Pub Date : 2026-06-01Epub Date: 2026-02-05DOI: 10.1016/j.gfj.2026.101241
Jaeyoung Yang, Seung Hun Han, Moonseok Choi
This study examines how kinship and social ties between CEOs and board members affect firm value. Surname sharing is leveraged as a proxy for kinship ties within the unique Confucian context of Korea. Utilizing a dataset of publicly listed Korean firms from 2011 to 2022, this study finds that CEO-board surname sharing has a negative relationship with firm value. This adverse effect is more pronounced when CEO power is higher. Stronger kinship ties appear to harm firm value through four channels: 1) Investment inefficiency, 2) Compensation inefficiency, 3) Reduced reporting quality, and 4) Deteriorated operating performance. These kinship ties are strengthened when offline meetings between clan associations take place. Moreover, boards comprising older members primarily drive the negative relationship with firm value, implying that time attenuates traditional Confucian kinship norms. By demonstrating how culturally embedded kinship and social ties influence firm value, the findings contribute to the literature on CEO-board dynamics and corporate governance.
{"title":"Kinship and social ties between CEOs and board members: Costs to firm value","authors":"Jaeyoung Yang, Seung Hun Han, Moonseok Choi","doi":"10.1016/j.gfj.2026.101241","DOIUrl":"10.1016/j.gfj.2026.101241","url":null,"abstract":"<div><div>This study examines how kinship and social ties between CEOs and board members affect firm value. Surname sharing is leveraged as a proxy for kinship ties within the unique Confucian context of Korea. Utilizing a dataset of publicly listed Korean firms from 2011 to 2022, this study finds that CEO-board surname sharing has a negative relationship with firm value. This adverse effect is more pronounced when CEO power is higher. Stronger kinship ties appear to harm firm value through four channels: 1) Investment inefficiency, 2) Compensation inefficiency, 3) Reduced reporting quality, and 4) Deteriorated operating performance. These kinship ties are strengthened when offline meetings between clan associations take place. Moreover, boards comprising older members primarily drive the negative relationship with firm value, implying that time attenuates traditional Confucian kinship norms. By demonstrating how culturally embedded kinship and social ties influence firm value, the findings contribute to the literature on CEO-board dynamics and corporate governance.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101241"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146173099","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 : 2026-06-01Epub Date: 2026-01-17DOI: 10.1016/j.gfj.2026.101237
Solmaz Batebi, Ahmed Elnahas
This study examines whether machine learning (ML) techniques can improve the prediction of insider trading behaviour compared with traditional linear approaches. Using a comprehensive sample of U.S. insider trading data from 2000 to 2022, we compare ensemble learning methods—random forest and extreme gradient boosting—to logistic regression and least absolute shrinkage and selection operator (LASSO). We implement Bayesian hyperparameter optimisation to improve model tuning and employ Shapley additive explanations (SHAP) values to maintain interpretability and identify the principal economic determinants of insider trading decisions. Additionally, we apply Gaussian Thompson sampling to evaluate competing hypotheses about insiders' market-timing motives. The results demonstrate that ML methods substantially outperform linear models in predicting both the likelihood and magnitude of insider sales, with predictive gains particularly pronounced among female insiders. SHAP analysis indicates that incentive structures play a stronger role for male insiders, whereas female trading behaviour appears more closely associated with private information about future firm performance.
