We examine the relationship between economic policy uncertainty (EPU) and corporate investment in a global setting based on the real options theory and the agency theory. Using a sample of 44,610 firms from 28 countries, we find that the negative relationship between EPU and investment is more pronounced in the countries with stronger investor protection. In the countries with stronger investor protection, the negative impact of EPU on firms' capital investment is significantly stronger for the firms with more irreversible investment. Further evidence shows that the reduction of investment is mainly from overinvestment firms in the countries with stronger investor protection. Our evidence suggests country level investor protection can act as effective governance mechanisms that mitigate agency problems when firms are facing uncertainty.
{"title":"The impact of country level investor protection on economic policy uncertainty and corporate investment link","authors":"Serhat Yildiz, Qun Wu, Ethan D. Watson","doi":"10.1111/irfi.12472","DOIUrl":"https://doi.org/10.1111/irfi.12472","url":null,"abstract":"We examine the relationship between economic policy uncertainty (EPU) and corporate investment in a global setting based on the real options theory and the agency theory. Using a sample of 44,610 firms from 28 countries, we find that the negative relationship between EPU and investment is more pronounced in the countries with stronger investor protection. In the countries with stronger investor protection, the negative impact of EPU on firms' capital investment is significantly stronger for the firms with more irreversible investment. Further evidence shows that the reduction of investment is mainly from overinvestment firms in the countries with stronger investor protection. Our evidence suggests country level investor protection can act as effective governance mechanisms that mitigate agency problems when firms are facing uncertainty.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142194105","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Reza Tajaddini, Hassan F. Gholipour, Amir Arjomandi
Using Australian national‐level survey data and applying Poisson regressions, we show that property investors who have more trust in the retirement system tend to own fewer investment properties. This finding is robust to various estimation methods, sample sizes, and periods.
{"title":"Trust in the retirement system and investment decisions of property investors","authors":"Reza Tajaddini, Hassan F. Gholipour, Amir Arjomandi","doi":"10.1111/irfi.12471","DOIUrl":"https://doi.org/10.1111/irfi.12471","url":null,"abstract":"Using Australian national‐level survey data and applying Poisson regressions, we show that property investors who have more trust in the retirement system tend to own fewer investment properties. This finding is robust to various estimation methods, sample sizes, and periods.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-08-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142194106","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the impact of passive investors on Corporate Social Responsibility (CSR) through the lens of a risk‐management view of CSR, which emphasizes its insurance‐like effects in adverse corporate events. Since passive investors have diversified away most idiosyncratic risks, we predict that they demand less CSR as a strategic approach to manage risks. Using the annual Russell 1000/2000 index reconstitution as an instrument for passive investor ownership, we document evidence consistent with our prediction. The negative effect is more pronounced among better‐diversified passive investors and firms that are not in CSR‐sensitive industries. We further show that passive investors hold back CSR activities through the channel of “voice” by reducing the number of socially responsible investment (SRI) proposals.
{"title":"Do passive investors influence corporate social responsibility? A risk‐management perspective","authors":"Wenxuan Hou, Xiaoyu Zhang","doi":"10.1111/irfi.12466","DOIUrl":"https://doi.org/10.1111/irfi.12466","url":null,"abstract":"This paper examines the impact of passive investors on Corporate Social Responsibility (CSR) through the lens of a risk‐management view of CSR, which emphasizes its insurance‐like effects in adverse corporate events. Since passive investors have diversified away most idiosyncratic risks, we predict that they demand less CSR as a strategic approach to manage risks. Using the annual Russell 1000/2000 index reconstitution as an instrument for passive investor ownership, we document evidence consistent with our prediction. The negative effect is more pronounced among better‐diversified passive investors and firms that are not in CSR‐sensitive industries. We further show that passive investors hold back CSR activities through the channel of “voice” by reducing the number of socially responsible investment (SRI) proposals.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142194107","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the empirical relationship between a country's democracy level, measured using the Democracy Index's five categories (electoral process and pluralism, the functioning of government, political participation, political culture, and civil liberties), and market liquidity for non‐US stocks listed on the New York Stock Exchange (NYSE) from 2014 to 2019. Our analysis shows that non‐US stocks from countries with stronger democratic institutions have narrower spreads, a higher market quality index, smaller price impacts of trades, and lower probabilities of information‐based trading. We also find a significant correlation between changes in our liquidity measures and variations in a country's overall democracy level over time. Our results suggest that improving a country's level of democracy can enhance the market liquidity and quality of non‐US stocks, thus benefiting investors and promoting the overall stability and efficiency of financial markets.
