Does environmental law enforcement matter for financial reporting quality?

The Chinese government’s recent Environmental Inspection Program (EIP) eliminates a layer of regulatory actions and holds local government officials accountable for enforcement of environmental laws. We examine two aspects of the impact of the EIP on financial reporting quality. First, we derive a simple analytical model to show that the level of earnings management (EM) depends on the cost and probability of EM detection. This increase in environmental law enforcement (due to the EIP) raises the cost of environmental violation to a firm and managers. To respond to the increased costs, a firm engages in less EM. Second, consistent with the model prediction, we find firms subject to the EIP engage in less EM than otherwise equivalent firms located in non-EIP jurisdictions. The effect of the EIP on EM is more pronounced for firms with adverse agency problems and poor internal controls. Additional analysis suggests that air quality level is a moderating factor for the impact of the EIP on EM. Collectively, using the natural experiment of the EIP, we find a new determinant of EM. Environmental law enforcement deters EM and enhances financial reporting quality.     

Does the interaction between the knowledge management process and sustainable development practices boost corporate green innovation?

Green innovations are being deployed in manufacturing industries to promote organisational sustainability by embracing sustainable development practices (SDPs). However, little is known about how corporate green innovation (CGI) is influenced by the knowledge management process (KMP). To fill this gap, we have developed a multidimensional framework based on the resource-based view (RBV) theory that provides a foundation for sculpturing the process by which KMP was observed to capture and sustain CGI through SDPs. Data were collected from 393 respondents of large- and medium-sized manufacturing corporations in Pakistan and analysed using partial least squares structural equation modelling (SEM) and fuzzy set qualitative comparative analysis (fsQCA). This study provides several key findings. First, KMP dimensions (acquisition, dissemination and application) significantly improve the SDPs' dimensions (environment, economic and social). Second, SDP dimensions play a significant role in achieving CGI. Third, the implementation of SDPs partially mediates the relationship between the KMP and CGI. Furthermore, the fsQCA results signify the robustness of all integrated constructs. Our results demonstrate that investing in and adopting the latest technologies and sustainable practices are not only valuable for long-term success but the soft concerns such as managing organisational knowledge are also vital in the current knowledge-based economy. Finally, in light of our findings, theoretical and managerial implications, with propositions for future studies, have been provided at the end of the paper.     

Integrated reporting of environmental,social, and governance and financial data: Does the market value integrated reports?

The concept of reporting nonfinancial information within the annual report, so‐called Integrated Reporting (IR) is a rising topic in reporting practice. Supporters claim that IR provides a better view regarding the value creation of a firm. This study investigates the value relevance of IR and the influence of certain characteristics such as assurance. Thus, this paper contributes to the existing literature by examining the actual advantages for firms when adopting an IR approach. The Ohlson model is applied for the market valuation of 50 companies of the STOXX Europe 50 between the years 2010 and 2016. The results of this study support the cost‐concerned school by showing a negative influence on the market value. Nonetheless, the study suggests that the quality of the reports is relevant for market valuation, as the negative effect is mitigated by the quality of the reports.     

Foreign banks and short-term macroeconomic fluctuations: Do financial development and regions matter?

In this paper, we investigate the association between bank integration, measured with the share of foreign banks in the banking industry, and macroeconomic volatility in emerging economies. We find a negative and significant relationship between bank integration and short-run fluctuations in output, consumption and investment, controlling for financial development, bank concentration and the real effective exchange rate. However, this relationship is found to be positive at high levels of financial development. We also explore the association at the regional level and show that the presence of foreign banks in Latin America is negatively and significantly correlated with macroeconomic volatility both in normal times and times of crisis. Despite widespread concerns in emerging Europe, which experienced greater financial vulnerability during the global financial crisis, we find no significant association between growth volatilities and bank integration.     

Entrepreneurial orientation,environmental sustainability and new venture performance: Does stakeholder integration matter?

