Renewable Governance: Good for the Environment?

We conjecture that board renewal mechanisms—those substantive enough to renew the thinking of the board—are required before investors can address the mismatch between their preferences regarding environmental sustainability and what insiders at firms are actually doing. We identify the adoption of majority voting for directors and the introduction of a female director as two corporate governance mechanisms potentially strong enough to renew a board's thinking on sustainability. Using a sample of 3,293 firms from 41 countries, along with quasi-exogenous shocks to board renewal mechanisms in Canada and France, we find that both board renewal mechanisms are associated with significantly higher future environmental performance. Further tests provide suggestive evidence that board renewal is more strongly associated with environmental performance in settings with better institutions and more motivated institutional investors. These results suggest the importance of board renewal for alignment of firm policies with investor preferences around the world.     

Institutional investors and corporate environmental costs: The roles of investment horizon and investor origin

Using an international data set that quantifies corporate environmental costs, we analyze the influence of institutional investor ownership, particularly investment horizon and investor origin, on the monetized environmental impact generated by their investee firms. Institutional investor ownership is negatively related to corporate environmental costs. This effect is driven by long-term foreign institutional investors, especially investors from advanced economies. Corporate environmental costs are negatively correlated with firm valuation and positively correlated with the cost of equity. Since corporate environmental costs are not reflected in environmental, social and governance ratings, our results shed new light on the role of institutional investors in shaping corporate environmental impact.     

Institutional investors and corporate environmental and financial performance

We propose a conceptual framework to illustrate that when three conditions hold, institutional investors moderate a positive relation between corporate financial performance and corporate environmental performance. We explore heterogeneities across institution types to demonstrate the importance of each condition. The moderating effect works through the channels of expert consulting and effective monitoring. Our results have important policy and practical implications given the global trend of ownership concentration in institutional investors and the projection that by 2025, one out of three dollars under professional management will be invested in corporate social responsibility assets.     

Cross-border mergers and acquisitions and corporate social responsibility: Evidence from Chinese listed firms

This study examines the impact of cross-border mergers and acquisitions (M&As) on acquirers’ corporate social responsibility (CSR). Based on a sample of Chinese listed firms, we find that firms with cross-border M&A activities experience an improvement in subsequent CSR performance. Specifically, the CSR rating is approximately 8.24% higher in firms with cross-border M&As than in those without such activities. We also find that this positive influence is more pronounced in firms with low initial CSR ratings than in those with high initial CSR ratings at the time when a cross-border M&A deal is completed. Additional analyses reveal that this positive effect is mainly driven by the target firms from countries with high social preference relative to China and that the enhancement in CSR driven by cross-border M&As translates into higher operating performance and easier access to finance. Overall, our findings demonstrate that cross-border M&As can serve as a critical channel for acquirers from a country with low institutional quality to build a better reputation through environmentally friendly behaviour and socially responsible engagement, and therefore gain capital market benefits.     

Clawback provision adoption,corporate governance,and investment decisions

We examine the effect of corporate governance on the likelihood of clawback provision adoption, and its consequences in terms of corporate investment practices and risk‐taking behavior. We find that firms with strong governance (as proxied by board independence, diligence, and size) are positively associated with the firm's adoption of a clawback provision; whereas firms with weak governance (as proxied by management entrenchment, i.e., CEO duality status and tenure) are negatively associated with clawback provision adoption. Using the propensity‐score matching, difference‐in‐differences research design, and inverse Mills ratio to mitigate omitted variables and self‐selection biases, we find that after adopting a clawback provision, firms’ abnormal investment decreases and the firms’ investments are less risky.     

The performance of socially responsible investments: A meta-analysis

In this article, we use a meta-analysis to examine the performance of socially responsible investing (SRI). We find that, on average, SRI neither outperforms nor underperforms the market portfolio. However, in line with modern portfolio theory, we find that global SRI portfolios outperform regional subportfolios. Moreover, high-quality publications, publications in finance journals and authors who publish more frequently on SRI are all less likely to report SRI outperformance. In particular, we find that including more factors in a capital market model reduces the likelihood that a study will find SRI outperformance.     

Is sustainability rating material to the market?

