A cross-country analysis of corporate carbon performance: An international investment perspective

In this study, we examine corporate carbon performance globally from the perspective of country-level dispersion. The average carbon performance of listed companies in the non-OECD countries increases more after the Paris Agreement than that of listed companies in the OECD countries. However, under an increasing trend of average country-level carbon performance, the dispersion of corporate carbon performance is reduced more in the OECD countries vis-à-vis the non-OECD countries. In addition, international equity ownership is negatively associated with the dispersion of country-level corporate carbon performance in the post-Paris Agreement period. This finding supports our conjecture that sophisticated foreign investors from developed countries exert a significant positive influence on the carbon management efficiency of domestic firms in developing countries.     

Outsider CEOs and corporate debt

We examine the extent to which outsider chief executive officers (CEOs) influence corporate financial leverage policies. We define an outsider CEO as one who appears in the reporting year and became CEO either immediately upon joining or within 3 months of joining a firm. There are arguments in the literature that the selection of an outsider CEO can either increase or decrease financial leverage. We investigate this issue using 11,118 Australian firm-year observations from 1216 firms listed during the period 2001–2015. Our findings suggest that, in the short-term after their appointment, outsider CEOs reduce firm dependence on debt. This result is robust to several additional tests and four measures to minimize endogeneity concerns. However, with an increase in their tenure at the firm, outsider CEOs revert to greater dependency on corporate debt. After supplementary analyses, we determine that the outsider CEOs short-term strategy of reducing financial leverage involves using cash reserves and restricting dividends to reduce existing debt. Instead, outsider CEOs finance capital expenditure projects thus providing a positive signal to the market that such CEOs are more creditworthy. Our results also suggest that outsider CEOs exercise more control over financial leverage when they have specialist attributes.     

Pilot CEOs and corporate innovation

We find evidence that chief executive officers’ (CEOs’) hobby of flying airplanes is associated with significantly better innovation outcomes, measured by patents and citations, greater innovation effectiveness, and more diverse and original patents. We rule out alternative explanations, leading us to conclude that CEO pilot credentials capture the personality trait of sensation seeking. Sensation seeking combines risk taking with a desire to pursue novel experiences and has been associated with creativity. Our evidence highlights sensation seeking as a valuable personality trait that can be used to identify CEOs who are likely to drive innovation success.     

Monetary policy and dynamic adjustment of corporate investment: A policy transmission channel perspective

We investigate monetary policy effects on corporate investment adjustment,using a sample of China’s A-share listed firms(2005–2012), under an asymmetic framewor...     

CEOs versus CFOs: Incentives and corporate policies

We undertake a broad-based study of the effect of managerial risk-taking incentives on corporate financial policies and show that the risk-taking incentives of chief executive officers (CEOs) and chief financial officers (CFOs) significantly influence their firms’ financial policies. In particular, we find that CEOs’ risk-decreasing (-increasing) incentives are associated with lower (higher) leverage and higher (lower) cash balances. CFOs’ risk-decreasing (-increasing) incentives are associated with safer (riskier) debt-maturity choices and higher (lower) earnings-smoothing through accounting accruals. We exploit the stock option expensing regulation of 2004 to establish a causal link between managerial incentives and corporate policies. Our findings have important implications for optimal corporate compensation design.     

The Sarbanes-Oxley act and corporate investment: A structural assessment

We assess the impact of the Sarbanes-Oxley Act of 2002 on corporate investment in an investment Euler equation framework. We allow a dummy for the passage of the Act to affect the rate at which managers discount future investment payoffs. Using generalized method of moments estimators, we find that the rate U.S. firm managers apply to discount investment projects rises significantly after 2002, while the discount rate for U.K. firms remains unchanged. The effects of the legislation on corporate investment are asymmetric, and are much more significant among relatively small firms. We also find that well-governed firms, firms with a credit rating, and accelerated filers of Section 404 of the Act have become more cautious about investment.     

Financial hedging and corporate investment

Building on the well-documented relationship between corporate financial hedging and firms' borrowing costs, this study examines the impact of utilizing financial derivative instruments on corporate investment. We document that engaging in financial hedging enables firms to pursue more inorganic growth opportunities in the form of M&As. Acquiring firms with financial hedging programs have a lower borrowing cost and are more likely to pay for their deals with cash and use external borrowing. While financial hedging serves as a vehicle for firms to bring their inorganic investment plans to fruition by facilitating their financing, it also leads to inferior investment choices when conflicts of interest among managers and shareholders are more likely to arise. Our study shows for the first time that the financial flexibility emanating from corporate financial hedging can give rise to agency costs by instigating entrenched managers to overinvest.     

