Pub Date : 2025-07-05DOI: 10.1016/j.gfj.2025.101152
Karel Hrazdil , Yan Li , Thomas Scott
We investigate whether adopting a uniform set of accounting standards impacts stock price efficiency by introducing a novel empirical test imported from the finance literature. Using mandatory adoption of International Financial Reporting Standards (IFRS) as an exogenous shock to the accounting information disclosure environment and employing a difference-in-difference research design, we find that the extent to which stock prices deviate from their fundamental values decreases significantly following the adoption of IFRS. In cross-sectional tests, we further observe that the impact of IFRS adoption on stock price efficiency is more pronounced in countries with lower accounting quality prior to IFRS adoption and in those with substantial differences between their domestic Generally Accepted Accounting Principles (GAAP) and IFRS. Overall, our study contributes to the literature by empirically examining a fundamental aspect of the IFRS mission statement—whether IFRS adoption enhances financial market efficiency.
{"title":"Accounting disclosures and stock price efficiency: Evidence from mandatory IFRS adoption","authors":"Karel Hrazdil , Yan Li , Thomas Scott","doi":"10.1016/j.gfj.2025.101152","DOIUrl":"10.1016/j.gfj.2025.101152","url":null,"abstract":"<div><div>We investigate whether adopting a uniform set of accounting standards impacts stock price efficiency by introducing a novel empirical test imported from the finance literature. Using mandatory adoption of International Financial Reporting Standards (IFRS) as an exogenous shock to the accounting information disclosure environment and employing a difference-in-difference research design, we find that the extent to which stock prices deviate from their fundamental values decreases significantly following the adoption of IFRS. In cross-sectional tests, we further observe that the impact of IFRS adoption on stock price efficiency is more pronounced in countries with lower accounting quality prior to IFRS adoption and in those with substantial differences between their domestic Generally Accepted Accounting Principles (GAAP) and IFRS. Overall, our study contributes to the literature by empirically examining a fundamental aspect of the IFRS mission statement—whether IFRS adoption enhances financial market efficiency.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101152"},"PeriodicalIF":5.5,"publicationDate":"2025-07-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144579768","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 : 2025-07-02DOI: 10.1016/j.gfj.2025.101150
Ficawoyi Donou-Adonsou
The efficiency of financial systems in fostering economic growth remains a critical concern, particularly in Sub-Saharan Africa, where financial markets and institutions exhibit structural weaknesses. Existing literature predominantly focuses on the dichotomy between bank-based and market-based financial systems, overlooking the relative contributions of different financial institutions. Using data from 22 Sub-Saharan African countries from 2006 to 2017, we examine the role of banks, stock markets, microfinance, credit unions and credit cooperatives, other deposit takers, and non-resident banks in enhancing economic efficiency. Employing the generalized method of moments, we find that deposit-taking institutions exert the most substantial impact, while investments in stock markets are twice as effective as bank loans in driving economic performance. Additionally, our results indicate that banking activities complement both stock markets and deposit-taking institutions, but we observe no significant relationship between stock markets and deposit takers. These findings challenge the conventional wisdom that distinguishes between market-based and bank-based financial systems as primary factors for economic growth. Instead, we argue that the composition and interaction of institutions within the financial system are more critical for fostering economic efficiency. This study provides valuable implications for policymakers and financial practitioners, emphasizing the need to focus on institutional dynamics rather than merely the structural type of financial system. By enhancing our understanding of these relationships, our findings contribute to the broader debate of financial development and economic performance in emerging markets.