This study examines whether information about a firm's engagement in environmental, social, and governance (ESG) practices is material to market participants. Evidence from a sample of 1856 initial public offerings (IPOs) by U.S. companies for the 2007–2018 period robustly documents that firms for which there is available ESG performance information prior to going public exhibit higher underpricing due to a positive market response. Such a reaction is validated by agency cost-reducing practices that ESG-rated firms follow prior to the IPO, the superior post-IPO market performance they exhibit in terms of equity financing, and the higher share of financially sophisticated investors they attract compared to their ESG-unrated peers. Overall, our results highlight that it pays off to do good and to have the right investors; however, firms’ good ESG practices need to be visible to the market, through rating practices, to reap the benefits.     

论公司法修订中公司治理的目标迁移及范式重塑

利益相关者理论更加契合现代公司可持续发展之理念;而实践中对公司表现的考察亦拓展至环境、社会及治理等诸多方面,评价指标正从单一逐渐转向多维。从公司立法层面观察,无论是国家立法还是国际软法,普遍要求公司在价值链决策中充分考虑社会影响,尊重和保障人权。为了革新滞后的旧有范式,需要将利益相关者理论予以具体落实,从影响识别、避免损害、有效程序、企业规模、执法形式和尽职调查等方面共同推进,从而在促进公司创造经济价值的同时,为增进社会和环境多重共享价值打开通途。     

The future trajectory for environmental finance: planetary boundaries and environmental,social and governance analysis

Urgent issues such as climate change have drawn increasing attention from finance scholars. Most research has situated a corporate response within the context of the environmental, social and governance performance. However, other disciplines express concerns around environmental degradation within broader frameworks, such as the Planetary Boundaries framework. We highlight the different conceptualisations of ESG and planetary boundaries and call for further research that links finance research to the Planetary Boundaries framework. We describe how contributions in the Accounting & Finance Special Issue on Environmental Finance advance research in this area and explore implications for future research that responds to the imperatives of remaining within Planetary Boundaries.     

Takeover bids, unconditional offer price and investor protection

In this paper, we develop a contingent claim analysis on shareholders' right to sell unconditionally their shares at the acquisition bid price during a takeover bid procedure. Compared with a situation without any guarantee, this regulation brings about wealth transfer towards outside shareholders. Why, in an apparently irrational way, do outside shareholders, who may benefit from a price guarantee, not systematically sell their shares? That question emphasizes the outside shareholders' behavior. Using a real option valuation model to evaluate the price guarantee opportunity, we show that an equal treatment rule between controlling and outside shareholders may lead outside shareholders to sell their shares.     

Director and officer liability and corporate tax avoidance

We use the unique nature of the director and officer liability protection law applicable to Nevada incorporated firms to study how liability protection is related to corporate tax avoidance. We find that firms incorporated in Nevada avoid 32% more federal corporate tax as a fraction of total assets than firms incorporated in Delaware, and 40% more than firms incorporated in other states. Nevada-incorporated firms have a 15% lower cash effective tax rate and an 8% lower GAAP ETR. The results are robust to various specifications including instrumental variable and matching approaches. Greater tax avoidance is also associated with lower payouts to shareholders for Nevada-incorporated firms. The findings are consistent with theories about the complementarity of managerial diversion and tax avoidance for firms with poor monitoring, and they demonstrate how increases in liability protection lead to the unintended consequence of greater firm tax avoidance.     

The Role of Corporate Sustainability and Its Consistency on Firm Financial Performance: Canadian Evidence*

This paper investigates the impact of corporate sustainability and the consistency of corporate sustainability efforts on firm financial performance in Canada. Using data on 266 Canadian companies over the 2007–2017 period, we find a significantly positive association between corporate sustainability performance and firm financial performance. In addition, we find that companies that perform consistently well on sustainability (i.e., consistent performers) achieve better financial performance compared to inconsistent performers. Thus, far from their being net costs/expenses, our results indicate that corporate sustainability performance and consistency in sustainability performance both provide net benefits and significantly impact financial performance positively, implying that corporate sustainability not only helps address the needs of the current and future generations but also has a positive effect on the corporate bottom line. Taken together, our results suggest that not only does corporate sustainability have a positive effect on firm performance, but better financial performance may be achieved through a committed—rather than a “tokenism”—approach to corporate sustainability.     

Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective

Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios.     