Determinants of corporate borrowing: A behavioral perspective

This article integrates an earnings-based capital structure model into a simple real options framework to analyze the effects of managerial optimism and overconfidence on the interaction between financing and investment decisions. Several empirical implications follow from solving the model. Notably, my analysis reveals that managerial traits can ameliorate bondholder–shareholder conflicts, such as the debt overhang problem. While debt delays investment inefficiently, mildly biased managers can overcome this problem, even though they tend to issue more debt. Similar properties and results are discussed for other real options, such as the asset stripping or risk-shifting problems.     

Product markets and corporate investment: Theory and evidence

Investment patterns often associated with agency and information problems can emerge as rational responses to product-market rivalry. We illustrate this result when industry players make simultaneous or sequential investment decisions in the face of two negative externalities. One externality arises when all competing firms invest, thus eroding the gains to investment accruing to any one firm. Another externality arises when some firms do not invest and lose out to rivals who do invest. The value of investment therefore depends on the investment’s intrinsic merits and the actions of all competitors. Our analysis can rationalize investment patterns that might appear suboptimal when such externalities are ignored. For instance, our simultaneous model can justify investment levels that might otherwise be interpreted as under- or over-investment. Our sequential model shows that value-maximizing firms might optimally herd in their investment decisions. We present evidence supporting key aspects of both the simultaneous and sequential models.     

What affects accounting conservatism: A corporate governance perspective

This study explores the relationship between accounting conservatism and corporate governance. There are two competing perspectives about the possible relationship. One is that the demand for conservatism is greater in situations with more agency problems. Therefore, a weaker governance structure will lead to a more conservative accounting. An alternative perspective is that adequate governance results in better monitoring of management and hence will favor the implementation of conservative accounting. Using the firm-year specific C-Score developed by Khan and Watts [Khan, M., Watts, R.L., 2007. Estimation and validation of a firm-year measure of conservatism. Working Paper, Sloan School of Management, MIT, Cambridge], our empirical results indicate that firms with weaker governance structures tend to be more conservative. These findings are consistent with the view that conservatism is a substitute for other corporate governance mechanisms.     

Government integrity and corporate investment efficiency

We explore the relation between government integrity and firms’ investment efficiency in the context of China’s deepening reforms and its strengthening the social credit system. We find that government integrity is positively associated with the investment efficiency of listed companies in China. Government integrity is negatively related to corporate underinvestment, but insignificantly related to corporate overinvestment. Higher government integrity reduces underinvestment in non-state-owned firms, but this relation is not significant in state-owned firms. Furthermore, we find that the negative relation between government integrity and underinvestment is only significant for firms in industries that receive supportive government policies. This study enriches research on corporate investment by adopting the perspective of government integrity, and supplements the literature on government integrity and its economic consequences. Our study also provides micro-level empirical evidence that strengthening government integrity will promote the economic transformation of China.     

Pension risk and corporate investment distortion

Failure to correct for pension risk leads to upward-biased discount rate estimates in firms with pension risk exposure. The result is a negative and economically significant relation between pension risk and corporate investment. The effect is confined to investment decisions that require discount rate estimates. Moreover, it is stronger if project value is more sensitive to such estimates. Because of this bias, firms miss valuable investment opportunities. The results survive robustness tests that address endogeneity concerns and alternative interpretations of the evidence. The general implication is that non-operating risks can distort, if ignored, corporate investment decisions.     

Managerial ability and corporate investment opportunity

This study examines whether firms operated by superior managers can obtain more favorable investment opportunities using data on U.S. industrial firms during 1988–2015. The empirical results disclose that there exists a positive relationship between managerial ability and investment opportunity, and that the relation is only significant in financially unconstrained firms or firms in a strong financial position. Overall, our findings support that firms having managers with superior ability could gain more economic profits via better investment opportunity. Through our research, policy makers and investors can pay more attention on managerial ability.     

