Does Corporate Social Responsibility Affect the Cost of Bank Loans? Evidence from China

This article examines the link between corporate social responsibility (CSR) and cost of bank loans (CBL) in China. We find that there exists an inverse U-shape relationship between CSR and CBL. In addition, CSR threshold for state-owned enterprises (SOEs) is higher than for non-SOEs. In particular, CSR threshold for SOEs is lower in regions with high degree of marketization than in regions with low degree of marketization. The findings indicate that value-destroying effect occurs during CSR underinvestment phase, which is different from the overinvestment view. Moreover, the effect of CSR on CBL also depends on contextual factors such as firm ownership and marketization level.     

Corporate Social Responsibility,Corporate Performance,and Pay-Performance Sensitivity—Evidence from Shanghai Stock Exchange Social Responsibility Index

Based on annual data of listed companies on Shanghai Stock Exchange (SSE) through 2009–2013, this article examines three hypotheses: first, whether a firm’s taking corporate social responsibility (CSR) affects corporate performance; second, whether corporate governance and a firm’s age positively moderate the relationship between CSR and performance; and third, whether CSR positively moderates the magnitude/direction of linkage between a firm’s performance and top management/director compensation (pay-performance sensitivity, PPS). Three proxies for CSR engagement are constructed by a firm’s inclusion in the SSE Social Responsibility Index. Empirical evidence generally shows that firms engaging in CSR tend to obtain superior performance in terms of higher profitability. However, firm’s age and sound corporate governance have little additional benefit on the effect of a firm engaging in CSR on performance. Finally, greater CSR engagement is associated with larger PPS. Principal outcome does not shift under two-stage estimation and propensity score matching (PSM) to correct for sample self-selection of CSR engagement.     

Does a Government Mandate Crowd Out Voluntary Corporate Social Responsibility? Evidence from India

This study investigates the implementation of a Government of India mandate that requires firms to spend at least 2% of their profits on corporate social responsibility (CSR). The results show that qualifying firms that voluntarily engaged in CSR before the mandate reduce their CSR spending afterward. Despite increasing advertisement expenditure likely to offset the lost signaling value of voluntary CSR, stock prices and operating performance of former voluntary CSR spenders who qualify under the law decline. Our results suggest that regulatory intervention in CSR can both diminish its signaling value and lead to a reduction in voluntary CSR spending.     

Some Evidence on Executives’ views of Corporate Social Responsibility

This paper draws upon the concepts of organizational legitimacy, political economy of accounting and agency theory, and subsequently combines these with stakeholder analysis, in an attempt to analyse the attitudes towards their perceived social responsibility on the part of the executives of a small sample of large, UK companies.In the conceptual model developed, organizational legitimacy is perceived as a way of examining corporate behaviour, whereby a business is visualized as operating under a mandate from society, withdrawable were the organization be seen not to be doing the things society expects of it. There is, however, an alternative political economy of accounting view, suggesting corporate behaviour might be perceived as more proactive, with company directors attempting to ‘set the agenda’, such as to manipulate societal opinion towards a favourable view of corporate activity.Agency theory is then utilized in an attempt to establish the connection between organizations and the various interest groups with whom they interact, whilst, finally,stakeholder analysis is resorted to as a way of establishing the relevant societal interest groups to which businesses might either be considered ‘accountable’, or alternatively whose views they might wish to ‘manipulate’ favourably regarding their (i.e. corporate) actions.The underpinning theory, as delineated, is then examined for validity via interviews with executives representing eight prominent UK companies in four business sectors. The model outlined enables the nature of perceived accountability/influence by the company to be linked to perceived/manipulated stakeholder expectations of the company, with the tentative conclusion being reached that support can be found for both organizational legitimacy and political economy of accounting perspectives, although which predominates is impossible to determine.     

Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification

We show that a firm's CSR policy is significantly influenced by the CSR policies of firms in the same three‐digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm's credit rating by as much as 4.5%.     

Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013

In 2013, a new law required Indian firms, which satisfy certain profitability, net worth, and size thresholds, to spend at least 2% of their net income on corporate social responsibility (CSR). We exploit this regulatory change to isolate the shareholder value implications of CSR activities. Using an event study approach coupled with a regression discontinuity design, we find that the law, on average, caused a 4.1% drop in the stock price of firms forced to spend money on CSR. However, firms that spend more on advertising are not negatively affected by the mandatory CSR rule. These results suggest that firms voluntarily choose CSR to maximize shareholder value. Therefore, forcing a firm to spend on CSR is likely to be sub‐optimal for the firm with a consequent negative impact on shareholder value.     

