Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106909
Jingjing Guo , Zhihong Huang , Baicheng Zhou
This paper uses the Five-Year Plan (FYP) to conduct a quasi-natural experiment and examines the impact of China's industrial policies on corporate mergers and acquisitions (M&As). The results show that firms supported by industrial policies are likelier to initiate M&As and do so more frequently. Large firms and state-owned enterprises are primarily responsible for these M&As. Additionally, firms that benefit from government subsidies and low-interest loans have greater capacity to initiate M&As. While industrial policy does not significantly influence M&A performance in the short term, it can have a negative effect in the long term. These findings contribute to a nuanced understanding of the government's role in corporate strategy.
{"title":"How does industrial policy affect corporate M&A Activities?","authors":"Jingjing Guo , Zhihong Huang , Baicheng Zhou","doi":"10.1016/j.frl.2025.106909","DOIUrl":"10.1016/j.frl.2025.106909","url":null,"abstract":"<div><div>This paper uses the Five-Year Plan (FYP) to conduct a quasi-natural experiment and examines the impact of China's industrial policies on corporate mergers and acquisitions (M&As). The results show that firms supported by industrial policies are likelier to initiate M&As and do so more frequently. Large firms and state-owned enterprises are primarily responsible for these M&As. Additionally, firms that benefit from government subsidies and low-interest loans have greater capacity to initiate M&As. While industrial policy does not significantly influence M&A performance in the short term, it can have a negative effect in the long term. These findings contribute to a nuanced understanding of the government's role in corporate strategy.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106909"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143378510","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106894
Mohammad Hassan Shakil, Arne Johan Pollestad, Khine Kyaw
We examine the relationship between environmental, social and governance (ESG) controversies and systematic risk among non-financial firms in the STOXX Europe 600 index from 2016 to 2022. We apply random forest regression to predict firm-level systematic risk and employ explainable AI techniques to assess the role of ESG controversies. The results show a negative relationship between ESG controversies and systematic risk, with higher controversies predicting increased systematic risk. Traditional regression models, such as pooled ordinary least squares and year- and industry-fixed effects, show a similar relationship. However, our model exhibits an average prediction error of 0.25 for 2022, representing a 30 percent reduction in the prediction error compared to the benchmark. Systematic risk increases significantly for firms embroiled in ESG controversies for the first time (“first timers”) and those with frequent issues (“regulars”). Sector-wise, systematic risk is most pronounced in the machinery sector and least in the real estate sector.
{"title":"Environmental, social and governance controversies and systematic risk: A machine learning approach","authors":"Mohammad Hassan Shakil, Arne Johan Pollestad, Khine Kyaw","doi":"10.1016/j.frl.2025.106894","DOIUrl":"10.1016/j.frl.2025.106894","url":null,"abstract":"<div><div>We examine the relationship between environmental, social and governance (ESG) controversies and systematic risk among non-financial firms in the STOXX Europe 600 index from 2016 to 2022. We apply random forest regression to predict firm-level systematic risk and employ explainable AI techniques to assess the role of ESG controversies. The results show a negative relationship between ESG controversies and systematic risk, with higher controversies predicting increased systematic risk. Traditional regression models, such as pooled ordinary least squares and year- and industry-fixed effects, show a similar relationship. However, our model exhibits an average prediction error of 0.25 for 2022, representing a 30 percent reduction in the prediction error compared to the benchmark. Systematic risk increases significantly for firms embroiled in ESG controversies for the first time (“first timers”) and those with frequent issues (“regulars”). Sector-wise, systematic risk is most pronounced in the machinery sector and least in the real estate sector.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106894"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143376828","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106888
M. Ángeles Carnero , Ángel León , Trino-Manuel Ñíguez
This paper introduces new upper bounds for tail risk measures, such as value-at-risk and expected shortfall, based on Bhattacharyya (1987) inequality. These enhanced bounds for losses consider higher-order moments like skewness and kurtosis, which sets them apart from the conventional one-sided Vysochanskii and Petunin (1980) and Cantelli (1928) inequalities. While the simplicity and reliance on estimating only the first two moments can make the latter bounds attractive, the practicality and effectiveness of the new bounds position them as a compelling alternative for risk measurement. We empirically analyze S&P 100 index stocks to illustrate our findings. Our results suggest tighter Basel multipliers and reduced minimum capital requirements.
