CSR disclosure of peer firms and analyst forecast accuracy

We investigate the relationship between the CSR disclosure of peer firms and the analyst forecast accuracy of the focal firm. We find a negative association between peer CSR disclosure and analyst forecast error of the focal firm, indicating that peer CSR disclosure is informative. This negative association is more pronounced when the information environment of the focal firm is worse, when the correlation in fundamentals between the focal firm and its peers is higher, when the business of the focal firm is less complex, when the focal firm has more expert analyst coverage, when the focal firm's financial performance is more sensitive to CSR engagement, or when the quality of peer CSR disclosure is higher. Overall, we show that peer CSR disclosure conveys value-relevant information about the focal firm. Our study enriches the literature on both analyst forecasts and peer information, and we also provide important implications for practitioners in understanding the role of CSR disclosure in capital markets.     

Is U.S. economic policy uncertainty priced in China's A-shares market? Evidence from market,industry, and individual stocks

This paper is motivated by Bali, Brown, and Tang (2017) who find U.S. economic policy uncertainty (EPU) is priced in the cross-section of U.S. stock returns, and uses weekly data from March 2006 to April 2016 to study whether shocks in U.S. EPU also influence prices of China's A-shares from a market, industry, and individual stock perspective. Our methodology relies on an ARMA (1,1) model to extract shocks in the U.S. EPU series and a GARCH (1,1) model to examine how returns of China's A-shares respond to these shocks after controlling for business conditions proxied by term and credit spread in China. Generally, we find that shocks in U.S. EPU significantly and negatively explain returns of Chinese A-shares with a lag of one week. In addition, the market index containing small and growth stocks is more sensitive to shocks in U.S. EPU than the index containing big and value stocks. Furthermore, we find that firms in manufacturing, information technology, and media industries in China are more sensitive to shocks in U.S. EPU, while firms in agriculture and real estate industries respond less to shocks in U.S. EPU. Finally, China's A-shares which decline more in response to shocks in U.S. EPU have higher returns, smaller market capitalization, weaker operating profitability, higher asset growth, and better past year's cumulative returns. Overall, our findings show that investors in the Chinese A-shares market require a premium to hold stocks that are sensitive to shocks in U.S. economic policy uncertainty.     

Economic policy uncertainty and financial statement comparability

We examine the implications of economic policy uncertainty (EPU) for financial statement comparability. We posit that the increased difficulty of estimating future cash flows and the increased opportunity for earnings management with increased EPU reduce the quality of earnings and its comparability. Consistent with this reasoning, we find a negative relation between earnings comparability and lagged EPU. Further, the association between EPU and comparability is more negative for firms that have poorer accruals quality and higher earnings volatility. We do not find that accounting policy choice is systematically related to the association between EPU and comparability. These results suggest that cross-sectional differences in accounting estimates rather than accounting policies influence the relation between EPU and comparability.     

Economic policy uncertainty exposure and stock price bubbles: Evidence from China

We explore the impact of economic policy uncertainty exposure (hereafter, EPU exposure) on stock price bubbles. We find that there exists a significantly positive relationship between EPU exposure and stock price bubbles. This result is still significant after a series of robustness checks. Moreover, the relationship between EPU exposure and bubbles is due to retail investors' speculative trading behavior. In addition, optimistic aggregate states and firms with higher information uncertainty characteristics strengthen the EPU exposure effects. Overall, we provide unique evidence regarding the impact of uncertainty on stock prices.     

Economic policy uncertainty,corporate investment decisions and stock price crash risk: Evidence from China

We examine the relationship between economic policy uncertainty (EPU) and stock price crash risk via the corporate investment in Chinese listed firms. Results show that higher EPU is associated with lower crash risk. Firms increase financial asset holdings and reduce overinvestment when EPU rises, leading to lower future crash risk. State-owned enterprises (SOEs) and firms with lower management incentives tend to reduce overinvestment, whereas non-SOEs tend to increase financial asset holdings. Thus, firms tend to be cautious in their investments when EPU is high, which reduces crash risk. Our study provides new insights into the validity of the Lucas critique in China.     

Economic policy uncertainty and corporate inventory holdings: evidence from China

We investigate the impact of economic policy uncertainty (EPU) on corporate inventory holdings in China over the period 2007–2017. We find that EPU leads firms to significantly reduce inventory holdings and this effect is particularly pronounced among non-state-owned enterprises. The adjustment of inventory holdings enhances firms’ operating and market performance consequently. In addition, firms with greater financial constraints or stronger external governance are more affected by EPU. Further exploration shows that EPU induces high precautionary cash holdings, which crowds out inventories. Our results illustrate that firms reallocate between inventories and cash to cope with uncertainty associated with economic policy changes.     

Does economic policy uncertainty drive the initiation of corporate lobbying?

Economic policy uncertainty (EPU) raises firms' incentives to lobby policymakers to access policy information and influence policy outcomes. Surprisingly, we find that non-lobbying firms are less likely to initiate lobbying during periods of heightened EPU. The evidence is consistent with our time-varying barriers hypothesis that entry barriers to lobbying increase with EPU. We verify that the negative effect of EPU on lobbying initiation arises through the channels of lobbying entry expenses and returns to experience. Furthermore, lobbying entry expenses are not large, implying that the returns to experience channel is likely a more serious barrier preventing non-lobbying firms from initiating lobbying. We also find that facing high lobbying entry barriers, non-lobbying firms go for alternative political activities, such as hiring politically connected directors.     

