Pub Date : 2025-09-04DOI: 10.1016/j.gfj.2025.101174
Dan Liu
This study proposes a novel framework for forecasting oil market returns by quantifying climate change perception based on visual media. A vision-language model processes 746,435 news images from The New York Times between May 2006 and December 2023 to construct the Visual Climate Change Perception Index (VCCP), along with two sub-indices. The VCCP exhibits significant predictive power for one-month-ahead WTI spot returns, outperforming text-based climate sentiment and macroeconomic benchmarks. The Physical Climate Impact Visual Index contributes to short-term return predictability, while the Transitional Climate Policy Visual Index captures longer-horizon dynamics. Out-of-sample analyses confirm the robustness and economic relevance of VCCP-based models, enhancing forecast accuracy and improving asset allocation performance. These findings underscore the role of emotionally salient visual cues in shaping market expectations and highlight the importance of multimodal climate signals in the pricing of high-carbon assets.
{"title":"Seeing is believing: Forecasting oil market returns with artificial intelligence-powered visual climate change perception","authors":"Dan Liu","doi":"10.1016/j.gfj.2025.101174","DOIUrl":"10.1016/j.gfj.2025.101174","url":null,"abstract":"<div><div>This study proposes a novel framework for forecasting oil market returns by quantifying climate change perception based on visual media. A vision-language model processes 746,435 news images from <em>The New York Times</em> between May 2006 and December 2023 to construct the Visual Climate Change Perception Index (VCCP), along with two sub-indices. The VCCP exhibits significant predictive power for one-month-ahead WTI spot returns, outperforming text-based climate sentiment and macroeconomic benchmarks. The Physical Climate Impact Visual Index contributes to short-term return predictability, while the Transitional Climate Policy Visual Index captures longer-horizon dynamics. Out-of-sample analyses confirm the robustness and economic relevance of VCCP-based models, enhancing forecast accuracy and improving asset allocation performance. These findings underscore the role of emotionally salient visual cues in shaping market expectations and highlight the importance of multimodal climate signals in the pricing of high-carbon assets.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"68 ","pages":"Article 101174"},"PeriodicalIF":5.5,"publicationDate":"2025-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145020697","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 : 2025-09-03DOI: 10.1016/j.gfj.2025.101172
Simón Zuluaga-Rendón , Diego A. Agudelo
Factor Investing, a widely recognized investment approach, remains relatively underexplored in Latin American stock markets. This study investigates the determinants of stock returns in Latin America employing the Group Adaptive Elastic Net within a nonparametric framework from 2000 to 2020. Initially assessing 34 widely recognized financial factors, our analysis identifies that a set of six factors captures most of the variance in cross-sectional returns in the proposed model: Volatility, Assets-to-Market ratio, Cash Flow to Price, Earnings to Price, Intermediate Momentum, and Turnover. Furthermore, an active Factor Investing strategy derived from this framework demonstrates substantial outperformance relative to a benchmark index in out-of-sample testing. Overall, we find evidence of short-term predictability of returns in Latin American stocks based on nonlinear and dynamic factor effects.
{"title":"Nonparametric identification of factors for the cross-section of Latin American stock returns","authors":"Simón Zuluaga-Rendón , Diego A. Agudelo","doi":"10.1016/j.gfj.2025.101172","DOIUrl":"10.1016/j.gfj.2025.101172","url":null,"abstract":"<div><div>Factor Investing, a widely recognized investment approach, remains relatively underexplored in Latin American stock markets. This study investigates the determinants of stock returns in Latin America employing the Group Adaptive Elastic Net within a nonparametric framework from 2000 to 2020. Initially assessing 34 widely recognized financial factors, our analysis identifies that a set of six factors captures most of the variance in cross-sectional returns in the proposed model: Volatility, Assets-to-Market ratio, Cash Flow to Price, Earnings to Price, Intermediate Momentum, and Turnover. Furthermore, an active Factor Investing strategy derived from this framework demonstrates substantial outperformance relative to a benchmark index in out-of-sample testing. Overall, we find evidence of short-term predictability of returns in Latin American stocks based on nonlinear and dynamic factor effects.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"68 ","pages":"Article 101172"},"PeriodicalIF":5.5,"publicationDate":"2025-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145158849","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 : 2025-09-01DOI: 10.1016/j.gfj.2025.101177
Wenjing Yin, Gaomiao Wang, Yumiao Yu
A growing number of institutional investors are showing interest in “green” firms, highlighting the increasing importance of environmental, social, and governance (ESG) information. However, as the use of mainstream ESG data expands, the prevalence of greenwashing is also rising. This paper investigates how long-term institutional cross-ownership influences corporate responses to this critical stakeholder concern. We hypothesize that long-term institutional cross-ownership mitigates corporate greenwashing by enabling investors to acquire in-depth information and directly monitor firms in the context of systematic risk management. Our findings indicate that firms with long-term cross-ownership exhibit significantly lower levels of greenwashing. Supporting the information-gathering hypothesis, the effect is more pronounced in firms operating in hard-to-value industries. Supporting the direct monitoring hypothesis, the effect is less evident among firms subject to heightened external scrutiny. Overall, our study suggests that longer investment horizons lead institutional cross-owners to enhance the transparency of stakeholder-related activities, driven primarily by financial motivations.
