Do ESG Controversies Matter for Firm Value? Evidence from International Data

The aim of this paper is to investigate the relationship between environmental, social, and governance (ESG) controversies and firm market value. We use a unique dataset of more than 4000 firms from 58 countries during 2002–2011. Primary analysis surprisingly shows that ESG controversies are associated with greater firm value. However, when interacted with the corporate social performance (CSP) score, ESG controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive. Building on this evidence, we attempt to explore the channels through which CSP may enhance market value. Conducting sample split analysis indicates that higher CSP score has an impact on market value only for high-attention firms, those firms which are larger, perform better, located in countries with greater press freedom, more searched on the Internet, more followed by analysts, and have an improved corporate social reputation. Thus, our findings provide new insights on the role of firm visibility through which firms can profit from their CSP.     

Do Credible Firms Perform Better in Emerging Markets? Evidence from China

Prior research suggests that corporate credibility is associated with firm financial performance in developed countries. This article examines whether corporate credibility is related to firm performance using Economic Observer’s rating of corporate credibility in China, the largest emerging market in the world. Based on a four-stage valuation model, we find that more reputable and credible firms outperform those with low ratings by almost 20% in 3-year stock returns and have better 3-year net profit margins, return on equity, and sales growth. This study is the first to directly examine the relationship between corporate credibility and firm performance in emerging markets such as China, and our results confirm that firms with high credibility exhibit better financial and market performance at least in the following 3 years.     

Do National Cultures Matter for External Audits? Evidence from Eastern Europe and the Middle East

Journal of Business Ethics - This study aims to examine the relationship between national cultural dimensions and the probability of a firm being externally audited. It uses a large set of...     

Does Policy Instability Matter for International Equity Markets?

We test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality of bureaucracy (BURLMH). Both factors are significantly and positively related to equity returns and the BURLMH factor carries a monthly risk premium of 65 basis points. A country with weaker economic and institutional conditions has more risk exposure to the BURLMH factor whereas a country with high democracy has more risk exposure to the GOVLMH factor. Overall, our study reveals the importance and complexity of policy risk in international equity markets.     

Do Market‐Supporting Institutional Characteristics Explain Firm Performance? Evidence from Emerging Markets

The importance of market‐supporting institutions and their impact on business investment and economic growth has gained the attention of researchers and practitioners alike. In this study, we extend this research by capturing the impact of the quality of regulative institutional characteristics on firm performance in an emerging market context. We use a sample of 26,493 emerging market firms from 91 countries over the years 2003 to 2010 and test for the relationship between government effectiveness, regulatory quality, rule of law and control of corruption, and firm performance. Results indicate that governmental effectiveness and regulatory quality impact performance outcomes positively, while rule of law impacts performance negatively. These findings provide important insights and encourage managers and public policymakers to be cognizant of the impact of these factors and adapt accordingly. © 2014 Wiley Periodicals, Inc.     

Does Founders' Human Capital Matter for Innovation? Evidence from Japanese Start‐ups

Using an original questionnaire survey, this paper explores whether and how founders' human capital affects the innovation outcomes of start‐ups. We found that founders with greater human capital are more likely to yield innovation outcomes. Because certain types of human capital may boost research and development (R&D) investment, which possibly results in innovation outcomes, we estimate the determinants of innovation outcomes by an instrumental variable probit model. Our findings suggest that specific human capital for innovation, such as prior innovation experience, is directly associated with innovation outcomes, whereas generic human capital, such as educational background, indirectly affects innovation outcomes through R&D investment.     

Does Religion Matter to Owner-Manager Agency Costs? Evidence from China

In China, Buddhism and Taoism are two major religions. Using a sample of 10,363 firm-year observations from the Chinese stock market for the period of 2001–2010, I provide strong and robust evidence that religion (i.e., Buddhism and Taoism on the whole) is significantly negatively associated with owner-manager agency costs. In particular, using firm-level religion data measured by the number of religious sites within a radius of certain distance around a listed firm’s registered address, I find that religion is significantly negatively (positively) associated with expense ratio (asset utilization ratio), the positive (reverse) proxy for owner-manager agency costs. This finding is consistent with the following view: religiosity has remarkable effects on the way how an individual thinks and behaves, and thereof can curb managers from unethical business practices. Moreover, my findings suggest that the negative association between religion and owner-manager agency costs is attenuated for firms with strong external monitoring mechanisms such as higher Marketization and high-quality auditors. Furthermore, after separating Buddhism from Taoism, my finding indicates that above conclusions are only available for Buddhism, suggesting that different religions may have asymmetric influence on owner-manager agency costs. Above results are robust to various measures of religiosity and a variety of robustness checks.     

Does the Internet Accelerate the Integration of Domestic Markets? Evidence from China

This paper employs a hybrid methodology that combines case study and econometric research to examine the impact of the Internet on domestic market integration. There is not much research on this issue in the literature. From the multi-case analysis, this paper firstly obtains two main indications which are clear yet contrary to each other about how the Internet influences the market integration process. To be specific, although the Internet has both the ability and the potential to promote market integration, it is not always effective and could even harm this process due to several constraints. Using a provincial-level panel dataset from 2007 to 2013 in China, this paper empirically investigates whether the Internet plays a positive role in the market integration process. Contradictory to common expectations, we do not find any empirical evidence that the Internet accelerates the integration of domestic markets. Thus, when compared with taking advantage of Internet tools, manmade obstacles to market integration that exist in current trading systems and business models deserve more attention.     

Do Returnee Executives Value Corporate Philanthropy? Evidence from China

Journal of Business Ethics - The initial online publication contained a typesetting mistake. The original article has been corrected.     