Economic policy uncertainty and analysts’ forecast characteristics

We examine the influence of economic policy uncertainty (EPU) on the characteristics of analysts’ earnings forecasts over a thirty-year period, spanning a wide variety of political and economic conditions. Motivated by both theory and empirical evidence that suggest a decline in the quality of the information environment for firms as EPU increases, we establish that analysts’ forecast errors increase with EPU, as does the degree of forecast dispersion. Increased error and dispersion persist after controlling for several competing sources of economy-wide uncertainty. Cross sectional analysis exploring heterogeneity in forecast quality across both analyst and firm characteristics establishes that forecast error and dispersion increase with EPU across a broad spectrum of firms and levels of analyst expertise. We control for analysts’ experience overall and the years spent covering a particular industry and firm. Five alternative methods for classifying firms as policy sensitive versus policy neutral provide consistent evidence that analyst forecast errors and dispersion increase with EPU, even for firms not deemed to be particularly sensitive to policy.     

Equity market response to natural disasters: Does firm's corporate social responsibility make difference?

This study investigates the role of corporate social responsibility (CSR) in explaining firms' stock performance in the wake of natural disasters in the United States. Using event study and multivariate regression analyses, we find that market performance of CSR firms is better than that of non-CSR firms when such disasters occur. We also highlight the importance of environmentally friendly practices in driving the performance of CSR firms. Our results indicate that firms practicing environmental CSR are more resilient to such disasters than nonenvironmental CSR firms. Cross-sectional analyses show that such positive market reaction of CSR firms is more pronounced when firms have low financial constraints, low information asymmetry, and high social capital.     

Economic policy uncertainty and the cost of capital

This paper examines the impact of economic policy uncertainty (EPU) on the cost of capital in China. We find that an increase in EPU results in a significantly higher cost of capital and this impact is mainly through increasing the cost of equity instead of the cost of debt. There is no significant difference between the impact of EPU on state-owned enterprises (SOEs) and the one on private firms, but a stronger impact on large firms than on small firms is found. Further analysis suggests that the stronger impact on large firms occurs only in private firms instead of SOEs. We provide and test several channels through which EPU might affect the cost of capital. Our results suggest that EPU influences the cost of capital through increasing information asymmetry and reducing the quality of internal controls.     

经济政策不确定性如何影响企业出口决策？——基于出口频率的视角

出口频率作为出口决策的重要一环,是企业出口扩张的新边际,也是出口变化的“晴雨表”。本文在随机存货模型的基础上,考察了经济政策不确定性对企业出口频率的影响及其传导渠道,并采用2000-2006年工业企业数据库与海关数据库的匹配数据进行实证检验,结果发现:目的国经济政策不确定性增加会显著降低企业出口频率,且这一影响存在部分惯性效应;经济政策不确定性通过贸易成本、存货成本和市场需求波动共同影响企业出口频率的中介效应十分显著,其中贸易成本是最重要的传导渠道,占比达到19%以上;如果进一步考虑目的国、产品和企业异质性,会发现出口目的国经济发展水平较高、出口产品为中间品和消费品的企业,其出口频率受经济政策不确定性的影响较小。因此,政府和企业应高度关注出口频率的变化趋势,合理应对经济政策不确定性对出口决策的外部冲击。     

Pre-deal differences in corporate social responsibility and acquisition performance

Drawing on the portability theory, we examine how the pre-deal gap in corporate social responsibility (CSR) between the bidder and target affects announcement returns in the international takeover market. We find that the higher the bidder's CSR scores relative to the target's, the higher is the synergy captured by combined cumulative abnormal returns of bidders and targets. It supports our hypothesis that synergistic gains are higher when the ex-ante bidder-target CSR gap is positive. The results also show that the synergy effect of CSR is not shared between bidder and target firms; thereby, bidders earn abnormal returns while targets lose. We further document that the acquirers with higher CSR practices before the acquisition are more likely to engage in related and non-cash-financed deals, and capital markets reward these acquisition choices. Finally, the results show that a positive CSR gap reduces the takeover premium and the time taken to complete the deal. Overall, the results suggest a positive valuation for the shareholders of the combined firm resulting from the portability of higher CSR practices from bidders to targets. Our results are subject to a battery of robustness tests, including alternative measures of combined returns and CSR, and tests for endogeneity.     

The Effects of Corporate Social Responsibility on Real and Accrual‐based Earnings Management: Evidence from China

This study examines the relationship between Chinese firms’ corporate social responsibility (CSR) and their earnings management (EM) practices. As China rapidly emerges as one of the largest exporters as well as importers, an understanding of Chinese CSR practices is increasingly important not only to Chinese authorities and firms, but also to international stakeholders. However, Chinese CSR has been largely underestimated in previous studies, and this CSR–EM relationship has never been sufficiently examined with regard to Chinese firms. In addition, this study measures the level of EM using two different methods: accrual‐based EM (AEM) and real activity‐based EM (REM). In general, REM is regarded as more costly but less detectable, while AEM is regarded as less costly but more detectable, owing to the fact that AEM is subject to greater scrutiny from auditors and regulators. The results show that Chinese firms’ enhanced CSR generally decreases their EM practices. On the contrary, state‐controlled firms and firms operating in more institutionally developed regions are more likely to engage in REM, while increasing their CSR activities. These findings provide new evidence that managers in Chinese firms tend to opportunistically adopt CSR practices according to the firm's institutional environment.     

When to go abroad: economic policy uncertainty and Chinese firms’ overseas investment

We study how economic policy uncertainty (EPU) influences firms’ overseas investments for Chinese listed companies. We find a significant negative relationship between EPU and firms’ overseas investments after controlling for firm characteristics and macroeconomic variables. Chinese firms seem to reduce their overseas investments on fixed income securities when facing domestic policy uncertainty. The negative relationship is pronounced for financially constrained firms, firms relying on government subsidies and with low overseas revenues, and SOEs. Firms operating in high marketisation regions can mitigate the negative effect of EPU on firms’ overseas investments. Our results remain significant when considering endogeneity problems.