{"title":"Watchdogs of greenwashing: The role of long-term institutional cross-ownership","authors":"Wenjing Yin, Gaomiao Wang, Yumiao Yu","doi":"10.1016/j.gfj.2025.101177","DOIUrl":"10.1016/j.gfj.2025.101177","url":null,"abstract":"<div><div>A growing number of institutional investors are showing interest in “green” firms, highlighting the increasing importance of environmental, social, and governance (ESG) information. However, as the use of mainstream ESG data expands, the prevalence of greenwashing is also rising. This paper investigates how long-term institutional cross-ownership influences corporate responses to this critical stakeholder concern. We hypothesize that long-term institutional cross-ownership mitigates corporate greenwashing by enabling investors to acquire in-depth information and directly monitor firms in the context of systematic risk management. Our findings indicate that firms with long-term cross-ownership exhibit significantly lower levels of greenwashing. Supporting the information-gathering hypothesis, the effect is more pronounced in firms operating in hard-to-value industries. Supporting the direct monitoring hypothesis, the effect is less evident among firms subject to heightened external scrutiny. Overall, our study suggests that longer investment horizons lead institutional cross-owners to enhance the transparency of stakeholder-related activities, driven primarily by financial motivations.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101177"},"PeriodicalIF":5.5,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144921756","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 : 2025-09-01DOI: 10.1016/j.gfj.2025.101180
Dianhao Liu, Jun Zhou
Investors will change their trading behavior in response to ESG rating changes, which in turn influence stock returns. In this paper, we examine the impact of ESG rating changes on stock returns in Chinese stock market. We find that ESG rating upgrades (downgrades) lead to higher (lower) short-term stock returns. A long-short portfolio constructed from upgraded firms versus downgraded firms generates monthly abnormal returns of 1.80 % on average. The main driver is institutional investors' buying (selling) shares of companies with upgraded (downgraded) ESG ratings. The disagreement about ESG rating changes can undermine this impact.
{"title":"Do ESG rating changes matter? Evidence from Chinese stock market","authors":"Dianhao Liu, Jun Zhou","doi":"10.1016/j.gfj.2025.101180","DOIUrl":"10.1016/j.gfj.2025.101180","url":null,"abstract":"<div><div>Investors will change their trading behavior in response to ESG rating changes, which in turn influence stock returns. In this paper, we examine the impact of ESG rating changes on stock returns in Chinese stock market. We find that ESG rating upgrades (downgrades) lead to higher (lower) short-term stock returns. A long-short portfolio constructed from upgraded firms versus downgraded firms generates monthly abnormal returns of 1.80 % on average. The main driver is institutional investors' buying (selling) shares of companies with upgraded (downgraded) ESG ratings. The disagreement about ESG rating changes can undermine this impact.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101180"},"PeriodicalIF":5.5,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144996803","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 : 2025-09-01DOI: 10.1016/j.gfj.2025.101178
Oguzhan Ozcelebi , Rim El Khoury , R. Gopinathan , Seong-Min Yoon
This study employs advanced quantile-based methodologies to investigate the effects of domestic and foreign financial stress on stock market performance across 10 Asia–Pacific countries. Using wavelet quantile correlation and multivariate quantile-on-quantile regression models, we analyze the nonlinear, asymmetric, and time–frequency-dependent relationships under varying market conditions. Results show that foreign financial stress exerts a more consistent and pronounced negative impact on stock returns, particularly in export-dependent economies such as Thailand and Korea. In contrast, the effects of domestic financial stress vary by country. Persistent negative impacts are observed in structurally weaker economies like the Philippines, whereas markets such as China, India, and Australia display adaptability, with correlations shifting to neutral or positive under certain conditions. These findings underscore the significant heterogeneity shaped by differences in economic structure, trade exposure, and financial market characteristics. By comparing the effects of both global and domestic financial stress, this study fills an important gap in the literature. The results provide actionable insights for policymakers working to strengthen financial stability and for investors pursuing effective portfolio diversification strategies.