{"title":"Are machines better predictors of insider trading?","authors":"Solmaz Batebi, Ahmed Elnahas","doi":"10.1016/j.gfj.2026.101237","DOIUrl":"10.1016/j.gfj.2026.101237","url":null,"abstract":"<div><div>This study examines whether machine learning (ML) techniques can improve the prediction of insider trading behaviour compared with traditional linear approaches. Using a comprehensive sample of U.S. insider trading data from 2000 to 2022, we compare ensemble learning methods—random forest and extreme gradient boosting—to logistic regression and least absolute shrinkage and selection operator (LASSO). We implement Bayesian hyperparameter optimisation to improve model tuning and employ Shapley additive explanations (SHAP) values to maintain interpretability and identify the principal economic determinants of insider trading decisions. Additionally, we apply Gaussian Thompson sampling to evaluate competing hypotheses about insiders' market-timing motives. The results demonstrate that ML methods substantially outperform linear models in predicting both the likelihood and magnitude of insider sales, with predictive gains particularly pronounced among female insiders. SHAP analysis indicates that incentive structures play a stronger role for male insiders, whereas female trading behaviour appears more closely associated with private information about future firm performance.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101237"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146023061","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 : 2026-06-01Epub Date: 2026-01-03DOI: 10.1016/j.gfj.2026.101234
Guangrui Liu , Ying Fang , Jiani Yan , Ming Zhou , Zixin He
Industrial policies generate both positive and negative information effects. Existing research largely emphasizes their signaling benefits while overlooking potential adverse impacts. Using the High-Tech Enterprise Identification Policy (HTEP) as a quasi-natural experiment, this study applies a staggered difference-in-differences model to examine how industrial policy influences stock price crash risk. The findings reveal that HTEP produces an information concealment effect that heightens crash risk. This effect is most pronounced among nonstate-owned and pseudo high-tech enterprises, where controlling shareholders conceal negative information for tax arbitrage and equity transfer, further increasing risk. Channel analysis indicates that HTEP intensifies information asymmetry among external investors, amplifying market instability. Grounded in Type II agency theory, the study identifies research and development information manipulation as a new mechanism linking industrial policy to crash risk, thereby expanding the theoretical framework of stock price dynamics. These results provide empirical evidence on the information effects of industrial policy and offer policy insights to improve the design and execution of innovation-driven industrial strategies worldwide.
{"title":"Information concealment effects or signaling effect of industrial policy: Evidence from stock price crash risk","authors":"Guangrui Liu , Ying Fang , Jiani Yan , Ming Zhou , Zixin He","doi":"10.1016/j.gfj.2026.101234","DOIUrl":"10.1016/j.gfj.2026.101234","url":null,"abstract":"<div><div>Industrial policies generate both positive and negative information effects. Existing research largely emphasizes their signaling benefits while overlooking potential adverse impacts. Using the <em>High-Tech Enterprise Identification Policy</em> (HTEP) as a quasi-natural experiment, this study applies a staggered difference-in-differences model to examine how industrial policy influences stock price crash risk. The findings reveal that HTEP produces an information concealment effect that heightens crash risk. This effect is most pronounced among nonstate-owned and pseudo high-tech enterprises, where controlling shareholders conceal negative information for tax arbitrage and equity transfer, further increasing risk. Channel analysis indicates that HTEP intensifies information asymmetry among external investors, amplifying market instability. Grounded in Type II agency theory, the study identifies research and development information manipulation as a new mechanism linking industrial policy to crash risk, thereby expanding the theoretical framework of stock price dynamics. These results provide empirical evidence on the information effects of industrial policy and offer policy insights to improve the design and execution of innovation-driven industrial strategies worldwide.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101234"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145925163","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 Environmental, Social, and Governance (ESG) performance is linked to the corporate default risk. Using listed Indian firms from 2016 to 2024, this study finds that ESG performance and its individual dimensions are negatively related to default risk via improved Altman Z-score. The advanced serial mediation analysis using the PROCESS model 6 suggests that ESG information is transmitted to lower default risk via enhanced corporate efficiency (CEF), improved financial performance indicated by return on assets (ROA), and lowered the cost of borrowing indicated by the cost of debt (COD). Applying the Propensity Score Matching (PSM) and Difference-in-Difference (DID) technique, this study also documents that firms that are part of the NIFTY100ESG index have significantly better financial resilience than companies not part of the index after the COVID-19 crisis. Through ex-post analysis in the case of defaulted firms, this study finds that ESG performance can predict corporate default events if combined with other parameters effectively. The findings supported by the legitimacy theory indicate that firms can increase corporate sustainability and legitimacy not only through improvements in corporate efficiency and profitability but also through external perceptions, responsibility, and ethical practices, which function as an ‘insurance effect’. Thus, policymakers should encourage lenders to integrate ESG factors into business models and promote sustainable business practices to reduce financial risks. This will accelerate the firms' adoption of cleaner technologies, enhance governance standards, and strengthen overall financial stability and corporate sustainability.