Bankruptcy law and corporate investment decisions

Major European countries have recently adopted bankruptcy codes that strengthen entrepreneurs’ power to renegotiate outstanding liabilities. Renegotiation in bankruptcy allows lenders to increase recovery rates, however it also weakens the contract’s ability to solve the moral hazard problem embedded in the production project. Hinging on this trade-off, I show in which circumstances a soft bankruptcy law that resembles Chapter 11 in the balance of lenders’ and entrepreneur’s rights encourages the choice of investments that privilege the achievement of long-term results. However, I also show that, in contrast to the common wisdom, soft bankruptcy can lead to the choice of investments that are biased towards the achievement of short-term outcomes.     

Political uncertainty and corporate investment: Evidence from China

Using hand-collected data on changes of government officials in 277 Chinese cities, we examine how political turnover affects corporate investment in a transitional economy. We find that political turnover leads firms to significantly reduce corporate investment, particularly when the new official is an outsider appointed by a higher level government. The effect of political turnover on corporate investment is stronger for state-owned enterprises, capital intensive firms, and firms deemed locally important. Overall, the volatility of corporate investment increases with political turnover. Finally, the investment decline due to political turnover has significantly negative impact on the profitability of private firms, but not state-owned firms.     

The warning of haze: weather and corporate investment

This paper investigates whether air quality affects corporate investment. Using a sample of Chinese A‐share listed firms from 2007 to 2013, this paper finds that poor air quality is negatively associated with corporate investment and reduction of corporate investment due to air pollution intensifies with manager risk aversion. In addition, this paper provides evidence against the alternative explanation that corporate investment decreases due to government air‐quality regulations. Furthermore, this paper also suggests that poor air quality is negatively associated with investment efficiency. These findings complement existing literature on how weather conditions affect corporate financial decisions.     

More words but less investment: Rookie CEOs and firms’ digital transformations

In digital economy, firm’s digital transformation is an important means of achieving high-quality development. Adopting career concerns theory, we examine rookie CEOs’ impact on firms’ digital transformations, using Chinese A-share listed firms from 2007 to 2019. (1) Rookie CEOs disclose more digital transformation information, but invest less in substantial transformation, i.e., “more words but less investment”. (2) Under high performance pressure and difficult digital transformation, rookie CEOs are more likely to adopt the above strategy. (3) Internal and external governance mechanisms help effectively monitor and mitigate such behaviors. (4) The above strategy helps CEOs decrease short-term, but not long-term, dismissal probabilities. Our findings elucidate firms’ digital transformation practices and the decision styles of CEOs with different experience levels.     

Factors affecting investment intentions: A consumer behaviour perspective

The purpose of this study is to examine investors’ decision-making from the perspective of a consumer using constructs commonly found in the consumer behaviour field. An investment intentions model incorporating product knowledge, product involvement, risk and uncertainty avoidance, and mediated by perceived risk and uncertainty, was developed and analysed using structural equation modelling. The research found that product knowledge and product involvement had the greatest impact on intentions, suggesting the applicability of these constructs in finance research. Perceived risk was the only mediating construct. The model explained more than 60 per cent of the variation in intentions. A major contribution of this research came from the development of an investment intentions model to examine retail investors’ investment decision-making processes from a consumer behaviour perspective. It helps practitioners to develop a better understanding of the factors that impact on their clients’ intentions to invest in the stock market. This study is the first to include a set of consumer behaviour constructs in an investment intentions model that was not examined before, despite the close relationship between behavioural finance and consumer behaviour that includes elements of psychology and sociology in individual decision-making.     

Career concerns,shareholder monitoring and investment efficiency: From the perspective of compensation contract rigidity in Chinese SOEs

This paper presents theoretical analysis of how career concerns and shareholder monitoring affect chief executive officer(CEO) agency costs. We investigate inve...     

The anatomy of corporate securitizations and contract design

Collateralized loan obligations (CLOs), intermediaries situated between investors and traditional banks, play an increasingly central role in the provision of credit to constrained corporations, holding as much as 75% of all new institutional leveraged loans. Despite their ascendancy in the risky corporate credit market, there has been little academic research on the CLO market. This paper provides a comprehensive overview of the design and structure of the CLO market, describing the general macroeconomic milieu that has facilitated the rapid growth of the market, the mechanics therein, as well as recent risks that have emerged. Understanding the anatomy and dynamics of CLOs is paramount for developing insights into the role of non-bank financial intermediaries in financial markets.