Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100249
Danglun Luo , Zhanfeng Wu , Jingsi Zhuo , Jianmei He
This paper tests how market misvaluation affects corporate innovation. Unlike the “catering effect” observed in the US, we find that estimated stock overvaluation in China is strongly negatively associated with corporate innovation, conforming to our “risk-aversion” hypothesis. In China, misvaluation affects innovation via finance and management behavior channels. The effect is more significant in non-state-owned corporations than in state-owned corporations. Stock turnover rate and ownership concentration play moderating roles in the effect. The evidence sheds light on the relationship between market risks and corporate innovation in an emerging market.
{"title":"Market misvaluation and corporate innovation: “Catering” or “risk aversion”?—Empirical evidence from China capital market","authors":"Danglun Luo , Zhanfeng Wu , Jingsi Zhuo , Jianmei He","doi":"10.1016/j.cjar.2022.100249","DOIUrl":"10.1016/j.cjar.2022.100249","url":null,"abstract":"<div><p>This paper tests how market misvaluation affects corporate innovation. Unlike the “catering effect” observed in the US, we find that estimated stock overvaluation in China is strongly negatively associated with corporate innovation, conforming to our “risk-aversion” hypothesis. In China, misvaluation affects innovation via finance and management behavior channels. The effect is more significant in non-state-owned corporations than in state-owned corporations. Stock turnover rate and ownership concentration play moderating roles in the effect. The evidence sheds light on the relationship between market risks and corporate innovation in an emerging market.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000296/pdfft?md5=82252ceb0ced84aa71a325bc0b8bac30&pid=1-s2.0-S1755309122000296-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46476334","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100250
Dapeng Tang , Yuan Li , Hao Zheng , Xin Yuan
Using panel data from 242 cities in China, we examine the impact of government research and development (R&D) spending on corporate technological innovation. We find that listed firms located in cities with higher government R&D expenditures are more innovative than firms in other cities. Further, the positive effect of government R&D spending depends on fiscal instruments and factor allocation. Through subsidies and tax incentives, government R&D spending enhances firm innovation by alleviating financing constraints, improving employee creativity and ensuring efficient operations. We demonstrate that subsidies are more effective than taxes in spurring corporate technological innovation. We also show that the impact of government R&D spending is stronger for state-owned and high-tech enterprises than for other enterprises. Overall, our findings suggest that government R&D spending can substantially improve corporate technological innovation through fiscal instruments.
{"title":"Government R&D spending, fiscal instruments and corporate technological innovation","authors":"Dapeng Tang , Yuan Li , Hao Zheng , Xin Yuan","doi":"10.1016/j.cjar.2022.100250","DOIUrl":"10.1016/j.cjar.2022.100250","url":null,"abstract":"<div><p>Using panel data from 242 cities in China, we examine the impact of government research and development (R&D) spending on corporate technological innovation. We find that listed firms located in cities with higher government R&D expenditures are more innovative than firms in other cities. Further, the positive effect of government R&D spending depends on fiscal instruments and factor allocation. Through subsidies and tax incentives, government R&D spending enhances firm innovation by alleviating financing constraints, improving employee creativity and ensuring efficient operations. We demonstrate that subsidies are more effective than taxes in spurring corporate technological innovation. We also show that the impact of government R&D spending is stronger for state-owned and high-tech enterprises than for other enterprises. Overall, our findings suggest that government R&D spending can substantially improve corporate technological innovation through fiscal instruments.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000302/pdfft?md5=f5370b0a9729f1d6c76de724439579e7&pid=1-s2.0-S1755309122000302-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42349108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100254
Wenxuan Duan , Hezun Li , Jian Sun , Guang Yang
This paper studies the effect of the standardization of the strategy translation process on procedural fairness in budgeting and firm performance. Analysis of 250 valid questionnaires using a structural equation model shows that the strategy translation process (STP) affects firm performance not only directly but also indirectly, through budget participation and procedural fairness in budgeting. This study enriches the literature on the economic consequences of strategic performance measurement systems and expands research on procedural fairness in budgeting and the factors influencing firm performance. This study shows that the standard translation and implementation of strategy will decrease managers’ bias in the target-setting process, thus increasing manager’s sense of fairness in the budget process and ultimately improving firm performance.