{"title":"From corporate responsibility to corporate sustainability: A study of how ESG mitigates corporate default risk using serial mediation analysis","authors":"Naresh Chandra Sahu, Abhisek Mahanta, Nihar Ranjan Jena","doi":"10.1016/j.gfj.2025.101225","DOIUrl":"10.1016/j.gfj.2025.101225","url":null,"abstract":"<div><div>This study investigates how Environmental, Social, and Governance (ESG) performance is linked to the corporate default risk. Using listed Indian firms from 2016 to 2024, this study finds that ESG performance and its individual dimensions are negatively related to default risk via improved Altman <em>Z</em>-score. The advanced serial mediation analysis using the PROCESS model 6 suggests that ESG information is transmitted to lower default risk via enhanced corporate efficiency (CEF), improved financial performance indicated by return on assets (ROA), and lowered the cost of borrowing indicated by the cost of debt (COD). Applying the Propensity Score Matching (PSM) and Difference-in-Difference (DID) technique, this study also documents that firms that are part of the NIFTY100ESG index have significantly better financial resilience than companies not part of the index after the COVID-19 crisis. Through ex-post analysis in the case of defaulted firms, this study finds that ESG performance can predict corporate default events if combined with other parameters effectively. The findings supported by the legitimacy theory indicate that firms can increase corporate sustainability and legitimacy not only through improvements in corporate efficiency and profitability but also through external perceptions, responsibility, and ethical practices, which function as an ‘insurance effect’. Thus, policymakers should encourage lenders to integrate ESG factors into business models and promote sustainable business practices to reduce financial risks. This will accelerate the firms' adoption of cleaner technologies, enhance governance standards, and strengthen overall financial stability and corporate sustainability.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101225"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145617100","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 : 2026-06-01Epub Date: 2025-11-24DOI: 10.1016/j.gfj.2025.101222
Jonas Freibauer , Silja Grawert
We study the impact of prolonged trading app usage on the investment behavior of Neobroker users. Therefore, we use representative data for German Neobroker users and general investors from a panel survey conducted three times over a period of 14 months. We show that the financial literacy of Neobroker users increases with the prolonged trading app use but still remains rather low. The annual (non-risk adjusted) return of Neobroker users is generally positively affected by owning derivatives and frequent trading. In addition, we investigate which determinants impact Neobroker users to trade special ETFs, cryptocurrencies, derivatives, and ETCs. We found an impact of risk tolerance, risk assessment of respective financial products, and trading frequency on Neobroker users to hold specific financial products. Surprisingly, the investment information source also influences Neobroker users regarding the trading of all four products.
{"title":"Prolonged Neobroker usage: Analyzing investment behavior and its impact on trading specific financial products","authors":"Jonas Freibauer , Silja Grawert","doi":"10.1016/j.gfj.2025.101222","DOIUrl":"10.1016/j.gfj.2025.101222","url":null,"abstract":"<div><div>We study the impact of prolonged trading app usage on the investment behavior of Neobroker users. Therefore, we use representative data for German Neobroker users and general investors from a panel survey conducted three times over a period of 14 months. We show that the financial literacy of Neobroker users increases with the prolonged trading app use but still remains rather low. The annual (non-risk adjusted) return of Neobroker users is generally positively affected by owning derivatives and frequent trading. In addition, we investigate which determinants impact Neobroker users to trade special ETFs, cryptocurrencies, derivatives, and ETCs. We found an impact of risk tolerance, risk assessment of respective financial products, and trading frequency on Neobroker users to hold specific financial products. Surprisingly, the investment information source also influences Neobroker users regarding the trading of all four products.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101222"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145600357","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 : 2026-06-01Epub Date: 2025-12-30DOI: 10.1016/j.gfj.2025.101231
Haneen Abedalqader , Shao-Chi Chang
This paper aims to examine how trade policy uncertainty (TPU) affects firm-specific stock price crash risk and the extent to which corporate disclosures and governance can mitigate this vulnerability. Using a global panel database of publicly listed firms from 17 countries over the period 2010–2023, we find a positive and significant relationship between TPU and stock price crash risk, suggesting that firms exposed to trade policy shocks are more vulnerable to sudden negative price movements. As a result of opacity, firms with less transparent geographical segment disclosure tend to hoard bad news, suggesting that opacity compounds this tendency. Furthermore, we investigate how segment reporting complexity, supply chain concentration, and governance mechanisms serve as moderating factors. We find that high segment reporting complexity and supply chain concentration exacerbate the TPU-crash risk relationship by increasing operational and informational opacity. The TPU-induced crash risk decreases with strong institutional ownership and enhanced analyst coverage, but increases with high information asymmetry. In light of rising global trade policy uncertainty, geographical segment disclosure, operational structure, and governance are crucial to moderating firm-level financial fragility.
