Corporate political strategies

The paper offers a comprehensive and integrative review of the current literature on corporate political strategies sharing common boundaries with finance, accounting and corporate governance. While there appears to be a heightened interest among researchers in studying the value relevance of corporate political strategies [ Chen et al. (2010) , Goldman et al. (2009) , Cooper et al. (2010) , Richter et al. (2008) , Hochberg et al. (2007) , de Figueiredo and Edwards (2007) , Faccio and Parsley (2009) , and Myers (2009) among others], interestingly, finance and corporate governance scholars have yet to embrace the research on political strategies as part of their mainstream research. Taking a micro perspective at the firm level, we review the major scholarly works in the economics, finance and management disciplines with respect to the firm attributes shaping the corporate decision to engage politically, modes of corporate political participation, and the value impact of corporate political activity. The overarching theme of the review article is to integrate diverse – political economy and management – paradigms of corporate political participation and rationalize the value relevance within the corporate finance and corporate governance perspective. The paper also presents focused preliminary evidence on the determinants and value impact of corporate lobbying strategies. For the sample of 5452 firm‐year observations, the results indicate that while for large firms corporate lobbying may not be agency driven and may create value, for small firms, despite low shareholder rights associating with higher lobbying engagements, lobbying still relates positively to value added.     

THE IMPACT OF ACCOUNTING RESEARCH ON FINANCE

This paper assesses the impact of accounting research on finance using citational methods and content analysis. The data are 715 articles published in seven finance journals. In contrast to previous research of the influence of finance research on accounting, the results show relatively little impact of accounting research on finance. The limited impact of accounting on finance is principally provided by four accounting journals and a small group of accounting authors. The impact found is often the result of bridging papers, in which either finance articles have accounting authors, or vice versa. These results suggest a substantial disregard of ostensibly pertinent capital-markets accounting research by finance scholars. The reasons for finance’s disregard of this work, whether for reasons of perceived value, quality, or for other reasons, is unclear. However, it is apparent that accounting capital-markets research is not as influential in finance as might be expected.     

Exploring corporate governance research in accounting journals through latent semantic and topic analyses

The literature on corporate governance (CG) has been expanding at an unprecedented rate since major corporate scandals surfaced, such as Enron, WorldCom, and HealthSouth. Corresponding with accounting's important role in CG, accounting scholars increasingly have investigated CG in recent years, so the body of literature is growing. Although previous attempts have been made to summarize extant literature on CG via reviews, none of these attempts has utilized recent developments in text analyses and natural language processing. This study uses latent semantic and topic analyses to address this research gap by analysing abstracts from 1,399 articles in all accounting journals that the Australian Business Deans Council (ABDC) has rated A and A*. The ABDC journal list is widely recognized as a journal‐quality indicator across many universities worldwide. The analyses revealed 10 distinct research topics on CG in the ABDC's top accounting journals. The results presented include the five most representative articles for each topic, as distinguished by topic scores. This study carries important practice and policy implications, as it reveals major research streams and exhibits how researchers respond to various CG problems.     

Finance journal rankings and tiers: An Active Scholar Assessment methodology

This study uses respondent data from a web-based survey of active finance scholars (45% response rate from 37 countries) to endogenously rank 83 finance journals by quality and importance. Journals are further tiered into four groups (A, B, C and D) and stratified into “upper”, “middle” and “lower” tier categories (e.g. A+, A and A−) by estimating a nested regression with random journal-within-tier effects. The comprehensive and endogenous ranking of finance journals based on the Active Scholar Assessment (ASA) methodology can help authors evaluate the strategic aspects of placing their research, facilitate assessment of research achievement by tenure and promotion committees; and assist university libraries in better managing their journal resources. Study findings from active researchers in the field also provide useful guidance to editorial boards for enhancing their journal standing.     

CAFR 1999–2021, the past two decades and a look ahead

The China Accounting and Finance Review (CAFR) was jointly established in 1999 by the Hong Kong Polytechnic University and Tsinghua University. Over the past 22 years, CAFR has published original papers in accounting and finance with a focus on China-related research. In this article, we review the journal’s publishing patterns and the impactful articles it has published, with the aim of better understanding past research on China-related issues and recent publication patterns and trends as well as developing new insight that may inspire future submissions. We divide past CAFR articles by topic into six groups: (i) information disclosure; (ii) auditing; (iii) corporate governance; (iv) market efficiency; (v) corporate finance; and (vi) miscellaneous. We use these categories as the basis of our review for articles published before 2020. We also summarize articles by their regional setting, research methodology, and authors’ university affiliation. We then highlight the contributions of a few impactful CAFR articles that are actively cited in both the Chinese and English literature. We complement the literature review by going over China’s financial stability research in JFS. We also compare CAFR with other major accounting and finance journals in the Asia-Pacific region. CAFR stands out by welcoming research using a diversity of regional settings and research topics. Finally, we discuss the new editorial strategies that began in 2020. Under the new editorial policy, CAFR now publishes more non-China and more cross-disciplinary studies than it used to. We review several recent publications to demonstrate the change. Going forward, we intend to call for the publication of more high-quality papers in accounting and finance that are not restricted to a region, area, or methodology providing new insights into accounting and finance.     