{"title":"New bounds for tail risk measures","authors":"M. Ángeles Carnero , Ángel León , Trino-Manuel Ñíguez","doi":"10.1016/j.frl.2025.106888","DOIUrl":"10.1016/j.frl.2025.106888","url":null,"abstract":"<div><div>This paper introduces new upper bounds for tail risk measures, such as value-at-risk and expected shortfall, based on <span><span>Bhattacharyya (1987)</span></span> inequality. These enhanced bounds for losses consider higher-order moments like skewness and kurtosis, which sets them apart from the conventional one-sided <span><span>Vysochanskii and Petunin (1980)</span></span> and <span><span>Cantelli (1928)</span></span> inequalities. While the simplicity and reliance on estimating only the first two moments can make the latter bounds attractive, the practicality and effectiveness of the new bounds position them as a compelling alternative for risk measurement. We empirically analyze S&P 100 index stocks to illustrate our findings. Our results suggest tighter Basel multipliers and reduced minimum capital requirements.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106888"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143403685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-05DOI: 10.1016/j.frl.2025.106877
Vassilios G. Papavassiliou
This paper is the first to investigate the relationship between euro area sovereign bond yields and geopolitical risks. The sample period extends from January 2016 to October 2024 and includes all major recent geopolitical events. Using standard linear regression models, the results indicate that geopolitical risks are strongly positively associated with sovereign bond yields, even after controlling for economic factors that determine bond yields. This finding is consistent with the view that markets anticipate an extra risk premium to compensate bond holders for increased geopolitical risks.
{"title":"On the relationship between geopolitical risks and euro area sovereign bond yields","authors":"Vassilios G. Papavassiliou","doi":"10.1016/j.frl.2025.106877","DOIUrl":"10.1016/j.frl.2025.106877","url":null,"abstract":"<div><div>This paper is the first to investigate the relationship between euro area sovereign bond yields and geopolitical risks. The sample period extends from January 2016 to October 2024 and includes all major recent geopolitical events. Using standard linear regression models, the results indicate that geopolitical risks are strongly positively associated with sovereign bond yields, even after controlling for economic factors that determine bond yields. This finding is consistent with the view that markets anticipate an extra risk premium to compensate bond holders for increased geopolitical risks.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106877"},"PeriodicalIF":7.4,"publicationDate":"2025-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143394433","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-05DOI: 10.1016/j.frl.2025.106895
Xiaoke Zhu, Xiaohua Yu
This study aims to investigate whether and how food inflation influences U.S. macroeconomic dynamics. To this end, we develop and estimate a heterogeneous dynamic stochastic general equilibrium (DSGE) model incorporating both the food and non-food sectors. Calibration and Bayesian estimation methods are employed to derive the key parameters involved in this model. Our analysis reveals that key macroeconomic variables exhibit significant nonlinear responses to food price shocks. Notably, a quarter of headline inflation can be attributed to food inflation in the post-pandemic era. Furthermore, a higher labor substitution parameter and lower consumption substitution elasticity amplify the economic recession. In response to food price shocks, moderate monetary policies can mitigate declines in real GDP and consumption but potentially exacerbate inflation.
{"title":"Food inflation and macroeconomic dynamics in the US: Evidence from an estimated DSGE model","authors":"Xiaoke Zhu, Xiaohua Yu","doi":"10.1016/j.frl.2025.106895","DOIUrl":"10.1016/j.frl.2025.106895","url":null,"abstract":"<div><div>This study aims to investigate whether and how food inflation influences U.S. macroeconomic dynamics. To this end, we develop and estimate a heterogeneous dynamic stochastic general equilibrium (DSGE) model incorporating both the food and non-food sectors. Calibration and Bayesian estimation methods are employed to derive the key parameters involved in this model. Our analysis reveals that key macroeconomic variables exhibit significant nonlinear responses to food price shocks. Notably, a quarter of headline inflation can be attributed to food inflation in the post-pandemic era. Furthermore, a higher labor substitution parameter and lower consumption substitution elasticity amplify the economic recession. In response to food price shocks, moderate monetary policies can mitigate declines in real GDP and consumption but potentially exacerbate inflation.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106895"},"PeriodicalIF":7.4,"publicationDate":"2025-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143352317","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-05DOI: 10.1016/j.frl.2025.106872
Chengtao Deng , Mengfu Han , Jun Luo , Junjie Zhang
This paper estimates the impact of weather shocks on the credit and insolvency risks of China’s rural credit cooperatives. We find that abnormal temperatures and heavy precipitation deteriorate loan quality. One more day with a temperature below 5 °C increases the non-performing loan ratio by 0.22 percentage points. One more day with a temperature above 30 °C causes a downward migration of the normal loan into the special-mention category by 0.17 percentage points. One more day with precipitation over 50 mm decreases the Z-score by 0.94%. We also find that the rural credit cooperatives heavily exposed to agriculture are particularly vulnerable.