{"title":"Trade policy uncertainty and stock price crash risk: The role of geographic segment disclosure","authors":"Haneen Abedalqader , Shao-Chi Chang","doi":"10.1016/j.gfj.2025.101231","DOIUrl":"10.1016/j.gfj.2025.101231","url":null,"abstract":"<div><div>This paper aims to examine how trade policy uncertainty (TPU) affects firm-specific stock price crash risk and the extent to which corporate disclosures and governance can mitigate this vulnerability. Using a global panel database of publicly listed firms from 17 countries over the period 2010–2023, we find a positive and significant relationship between TPU and stock price crash risk, suggesting that firms exposed to trade policy shocks are more vulnerable to sudden negative price movements. As a result of opacity, firms with less transparent geographical segment disclosure tend to hoard bad news, suggesting that opacity compounds this tendency. Furthermore, we investigate how segment reporting complexity, supply chain concentration, and governance mechanisms serve as moderating factors. We find that high segment reporting complexity and supply chain concentration exacerbate the TPU-crash risk relationship by increasing operational and informational opacity. The TPU-induced crash risk decreases with strong institutional ownership and enhanced analyst coverage, but increases with high information asymmetry. In light of rising global trade policy uncertainty, geographical segment disclosure, operational structure, and governance are crucial to moderating firm-level financial fragility.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101231"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145884277","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the impact of managerial overconfidence on corporate environmental, social, and governance (ESG) performance. We argue that strong ESG performance mitigates firm risk by functioning as moral capital during adverse events—an insurance-like buffer that protects firms during adverse events and controversies. Overconfident managers, however, tend to hold overly optimistic expectations about firm outcomes and may therefore discount this moral insurance effect, undervaluing ESG initiatives and ultimately exhibiting weaker ESG performance. Using a comprehensive sample of firms from 51 countries over the period 2009–2018, we find a robust negative association between managerial overconfidence and ESG performance. Firms led by overconfident CEOs exhibit weaker environmental policies, poorer social outcomes, and a higher likelihood of governance-related controversies. Our findings remain stable across multiple endogeneity checks, including propensity score matching, generalized method of moments, two-stage least squares, alternative variable constructions, and subsample analyses across institutional and economic groupings. This study contributes to the growing literature at the intersection of behavioral finance and corporate ESG by highlighting the role of managerial psychology—an often-overlooked factor—in shaping nonfinancial performance. Additional analyses indicate that heightened corporate risk-taking serves as a key transmission mechanism through which managerial overconfidence undermines ESG performance. Overall, the study provides novel and policy-relevant insights into the behavioral foundations of corporate sustainability, demonstrating that executive psychology is a critical—yet often overlooked—determinant of firms' ESG outcomes in global settings.