Previous research has theorised that the link between entrepreneurial orientation (EO) and performance is mediated by environmental sustainability orientation (ESO). However, firm‐level factors that may moderate this relationship are lacking. This paper attempts to fill this gap by examining how and when EO enhances new venture performance by considering ESO as mediator and stakeholder integration as an important contingent factor. Using primary data obtained from 242 chief executive officers/entrepreneurs, it was found that the indirect relationship between EO and new venture performance is strengthened at high levels of stakeholder integration. Theoretical and practical implications are discussed.     

Sustainable development and financial institutions: Do banks' environmental policies influence customer deposits?

This paper investigates the relationship between the environmental policies taken by financial institutions and the choice of depositors on where to save their money. Prior research has shown that increases in the number of customers making deposits are driven by bank pricing policy and switching costs for depositors. By employing a dynamic panel data model, this study empirically tests how environmental performance influences the depositors' choice on where to put their money in a sample of worldwide financial institutions from 2011 to 2018. The main results suggest that there is a negative relationship between banks' environmental performance and customers' deposits. Furthermore, the banks that are the best at managing carbon emissions and at pursuing sustainable development pay lower interest rates on customer deposits.     

Board gender diversity and environmental,social, and economic value creation: Does family ownership matter?

Prior literature on firm value creation for stakeholders has oversimplified and narrowed the concept of value down to “economic returns.” Although economic returns are fundamental to a firm's core stakeholders (i.e., shareholders), other legitimate stakeholders want “value” beyond economic returns. We define stakeholder value as the financial and nonfinancial returns a firm can offer to its legitimate stakeholders, and empirically investigate whether board gender diversity (BGD) improves our multidimensional measure of value. Using Thomson Reuters' ASSET4 data for U.K.‐listed firms available from Eikon for the period 2007–2017, we report a significant positive relationship between BGD and stakeholder value creation. In particular, BGD increases social and environmental value creation in addition to economic returns. Furthermore, our results suggest that even though gender‐diverse boards are associated with stakeholder value creation in family firms, this is only conspicuous for environmental value creation. The findings suggest that although female directors cater to the interests of broader stakeholder groups, family ownership causes them to mainly focus on environmental stakeholders. The study provides important implications for regulators, stakeholders, and academic scholars.     

Does the reputation matter？ Corporate reputation and earnings quality

Good corporate reputations are critical not only because of the potential for value creation, but also because their intangible character makes replication by competing firms considerably more difficult. This paper tests the relationship between the reputation and the earnings quality. Through a partial correlation test and a regression test, I do find the evidence that the reputation is not only positively correlated with superior earnings quality, but also does have positive effect on superior earnings quality, as well as the superior total sales do in Chinese public companies.     

Trading income and bank charter value during the financial crisis: Does derivatives dealer designation matter?

Derivative markets have exploded over the last decade, remained active in the midst of the 2007–2009 financial crisis and continue to be dominated by a small group of bank holding companies (BHC). BHC motives for derivative usage are usually tied to hedging purposes (balance sheet risk management), trading purposes (profit motives) or some combination thereof. This paper examines the relationship between derivative trading income and bank charter value for 27 BHC between 2001Q1 and 2011Q3. We find that the impact of derivative trading income on bank charter value, using Tobin's Q, is very small and seems to be tied to BHCs derivatives dealer trading designation. We also find that trading incomes are a modest fraction of net operating revenue, highly volatile, and did not contribute to overall BHC income during the crisis.     

Does financial development stimulate environmental sustainability? Evidence from a panel study of 115 countries

This paper investigates the moderation effect of financial development (FD) on the environmental Kuznets curve (EKC). Using comprehensive panel data of 115 countries spanning the 1990–2016 period and dividing the countries into different income groups, the researcher found systematic differences in the relationship between significant indicators of environmental degradation and economic growth. More specifically, the interaction effect of FD on the relationship between gross domestic product (GDP) growth and CO₂ emissions are positive; nevertheless, the interaction effect of FD on the relationship between GDP squared and CO₂ emissions become negative for all income groups and therefore supports the EKC. Moreover, the interaction effect of FD is negative on the relationship of GDP with both CH₄ and PM_2.5 emissions in the middle‐income groups, whereas the interaction effect of FD on the relationship between GDP squared and PM_2.5 emissions are negative for the high‐income group. Our results suggest that FD can reduce environmental degradation without adversely impacting on growth.     