{"title":"The impact of weather shocks on rural credit cooperatives","authors":"Chengtao Deng , Mengfu Han , Jun Luo , Junjie Zhang","doi":"10.1016/j.frl.2025.106872","DOIUrl":"10.1016/j.frl.2025.106872","url":null,"abstract":"<div><div>This paper estimates the impact of weather shocks on the credit and insolvency risks of China’s rural credit cooperatives. We find that abnormal temperatures and heavy precipitation deteriorate loan quality. One more day with a temperature below 5 °C increases the non-performing loan ratio by 0.22 percentage points. One more day with a temperature above 30 °C causes a downward migration of the normal loan into the special-mention category by 0.17 percentage points. One more day with precipitation over 50 mm decreases the Z-score by 0.94%. We also find that the rural credit cooperatives heavily exposed to agriculture are particularly vulnerable.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106872"},"PeriodicalIF":7.4,"publicationDate":"2025-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143352315","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-04DOI: 10.1016/j.frl.2025.106892
Heng Yin
While previous research on environmental innovation offers insights into environmental innovation quantity incentives, less attention has been paid to environmental innovation quality. The present study fills this gap by investigating how government and shareholders can affect firms’ environmental innovation quantity and quality. We suggest that firms with higher state ownership respond to government mandates with higher environmental innovation quantity and quality. Moreover, firms suffering financial difficulties lead to lower environmental innovation quantity and quality. We further propose that firms facing mandates from both government and shareholders exhibit a decoupling between quantity and quality. A sample of Chinese listed firms from 2008 to 2019 supports our arguments. The research contributes to the environmental innovation and institutional complexity literature by exploring the antecedents of environmental innovation quality and identifying the decoupling between quantity and quality.
{"title":"Choosing between quality and quantity in environmental innovation under institutional complexity","authors":"Heng Yin","doi":"10.1016/j.frl.2025.106892","DOIUrl":"10.1016/j.frl.2025.106892","url":null,"abstract":"<div><div>While previous research on environmental innovation offers insights into environmental innovation quantity incentives, less attention has been paid to environmental innovation quality. The present study fills this gap by investigating how government and shareholders can affect firms’ environmental innovation quantity and quality. We suggest that firms with higher state ownership respond to government mandates with higher environmental innovation quantity and quality. Moreover, firms suffering financial difficulties lead to lower environmental innovation quantity and quality. We further propose that firms facing mandates from both government and shareholders exhibit a decoupling between quantity and quality. A sample of Chinese listed firms from 2008 to 2019 supports our arguments. The research contributes to the environmental innovation and institutional complexity literature by exploring the antecedents of environmental innovation quality and identifying the decoupling between quantity and quality.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"76 ","pages":"Article 106892"},"PeriodicalIF":7.4,"publicationDate":"2025-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143420638","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-04DOI: 10.1016/j.frl.2025.106903
Hao Ren
Despite the increasing focus on environmental, social, and governance (ESG) factors, discrepancies in ratings are weighing on a company's stakeholders. Based on the hypothesis of information asymmetry, this study uses Chinese A-share listed companies from 2010 to 2023 to examine how ESG rating disagreement impacts corporate digital transformation (CDT). Empirical results show that ESG rating discrepancy is associated with lower CDT, with technical innovation and financing constraints being the two mechanisms. When testing alternative approaches, including the alternative of CDT, propensity scoring matching and Heckman's two-stage model, the findings remain robust. The findings have policy implications for encouraging companies to disclose their ESG information in the context of digital economy.