{"title":"Financial structure and economic efficiency in Sub-Saharan Africa","authors":"Ficawoyi Donou-Adonsou","doi":"10.1016/j.gfj.2025.101150","DOIUrl":"10.1016/j.gfj.2025.101150","url":null,"abstract":"<div><div>The efficiency of financial systems in fostering economic growth remains a critical concern, particularly in Sub-Saharan Africa, where financial markets and institutions exhibit structural weaknesses. Existing literature predominantly focuses on the dichotomy between bank-based and market-based financial systems, overlooking the relative contributions of different financial institutions. Using data from 22 Sub-Saharan African countries from 2006 to 2017, we examine the role of banks, stock markets, microfinance, credit unions and credit cooperatives, other deposit takers, and non-resident banks in enhancing economic efficiency. Employing the generalized method of moments, we find that deposit-taking institutions exert the most substantial impact, while investments in stock markets are twice as effective as bank loans in driving economic performance. Additionally, our results indicate that banking activities complement both stock markets and deposit-taking institutions, but we observe no significant relationship between stock markets and deposit takers. These findings challenge the conventional wisdom that distinguishes between market-based and bank-based financial systems as primary factors for economic growth. Instead, we argue that the composition and interaction of institutions within the financial system are more critical for fostering economic efficiency. This study provides valuable implications for policymakers and financial practitioners, emphasizing the need to focus on institutional dynamics rather than merely the structural type of financial system. By enhancing our understanding of these relationships, our findings contribute to the broader debate of financial development and economic performance in emerging markets.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101150"},"PeriodicalIF":5.5,"publicationDate":"2025-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144588588","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}
In light of the rising macro-financial, geopolitical, and environmental risks, alternative assets such as cryptocurrencies, green bonds, and sukuk have received increasing attention for their potential in risk hedging and diversification. This study examines the dynamic return spillovers and risk-sharing interconnections among conventional and gold-backed Islamic cryptocurrencies, green bonds, and sukuk using daily data from 2018 to 2023. Employing a novel combination of frequency-based quantile connectedness and quantile cross-spectral techniques, we investigate time- and frequency-dependent interconnections under varying market conditions. Our results are threefold: First, Islamic gold-backed cryptocurrencies, green bonds, and sukuk exhibit intense co-movement and risk-sharing, in contrast to conventional cryptocurrencies, which display differential patterns. Second, return spillovers and connectedness intensify significantly during market stress periods such as the COVID-19 pandemic and the Russia–Ukraine war, with Islamic gold-backed cryptocurrencies showing stronger resilience and hedging potential than conventional cryptocurrencies. Third, return spillovers are more pronounced in the short term compared to the long term, potentially driven by liquidity flows, investor behavior, and high-frequency trading. Our findings suggest important implications for investors, fund managers, regulators, and policymakers.
{"title":"Cryptocurrencies and alternative bonds: Novel evidence on co-movement and risk sharing","authors":"Osamah AlKhazali , Destan Kirimhan , Mustafa Raza Rabbani , Syed Mabruk Billah , Muneer Shaik","doi":"10.1016/j.gfj.2025.101149","DOIUrl":"10.1016/j.gfj.2025.101149","url":null,"abstract":"<div><div>In light of the rising macro-financial, geopolitical, and environmental risks, alternative assets such as cryptocurrencies, green bonds, and sukuk have received increasing attention for their potential in risk hedging and diversification. This study examines the dynamic return spillovers and risk-sharing interconnections among conventional and gold-backed Islamic cryptocurrencies, green bonds, and sukuk using daily data from 2018 to 2023. Employing a novel combination of frequency-based quantile connectedness and quantile cross-spectral techniques, we investigate time- and frequency-dependent interconnections under varying market conditions. Our results are threefold: First, Islamic gold-backed cryptocurrencies, green bonds, and sukuk exhibit intense co-movement and risk-sharing, in contrast to conventional cryptocurrencies, which display differential patterns. Second, return spillovers and connectedness intensify significantly during market stress periods such as the COVID-19 pandemic and the Russia–Ukraine war, with Islamic gold-backed cryptocurrencies showing stronger resilience and hedging potential than conventional cryptocurrencies. Third, return spillovers are more pronounced in the short term compared to the long term, potentially driven by liquidity flows, investor behavior, and high-frequency trading. Our findings suggest important implications for investors, fund managers, regulators, and policymakers.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101149"},"PeriodicalIF":5.5,"publicationDate":"2025-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144511064","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 : 2025-06-18DOI: 10.1016/j.gfj.2025.101148
Jang-Chul Kim , Sharif Mazumder , Ali Nejadmalayeri , Qing Su
Motivated by the pioneering work of Porter (1990) and a vast supporting literature, we posit that global competitiveness improves a nation's ability to benefit from globalization and financial liberalization. To prove the veracity of this supposition, we study the relationship between the competitiveness of countries worldwide, as measured by the Global Competitiveness Index as well as its sub-indices, and the market liquidity of cross-listed stocks from 43 countries on the NYSE between 2006 and 2019. Our findings suggest that a country's greater global competitiveness extends beyond its borders, thereby significantly enhancing the liquidity of its foreign-listed stocks. This extenuating impact of global competitiveness on cross-listed stocks is partially but significantly due to reduced information asymmetry in global markets. Competitiveness associated with efficiency and innovation are particularly crucial in improving market liquidity and ameliorating the adverse effects of information asymmetry on market liquidity.