Indigenous sustainable finance as a research field: A systematic literature review on indigenising ESG,sustainability and indigenous community practices

Sustainable finance research has come into its own as an established area in the finance literature. The increased awareness of sustainability and global concerns around environmental, social and governance (ESG) issues, particularly among institutional investors, has catalysed a shift towards greater research and publications in this area. Accompanying this is the emerging body of work being produced on indigenous investments and indigenous community practices. These nascent strands of literature tell a story of the shift that is taking place within the finance field. To chart this shift and create a harmonised view of these bodies of work, this paper conducts a systematic literature review of the significant nexus between sustainable investments and indigenous approaches to sustainability. We present a framework for conceptualising and characterising the various stands of literature and, in so doing, make the case for Indigenous Sustainable Finance (ISF) as a distinct disciplinary field. This paper argues that ISF is distinct from mainstream sustainable finance and other social and management sciences and constitutes a legitimate, well-defined sub-field of research in its own right.     

Social media information dissemination and corporate bad news hoarding

This paper investigates the role of social media in mitigating corporate bad news hoarding from a stock price crash risk perspective. Using a sample of public listed firms from 2008–2019, we find that social media (Guba) posts could significantly reduce firms’ stock price crash risks in the Chinese stock market. Furthermore, we find that the information intermediation function and complementary corporate governance function enable Guba to achieve such an effect. In addition, investor attention mediates the relationship between Guba posts and management withholding bad news. Our result still holds after a series of robustness checks, including an RDD approach.     

Good for managers,bad for society? Causal evidence on the association between risk-taking incentives and corporate social responsibility

Using FAS 123R as an exogenous shock to stock options, I provide evidence that equity-based risk-taking incentives discourage corporate social responsibility (CSR). This finding suggests that compensation incentives can motivate managers not to pursue CSR strategies because CSR reduces firms’ risk and provides insurance-like benefits. Firms with a greater demand for CSR's risk reduction are more sensitive to changes in risk-taking incentives. I triangulate my results by confirming that CSR weaknesses are positively related to subsequent stock return volatility. Overall, using a robust empirical design, I find that risk-taking incentives are a determinant of firms’ CSR.     

Factors influencing corporate governance disclosures: evidence from Alternative Investment Market (AIM) companies in the UK

This study examines the relationship between company and ownership characteristics and the disclosure level of compliance with Quoted Companies Alliance (QCA) recommendations on corporate governance in Alternative Investment Market (AIM) companies. We report clear evidence that compliance increases with company size, board size, the proportion of independent non-executive directors, the presence of turnover revenue, and being formerly listed on the Main Market. However, we find that shell and highly geared AIM companies disclose relatively lower levels of corporate governance than recommended under QCA guidelines. Our findings suggest that market regulators should review the potential impact of the quality of corporate governance in these companies on the future vibrancy of AIM. We find no evidence that ownership structure or the type of Nominated Advisor is related to disclosure of compliance with QCA guidelines. Overall, in a lightly regulated environment such as the AIM market, it seems that companies will ultimately pursue a cost–benefit strategy in voluntarily complying with good corporate governance practice.     

The influence of corporate social responsibility on investment efficiency and innovation

We examine two important channels through which corporate social responsibility (CSR) affects firm value: investment efficiency and innovation. We find that firms with higher CSR performance invest more efficiently: these firms are less prone to invest in negative net present value (NPV) projects (overinvestment) and less prone to forego positive NPV projects (underinvestment). We also find that firms with higher CSR performance generate more patents and patent citations. Mediation analysis indicates that firms with higher CSR performance are more profitable and valuable, consequences partially attributable to efficient investments and innovation. These results, robust to alternate model specifications, lend support to enlightened stakeholder theory.     

Social and Environmental Disclosure and Corporate Characteristics: A Research Note and Extension

This paper is concerned with the attempts to explain the disclosure of social and environmental information in the annual reports of large companies by reference to observable characteristics of those companies. An extensive literature has sought to establish whether variables such as corporate size, profit and industry segments can explain corporations' disclosure practices. The results from that predominantly North American and Australasian literature are largely inconclusive. This paper provides an extension of that literature by considering a more disaggregated specification of social and environmental disclosure and by employing a detailed time-series data set. By so doing, the paper tests two possible explanations for the inconclusiveness of prior research: namely that any relationships between corporate characteristics and disclosure are dependent upon the type of disclosure and that any such relationships are not stable through time. The results provide support for these explanations as sufficient, if not necessary, conditions for explaining the inconsistency in prior results.     

Determinants of corporate social and environmental reporting in Hong Kong: a research note

The patterns and determinants of corporate social and environmental disclosure (CSED) in Hong Kong (HK) are examined by analysing 154 annual reports of 33 HK listed companies from 1993 to 1997. The research finds that industry difference has an impact on the amount, content theme and location of CSED. There is a positive correlation between company size and the level of CSED. Utility companies disclose more CSED than property and banking firms.