{"title":"ESG rating disagreement and corporate digital transformation","authors":"Hao Ren","doi":"10.1016/j.frl.2025.106903","DOIUrl":"10.1016/j.frl.2025.106903","url":null,"abstract":"<div><div>Despite the increasing focus on environmental, social, and governance (ESG) factors, discrepancies in ratings are weighing on a company's stakeholders. Based on the hypothesis of information asymmetry, this study uses Chinese A-share listed companies from 2010 to 2023 to examine how ESG rating disagreement impacts corporate digital transformation (CDT). Empirical results show that ESG rating discrepancy is associated with lower CDT, with technical innovation and financing constraints being the two mechanisms. When testing alternative approaches, including the alternative of CDT, propensity scoring matching and Heckman's two-stage model, the findings remain robust. The findings have policy implications for encouraging companies to disclose their ESG information in the context of digital economy.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106903"},"PeriodicalIF":7.4,"publicationDate":"2025-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143378513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-04DOI: 10.1016/j.frl.2025.106893
Yu Wang , Gaoya Song , Yiming Lu
In this paper, we analyze data from 688 listed banks across 33 countries to examine the impact of geopolitical risk on systemic risk and its transmission mechanisms. Our empirical results show that geopolitical risk significantly increases systemic risk. In terms of mechanisms, geopolitical risk elevates systemic risk by increasing individual bank risk, bank asset risk, and triggering asset price bubble bursts. After conducting a series of robustness checks, our findings remain consistent. Additionally, we investigate whether banking regulatory policies can mitigate the impact of geopolitical risk on financial stability. The results indicate that stricter restrictions on banking activities, more robust deposit insurance systems, and regulatory agencies with stronger enforcement capabilities help counteract the rise in systemic risk induced by geopolitical risk, thereby supporting financial stability. This research enhances understanding of the drivers and transmission channels of systemic risk, assisting regulatory authorities in identifying and addressing risks associated with geopolitical uncertainty.
{"title":"Geopolitical risk, bank regulation, and systemic risk: A cross-country analysis","authors":"Yu Wang , Gaoya Song , Yiming Lu","doi":"10.1016/j.frl.2025.106893","DOIUrl":"10.1016/j.frl.2025.106893","url":null,"abstract":"<div><div>In this paper, we analyze data from 688 listed banks across 33 countries to examine the impact of geopolitical risk on systemic risk and its transmission mechanisms. Our empirical results show that geopolitical risk significantly increases systemic risk. In terms of mechanisms, geopolitical risk elevates systemic risk by increasing individual bank risk, bank asset risk, and triggering asset price bubble bursts. After conducting a series of robustness checks, our findings remain consistent. Additionally, we investigate whether banking regulatory policies can mitigate the impact of geopolitical risk on financial stability. The results indicate that stricter restrictions on banking activities, more robust deposit insurance systems, and regulatory agencies with stronger enforcement capabilities help counteract the rise in systemic risk induced by geopolitical risk, thereby supporting financial stability. This research enhances understanding of the drivers and transmission channels of systemic risk, assisting regulatory authorities in identifying and addressing risks associated with geopolitical uncertainty.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"76 ","pages":"Article 106893"},"PeriodicalIF":7.4,"publicationDate":"2025-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143429446","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the effect of new subway openings on employee compensation. Using data from China's A-share listed companies, we find that a new subway opening significantly improves employee compensation. We identify two primary reasons for this positive effect: increasing in total factor productivity and improving in labor market competition. Our study also indicates that new subway openings promote the economic advancement of the region.
{"title":"Effect of new subway openings on corporate employee compensation: Evidence from China","authors":"Zhaomin Li , Minting Zhou , Hanwen Xu , Chunchun Jia","doi":"10.1016/j.frl.2025.106852","DOIUrl":"10.1016/j.frl.2025.106852","url":null,"abstract":"<div><div>This study examines the effect of new subway openings on employee compensation. Using data from China's A-share listed companies, we find that a new subway opening significantly improves employee compensation. We identify two primary reasons for this positive effect: increasing in total factor productivity and improving in labor market competition. Our study also indicates that new subway openings promote the economic advancement of the region.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106852"},"PeriodicalIF":7.4,"publicationDate":"2025-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143394411","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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