{"title":"The impact of democracy on liquidity and information asymmetry for NYSE cross‐listed stocks","authors":"Jang‐Chul Kim, Qing Su, Teressa Elliott","doi":"10.1111/irfi.12469","DOIUrl":"https://doi.org/10.1111/irfi.12469","url":null,"abstract":"We investigate the empirical relationship between a country's democracy level, measured using the Democracy Index's five categories (electoral process and pluralism, the functioning of government, political participation, political culture, and civil liberties), and market liquidity for non‐US stocks listed on the New York Stock Exchange (NYSE) from 2014 to 2019. Our analysis shows that non‐US stocks from countries with stronger democratic institutions have narrower spreads, a higher market quality index, smaller price impacts of trades, and lower probabilities of information‐based trading. We also find a significant correlation between changes in our liquidity measures and variations in a country's overall democracy level over time. Our results suggest that improving a country's level of democracy can enhance the market liquidity and quality of non‐US stocks, thus benefiting investors and promoting the overall stability and efficiency of financial markets.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142194108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yikun Chen, Ning Hu, Yanan Cao, Savannah (Yuanyuan) Guo, Yuhan Wang
This paper uses a sample of comment letters issued and disclosed by the Shanghai and Shenzhen Stock Exchanges in China from 2015 to 2019 and empirically investigates the impact of comment letters on the cost of equity capital. The results show that the cost of equity capital raises after firms receive comment letters. However, when repeating the analysis using comment letters issued but undisclosed between 2013 and 2014, the observed effect dissipates, indicating an information disclosure channel. Moreover, the cost of equity capital is higher when the letters include more questions and demand independent opinions from auditors. Cross‐sectional tests show that this effect is influenced by investor protection, corporate information environment, and internal control quality. Additional tests show a negative association between the receipt of comment letters and both the likelihood and the amount of seasoned equity offerings, which can be attributed to the elevated cost of equity. Overall, our paper not only underscores the importance of public disclosure of government regulatory information, but also provides empirical evidence supporting the effectiveness of regulation by stock exchanges.
{"title":"The information effect versus governance effect of comment letters: Evidence from the cost of equity capital","authors":"Yikun Chen, Ning Hu, Yanan Cao, Savannah (Yuanyuan) Guo, Yuhan Wang","doi":"10.1111/irfi.12465","DOIUrl":"https://doi.org/10.1111/irfi.12465","url":null,"abstract":"This paper uses a sample of comment letters issued and disclosed by the Shanghai and Shenzhen Stock Exchanges in China from 2015 to 2019 and empirically investigates the impact of comment letters on the cost of equity capital. The results show that the cost of equity capital raises after firms receive comment letters. However, when repeating the analysis using comment letters issued but undisclosed between 2013 and 2014, the observed effect dissipates, indicating an information disclosure channel. Moreover, the cost of equity capital is higher when the letters include more questions and demand independent opinions from auditors. Cross‐sectional tests show that this effect is influenced by investor protection, corporate information environment, and internal control quality. Additional tests show a negative association between the receipt of comment letters and both the likelihood and the amount of seasoned equity offerings, which can be attributed to the elevated cost of equity. Overall, our paper not only underscores the importance of public disclosure of government regulatory information, but also provides empirical evidence supporting the effectiveness of regulation by stock exchanges.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141864379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines whether the inception of credit default swaps (CDS) trading curbs corporate employment. We show that firms with CDS trading have significantly lower employment growth. Our baseline results are robust to alternative measures of corporate employment growth, various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality, and additional control variables. The decrease in firms' employment growth after CDS trading is more pronounced in firms with larger financial constraints and lower CEO risk‐taking. In addition, we find that the inception of CDS trading affects employment growth through the financial distress channel. Further analysis finds that the inception of CDS trading could mitigate the labor over‐investment problem, stimulating employment efficiency. Our evidence suggests that corporate employment growth is reduced after the initiation of CDS trading due to the heightened cost of defaults.