{"title":"Global competitiveness and market liquidity","authors":"Jang-Chul Kim , Sharif Mazumder , Ali Nejadmalayeri , Qing Su","doi":"10.1016/j.gfj.2025.101148","DOIUrl":"10.1016/j.gfj.2025.101148","url":null,"abstract":"<div><div>Motivated by the pioneering work of Porter (1990) and a vast supporting literature, we posit that global competitiveness improves a nation's ability to benefit from globalization and financial liberalization. To prove the veracity of this supposition, we study the relationship between the competitiveness of countries worldwide, as measured by the Global Competitiveness Index as well as its sub-indices, and the market liquidity of cross-listed stocks from 43 countries on the NYSE between 2006 and 2019. Our findings suggest that a country's greater global competitiveness extends beyond its borders, thereby significantly enhancing the liquidity of its foreign-listed stocks. This extenuating impact of global competitiveness on cross-listed stocks is partially but significantly due to reduced information asymmetry in global markets. Competitiveness associated with efficiency and innovation are particularly crucial in improving market liquidity and ameliorating the adverse effects of information asymmetry on market liquidity.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101148"},"PeriodicalIF":5.5,"publicationDate":"2025-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144366798","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 : 2025-06-16DOI: 10.1016/j.gfj.2025.101132
Joy D. Xiuyao Yang
This paper studies a theoretical question: Why is cryptocurrency so volatile? To investigate this, I apply a New Monetary model that incorporates an adaptive learning assumption. Specifically, building on the baseline framework of Choi and Rocheteau (2021), I relax their perfect foresight assumption by replacing it with adaptive learning. I show how high volatility can emerge under this revised assumption. With a simple learning rate algorithm, I find that adaptive learning can alter the stability of steady states. For instance, with a high learning rate, the system can experience a period of doubling bifurcation, potentially leading to chaotic regimes or explosive paths. These price dynamics help explain the extreme volatility observed in cryptocurrency markets.
{"title":"Cryptocurrency’s price volatility and adaptive learning","authors":"Joy D. Xiuyao Yang","doi":"10.1016/j.gfj.2025.101132","DOIUrl":"10.1016/j.gfj.2025.101132","url":null,"abstract":"<div><div>This paper studies a theoretical question: Why is cryptocurrency so volatile? To investigate this, I apply a New Monetary model that incorporates an adaptive learning assumption. Specifically, building on the baseline framework of <span><span>Choi and Rocheteau (2021)</span></span>, I relax their perfect foresight assumption by replacing it with adaptive learning. I show how high volatility can emerge under this revised assumption. With a simple learning rate algorithm, I find that adaptive learning can alter the stability of steady states. For instance, with a high learning rate, the system can experience a period of doubling bifurcation, potentially leading to chaotic regimes or explosive paths. These price dynamics help explain the extreme volatility observed in cryptocurrency markets.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101132"},"PeriodicalIF":5.5,"publicationDate":"2025-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144366703","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 : 2025-06-14DOI: 10.1016/j.gfj.2025.101146
Edward R. Lawrence , Mehul Raithatha , Iván M. Rodríguez Jr.
We analyze the impact of terrorism on cross-border mergers and acquisitions (M&As) and find that terrorist attacks in acquirer and target countries significantly influence both the initiation and completion of M&As. While the presence of terrorism deters deal initiation, it paradoxically increases the likelihood of deal completion, suggesting a complex interplay of risk assessment and strategic decision-making. Furthermore, we find that firms accelerate completion after terrorist attacks.
{"title":"Terrorism and cross-border mergers and acquisitions","authors":"Edward R. Lawrence , Mehul Raithatha , Iván M. Rodríguez Jr.","doi":"10.1016/j.gfj.2025.101146","DOIUrl":"10.1016/j.gfj.2025.101146","url":null,"abstract":"<div><div>We analyze the impact of terrorism on cross-border mergers and acquisitions (M&As) and find that terrorist attacks in acquirer and target countries significantly influence both the initiation and completion of M&As. While the presence of terrorism deters deal initiation, it paradoxically increases the likelihood of deal completion, suggesting a complex interplay of risk assessment and strategic decision-making. Furthermore, we find that firms accelerate completion after terrorist attacks.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101146"},"PeriodicalIF":5.5,"publicationDate":"2025-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144307630","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 investigates how governance characteristics, specifically gender diversity, and bank business models influence the transition from greenwashing and greenhushing to becoming green banks. A balanced panel of 150 listed banks worldwide from 2015 to 2021 is used. Latent Markov models are applied as a methodology capable of explaining the evolution of a group of banks and the characteristics that may affect their transition over time. Key findings reveal a positive correlation between having a female CEO with at least 30 % female board representation and the likelihood of a bank shifting from greenwashing to a green stance. Conversely, a higher proportion of women on the board appears to reduce the likelihood of transitioning from greenhushing to a vocal green position, suggesting a more risk-averse and conservative approach. Additionally, investment-oriented banks are more likely to evolve toward vocal green banking than retail and universal banks. The research advances the literature on greenwashing and greenhushing by highlighting the importance of governance characteristics in supporting environmentally responsible practices.