Do Auditors Applaud Corporate Environmental Performance? Evidence from China

This paper examines the relationship between turnover among chief executive officers (CEOs) and corporate sustainability performance (CSP) by identifying the influence of two major types of succession to the top job (internal or external promotion) and the reasons for change. Our model also integrates the firm’s past prioritization of CSP and the impact of a company’s participation in the Global Reporting Initiative (GRI). Upper echelons theory and agency theory frameworks are adopted to understand CSP. Using an analysis of panel data for 88 public companies across 13 years in France, we find that a change of chief executive has a positive and significant effect on CSP 5 years after the change. This positive effect is stronger when the new CEO is recruited from outside the firm. The impact on CSP is invariably positive and significant, except for voluntary departures. The arrival of a new CEO affects CSP less when the firm has already achieved a high standard of CSP and participates in the GRI. These results are obtained after controlling CSP determinants already validated in the literature (financial performance, size, profitability, etc.). The findings show that expectations of CEOs are not solely economic and financial but also concern CSP. In terms of governance, they should prompt shareholders looking to strengthen CSP to choose new CEOs from outside the firm and to encourage the firm to participate in the GRI.     

Do remittances spur economic growth? Evidence from developing countries

This paper provides original econometric evidence on whether international remittance transfers spur economic growth based on data for a sample of 49 developing countries during the period 2001-2013. Using Panel Smooth Transition Regression (PSTR), difference and system generalized methods of moment models, we find two main results. First, remittances have a positive and significant impact on economic growth in developing countries, while aid and foreign direct investments have insignificant impact. Secondly, as far as the nonlinear relationship is concerned, we find two extreme regimes with a sharp shift characterizing the remittance–growth relationship, with respect to conditional variables, where the remittances effects are positive and significant under the first regime and negative or insignificant under the second. Our findings suggest that the nonlinear relationship between remittances and growth mainly depends on financial development and investment, and less on remittance level and consumption.     

Does Size Matter in Firm Performance? Evidence from US Public Firms

This paper reexamines the determinants of firm performance and, in particular, the role that firm size plays in profitability. A fixed‐effects dynamic panel data model for over 7,000 US publicly‐held firms during the period 1987–2006 provides evidence that profit rates are positively correlated with firm size in a non‐linear manner, holding an array of firm‐ and industry‐specific characteristics constant. In addition, industry‐specific fixed effects play a negligible role in the presence of firm‐specific fixed effects.     

Do Lenders Value Corporate Social Responsibility? Evidence from China

Drawing on risk mitigation theory, this article examines whether the improvement of firms’ social performance reduces debt financing costs (CDFs) in China, the world’s largest emerging market. Employing both the ordinary least square (OLS) and the two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the CDF when firms’ CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.     

Does Real Exchange Rate Volatility Affect Foreign Direct Investment? Evidence from Four Developed Economies

This study examines the impact of shocks to exchange rate uncertainty (volatility) on foreign direct investment (FDI) in Canada, Japan, the United Kingdom, and the United States. The analysis is conducted using vector autoregressive models that contain the price level, real output, the real exchange rate, the volatility of the real exchange rate, the interest rate, and FDI. The results from variance decompositions yield public policy implications. In Canada, Japan, and the United States, innovations to exchange rate uncertainty explain significant portions of the forecast error variance in FDI at longer time horizons. The impulse response functions indicate that, to the extent that shocks to exchange rate volatility have an impact on FDI, the impact is positive and takes place with a lag.     

Do mergers and acquisitions promote trade? Evidence from China

Many studies have shown that mergers and acquisitions (M&A) raise firms' productivity. Few researches investigate whether exporters can enhance export performance after M&A through higher levels of efficiency. Based on detailed information on M&A activities of Chinese firms, China's customs trade data and National Bureau of Statistics surveys, we investigate the causal effect of M&A on trade performance. In particular, the value and the volume of firm exports, product quality, product scope and the number of export destinations have been examined. We find positive and significant effects of M&A on all the examined indicators of export performance. These findings are generally robust to a variety of robustness checks. We further observe that state-owned firms are the least likely to benefit from M&A. We also obtain evidence that firms benefit more from M&A deals if they are targets or merge with foreign firms. Overall, this paper is to our knowledge the first study that uses micro-level data in multiple industries to examine the relationship between M&A and exports of heterogeneous firms. Our results deepen our understanding of the consequences of M&A by suggesting another potential benefit, and hence provide policy implications for merger regulation.     

Do Strategic Motives Affect Ownership Mode of Foreign Direct Investments (FDIs) in Emerging African Markets? Evidence from Ghana

The objective of this study is to examine the influence of ownership, location, and internalization‐specific factors, as well as strategic motives on ownership choice of foreign subsidiaries in Ghana. The authors use a quantitative methodology in order to statistically explore the relationships between dependent and independent variables by using the logistic regression model. The analysis was based on 115 manufacturing investments made by multinational corporations (MNCs) from different countries in 1994–2013. The results indicate that contractual risk leads to the choice of whollymowned subsidiary while cultural distance and country risk lead to the choice of the joint venture. In the case of the motives, efficiency‐seeking and resource‐seeking FDIs lead to the choice of the joint venture. © 2016 Wiley Periodicals, Inc.     

Does Corporate Social Responsibility Matter in Asian Emerging Markets?

This study addresses the question whether corporate social responsibility (CSR) matters in Asian Emerging Markets. Based on CSR scores compiled by Credit Lyonnais Securities (Asia), we assess the CSR performance of major Asian firms over a period of 3 years, from 2001 to 2004. The results show that there is a positive and significant relation between CSR and market valuation among Asian firms. We further find that CSR is positively related to the market valuation of the subsequent year. More importantly, Asian firms are rewarded by the market for improving their CSR practice.