本文研究了信用违约掉期（CDS）交易是否会抑制企业就业。我们的研究表明，有 CDS 交易的企业就业增长明显较低。我们的基线结果对其他企业就业增长衡量方法、各种缓解因遗漏变量和反向因果关系导致的内生性问题的方法以及额外的控制变量都是稳健的。CDS 交易后企业就业增长的下降在财务约束较大和 CEO 风险承担较低的企业中更为明显。此外，我们还发现，CDS 交易的开始是通过财务困境渠道影响就业增长的。进一步分析发现，CDS 交易的启动可以缓解劳动力过度投资问题，从而提高就业效率。我们的证据表明，CDS 交易启动后，由于违约成本的增加，企业的就业增长会降低。
{"title":"The real effect of CDS trading: Evidence from corporate employment","authors":"Shaojie Lai, Shiang Liu, Xiaoling Pu, Jianing Zhang","doi":"10.1111/irfi.12464","DOIUrl":"https://doi.org/10.1111/irfi.12464","url":null,"abstract":"This paper examines whether the inception of credit default swaps (CDS) trading curbs corporate employment. We show that firms with CDS trading have significantly lower employment growth. Our baseline results are robust to alternative measures of corporate employment growth, various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality, and additional control variables. The decrease in firms' employment growth after CDS trading is more pronounced in firms with larger financial constraints and lower CEO risk‐taking. In addition, we find that the inception of CDS trading affects employment growth through the financial distress channel. Further analysis finds that the inception of CDS trading could mitigate the labor over‐investment problem, stimulating employment efficiency. Our evidence suggests that corporate employment growth is reduced after the initiation of CDS trading due to the heightened cost of defaults.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141584945","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abe de Jong, Pouyan Ghazizadeh, Frederik P. Schlingemann, Farhan Shazia
Nearly one‐third of asset sale announcements are preceded by a public statement of the intent to sell. These voluntary disclosures generate significant average returns of 1.1%. Pre‐announcements bias returns around the actual asset sales toward zero. Due to opportunistic managerial behavior, pre‐announcements occur after poor stock performance and CEO turnover. Managers also opportunistically exercise options around the pre‐announcements and receive potential benefits from the uptick in stock prices. Although we find no effect of pre‐announcements on long‐term operational performance, we do observe a negative effect on stock returns using three and four‐factor models.
{"title":"Why do managers announce the intention to sell large assets?","authors":"Abe de Jong, Pouyan Ghazizadeh, Frederik P. Schlingemann, Farhan Shazia","doi":"10.1111/irfi.12461","DOIUrl":"https://doi.org/10.1111/irfi.12461","url":null,"abstract":"Nearly one‐third of asset sale announcements are preceded by a public statement of the intent to sell. These voluntary disclosures generate significant average returns of 1.1%. Pre‐announcements bias returns around the actual asset sales toward zero. Due to opportunistic managerial behavior, pre‐announcements occur after poor stock performance and CEO turnover. Managers also opportunistically exercise options around the pre‐announcements and receive potential benefits from the uptick in stock prices. Although we find no effect of pre‐announcements on long‐term operational performance, we do observe a negative effect on stock returns using three and four‐factor models.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141570088","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a sample of Chinese listed firms during 2007–2020, we find that non‐controlling blockholders (NCBs) with common ownership can exert effective monitoring on dominant owners' self‐dealing behaviors captured by financial misconducts related to controlling shareholders. This effect is concentrated among state‐owned enterprises (SOEs), especially for the common NCBs holding only SOEs. Finally, the monitoring effect is particularly evident when firms have more peer firms, when common NCBs hold more firms within the same industry, when common NCBs exert stronger exit threats, or when common NCBs hold long investment horizons, indicating that common ownership enhances NCBs' incentives and abilities to identify and curb controlling shareholders' misbehaviors.