Do Economic Incentives of Controlling Shareholders Influence Corporate Social Responsibility Disclosure? A Natural Experiment

We evaluate whether voluntary corporate social responsibility (CSR) disclosure is influenced by the economic incentives of controlling shareholders. To examine this research question, we apply the natural experiment setting based on the Split Share Structure Reform in China. Following this Reform, Chinese state shareholders are allowed to trade their shares in the stock market, which increases their incentives to maximize the market value of the firms that they control. We present empirical evidence of increased CSR disclosure among listed state-owned enterprises after this Reform. This evidence suggests that the economic incentives of key stakeholders are associated with voluntary CSR disclosures.     

Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book‐tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.     

Corporate Social Responsibility: Is Too Much Bad?—Evidence from India

Asia-Pacific Financial Markets - Over the years, firms have been using Corporate Social Responsibility (CSR) as a strategic tool to improve their competitiveness and ultimately benefit their...     

Do Female Executives Prioritize Corporate Social Responsibility?

How do female executives view corporate social responsibility (CSR)? Previous studies have reported mixed findings on the relationship between female executives and CSR. We select a sample of Chinese listed firms and use propensity score matching to construct a new sample of firms and evaluate the gender transition (from male to female) of chief executive officers or board chairpersons (executives) who are randomly assigned to firms (i.e., the gender transition of executives is regarded as an exogenous event). Subsequently, we use a difference-in-differences approach to identify the pure effect of female executives on CSR. Our results indicate that female executives are more likely to encourage CSR reporting. Moreover, we suggest that the mechanism behind female executives prioritizing CSR is altruism preference rather than risk aversion preference.     

Does Corporate Governance Predict Future Performance? Evidence from Hong Kong

This study uses time‐series data to examine the relation between changes in the quality of corporate governance practices and subsequent market valuation among large listed companies in Hong Kong. The results indicate that firms that exhibit improvements in the quality of corporate governance display a subsequent increase in market valuation, whereas firms that exhibit deterioration in the quality of corporate governance practices tend to encounter a decline in market valuation. Additionally, the impact is greater for firms that are included in the MSCI index or with a China affiliation. The results provide evidence in support of the notion that good corporate governance can predict future market valuation.     

Does Hedge Fund Performance Persist? Overview and New Empirical Evidence

The contribution of this paper is to provide an overview and new empirical evidence on hedge fund performance persistence, which has been a controversial issue in the academic literature during the last several years. In the first step, we review recent studies and put them into a joint evaluation of hedge fund performance persistence. In the second step, the methodological framework developed in the overview is used to present new empirical evidence. We find different levels of performance persistence depending on the statistical methodology and the hedge fund strategy employed. In our study, performance persistence cannot be explained by the use of option-like strategies, but it can be partially explained by survivorship and backfilling bias. Differences among hedge fund strategies might be explained by return smoothing. Finally, we develop a rationale for choosing between different methodologies to measure performance persistence and conclude that the multi-period Kolmogorov-Smirnov test is the most useful for evaluating performance persistence of hedge funds.     

Do Financial Markets Care about Corporate Social Responsibility Disclosure? Further Evidence from China

Corporations increasingly define their corporate social responsibility (CSR) activities as a part of their business. However, is this trend beneficial to investors? Based on an event study methodology and a sample of Chinese listed companies, we extend the literature on voluntary disclosure by exploring the role of CSR disclosure in reducing stock market information asymmetry, as proxied by share price volatility and liquidity. Our results show that the share price volatility after CSR disclosure is lower than before CSR disclosure; however, the trend is that it decreases first and then increases for three months following disclosure. Stock liquidity also significantly improves after CSR disclosure; however, it increases first and then decreases. Additionally, by dividing CSR disclosure into economic (hard) disclosure and generic (soft) disclosure, we find that the reduction in information asymmetry is higher for hard disclosure than soft disclosure, suggesting that although CSR disclosure does indeed have an impact on investors’ behaviour in China, an economic‐based disclosure contributes more substantially. Finally, to better understand the characteristics of the Chinese financial market, we also explore the role of marketisation with results that show that the effect in reducing information asymmetry is greater for companies located in a region with a higher degree of marketisation.     