Structuration theory in accounting research: Applications and applicability

Ever since Giddens’ structuration theory (ST) was introduced into the accounting literature some 25 years ago, it has strengthened its position as one of the major schools of thought used to explore accounting as organizational, social and political phenomena. The purpose of this study is to review how ST has been applied, and can be applied, in this sizeable literature. Overall, the review of some 65 published papers, suggests that not only has ST contributed to challenge the assumptions of ‘inherent and functional’ features of accounting systems per se characterizing mainstream research, but also to develop other alternative theoretical perspectives. However, our review also suggests several limitations. These include that the accounting community has not really worked as a collective to develop a structurationist understanding of accounting practices, and that most researchers remain largely uncritical to ST as a theory. We also find that accounting scholars have not yet developed a mutual understanding of how to interpret ST (i.e. there are conceptual unclarities and even inconsistencies), or how to apply ST methodologically in empirical research. Based on these limitations, and the identification of a number of ‘black spots’ in the literature, we suggest several directions for future scholarly effort.     

Corporate social responsibility and earnings forecasting unbiasedness

We investigate the relationship between corporate social responsibility (CSR) and I/B/E/S analysts’ earnings per share (EPS) forecasts using a large sample of US firms for 1992–2011. Based on literature findings, we decompose the CSR effect into four factors: accounting opacity, corporate governance, stakeholder risk, and overinvestment. We find that all of them significantly affect both the absolute forecast error on EPS and its standard deviation controlling for forecast horizon; number of analysts and forecasts; and year, industry, and broker house effects. Consistently with our ex ante hypotheses, overinvestment, stakeholder risk, and accounting opacity have a positive effect, increasing both dependent variables, while corporate governance quality has a negative effect. A crucial aspect of our findings is that high CSR quality in terms of the four factors (i.e., accounting transparency, high corporate governance quality, stakeholder risk mitigation, and absence of overinvestment) contributes to making earnings forecasts unbiased as unbiasedness is generally met in the subsample of the Top CSR quality companies and markedly violated in the subsample of the Bottom CSR companies. We also document that overinvestment and stakeholder risk are sufficient to produce this effect.     

Consequences of local social norms: A review of the literature in accounting,finance, and corporate governance

We synthesise the empirical archival research on the consequences of local social norms on accounting, finance, and corporate governance outcomes in an international setting. The literature reviewed is premised on the theory that corporations do not make decisions, but managers do, and managers are likely to be influenced by the socioeconomic environment of the region in which they operate and/or by the people with whom they interact. To provide a structure to our review, we identify social capital, religiosity, gambling norms, and corruption culture, as four constructs of local social norms and link these with financial reporting and external auditing, financial, investment, and dividend decisions, capital market consequences and finally, corporate governance and corporate social responsibility behaviour of firms. We highlight some limitations of the existing research and offer some suggestions for future research.     

Textual Analysis in Accounting and Finance: A Survey

Relative to quantitative methods traditionally used in accounting and finance, textual analysis is substantially less precise. Thus, understanding the art is of equal importance to understanding the science. In this survey, we describe the nuances of the method and, as users of textual analysis, some of the tripwires in implementation. We also review the contemporary textual analysis literature and highlight areas of future research.     

Determinants and consequences of debt maturity structure: A systematic review of the international literature

We conduct a systematic review of the international research on the determinants and consequences of debt maturity structure in the accounting, finance, and corporate governance literature. Our review reveals that a large volume of empirical research has been conducted on the determinants of debt maturity structure, and we categorize these determinants into the following five factors: (1) firm specific; (2) tax; (3) corporate governance; (4) country-level institutional; and (5) macroeconomic. The literature on the consequences of debt maturity structure is relatively scant and generally focuses on the effect of debt maturity structure on financial reporting quality and investment and financing decisions. We consider endogeneity as one of the major concerns in the reported empirical studies that, unless addressed satisfactorily, may render some of the findings untenable. Based on the review, we also provide several future research directions.     

Shareholder protection,income inequality and social health: A proposed research agenda

This paper develops a proposed research agenda in order to highlight how corporate governance, accounting and company law are relevant to the consideration of income inequality and wider social health. To illustrate this proposed research agenda, this paper draws on corporate governance research in the law and finance tradition, as well as macro-level studies in accounting concerned with the wider corporate governance context, in order to consider the association between shareholder protection, income inequality and child mortality. Under 5 child mortality is an objective indication of a country’s ability to nurture its children. In an influential body of work, La Porta et al. (1997a, 1997b, 1998, 2008) concluded that a common law legal system which protected the interests of shareholders gave rise to better economic and social outcomes. However, drawing on corporate governance and accounting literature we contend that such a conclusion is flawed. The findings of this paper suggest that common law countries (i.e. those with the greater legal protection for investors) have worse social outcomes in terms of under-5 child mortality.     