{"title":"Effects of domestic and foreign financial stress on stock returns in Asia-Pacific countries","authors":"Oguzhan Ozcelebi , Rim El Khoury , R. Gopinathan , Seong-Min Yoon","doi":"10.1016/j.gfj.2025.101178","DOIUrl":"10.1016/j.gfj.2025.101178","url":null,"abstract":"<div><div>This study employs advanced quantile-based methodologies to investigate the effects of domestic and foreign financial stress on stock market performance across 10 Asia–Pacific countries. Using wavelet quantile correlation and multivariate quantile-on-quantile regression models, we analyze the nonlinear, asymmetric, and time–frequency-dependent relationships under varying market conditions. Results show that foreign financial stress exerts a more consistent and pronounced negative impact on stock returns, particularly in export-dependent economies such as Thailand and Korea. In contrast, the effects of domestic financial stress vary by country. Persistent negative impacts are observed in structurally weaker economies like the Philippines, whereas markets such as China, India, and Australia display adaptability, with correlations shifting to neutral or positive under certain conditions. These findings underscore the significant heterogeneity shaped by differences in economic structure, trade exposure, and financial market characteristics. By comparing the effects of both global and domestic financial stress, this study fills an important gap in the literature. The results provide actionable insights for policymakers working to strengthen financial stability and for investors pursuing effective portfolio diversification strategies.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101178"},"PeriodicalIF":5.5,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144988301","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 : 2025-09-01DOI: 10.1016/j.gfj.2025.101170
Marcos Escobar-Anel , Lars Stentoft , Xize Ye
This paper proposes a large class of discrete-time models for interest rates, with flexible distributions on innovations and multiple factors, filling two key gaps in the literature. First, the models are “affine”, and as a result, closed-form pricing for bonds and analytical representations for more general fixed-income products can be obtained. This is reminiscent of the continuous-time models studied in Duffie et al. (2003) and the discrete-time GARCH models for assets introduced by Heston and Nandi (2000). Secondly, the models allow for control of the lower bound of the interest rate, permitting bounded negative rates. This second contribution is absent even from the popular continuous-time literature. As an application, we study the properties and interpretation of our main proposal, a Gaussian-based model with a non-central Chi-square distribution. The model is estimated via maximum likelihood on daily time series of US interest rates for various maturities and monthly interest rates from the G7 countries. The empirical analysis confirms the superiority of our model in terms of likelihood, AIC, and BIC values compared to two benchmarks, an autoregressive model as a discrete-time version of the Vasicek model, and the popular CIR model. Our model also provides additional flexibility in accommodating the yield curve, with massive potential for richer structures while maintaining the key benefits.