Does the Presence of Female Executives Curb Earnings Management? Evidence from Korea

We investigate the role of female executives in curbing earnings management behaviour in Korea, a country known for its strong male‐dominant culture. In a sample of Korean firms from 2002 to 2010, we find that female presence in top management is negatively associated with discretionary accruals, suggesting that gender diversity in senior management deters opportunistic financial reporting even in a highly male‐dominant corporate environment. Further, this association is primarily observed in firms with stronger (weaker) female (male) dominance. This finding is consistent with the idea that female executives can exert more influence on corporate decisions in a more female‐friendly environment. These findings have implications for academics and practitioners seeking to understand the impact of the role of top executive gender diversity in corporate accounting practices.     

Does Size Influence the Suitability of the IFRS for Small and Medium-Sized Entities? – Empirical Evidence from Germany

This study is set within the context of the IASB's initiative to develop an IFRS for small and medium-sized entities (SMEs). It is based on a questionnaire survey of small and medium-sized entities in Germany exploring the suitability of the IASB's proposed SME standard for entities of different size classes. Quantitative size criteria are used in many national jurisdictions to differentiate financial reporting requirements between entities. However, there is very little empirical evidence on the question whether the economic size of an entity has an impact on the economic issues that should be regulated by accounting rules and on management's preferences for specific accounting methods. This paper addresses these deficiencies by exploring to what extend an entity's economic size has an impact on its international exposure, the relevance of specific accounting issues and preparers’ perceptions on costs and benefits associated with the application of selected accounting methods. Our findings are ambiguous. Size effects are revealed with regard to the structure of entities, their international exposure and to a large extent to the relevance of particular accounting issues. Cost and benefit assessments of accounting methods also differ within and between the size clusters investigated, albeit a generalisation of size as a factor determining the cost-benefit considerations of firms with regard to particular accounting treatments and methods is not supported by the study's results.     

Mind the Gap: Is Water Disclosure a Missing Component of Corporate Social Responsibility?

Corporate water stewardship is conventionally internally focused, but now it is becoming a critical issue in a wider socio-political context. Drawing on the theory of self-regulation, we investigate the rationale behind, and the factors contributing to, corporate decisions to voluntarily disclose water information via the CDP. The study uses innovative proxies for corporate self-regulation, including water governance, water policy, water actions, and water performance. Our results show that these proxies are significantly related to the propensity of the companies participating in the CDP to disclose water information. Furthermore, belonging to a water-intensive industry may moderate the impact of self-regulation on water transparency. Finally, sharing water information privately with key institutional investors is a strategic tool for implementing self-regulation. The study suggests that corporate self-regulation can play a powerful role in reducing corporate water opaqueness when mandatory water legislation is absent or not yet applicable.     

Do Short Sellers Target Firms with Poor Earnings Quality? Evidence from Earnings Restatements

We study the behavior of short sellers around earnings restatements. We find that short sellers accumulate positions in restating firms several months in advance of the restatement and subsequently unwind these positions after the drop in share price induced by the restatement. The increase in short interest is larger for firms with high levels of accruals prior to restatement. We document that heavily shorted firms experience poor subsequent performance and a higher rate of delisting. Overall, these results suggest that the motive for short selling is, at least in part, related to suspect financial reporting and that short sellers pay attention to information being conveyed by accruals.

Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market

We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large‐scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, the effect of borrower bankruptcies on syndication activity is not present among dominant lead arrangers, and is weak in years in which many lead arrangers experience borrower bankruptcies.     

Does the Quality of Financial Advice Affect Prices?

Using a large data sample of 58,562 new municipal issues covering the period from 1984 to 2002, we examine whether the quality of advice provided by a financial advisor affects new issue interest costs. We find that higher‐quality financial advisors are associated with statistically significant decreases in new issue yields. The effect of advisor quality on yields is more pronounced for revenue, negotiated, and opaque bond issues than for general obligation and competitively sold issues. However, issuers of revenue or negotiated bonds are more likely to choose a low‐quality advisor.     

Do Investors Perceive the Link Between Equity Method Earnings and Future Earnings? The Role of Supplemental Disclosures

Equity method investments are commonly a material component of a firm's corporate structure, yet these investments are presented to financial statement users through opaque financial reporting. This study demonstrates that the link between equity method earnings and future earnings is stronger than the link between consolidated earnings and future earnings, consistent with the synergistic and diversification benefits of equity method investments. Next, this study demonstrates a limitation in the opaque reporting of equity method investments by revealing that the market fails to fully incorporate into prices the link between equity method earnings and future earnings. Further, this study contributes to the active debate among practitioners and regulators about the usefulness of supplemental disclosure requirements related to equity method investments. Results indicate that supplemental equity method investment disclosures aid the market in impounding the persistence of equity method earnings into share price.