{"title":"Standardization of the strategy translation process, procedural fairness in budgeting and firm performance","authors":"Wenxuan Duan , Hezun Li , Jian Sun , Guang Yang","doi":"10.1016/j.cjar.2022.100254","DOIUrl":"10.1016/j.cjar.2022.100254","url":null,"abstract":"<div><p>This paper studies the effect of the standardization of the strategy translation process on procedural fairness in budgeting and firm performance. Analysis of 250 valid questionnaires using a structural equation model shows that the strategy translation process (STP) affects firm performance not only directly but also indirectly, through budget participation and procedural fairness in budgeting. This study enriches the literature on the economic consequences of strategic performance measurement systems and expands research on procedural fairness in budgeting and the factors influencing firm performance. This study shows that the standard translation and implementation of strategy will decrease managers’ bias in the target-setting process, thus increasing manager’s sense of fairness in the budget process and ultimately improving firm performance.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S175530912200034X/pdfft?md5=d3373f1d6b2ec2830bf55b874d235fdf&pid=1-s2.0-S175530912200034X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44527645","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100255
Yujia Xue
In 2007, China adopted the single balance sheet liability method for tax accounting, but its shortcomings have emerged. I sample A-share listed companies from 2007 to 2018 to study whether an abnormal change in deferred tax assets interferes with analysts’ earnings forecasts and find that an abnormal change in deferred tax assets increases the error and divergence of these forecasts. Compared with a negative abnormal change in deferred tax assets, a positive abnormal change has a greater impact on earnings forecasts. Additionally, the level of corporate governance, audit quality and analysts’ professional ability have moderating effects on the correlation between an abnormal change in deferred tax assets and earnings forecasts. However, an abnormal change in deferred tax liabilities does not have a significant impact on that correlation.
{"title":"Does an abnormal change in deferred tax assets interfere with analysts’ earnings forecasts?","authors":"Yujia Xue","doi":"10.1016/j.cjar.2022.100255","DOIUrl":"10.1016/j.cjar.2022.100255","url":null,"abstract":"<div><p>In 2007, China adopted the single balance sheet liability method for tax accounting, but its shortcomings have emerged. I sample A-share listed companies from 2007 to 2018 to study whether an abnormal change in deferred tax assets interferes with analysts’ earnings forecasts and find that an abnormal change in deferred tax assets increases the error and divergence of these forecasts. Compared with a negative abnormal change in deferred tax assets, a positive abnormal change has a greater impact on earnings forecasts. Additionally, the level of corporate governance, audit quality and analysts’ professional ability have moderating effects on the correlation between an abnormal change in deferred tax assets and earnings forecasts. However, an abnormal change in deferred tax liabilities does not have a significant impact on that correlation.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000351/pdfft?md5=75bf18c2b0d215f37e94713810bb9139&pid=1-s2.0-S1755309122000351-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48776473","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100251
Xiaojia Zheng , Yunfei Yang , Yanyan Shen
Labor protection increases employees’ stability and strengthens their monitoring role, improving firms’ information environment and increasing analysts’ earnings forecast accuracy. Using the implementation of China’s Labor Contract Law as a quasi-natural experiment, we find that labor protection significantly improves analyst forecasts. This positive impact is stronger when agency problems are weaker, board independence is greater, corporate reputation is better and industry competition is more intense. Enhanced labor protection significantly reduces firms’ business risk and accrual-based earnings management, decreases stock price synchronicity and increases market pricing efficiency. Our findings of significant impacts of China’s Labor Contract Law on analysts’ forecasting behaviors offer important guidance for promoting the development of the Chinese capital market and policy making in labor protection.
{"title":"Labor protection, information disclosure and analyst forecasts: Evidence from China’s Labor Contract Law","authors":"Xiaojia Zheng , Yunfei Yang , Yanyan Shen","doi":"10.1016/j.cjar.2022.100251","DOIUrl":"10.1016/j.cjar.2022.100251","url":null,"abstract":"<div><p>Labor protection increases employees’ stability and strengthens their monitoring role, improving firms’ information environment and increasing analysts’ earnings forecast accuracy. Using the implementation of China’s Labor Contract Law as a quasi-natural experiment, we find that labor protection significantly improves analyst forecasts. This positive impact is stronger when agency problems are weaker, board independence is greater, corporate reputation is better and industry competition is more intense. Enhanced labor protection significantly reduces firms’ business risk and accrual-based earnings management, decreases stock price synchronicity and increases market pricing efficiency. Our findings of significant impacts of China’s Labor Contract Law on analysts’ forecasting behaviors offer important guidance for promoting the development of the Chinese capital market and policy making in labor protection.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000314/pdfft?md5=e54d4308cd7364610a7e181968d10786&pid=1-s2.0-S1755309122000314-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45661624","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1016/j.cjar.2022.100253
Shanzhong Du , Lianfu Ma
As the number of “ownerless” enterprises in China’s capital market increases, so does the importance of paying attention to their behavior. From the perspective of enterprises’ control rights allocation, we find that non-actual controllers can inhibit corporate innovation by intensifying agency conflicts, reducing corporate risk-taking and strengthening financing constraints. We also find that a larger proportion of independent directors, higher audit quality, greater managerial ownership and less environmental uncertainty weaken the negative effect of non-actual controllers on corporate innovation. In contrast, multiple large shareholders strengthen the inhibitory effect of non-actual controllers on corporate innovation, but this inhibitory effect comes from over-supervision rather than from collusion. We further divide non-actual controllers into real and hidden types and find that real non-actual controllers still have a significant inhibitory effect on corporate innovation. Finally, we rule out the competitive explanation of equity dispersion, whereby non-actual controllers inhibit corporate innovation. This study enriches the literature on the factors influencing corporate innovation and provides evidence of the adverse impact of non-actual controllers.