Environmental,Social and Governance investing: Does rating matter?

In the last decade, the demand for sustainable and social investments has improved. The mutual funds industry has responded to market needs by offering a number of investment products focused on Environmental, Social and Governance (ESG) companies. The aim of this article is to understand if an ESG score can actually be considered a valid criterion that portfolio managers could adopt, along with traditional risk–return optimisation, in selecting asset portfolios. The paper analyses the link between the performance and the ESG score of different sectoral portfolios (one for each sector of the Global Industry Classification Standard), entirely composed of ESG assets, in the search for a clear and strong positive correlation that could suggest an overall advantage to focus on an ex ante choice of assets with high ESG scores.     

Building dynamic capabilities in product development: How do contextual antecedents matter?

This paper contributes to elucidate the nature, antecedents and outcomes of dynamic capabilities in product development. Building on the organizational context literature, the paper uses an input–process–output framework to argue that a context characterized by a combination of autonomy, performance management, support and trust facilitates dynamic capabilities for continuous product development. Further, dynamic capabilities shape product development competences. Empirical evidence is provided by performing survey research with data collected from 80 product development efforts developed in Spain. The paper includes conclusions, limitations and future research potentials for those with an interest in supporting dynamic capabilities.     

Does clean technology weaken the environmental impact on the financial performance? Insight from global oil and gas companies

This study aims to clarify the relationship between environmental performance and financial performance by introducing clean technology as the moderating variable. We contest two major theories, natural resource-based view theory and neoclassical theory, to reveal a comprehensive understanding of environmental performance's impact on financial performance. The hypotheses are tested on 111 global oil and gas companies using dynamic panel generalized method of moments (GMM). Our analysis reveals three key findings. First, lower environmental performance leads to lower financial performance confirming the natural resource-based view theory. Second, clean technology has no significant effect on financial performance, arguing the marginal abatement cost. Finally, our results report that clean technology has no impact on increasing financial performance during high waste spills or high emissions. Theoretical and practical implications resulting from the adoption of clean technology to moderate the environmental impact on financial performance are also discussed.     

Green innovation to respond to environmental regulation: How external knowledge adoption and green absorptive capacity matter?

Although environmental regulations have been considered as important forces of conducting green innovation, how and under what conditions they affect green innovation are still unclear. Drawing from institutional theory, this study used survey data from 237 manufacturing firms in China to investigate how two dimensions of environmental regulations (i.e., command and control regulation and market‐based regulation) affect green product innovation and green process innovation. Further, this article examined the mediating role of external knowledge adoption and the moderating role of green absorptive capacity. Our results indicate that both command and control regulation and market‐based regulation have positive influences on external knowledge adoption. External knowledge adoption fully mediates these positive relationships. In addition, green absorptive capacity only strengthens the positive impact of market‐based regulation on external knowledge adoption. Our study contributes to institutional theory and green innovation literature.     

Do environmental,social, and governance activities improve corporate financial performance?

This study investigated the relationship between corporate efficiency and corporate sustainability to determine whether firms concerned about environmental, social, and governance (ESG) issues can also be efficient and profitable. We applied data envelopment analysis to estimate corporate efficiency and investigated the nonlinear relationship between corporate efficiency and ESG disclosure. Evidence shows that corporate transparency regarding ESG information has a positive association with corporate efficiency at the moderate disclosure level, rather than at the high or low disclosure level. Governance information disclosure has the strongest positive linkage with corporate efficiency, followed by social and environmental information disclosure. Moreover, we explored the relationship between particular ESG activities and corporate financial performance (CFP), including corporate efficiency, return on assets, and market value. We found that most of the ESG activities reveal a nonnegative relationship with CFP. These findings may provide evidence about voluntary corporate social responsibility strategy choices for enhancing corporate sustainability.     