{"title":"Analytical fixed income pricing in discrete time: A new family of models","authors":"Marcos Escobar-Anel , Lars Stentoft , Xize Ye","doi":"10.1016/j.gfj.2025.101170","DOIUrl":"10.1016/j.gfj.2025.101170","url":null,"abstract":"<div><div>This paper proposes a large class of discrete-time models for interest rates, with flexible distributions on innovations and multiple factors, filling two key gaps in the literature. First, the models are “affine”, and as a result, closed-form pricing for bonds and analytical representations for more general fixed-income products can be obtained. This is reminiscent of the continuous-time models studied in Duffie et al. (2003) and the discrete-time GARCH models for assets introduced by Heston and Nandi (2000). Secondly, the models allow for control of the lower bound of the interest rate, permitting bounded negative rates. This second contribution is absent even from the popular continuous-time literature. As an application, we study the properties and interpretation of our main proposal, a Gaussian-based model with a non-central Chi-square distribution. The model is estimated via maximum likelihood on daily time series of US interest rates for various maturities and monthly interest rates from the G7 countries. The empirical analysis confirms the superiority of our model in terms of likelihood, AIC, and BIC values compared to two benchmarks, an autoregressive model as a discrete-time version of the Vasicek model, and the popular CIR model. Our model also provides additional flexibility in accommodating the yield curve, with massive potential for richer structures while maintaining the key benefits.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101170"},"PeriodicalIF":5.5,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144988300","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 : 2025-09-01DOI: 10.1016/j.gfj.2025.101173
Joshua Zhang , Hasibul Chowdhury , Jacquelyn E. Humphrey , Mostafa Monzur Hasan
We examine the relationship between social capital and corporate leasing intensity. Using a large sample of publicly traded US firms, we find that firms headquartered in areas with high social capital lease less. The negative association is driven by both the social norms and social network components of social capital. Our channel analysis reveals that social capital has both a direct and an indirect effect on leasing, with the direct effect being significantly stronger. The indirect effect is due to social capital reducing financing constraints.
{"title":"Social capital and leasing","authors":"Joshua Zhang , Hasibul Chowdhury , Jacquelyn E. Humphrey , Mostafa Monzur Hasan","doi":"10.1016/j.gfj.2025.101173","DOIUrl":"10.1016/j.gfj.2025.101173","url":null,"abstract":"<div><div>We examine the relationship between social capital and corporate leasing intensity. Using a large sample of publicly traded US firms, we find that firms headquartered in areas with high social capital lease less. The negative association is driven by both the social norms and social network components of social capital. Our channel analysis reveals that social capital has both a direct and an indirect effect on leasing, with the direct effect being significantly stronger. The indirect effect is due to social capital reducing financing constraints.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101173"},"PeriodicalIF":5.5,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144988302","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 : 2025-08-25DOI: 10.1016/j.gfj.2025.101175
Zhi-Yu Zhang , Chi Xie , Gang-Jin Wang , You Zhu , Xiao-Xin Li
The momentum effect is a pricing anomaly that is widely observed in financial markets but not promised in the Chinese stock market. We explore the interaction between investor attention and momentum effects to strengthen momentum-based strategies' profitability by transforming the inherent noise of investor attention into valuable signals. Applying the conditional autoencoder (CAE) asset pricing model, we extract signals from noisy information to estimate stock returns that reflect the expected price adjustments driven by collective attention. Results yield four key conclusions. (i) The signal derived from investor attention acts as a catalyst that significantly enhances momentum strategies' performance, and the attention-based momentum (AttMOM) strategy consistently outperforms the conventional momentum (MOM) strategy in various formation periods. (ii) Although pricing anomalies, such as firm size, influence both strategies' returns, the attention-driven signal enables AttMOM to achieve higher and more stable returns. (iii) Investor attention helps AttMOM to maintain stable profits during market downturns. (iv) Investor attention reinforces the AttMOM strategy's resilience during turbulence, improving its hedging capabilities. Overall, our findings highlight the pivotal role of investor attention in boosting momentum returns, offering valuable insights for investment decision-making.
{"title":"From noise to signals: Investor attention as a catalyst for the momentum effect in the Chinese stock market","authors":"Zhi-Yu Zhang , Chi Xie , Gang-Jin Wang , You Zhu , Xiao-Xin Li","doi":"10.1016/j.gfj.2025.101175","DOIUrl":"10.1016/j.gfj.2025.101175","url":null,"abstract":"<div><div>The momentum effect is a pricing anomaly that is widely observed in financial markets but not promised in the Chinese stock market. We explore the interaction between investor attention and momentum effects to strengthen momentum-based strategies' profitability by transforming the inherent noise of investor attention into valuable signals. Applying the conditional autoencoder (CAE) asset pricing model, we extract signals from noisy information to estimate stock returns that reflect the expected price adjustments driven by collective attention. Results yield four key conclusions. (i) The signal derived from investor attention acts as a catalyst that significantly enhances momentum strategies' performance, and the attention-based momentum (AttMOM) strategy consistently outperforms the conventional momentum (MOM) strategy in various formation periods. (ii) Although pricing anomalies, such as firm size, influence both strategies' returns, the attention-driven signal enables AttMOM to achieve higher and more stable returns. (iii) Investor attention helps AttMOM to maintain stable profits during market downturns. (iv) Investor attention reinforces the AttMOM strategy's resilience during turbulence, improving its hedging capabilities. Overall, our findings highlight the pivotal role of investor attention in boosting momentum returns, offering valuable insights for investment decision-making.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101175"},"PeriodicalIF":5.5,"publicationDate":"2025-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144902433","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 : 2025-08-25DOI: 10.1016/j.gfj.2025.101176
Barkat Ullah
In this paper, we examine the impact of corporate environmental responsibility on financial constraints among 16,275 unlisted small and medium-sized enterprises across 30 countries in Eastern Europe and Central Asia. We also assess how country-level economic, financial, and institutional development moderates the relationship between CER and financial constraints. Our findings reveal that SMEs demonstrating strong environmental responsibility face fewer financial constraints than their conventional counterparts. Moreover, the positive effect of superior CER performance on alleviating financial constraints is more pronounced in countries with higher levels of economic, financial, and institutional development.