{"title":"Do non‐controlling blockholders with common ownership monitor controlling shareholders effectively? Evidence from China","authors":"Kai Wang, Lihong Wang","doi":"10.1111/irfi.12463","DOIUrl":"https://doi.org/10.1111/irfi.12463","url":null,"abstract":"Using a sample of Chinese listed firms during 2007–2020, we find that non‐controlling blockholders (NCBs) with common ownership can exert effective monitoring on dominant owners' self‐dealing behaviors captured by financial misconducts related to controlling shareholders. This effect is concentrated among state‐owned enterprises (SOEs), especially for the common NCBs holding only SOEs. Finally, the monitoring effect is particularly evident when firms have more peer firms, when common NCBs hold more firms within the same industry, when common NCBs exert stronger exit threats, or when common NCBs hold long investment horizons, indicating that common ownership enhances NCBs' incentives and abilities to identify and curb controlling shareholders' misbehaviors.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.8,"publicationDate":"2024-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141681708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the association between firm size and the likelihood of emergence from bankruptcy filed under Chapter 11. Using 715 firm‐year observations from 1979 to 2019, we find that large firms are less likely to emerge. We use performance, financial constraints, and information environment as potential channels to examine the mechanism by which firm size affects the likelihood of firm emergence from bankruptcy. Further analysis shows that the likelihood of bankruptcy emergence is lower for large firms before the global financial crisis of 2007.
{"title":"Does size matter? Examining the probability of firm emergence from bankruptcy","authors":"Miftah Zikri, Syed Shams, Afzalur Rashid, Chandrasekhar Krishnamurti","doi":"10.1111/irfi.12462","DOIUrl":"https://doi.org/10.1111/irfi.12462","url":null,"abstract":"We examine the association between firm size and the likelihood of emergence from bankruptcy filed under Chapter 11. Using 715 firm‐year observations from 1979 to 2019, we find that large firms are less likely to emerge. We use performance, financial constraints, and information environment as potential channels to examine the mechanism by which firm size affects the likelihood of firm emergence from bankruptcy. Further analysis shows that the likelihood of bankruptcy emergence is lower for large firms before the global financial crisis of 2007.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141512937","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pattanaporn Chatjuthamard, Pandej Chintrakarn, Pornsit Jiraporn, Sang Mook Lee
Motivated by the rapidly emerging literature on climate change and finance, we explore the effect of corporate tax avoidance on shareholder value around the adoption of the Paris Climate Agreement. Companies engaging in greater tax avoidance experience significantly more favorable stock market reactions. Companies that achieve greater savings through tax avoidance have a larger surplus of resources that can be directed toward climate‐related actions in alignment with the Paris Agreement, resulting in enhanced shareholder value. Furthermore, the advantageous impact of tax avoidance on shareholder wealth is significantly less pronounced for companies that pay out larger dividends.
{"title":"Climate change, tax avoidance, and shareholder value: Evidence from the Paris Agreement","authors":"Pattanaporn Chatjuthamard, Pandej Chintrakarn, Pornsit Jiraporn, Sang Mook Lee","doi":"10.1111/irfi.12454","DOIUrl":"https://doi.org/10.1111/irfi.12454","url":null,"abstract":"Motivated by the rapidly emerging literature on climate change and finance, we explore the effect of corporate tax avoidance on shareholder value around the adoption of the Paris Climate Agreement. Companies engaging in greater tax avoidance experience significantly more favorable stock market reactions. Companies that achieve greater savings through tax avoidance have a larger surplus of resources that can be directed toward climate‐related actions in alignment with the Paris Agreement, resulting in enhanced shareholder value. Furthermore, the advantageous impact of tax avoidance on shareholder wealth is significantly less pronounced for companies that pay out larger dividends.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":null,"pages":null},"PeriodicalIF":1.7,"publicationDate":"2024-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141190190","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"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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