{"title":"Managerial overconfidence and corporate environmental, social, and governance performance: International evidence","authors":"Ayobolawole Adewale Ogundipe , Dan Daugaard , Faisal Khan , Jing Jia","doi":"10.1016/j.gfj.2026.101242","DOIUrl":"10.1016/j.gfj.2026.101242","url":null,"abstract":"<div><div>This study examines the impact of managerial overconfidence on corporate environmental, social, and governance (ESG) performance. We argue that strong ESG performance mitigates firm risk by functioning as moral capital during adverse events—an insurance-like buffer that protects firms during adverse events and controversies. Overconfident managers, however, tend to hold overly optimistic expectations about firm outcomes and may therefore discount this moral insurance effect, undervaluing ESG initiatives and ultimately exhibiting weaker ESG performance. Using a comprehensive sample of firms from 51 countries over the period 2009–2018, we find a robust negative association between managerial overconfidence and ESG performance. Firms led by overconfident CEOs exhibit weaker environmental policies, poorer social outcomes, and a higher likelihood of governance-related controversies. Our findings remain stable across multiple endogeneity checks, including propensity score matching, generalized method of moments, two-stage least squares, alternative variable constructions, and subsample analyses across institutional and economic groupings. This study contributes to the growing literature at the intersection of behavioral finance and corporate ESG by highlighting the role of managerial psychology—an often-overlooked factor—in shaping nonfinancial performance. Additional analyses indicate that heightened corporate risk-taking serves as a key transmission mechanism through which managerial overconfidence undermines ESG performance. Overall, the study provides novel and policy-relevant insights into the behavioral foundations of corporate sustainability, demonstrating that executive psychology is a critical—yet often overlooked—determinant of firms' ESG outcomes in global settings.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101242"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146173100","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 : 2026-06-01Epub Date: 2025-11-24DOI: 10.1016/j.gfj.2025.101221
Lance Malone, Lee A. Smales, Zhangxin (Frank) Liu (Frank)
This paper examines the predictability and implications of sequential credit rating downgrades under the through-the-cycle rating methodology. Using 28,847 firm-year observations for North American corporates, we show that firms partway through downgrade sequences exhibit weaker fundamentals than non-downgraded peers with the same rating, implying interim ratings misstate credit risk. Predictive models of future downgrades achieve up to 75 % accuracy, with out-of-sample tests and feature-importance measures confirming robustness. A simple portfolio exercise illustrates economic significance. Our findings extend the literature on rating inertia and highlight the usefulness of credit-quality signals for anticipating rating actions.
{"title":"Predicting serial credit rating downgrades","authors":"Lance Malone, Lee A. Smales, Zhangxin (Frank) Liu (Frank)","doi":"10.1016/j.gfj.2025.101221","DOIUrl":"10.1016/j.gfj.2025.101221","url":null,"abstract":"<div><div>This paper examines the predictability and implications of sequential credit rating downgrades under the through-the-cycle rating methodology. Using 28,847 firm-year observations for North American corporates, we show that firms partway through downgrade sequences exhibit weaker fundamentals than non-downgraded peers with the same rating, implying interim ratings misstate credit risk. Predictive models of future downgrades achieve up to 75 % accuracy, with out-of-sample tests and feature-importance measures confirming robustness. A simple portfolio exercise illustrates economic significance. Our findings extend the literature on rating inertia and highlight the usefulness of credit-quality signals for anticipating rating actions.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101221"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145685544","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}
Previous studies only examined one or two two-way relationships among firm value (FV), environmental, social, and governance strengths (ESG), and ESG controversies (ESG contro). We analyze all three: 1) ESG and FV, 2) ESG contro and FV, and 3) ESG and ESG contro. Using 688 observations from 2008 to 2018 of Indian firms, we determine the optimal lag order, cross-sectional dependence (CD), and stationarity for a panel vector autoregressive (panel VAR) model with system generalized method of moments (GMM). We confirm results with Instrumental Variables - Two-Stage Least Squares (IV-2SLS). First, we examine a bi-directional relationship between ESG and FV; however, we find a unidirectional association that supports good management. Second, we confirm the bidirectionality of ESG contro and FV, suggesting a virtuous circle. A decrease in prior ESG contro enhances FV; then, FV surge lessens ESG contro. Our results also reflect that the firms either augment ESG or diminish ESG contro to enhance their FV eventually. Finally, we confirm the bidirectionality of ESG contro–ESG. We confirm that ESG is not invested until earlier ESG contro has increased, supporting the moral cleansing. Regarding past ESG influencing ESG contro, we highlight the unsolved licensing-consistency puzzle in the literature. Initially, our paper also finds contradictory results. Our panel VAR estimates support moral consistency, while IV-2SLS supports moral licensing. Therefore, we investigate the critical conditions under which firms exhibit moral consistency or moral licensing. We find that firms that do not receive CR awards exhibit moral consistency, while those that do receive CR awards exhibit moral licensing. Thus, it is the first study to examine all three kinds of bidirectional links between ESG, ESG contro, and FV, as well as the role of CR awards in resolving the moral licensing-consistency puzzle.