{"title":"Corporate environmental responsibility and financial constraints for unlisted SMEs","authors":"Barkat Ullah","doi":"10.1016/j.gfj.2025.101176","DOIUrl":"10.1016/j.gfj.2025.101176","url":null,"abstract":"<div><div>In this paper, we examine the impact of corporate environmental responsibility on financial constraints among 16,275 unlisted small and medium-sized enterprises across 30 countries in Eastern Europe and Central Asia. We also assess how country-level economic, financial, and institutional development moderates the relationship between CER and financial constraints. Our findings reveal that SMEs demonstrating strong environmental responsibility face fewer financial constraints than their conventional counterparts. Moreover, the positive effect of superior CER performance on alleviating financial constraints is more pronounced in countries with higher levels of economic, financial, and institutional development.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101176"},"PeriodicalIF":5.5,"publicationDate":"2025-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144902432","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 : 2025-08-19DOI: 10.1016/j.gfj.2025.101171
Dong Wook Lee , Jee Eun Lee , Lingxia Sun
This paper proposes that a country's institutions for corporations—especially their roles—can be divided into the supporting for corporate growth and the policing of corporate wrongdoing. We identify the two roles of institutions indirectly yet more effectively through their respective targets. Companies with negative free cash flows (FCF) are the main target of the institutional supporting, while companies with positive FCF are subject primarily to the institutional policing. Using firm-level data from 43 countries for the period of 2000–2018, we find evidence for the possibility and usefulness of this unbundling. Specifically, the cross-country difference in corporate performance is concentrated in negative-FCF firms. To the extent that the corporate performance we examine is a direct outcome of the surrounding institutions, our results suggest that a meaningful cross-country difference in institutional interventions—that is, the ones that create a difference in economic outcome across countries—lies in those for negative-FCF firms. They are the institutional supports that discover and finance corporate growth opportunities so that companies can invest beyond their own means, thereby running negative FCF.
{"title":"Unbundling institutions for corporations","authors":"Dong Wook Lee , Jee Eun Lee , Lingxia Sun","doi":"10.1016/j.gfj.2025.101171","DOIUrl":"10.1016/j.gfj.2025.101171","url":null,"abstract":"<div><div>This paper proposes that a country's institutions for corporations—especially their roles—can be divided into the supporting for corporate growth and the policing of corporate wrongdoing. We identify the two roles of institutions indirectly yet more effectively through their respective targets. Companies with negative free cash flows (FCF) are the main target of the institutional supporting, while companies with positive FCF are subject primarily to the institutional policing. Using firm-level data from 43 countries for the period of 2000–2018, we find evidence for the possibility and usefulness of this unbundling. Specifically, the cross-country difference in corporate performance is concentrated in negative-FCF firms. To the extent that the corporate performance we examine is a direct outcome of the surrounding institutions, our results suggest that a meaningful cross-country difference in institutional interventions—that is, the ones that create a difference in economic outcome across countries—lies in those for negative-FCF firms. They are the institutional supports that discover and finance corporate growth opportunities so that companies can invest beyond their own means, thereby running negative FCF.</div></div>","PeriodicalId":46907,"journal":{"name":"Global Finance Journal","volume":"67 ","pages":"Article 101171"},"PeriodicalIF":5.5,"publicationDate":"2025-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144908540","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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