Financial Markets, Institutions and Instruments最新文献

This paper examines whether environmental and social (ES) activities affect the resiliency of firms during the COVID-19 crisis. We study a sample of 330 firms operating in five developed countries: Canada, France, Japan, the UK and the US. Our analysis shows that US firms with a high ES ranking experienced a significantly lower stock price range volatility during the Covid stock market rundown of February-March 2020. Such findings also hold for Japanese firms but only later on after the introduction of government support. In terms of returns, compared to their peers with a low ES ranking, Japanese and UK stock prices with a high ES ranking suffered more during and after the market rundown. For other countries, we do not find significant differences in stock price behavior based on ES ratings. Our findings suggest that engaging with ES activities is not associated with a better or worse performance during crisis times, which has important implications for investors and managers.

We investigate whether independent, third-party assessments of firms’ Environmental, Social, and Governance (ESG) risk exposures provide forward-looking information content to capital market participants by evaluating whether these ESG risks have a moderating effect on the ability of earnings and the book values of equity to predict investors’ expectations of the present value of future cash flows. We find that firms’ higher ESG risk exposure increases the association between current earnings and firm values, while decreasing the relevance of book values of equity (i.e., historical earnings). We find that this effect is strongest for firms with the highest levels of risk exposure and following large changes to ESG risk exposures. In additional analyses, we disaggregate ESG risk exposure and while we find that each component of ESG has predictive power consistent with the main findings, governance risks dominant the results in head to head specifications. Taken together, our findings suggest that governance risk exposures provide forward-looking information content to investors when they evaluate the ability of current earnings to predict future cash flows. Our results are robust to several measures of ESG risk exposure, entropy balancing specifications, and exogenous shocks to ESG attention following global environmental and social justice initiatives.

Using an international sample of firms, we investigate the career prospects of directors of firms experiencing negative ESG issues. By tracking the same director at the same firm over time, we document a significant drop in seats held at other public firms’ boards following intense negative media coverage of an ESG problem occurring at a given director's focal firm. Losses of seats at other firms are concentrated among executive directors, among directors of firms located in countries with high environmental and social norms, and among directors of firms located in countries with bank-based systems. Nonexecutive directors and directors of firms located in less stakeholder-oriented countries are not penalized for ESG issues by the director labor market.

We study the relationship between the cost of bank loans and the charges filed to the National Labor Relations Board (NLRB) due to managerial interference in employee rights. Loans issued after the filing of the allegations are associated with significantly higher loan spreads than loans initiated before the filing of allegations. Strong allegations that result in withdrawal with adjustments or compliance tend to positively affect the loan pricing. Further, interfering firms tend to experience higher default risks in the years following the filing of charges. Our paper is the first in the literature to show the impact of violation of employee rights on the cost of bank loans, which has an implication for environmental, social, and governance (ESG) lending where loan contract terms are contingent on borrower ESG performance.

This study investigates the impact of property rights reform on private firms’ environmental, social, and governance (ESG) practices. ESG investing has become mainstream and a hot topic globally, but it is a black box of corporate ESG practices and performance. Importantly, it is not clear how to specifically enhance private firms’ ESG practices. This study addresses this problem by exploring an ideal setting of China's mixed-ownership reform in which private firms acquire equity in state-owned enterprises (SOEs). We examine whether and how this reform affects private acquirer firms’ ESG practices. Using a powerful difference-in-differences design, we find that mixed-ownership reform significantly enhances private firms’ ESG practices through heightened public scrutiny and the privileges of formal financing and government subsidies that are available due to the firms’ partial government ownership after mixed-ownership reform. Our findings have policy implications for promoting ESG practices and SOE reform. Specifically, our empirical evidence indicates that mixed-ownership reform can facilitate sustainable development for both SOEs and private firms.

We apply the impression management theory and propose that firms located in more polluted areas have strong incentives to offset the negative perceptions of their local area pollution due to shareholders’ environmental concerns. In terms of dividend policy, we predict and find that location greenness (LG), a proxy for environmental image, negatively affects firms’ dividend payouts. The effect is more pronounced for firms with high information asymmetry and agency costs. The dividend payouts due to LG have a larger impact on agency cost reductions than regular dividends. Firms use dividends and social engagements as substitutes to enhance their reputation.

Using 102 sovereigns rated by the three largest credit rating agencies (CRA), S&P, Moody's and Fitch between January 2000 and January 2019, we document that the first-mover CRA (S&P) in downgrades falls into a commercial trap. Namely, each sovereign downgrade by one notch by the first-mover CRA (S&P) results in 2.4% increase in the probability of a rating contract being cancelled by the sovereign client. The more downgrades S&P makes in a given month, the more their sovereign rating coverage falls relative to its rivals. Our results are more pronounced for downgrades on small sovereign borrowers than on large sovereign borrowers. This paper explores the interaction between three themes of the literature: herding behaviour amongst CRAs, issues of conflict of interest and ratings quality. Our empirical evidence gives credence to, and underscores the need for sovereign ratings to be made in an impartial way and independent of their commercial ramifications elsewhere in the CRA.

This paper examines the impact of Basel III leverage ratio on the competitive landscape of US derivatives markets. Because the leverage ratio focuses on notional amounts and does not fully recognize offsetting positions and risk-mitigating collateral, it is more likely the binding constraint for derivatives. The leverage ratio also put heterogeneous constraints on different types of institutions and activities. Using daily positions of clearing members and their customers on S&P 500 E-mini futures options, we test the following four hypotheses when the public disclosure of the leverage ratio became mandatory in January 2015: (1) banks lose market share to nonbanks; (2) US banks lose market share to European banks; (3) banks' clearing activities shift away from customer accounts to house accounts; (4) low-delta options are affected most by the leverage ratio. All hypotheses are confirmed in the data. Short-dated US Treasury futures options, which receive zero exposure in the leverage ratio calculation, do not exhibit such behavior. Our evidence suggests that the leverage ratio requirement pushes derivatives activities toward less constrained institutions and market segments.

Binary option pays a fixed dollar amount if it matures in the money and nothing otherwise. While this cash-or-nothing payoff structure is very attractive to speculators, it also creates incentives to manipulate the underlying asset price in order to gain extra payoff. In this paper, we propose better designs for binary options that disincentivize market manipulation and highlight two key features of such designs. We demonstrate the effectiveness of the new contract designs using numerical examples.

We examine the impact of cooperation between legal advisors and issuers on bank securitization pricing using 6,624 European ABS tranches issued in the European market over the period of 1998 to 2018. We find that previous cooperation is negatively related to initial yield spreads of ABS. Investors seem to attach value to previous cooperation between issuers and legal advisors and consider such transactions less risky by asking for lower yields. We observe that the magnitude of the past relationships is also of importance. Moreover, previous cooperation becomes more important as the risk of the transaction increases. This is especially noticeable when prime (AAA rated) tranches are compared to non-prime (non-AAA rated) tranches. Our results also show that the number of legal advisors in a deal does not matter for investors.