{"title":"Non-actual controllers and corporate innovation: Evidence from China","authors":"Shanzhong Du , Lianfu Ma","doi":"10.1016/j.cjar.2022.100253","DOIUrl":"https://doi.org/10.1016/j.cjar.2022.100253","url":null,"abstract":"<div><p>As the number of “ownerless” enterprises in China’s capital market increases, so does the importance of paying attention to their behavior. From the perspective of enterprises’ control rights allocation, we find that non-actual controllers can inhibit corporate innovation by intensifying agency conflicts, reducing corporate risk-taking and strengthening financing constraints. We also find that a larger proportion of independent directors, higher audit quality, greater managerial ownership and less environmental uncertainty weaken the negative effect of non-actual controllers on corporate innovation. In contrast, multiple large shareholders strengthen the inhibitory effect of non-actual controllers on corporate innovation, but this inhibitory effect comes from over-supervision rather than from collusion. We further divide non-actual controllers into real and hidden types and find that real non-actual controllers still have a significant inhibitory effect on corporate innovation. Finally, we rule out the competitive explanation of equity dispersion, whereby non-actual controllers inhibit corporate innovation. This study enriches the literature on the factors influencing corporate innovation and provides evidence of the adverse impact of non-actual controllers.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000338/pdfft?md5=426acce4124f4360d6ded8c329c35a50&pid=1-s2.0-S1755309122000338-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136551969","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-06-01DOI: 10.1016/j.cjar.2022.100225
Xiangting Kong , Jinsong Tan , Jingxin Zhang
We investigate the unique role and mechanisms of industry growth in firms’ risk-taking policies. We find that industry growth is negatively associated with corporate risk-taking, consistent with the prospect theory that a high-growth industry gives firms a superior external environment, which may cause them to refrain from corporate risk-taking as in the saying “thinking of peace when rich.” This correlation is stronger for product market leaders, industries encouraged by industry policies and industries that receive more government support. Firms reduce risk-taking through various corporate policies, including long-term, high-value investments, operational efficiency and cash holdings in response to high industry growth. Overall, our results are consistent with industry growth negatively affecting corporate risk-taking.
{"title":"Thinking of peace when rich: The effect of industry growth on corporate risk-taking","authors":"Xiangting Kong , Jinsong Tan , Jingxin Zhang","doi":"10.1016/j.cjar.2022.100225","DOIUrl":"10.1016/j.cjar.2022.100225","url":null,"abstract":"<div><p>We investigate the unique role and mechanisms of industry growth in firms’ risk-taking policies. We find that industry growth is negatively associated with corporate risk-taking, consistent with the prospect theory that a high-growth industry gives firms a superior external environment, which may cause them to refrain from corporate risk-taking as in the saying “thinking of peace when rich.” This correlation is stronger for product market leaders, industries encouraged by industry policies and industries that receive more government support. Firms reduce risk-taking through various corporate policies, including long-term, high-value investments, operational efficiency and cash holdings in response to high industry growth. Overall, our results are consistent with industry growth negatively affecting corporate risk-taking.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000053/pdfft?md5=7443c9a20927ca5bd3f3865a2e0dba07&pid=1-s2.0-S1755309122000053-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44726660","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-06-01DOI: 10.1016/j.cjar.2022.100224
Phoebe Gao , Chu Yeong Lim , Xiumei Liu , Cheng Colin Zeng
This paper examines the impact of loan loss provisions (LLPs) on return predictability during 1994–2017. We find that on average, LLPs are negatively associated with one year ahead stock returns. This effect is particularly significant during the global financial crisis but much weaker during the Basel II and III periods. Consistent with these findings, a long–short trading strategy based on LLPs generates positive abnormal returns during the Basel II and III periods but negative abnormal returns during the financial crisis. Cross-sectional tests show that this effect is more pronounced among banks with greater information asymmetry. Decomposition of LLPs suggests that these findings are driven mainly by nondiscretionary LLPs. Overall, our results suggest that the relationship between LLPs and future stock returns is not linear but contingent on bank regulations and macroeconomic conditions.