Determinants and consequences of tournament incentives: A survey of the literature in accounting and finance

This paper synthesizes the theoretical underpinnings of tournament models, reviews the extant empirical literature on the determinants and consequences of tournament incentives, critiques the findings and offers suggestions for future research. We synthesize findings from 63 empirical papers and find that several firm-level fundamental and corporate governance variables affect the structure of corporate tournaments. Our review of the consequences of tournament structure reveals that tournaments affect financial reporting and auditing as well as firm-level operational and capital market-based outcomes. This review reveals that the existing accounting and finance literature lacks a strong justification for why one theory rather than another is favored. Moreover, based on potential problems that may exist in empirical models, this review also offers some methodological implications for empirical tournament studies.     

The conditional nature of the value of corporate governance

Agency theory suggests that governance matters more among firms with greater potential agency costs. Rational investors are unlikely to value safeguards against unlikely events. Yet, few studies of the relation between governance and firm value control for investor perceptions of the likelihood of agency conflicts. Shleifer and Vishny [Shleifer, A., Vishny, R.W., 1997. A survey of corporate governance. Journal of Finance 52, 737–783] identify investment-related agency conflicts as the more severe type of agency conflicts in the US. We measure the perceived likelihood of this type of agency conflict using free cash flow (Jensen, M.C., 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review 76, 323–329). We find that firm value is an increasing function of improved governance quality among firms with high free cash flow. In contrast, governance benefits are lower or insignificant among firms with low free cash flow. We show that not controlling for this conditional relation between governance and firm value could lead to erroneous conclusions that governance and firm value are unrelated.     

Stock exchange governance initiatives: Evidence from the Italian STARs

Can a stock exchange improve corporate governance and transparency by designating companies that exhibit superior corporate governance? In 2000, the Borsa Italiana created a mid-cap segment with strong listing standards, which is composed of firms (called STARS) that follow stricter standards of transparency, disclosure, monitoring and liquidity. We find that STAR firms exhibit governance characteristics not observed in non-STAR firms, such as a higher incidence of audit and executive committees and higher debt ratios. They experienced a modestly favorable share price response upon the implementation of the STAR initiative. Moreover, they experienced significantly higher buy and hold returns and transparency after the initiative. Several governance characteristics are cross-sectionally associated with performance following the STAR initiative. Overall, the results suggest that firms may be willing to improve governance when they are endorsed by a credible agency for doing so, and such improvements may lead to better performance. The STAR initiative may serve as a model that can be adapted by other stock exchanges to promote transparency and governance.     

Product market competition in accounting,finance, and corporate governance: A review of the literature

Product market competition has been identified as one of the most powerful corporate governance tools for motivating managers to maximize firm value. Consistent with this view, a large body of theoretical and empirical research over the years has investigated the implications of product market competition. This paper synthesizes and critically evaluates the empirical literature on the consequences of product market competition in the accounting, finance, and corporate governance domains. Our review focuses on issues like financial reporting quality, analyst forecasting activities, asset pricing, investment, and financing decisions, and the substitutive versus complementary relationships between product market competition and other corporate governance tools. Our review suggests that, although market competition has profound implications for these issues, the empirical findings often provide conflicting results. We highlight such contradictory findings and offer suggestions for future research. Our review will help researchers intending to further investigate the implications of product market competition, both in the US and internationally.     

A framework for journal assessment: The case of the Journal of Banking & Finance

We propose a citation-based framework for the assessment of journal influence and demonstrate its application with the Journal of Banking and Finance. The framework assesses the current position of the journal, its trends and the reasons behind the trends. The Journal of Banking and Finance is found to be one of the leading journals in the field of finance and its influence is increasing. In fact, it appears to be part of a group of leading journals that is separating itself from the other journals that are generally regarded as peers. Finally, the Journal of Banking and Finance is found to be the only leading finance journal with a high concentration of banking articles, making it a primary outlet for influential articles in this area.     

Event studies: A methodology review

Originally developed as a statistical tool for empirical research in accounting and finance, event studies have since migrated to other disciplines as well, including economics, history, law, management, marketing, and political science. Despite the elegant simplicity of a standard event study, variations in methodology and their relative merits continue to attract attention in the literature. This paper reviews some of the fundamental topics in short‐term event study methodology, with an attempt to add new perspectives to some pressing topics.     

Does good corporate governance include employee representation? Evidence from German corporate boards

Within the German corporate governance system, employee representation on the supervisory board is typically legally mandated. We propose that such representation of labor on corporate boards confers valuable first-hand operational knowledge to corporate board decision-making. Indeed, we find that labor representation provides a powerful means of monitoring and reduces agency costs within the firm. Moreover, we show that the greater the need for coordination within the firm, the greater the potential improvement there is in governance effectiveness through the judicious use of labor representation. These benefits do not appear to hold for union representatives.     

Corporate governance and the value of cash holdings

We investigate how corporate governance impacts firm value by comparing the value and use of cash holdings in poorly and well-governed firms. We show that governance has a substantial impact on value through its impact on cash: $1.00 of cash in a poorly governed firm is valued at only $0.42 to $0.88. Good governance approximately doubles this value. Furthermore, we show that firms with poor corporate governance dissipate cash quickly in ways that significantly reduce operating performance. This negative impact of large cash holdings on future operating performance is cancelled out if the firm is well governed.