{"title":"Relationship between firm value, environment, social, and governance – Strengths and controversies","authors":"Anita Mendiratta , Shveta Singh , Surendra S. Yadav , Arvind Mahajan","doi":"10.1016/j.gfj.2026.101238","DOIUrl":"10.1016/j.gfj.2026.101238","url":null,"abstract":"<div><div>Previous studies only examined one or two two-way relationships among firm value (FV), environmental, social, and governance strengths (ESG), and ESG controversies (ESG contro). We analyze all three: 1) ESG and FV, 2) ESG contro and FV, and 3) ESG and ESG contro. Using 688 observations from 2008 to 2018 of Indian firms, we determine the optimal lag order, cross-sectional dependence (CD), and stationarity for a panel vector autoregressive (panel VAR) model with system generalized method of moments (GMM). We confirm results with Instrumental Variables - Two-Stage Least Squares (IV-2SLS). First, we examine a bi-directional relationship between ESG and FV; however, we find a unidirectional association that supports good management. Second, we confirm the bidirectionality of ESG contro and FV, suggesting a virtuous circle. A decrease in prior ESG contro enhances FV; then, FV surge lessens ESG contro. Our results also reflect that the firms either augment ESG or diminish ESG contro to enhance their FV eventually. Finally, we confirm the bidirectionality of ESG contro–ESG. We confirm that ESG is not invested until earlier ESG contro has increased, supporting the moral cleansing. Regarding past ESG influencing ESG contro, we highlight the unsolved licensing-consistency puzzle in the literature. Initially, our paper also finds contradictory results. Our panel VAR estimates support moral consistency, while IV-2SLS supports moral licensing. Therefore, we investigate the critical conditions under which firms exhibit moral consistency or moral licensing. We find that firms that do not receive CR awards exhibit moral consistency, while those that do receive CR awards exhibit moral licensing. Thus, it is the first study to examine all three kinds of bidirectional links between ESG, ESG contro, and FV, as well as the role of CR awards in resolving the moral licensing-consistency puzzle.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101238"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146173098","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 examines the pricing of multivariate crash risk (MCRASH), which measures the conditional probability that a stock crashes when one or more systematic risk factors crash. Using data from 48 countries between 1992 and 2021, we show that MCRASH is a robust predictor of expected stock returns. The premium is stronger in emerging markets and concentrated in cyclical industries, consistent with differences in institutional quality, earnings cyclicality, and macroeconomic exposure. We also document that cultural dimensions condition the pricing of MCRASH. Individualism and uncertainty avoidance strengthen the premium, trust dampens it, and power distance intensifies it during high-volatility states. These results highlight the state-dependent role of culture in shaping investor responses to systemic risk.
{"title":"Multivariate crash risk and worldwide stock returns","authors":"Emawtee Bissoondoyal-Bheenick, Vuong Thao Tran, Angel Zhong","doi":"10.1016/j.gfj.2025.101230","DOIUrl":"10.1016/j.gfj.2025.101230","url":null,"abstract":"<div><div>This paper examines the pricing of multivariate crash risk (MCRASH), which measures the conditional probability that a stock crashes when one or more systematic risk factors crash. Using data from 48 countries between 1992 and 2021, we show that MCRASH is a robust predictor of expected stock returns. The premium is stronger in emerging markets and concentrated in cyclical industries, consistent with differences in institutional quality, earnings cyclicality, and macroeconomic exposure. We also document that cultural dimensions condition the pricing of MCRASH. Individualism and uncertainty avoidance strengthen the premium, trust dampens it, and power distance intensifies it during high-volatility states. These results highlight the state-dependent role of culture in shaping investor responses to systemic risk.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"69 ","pages":"Article 101230"},"PeriodicalIF":5.5,"publicationDate":"2026-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145836806","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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