Journal of Business Finance & Accounting最新文献

Using the pay restriction imposed on CEOs of centrally administered state-owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with CEOs of firms not subject to the restriction, the CEOs of CSOEs experienced a significant pay cut. In response to the pay cut, CEOs increased the consumption of perks and siphoned off firm resources for their own benefit. Pay-performance sensitivity for these firms also significantly decreases. The performance of these firms dropped following the pay restriction. Our findings suggest that restricting CEO pay distorts CEO incentives and brings unintended consequences. Our findings caution against limiting CEO pay.

Greater political pressure to improve corporate environmental performance and mitigate climate change impact leads firms to operate under greater political risk and uncertainty, affecting productivity and firm value. Using a panel of 3255 US firms from 2002 to 2020, this research tests the effectiveness of two environment-specific political risk (EPR) mitigation approaches: political lobbying and green innovation. The results suggest that while both approaches mitigate EPR of the current year, only green innovation reduces future EPR. By mitigating EPR, green innovation increases firm value to a greater degree than political lobbying. This study also shows that political lobbying has a larger effect on EPR mitigation for the leaders than the laggards in green innovation. The results are robust to alternative specifications of green innovation, political lobbying and potential endogeneity concerns. Overall, this study supports the value-enhancing role of green innovation as an effective political risk mitigation strategy.

This study investigates the impact of audit committee oversight on the financial reporting quality of US bank holding companies. To overcome identification concerns, we use Section 165 h of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded bank holding companies with assets exceeding $10 billion to have separate audit and risk committees. We utilise a difference-in-differences framework where our treatment group comprises bank holding companies that were required to separate audit and risk oversight functions following the introduction of Section 165 h and our control group comprises counterparts that already had separate audit and risk committees prior to the passage of Section 165 h. We estimate the difference in the behavior of treated bank holding companies between the pre- and post-implementation period of Section 165 h with the same difference in the behavior of control group counterparts and find that the separation of audit and risk committees leads to an improvement in financial reporting quality. We attribute the observed improvements in financial reporting quality to the increased focus of audit committees arising from a reduction in the volume and complexity of tasks undertaken following the implementation of Section 165 h.

This study investigates how Chief Executive Officer (CEO) reputation, proxied by receiving prestigious awards, impacts suppliers’ provision of trade credit to a firm. Employing a sample of Chinese public firms, we document that firms managed by award-winning CEOs receive more trade credit than do propensity score matching matched control firms after the award year. Further analyses suggest that the increased trade credit of firms with reputable CEOs is due to the decreased default risk and information risk associated with those firms. Moreover, the impact of CEOs’ reputations on trade credit varies depending on award rarity, financing needs, CEO characteristics and firm opacity. Overall, our results are consistent with efficient contracting theory and signal theory.

Using a large sample of Swedish private firms, we investigate the link between the prior corporate bankruptcy experiences (BEs) of directors and CEOs and the financial risk of their current firms. We find that firms with directors and CEOs previously involved in bankruptcies exhibit more aggressive corporate financial policies, have a higher corporate bankruptcy risk and are subject to a higher cost of debt. Our findings align with an innate characteristics explanation: corporate BEs and current corporate risk-taking reflect personal risk preferences. Furthermore, while we find evidence of income losses for CEOs and directors involved in bankruptcies, such losses are transient, potentially explaining the risk-taking behavior after experiencing bankruptcy. Overall, our results suggest that the presence of individuals with prior BE can be considered a signal of higher financial risk for their firms. This insight is relevant to regulators, lenders and corporate decision-makers.

We find that firms located in US counties with higher sea level rise (SLR) risk engage less in future-oriented activities, that is, lower corporate social responsibility performance, lower R&D investment and fewer patents granted than firms in counties with lower SLR risk. The effect is strengthened when media attention on climate change is high, when the firm has a high level of prior long-term investment and when the firm is managed by a young CEO and a CEO who has a greater tendency to avoid uncertainty, whereas it is weakened when the firm's CEO is near retirement and when the firm is geographically diversified. Overall, we document a negative relationship between flood risk exposure and corporate future orientation, suggesting that firms change their future-oriented attitude in response to concern over climate risks.

This paper examines the impact of firm financial misconduct on its director-interlocked firms from the perspective of auditors. We argue that when a firm engages in financial misconduct, auditors tend to perceive its director-interlocked firms as having higher audit risks. This is because accounting policies, procedures and corporate governance can propagate via common directors. Using a sample of listed US firms from 1999 to 2018, we find that auditors charge higher fees for firms whose director-interlocked firms engage in financial misconduct. Further analyses show that this spillover effect is stronger when focal firms are riskier (when they are financially distressed or have worse earnings quality) or they have weaker alternative monitoring mechanisms (as evidenced by lower institutional shareholding). The effect is also more prominent when the tainted directors hold important positions or the financial misconduct is more severe. We also find that the higher auditor fees arise from not only risk premium but also greater audit effort. Our results are still valid after conducting a series of robustness tests.

We examine the influence of CEOs’ equity and cash grants’ vesting provisions that are based on (i) accounting performance metrics prepared under US generally accepted principles (GAAP), (ii) non-GAAP performance metrics and (iii) key performance indicators (KPIs) on debt contracts. We find that grants with vesting provisions based on GAAP metrics and KPIs lead to a lower cost of debt, a lower likelihood of collateral requirements and less restrictive covenant terms. In contrast, performance-based grants with non-GAAP vesting provisions lead to a higher cost of debt, a higher likelihood of collateral requirements and more restrictive covenant terms. Supplementary analyses reveal that our results are incremental to other debtholder-friendly features in the CEO contracts, such as grants with debt-related performance measures and CEOs’ inside debt holdings, and robust to alternative variable definitions and specifications. Overall, our results suggest that debtholders understand the differing incentives associated with GAAP, non-GAAP and KPI-based performance measures, and incorporate these differences into debt contracts.

We examine the role of employee treatment in firms’ access to informal finance in the form of trade credit. We find that better employee treatment improves the amount of informal finance a firm can obtain. This effect is stronger in environments with (1) more intensive product market competition, (2) highly customized inputs, (3) lower social capital and (4) high demand for skilled labor. Furthermore, the role of employee treatment varies according to a firm's financial health and liquidity. Employee treatment becomes less important for firms having a low level of liquidity but is more pronounced for firms experiencing financial distress.

Firms use cash flow primarily to finance increasingly persistent share repurchases. Such internal financing is accompanied by gradual increases in retained earnings in the capital structure, and results in high (low) repurchase (investment) sensitivity to cash flow. These effects are particularly pronounced among financially mature firms. The repurchase–cash flow sensitivity of US firms has increased steadily in recent decades, with steeper increases for financially mature firms. We find that repurchases are not generally associated with underinvestment. Moreover, a nontrivial number of firms would have depleted their retained earnings if they paid dividends instead of repurchased shares.