{"title":"Greenwashing, greenhushing, and the path to green banking","authors":"Gennaro De Novellis , Alessia Pedrazzoli , Daniela Pennetta , Valeria Venturelli","doi":"10.1016/j.gfj.2025.101147","DOIUrl":"10.1016/j.gfj.2025.101147","url":null,"abstract":"<div><div>This study investigates how governance characteristics, specifically gender diversity, and bank business models influence the transition from greenwashing and greenhushing to becoming green banks. A balanced panel of 150 listed banks worldwide from 2015 to 2021 is used. Latent Markov models are applied as a methodology capable of explaining the evolution of a group of banks and the characteristics that may affect their transition over time. Key findings reveal a positive correlation between having a female CEO with at least 30 % female board representation and the likelihood of a bank shifting from greenwashing to a green stance. Conversely, a higher proportion of women on the board appears to reduce the likelihood of transitioning from greenhushing to a vocal green position, suggesting a more risk-averse and conservative approach. Additionally, investment-oriented banks are more likely to evolve toward vocal green banking than retail and universal banks. The research advances the literature on greenwashing and greenhushing by highlighting the importance of governance characteristics in supporting environmentally responsible practices.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101147"},"PeriodicalIF":5.5,"publicationDate":"2025-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144298908","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 : 2025-06-10DOI: 10.1016/j.gfj.2025.101145
Hussain Faraj , David McMillan , Mariam Al-Sabah
For decades, gold has been considered as the most safe haven of assets in times of markets turmoil. However, this role has appears to have waned in recent years. This study aims to assess gold market behaviour over the past 37 years and examine the role of gold (and other precious metals) during periods of equity and bond market stress. Notably, we investigate whether gold lost its appeal as a safe haven asset due to its own market instability. Change point analysis, rolling mean, GARCH and DCC-GARCH approaches demonstrate that the gold market exhibits two distinct periods characterised by differing market movements, with a stable era followed by an unstable (highly volatile) era. Gold plays an insignificant role during the latter unstable period. Moreover, it exhibits a positive correlation in most high volatility periods with the S&P 500, again, especially during this latter period. This implies that gold is losing (or lost) its safe haven role during market stress and as the gold market encounters higher volatility periods, we anticipate a more positive correlation with the stock market in times of extreme stock market conditions. The outcomes challenge the prevailing definition of a gold safe haven, question the assumption of the stabilising role gold may offer to mitigate losses, and have important implications for investors seeking shelter in times of market stress.
{"title":"The diminishing lustre: Gold's market volatility and the fading safe haven effect","authors":"Hussain Faraj , David McMillan , Mariam Al-Sabah","doi":"10.1016/j.gfj.2025.101145","DOIUrl":"10.1016/j.gfj.2025.101145","url":null,"abstract":"<div><div>For decades, gold has been considered as the most safe haven of assets in times of markets turmoil. However, this role has appears to have waned in recent years. This study aims to assess gold market behaviour over the past 37 years and examine the role of gold (and other precious metals) during periods of equity and bond market stress. Notably, we investigate whether gold lost its appeal as a safe haven asset due to its own market instability. Change point analysis, rolling mean, GARCH and DCC-GARCH approaches demonstrate that the gold market exhibits two distinct periods characterised by differing market movements, with a stable era followed by an unstable (highly volatile) era. Gold plays an insignificant role during the latter unstable period. Moreover, it exhibits a positive correlation in most high volatility periods with the S&P 500, again, especially during this latter period. This implies that gold is losing (or lost) its safe haven role during market stress and as the gold market encounters higher volatility periods, we anticipate a more positive correlation with the stock market in times of extreme stock market conditions. The outcomes challenge the prevailing definition of a gold safe haven, question the assumption of the stabilising role gold may offer to mitigate losses, and have important implications for investors seeking shelter in times of market stress.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101145"},"PeriodicalIF":5.5,"publicationDate":"2025-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144306997","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 paper investigates the relationship between the net stable funding ratio (NSFR) and bank stability in Europe over the 2007–2022 period. By employing a two-step GMM panel model, we find a positive and significant link between the NSFR and banking stability in the European Union which is however stronger for banks located in the euro area than those in the non-euro area. Moreover, our results show that, within the euro area itself, for banks operating outside the core euro area, stronger liquidity positions do not translate into higher stability but conversely to higher instability. Overall, our findings highlight strong differences into how liquidity requirements relate to bank stability within the European union and also within the euro area itself which call for action by bank regulators.