{"title":"Loan loss provisions and return predictability: A dynamic perspective","authors":"Phoebe Gao , Chu Yeong Lim , Xiumei Liu , Cheng Colin Zeng","doi":"10.1016/j.cjar.2022.100224","DOIUrl":"10.1016/j.cjar.2022.100224","url":null,"abstract":"<div><p>This paper examines the impact of loan loss provisions (LLPs) on return predictability during 1994–2017. We find that on average, LLPs are negatively associated with one year ahead stock returns. This effect is particularly significant during the global financial crisis but much weaker during the Basel II and III periods. Consistent with these findings, a long–short trading strategy based on LLPs generates positive abnormal returns during the Basel II and III periods but negative abnormal returns during the financial crisis. Cross-sectional tests show that this effect is more pronounced among banks with greater information asymmetry. Decomposition of LLPs suggests that these findings are driven mainly by nondiscretionary LLPs. Overall, our results suggest that the relationship between LLPs and future stock returns is not linear but contingent on bank regulations and macroeconomic conditions.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000041/pdfft?md5=7f080f0bcb868f67e53524763777761e&pid=1-s2.0-S1755309122000041-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48106285","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-06-01DOI: 10.1016/j.cjar.2022.100237
Jianfa Yang , Guilong Cai , Guojian Zheng , Qiankun Gu
This paper examines the relationship between firm internationalization and cost of equity. We find that firms with a higher degree of international operations have a significantly lower cost of equity, which is more pronounced for firms in provinces with a weak institutional environment or firms experiencing intense domestic competition. Our results are robust after adopting a firm fixed effect model, propensity score matching, difference-in-difference regressions and alternative measurements of key variables. Further, international operations help firms to break through their institutional constraints in the domestic market, which reduces the cost of equity and improves resource allocation efficiency in the capital market. Our paper enriches the literature on firm internationalization and the cost of equity from the perspective of emerging markets.
{"title":"Firm internationalization and cost of equity: Evidence from China","authors":"Jianfa Yang , Guilong Cai , Guojian Zheng , Qiankun Gu","doi":"10.1016/j.cjar.2022.100237","DOIUrl":"https://doi.org/10.1016/j.cjar.2022.100237","url":null,"abstract":"<div><p>This paper examines the relationship between firm internationalization and cost of equity. We find that firms with a higher degree of international operations have a significantly lower cost of equity, which is more pronounced for firms in provinces with a weak institutional environment or firms experiencing intense domestic competition. Our results are robust after adopting a firm fixed effect model, propensity score matching, difference-in-difference regressions and alternative measurements of key variables. Further, international operations help firms to break through their institutional constraints in the domestic market, which reduces the cost of equity and improves resource allocation efficiency in the capital market. Our paper enriches the literature on firm internationalization and the cost of equity from the perspective of emerging markets.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S175530912200017X/pdfft?md5=8927d63babe5e7c5b615b12f229c43a7&pid=1-s2.0-S175530912200017X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72244824","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-06-01DOI: 10.1016/j.cjar.2022.100245
Yuhui Wu, Yanan Tian
Using a 2009–2019 sample of Chinese bond issuers, we examine the effect of carbon risk on bond financing costs. Relative to low carbon risk issuers, high carbon risk issuers have substantially larger bond credit spreads, mainly because their credit risk is greater and they invest the funds in non-green projects. This positive relationship is more pronounced for issuers with financing constraints, those not making a green transition and those in cities with stringent environmental regulations. We find a reversed effect during the COVID-19 pandemic. However, China’s carbon peak and carbon neutral goals have renewed the focus on carbon risk. Carbon risk also causes bond issuers to scale back production and negatively affects their likelihood of receiving long-term financial support. Our findings suggest that investors consider carbon risk and charge a corresponding risk premium.
{"title":"The price of carbon risk: Evidence from China’s bond market","authors":"Yuhui Wu, Yanan Tian","doi":"10.1016/j.cjar.2022.100245","DOIUrl":"10.1016/j.cjar.2022.100245","url":null,"abstract":"<div><p>Using a 2009–2019 sample of Chinese bond issuers, we examine the effect of carbon risk on bond financing costs. Relative to low carbon risk issuers, high carbon risk issuers have substantially larger bond credit spreads, mainly because their credit risk is greater and they invest the funds in non-green projects. This positive relationship is more pronounced for issuers with financing constraints, those not making a green transition and those in cities with stringent environmental regulations. We find a reversed effect during the COVID-19 pandemic. However, China’s carbon peak and carbon neutral goals have renewed the focus on carbon risk. Carbon risk also causes bond issuers to scale back production and negatively affects their likelihood of receiving long-term financial support. Our findings suggest that investors consider carbon risk and charge a corresponding risk premium.</p></div>","PeriodicalId":45688,"journal":{"name":"China Journal of Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1755309122000259/pdfft?md5=d9685e1fa69b0ea096d84aceae936532&pid=1-s2.0-S1755309122000259-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46294341","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}