Sustainable environmental practices and financial performance: Evidence from listed small and medium‐sized enterprise in the United Kingdom

In this article, we investigate the financial implication of sustainable environmental practices on UK small and medium‐sized enterprises (SMEs)–traded firms. Existing literature indicates that there is a direct relationship between sustainable environmental practices and financial performance. However, studies looking at this relationship have focused mainly on large firms with little attention paid to SMEs. Further, those looking at environmental and financial performance relationships have often used a single measure of performance in their studies. This study bridges these research gaps by focusing on listed SMEs in the United Kingdom using multiple measures of sustainable environmental policy indices on a panel of 201 SMEs on the Alternative Investment Market from 2011 to 2016. Evidence from our panel data analysis suggests significant and a nonlinear (concave) relationship between sustainable environmental practices and firms' financial performance. Specifically, energy efficiency practices, greenhouse gases, material, and resource efficiency revealed an inverted U‐shaped relationship with financial performance. The results will offer guidance to management in terms of allocating resources to sustainable environmental practices investment.     

Entropy-balanced accruals

Review of Accounting Studies - This study assesses whether the accrual-generating process is adequately described by a linear model with respect to a range of underlying determinants examined by...     

Information effects of loan portfolio quality on bank value

In this paper, the authors test whether loan-loss reserve announcements by individual commercial banks can have contagion effects on the banking industry. It is found that increased loan-loss reserves related to LDC debt do not have an effect on other banks. However, increased loan-loss reserves related to bad real estate loans elicited a negative share price response at other banks. The signal from a loss reserve adjustment is dependent on the reason for the adjustment. While LDC debt problems were restricted to money center banks and were well publicized, real estate loan problems can be contagious throughout the industry. Consequently, signals of real estate loan problems at some banks can cause a reduced valuation of other banks.     

Fuel taxation,emissions policy,and competitive advantage in the diffusion of European diesel automobiles

Economic integration agreements have significantly decreased import tariffs. We investigate whether national policies can be an effective replacement for tariffs to protect domestic industry. We show that (a) European fuel taxes and vehicle emissions policy favored diesel vehicles, a technology popular with European consumers but largely offered only by domestic automakers; (b) European automakers benefited from pro‐diesel fuel taxes and a lenient NO_x emissions policy to earn significant profits from diesel cars; and (c) that both policies amounted to significant nontariff trade policies equivalent to an import tariff between two to three times the official rate.     

Earnings Management: Do Firms Play “Follow the Leader”?

In this study we examine whether the reported performance of one firm affects the discretionary reporting behavior of another firm. We do this by identifying the leader within each industry, defined as the first large announcing firm. We find that the discretionary performance of followers (those firms announcing after the leader) relates positively to the leader's reported performance. Specifically, when the leader misses analysts’ expectations, followers report lower discretionary accruals, have fewer income‐decreasing special items, and are less likely to meet analysts’ expectations. In contrast, when leaders report good news, followers report higher discretionary accruals and are more likely to meet expectations (although we do not find evidence of a positive association between leaders’ good news and followers’ income‐decreasing special items). Overall, the results are consistent with managers of followers perceiving that earnings news of the leader will affect investors’ and others’ performance expectations for their firms.     

Were Information Intermediaries Sensitive to the Financial Statement‐Based Leading Indicators of Bank Distress Prior to the Financial Crisis?

In this paper, we address two questions that emerged in the aftermath of the 2008 financial/banking crisis. First, did the financial statements of bank holding companies provide an early warning of their impending distress? Second, were the actions of four key financial intermediaries (short sellers, equity analysts, Standard and Poor's credit ratings, and auditors) sensitive to the information in the banks’ financial statements about their increased risk and potential distress? We find a significant cross‐sectional association between banks’ 2006 Q4 financial information and bank failures over 2008–2010, suggesting that the financial statements reflected at least some of the increased risk of bank distress in advance. The mean abnormal short interest in our sample of banks increased from 0.66 percent in March 2005 to 2.4 percent in March 2007 and the association between short interest and leading financial statement indicators also increased. In contrast, we observe neither a meaningful change in analysts’ recommendations, Standard and Poor's credit ratings, and audit fees nor an increased sensitivity of these actions to financial indicators of bank distress over this time period. Our results suggest that actions of short sellers likely provided an early warning of the banks’ upcoming distress prior to the 2008 financial crisis.     

The issue network: reshaping the stakeholder model

Who is a stakeholder? In this paper, stakeholders are defined in terms of who has a stake in an issue instead of who has a stake in a firm, and in so doing introduces the idea of an “issue network.” Drawing on concepts familiar to the social movements (sociology) and interest groups (political science) literatures, I argue that members of an issue network can be identified as those with grievances, resources, or opportunities. To illustrate this argument, I consider the issue of land use in the western United States, showing how various environmental organizations might fit into such a land use network. I conclude with the INSPIRE model, which locates my argument in this larger model of stakeholder management currently being constructed in the stakeholder literature. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.