{"title":"Net stable funding ratio: Implication for Bank stability in Europe","authors":"Imtynan Khalifeh , Francois Benhmad , Chawki El Moussawi , Amine Tarazi","doi":"10.1016/j.gfj.2025.101144","DOIUrl":"10.1016/j.gfj.2025.101144","url":null,"abstract":"<div><div>This paper investigates the relationship between the net stable funding ratio (NSFR) and bank stability in Europe over the 2007–2022 period. By employing a two-step GMM panel model, we find a positive and significant link between the NSFR and banking stability in the European Union which is however stronger for banks located in the euro area than those in the non-euro area. Moreover, our results show that, within the euro area itself, for banks operating outside the core euro area, stronger liquidity positions do not translate into higher stability but conversely to higher instability. Overall, our findings highlight strong differences into how liquidity requirements relate to bank stability within the European union and also within the euro area itself which call for action by bank regulators.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101144"},"PeriodicalIF":5.5,"publicationDate":"2025-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144253777","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}
In today's business environment, information asymmetry significantly impedes improvements in corporate labor investment efficiency (LIE), whereas high-quality environmental, social, and governance (ESG) disclosures are widely regarded as an effective means to reduce this issue. However, the rapid expansion of ESG rating agencies has led to considerable discrepancies in ESG evaluations, with the same firm often receiving divergent scores, even on identical indicators, from different agencies. The consequences of such inconsistencies remain underexplored. This study examines the effects of ESG rating divergence (ESGRD) on LIE, as well as the adaptive strategies firms adopt in response. We employ a double machine learning model using ESG ratings from six leading agencies, combined with panel data from Chinese A-share listed companies spanning 2003 to 2021. Our findings indicate that ESGRD has a significant short-term positive effect on LIE. In response, firms tend to increase their debt levels as a short-term coping strategy rather than reduce their workforce. Specifically, for every 1 % increase in ESGRD, firms in the 75–100th percentile range increase their liabilities by approximately 76,800 yuan, whereas those in the 50–75th percentile range increase liabilities by about 31,100 yuan. Moreover, the impact of ESGRD on LIE exhibits substantial heterogeneity across firms with different characteristics.
{"title":"Navigating ESG rating divergence: Implications for labor investment efficiency and firm adaptation strategy","authors":"Liangpeng Wu , Yujing Tang , Lei Meng , Qingyuan Zhu , Dequn Zhou","doi":"10.1016/j.gfj.2025.101141","DOIUrl":"10.1016/j.gfj.2025.101141","url":null,"abstract":"<div><div>In today's business environment, information asymmetry significantly impedes improvements in corporate labor investment efficiency (LIE), whereas high-quality environmental, social, and governance (ESG) disclosures are widely regarded as an effective means to reduce this issue. However, the rapid expansion of ESG rating agencies has led to considerable discrepancies in ESG evaluations, with the same firm often receiving divergent scores, even on identical indicators, from different agencies. The consequences of such inconsistencies remain underexplored. This study examines the effects of ESG rating divergence (ESGRD) on LIE, as well as the adaptive strategies firms adopt in response. We employ a double machine learning model using ESG ratings from six leading agencies, combined with panel data from Chinese A-share listed companies spanning 2003 to 2021. Our findings indicate that ESGRD has a significant short-term positive effect on LIE. In response, firms tend to increase their debt levels as a short-term coping strategy rather than reduce their workforce. Specifically, for every 1 % increase in ESGRD, firms in the 75–100th percentile range increase their liabilities by approximately 76,800 yuan, whereas those in the 50–75th percentile range increase liabilities by about 31,100 yuan. Moreover, the impact of ESGRD on LIE exhibits substantial heterogeneity across firms with different characteristics.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101141"},"PeriodicalIF":5.5,"publicationDate":"2025-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144253776","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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