Sustaining the sustainable development: How do firms turn government green subsidies into financial performance through green innovation?

The impact of government green subsidies on firms' green innovation behaviors and sustainable development has been recognized in the existing literature, but the deep relationship remains poorly understood. This study aims to examine the mechanism of how government green subsidies influence firms' financial performance via green innovation and how the mediating effect varies under different contingent conditions. Empirical results based on data of Chinese listed companies between 2006 and 2018 reveal that green subsidies have positive effects on green process and product innovation, but only green product innovation can rise higher financial performance, which further verifies that green subsidies positively influence financial performance through green product innovation rather than green process innovation. In addition, both higher absorptive capacity and higher market turbulence strengthen the indirect effect of green subsidies on firms' financial performance via green product innovation. Our study provides useful implications for enterprises by revealing the influence mechanism of green subsidies on financial performance through green innovation under different leveraging levels of internal and external conditions. It also provides basis for the government to formulate relevant environmental policies.     

Individual entrepreneurial orientation,value congruence,and individual outcomes: Does the institutional entrepreneurial environment matter?

Although entrepreneurial orientation (EO) at the firm-level is often conceptualized as a direct antecedent of performance, the findings of previous studies lending support to this association are inconsistent. Consequently, drawing on the attraction/selection/attrition and institutional theories and employing the moderated mediation analysis approach, this study conceptualizes the individual perception of a firm's EO or individual entrepreneurial orientation (IEO). It examines the direct and indirect effects of IEO on individual outcomes measured in terms of performance expectation, job involvement, and organizational commitment. More specifically, it examines whether these effects are mediated by value congruence and moderated by the institutional entrepreneurial environment to understand these inconsistent findings better. Using a sample of 398 environmentally concerned small and medium-sized enterprises (SMEs) in South Korea, partial least squares structural equation modeling (PLS-SEM), and the PROCESS macro were employed to analyzed the research model. This study finds that value congruence mediates the association between IEO and performance expectation, job involvement, and organizational commitment. The moderated mediation model analysis also suggests that the mediating role of value congruence increases as the level of the institutional entrepreneurial environment increases. These findings offer useful theoretical and managerial implications of the IEO on individual outcomes.     

Does the presentation reform of R&D expenses in China ease financial constraints in corporate innovation?

Focusing on a sample of 9387 observations in China over the period 2016−2019, this paper empirically examines whether the presentation reform of R&D expenses that is changed from notes to income statements, mitigates corporate financial constraints of Chinese listed companies. Findings offer evidence that the financial constraints of firms decrease after the policy change, which is owing to the alleviation of information asymmetry. Further analysis reveals that the effect of the presentation reform on financial constraints is less prominent among companies that are state-owned, audited by the “Big four” and of higher institutional ownership. Overall, our study provides evidence supporting the influences of the format reform of financial reports and has implications for information users, regulators, and standard setters.     

Does the quality of public-sponsored training programs matter? Evidence from bidding processes data

This paper analyzes the link between training quality and labor-market outcomes. Multiple proxies for training quality are identified from bidding processes in which public and private training institutions compete for limited public funding in Peru. Information about exact dates of program enrollment is analyzed to show whether the first-come-first-served assignment rule randomized eligible individuals across courses of varying quality. Generalized propensity score (GPS) is implemented to estimate dose–response functions in the context of multiple treatments. We find that beneficiaries attending high-quality training courses show higher earnings and better job-quality characteristics than either beneficiaries attending low-quality courses or nonparticipants. The returns are particularly robust for women, making the provision of high-quality training services cost-effective. Furthermore, the most important training attribute is expenditures per trainee. Class size and infrastructure are weakly related to the expected impacts, while teacher experience, curricular activities, and market knowledge seem to bear no relationship with the expected impacts. External validity was assessed by using five cohorts of individuals over an eight-year period.