Capital-intensive Firms Research Articles

The impact of digital transformation on ESG performance

This paper constructs an analytical framework of digital transformation affecting enterprise ESG performance based on the investment perspective. And empirical analyses are conducted using firm-level panel data of Chinese A-share listed companies from 2009 to 2020 in the China's Stock Markets. It is found that digital transformation significantly improves enterprise ESG performance. Digital transformation improves enterprise ESG performance by enhancing risk-taking capacity, mitigating agency conflicts, and suppressing management overconfidence. Heterogeneity analyses show that the effects of digital transformation on capital investment efficiency and firms' ESG performance are more pronounced among firms in mature and declining stages. Digital transformation has a significant impact on capital investment efficiency and corporate ESG performance in both technology-intensive and capital-intensive firms. These findings are crucial for understanding the key role of digital transformation in shaping long-term economic growth potential and sustainability from an investment perspective.

Shock or empowerment? Artificial intelligence technology and corporate ESG performance

Artificial intelligence (AI) plays a significant role in realizing sustainable economic development. This paper uses the textual content of annual reports of listed companies to count 73 words frequencies related to AI and construct AI indicators through precise vocabulary. It also examines how AI affects environment, social, and governance (ESG) performance at the firm level using unbalanced panel data of Chinese listed firms from 2007 to 2022. The results indicate that the development of artificial intelligence has significantly improved the ESG performance of Chinese listed companies, and the conclusion still holds after a series of robustness tests. As a moderating variable, macroeconomic policy uncertainty reinforces the positive impact of AI on ESG performance. In terms of the impact mechanism, AI enhances firms’ ESG performance by increasing firms’ total factor productivity and R&D expenditures. The results of heterogeneity analysis show that AI has a significant positive impact on the ESG performance of non-state-owned firms, firms with executives without overseas backgrounds, and technology and capital-intensive firms. Compared with the western region, AI in the eastern and central regions has a more significant improvement effect on ESG performance. Our study deepens the knowledge and understanding of the role played by AI in the green development process at the micro level. It provides valuable suggestions and reflections for promoting AI development at the micro-enterprise level.

Which daily equity returns improve output forecasts?

We document the improvements in short term forecasts of real output growth for the United States and the euro area from incorporating daily financial data and using mixed data sampling (MIDAS) regressions. Furthermore, we show that a significant share of forecast improvements are driven by information embedded in stock returns of large, capital-intensive firms. In comparison, labor-intensive firms contribute less to improvements in output forecasts within a MIDAS framework.

Is air pollution the original sin of firms? The impact of air pollution on firms' ESG scores

This is the first article to demonstrate the negative impact of air pollution as an informal institution on firms' ESG scores with listed manufacturing firms in China from 2010 to 2020. It is based on causal attribution theory and risk perception theory. We argue that, under the current ESG rating system, air pollution issues may be overly attributed to firms, resulting in decreased ESG scores. We find that when PM2.5 pollution concentration increases by 1 μg/m3, firms' ESG scores decrease by roughly 0.3 points. These results remained significant after a series of robustness tests and instrumental variable regressions. We find that firms in heavily polluting industries are almost twice as affected as those in non-heavily polluting industries. The negative impact on labor-intensive firms is also significantly higher than the impact on capital-intensive firms. State-owned firms and large-scale firms are less affected than private firms or small firms. The results show that information asymmetry is an important influencing mechanism. Firms can reduce the negative influence of air pollution through active information disclosure and external media reports. We note that air pollution can also decrease firms' ESG scores by increasing firm survival risks. Our results enrich the ESG literature and contribute to the understanding of the impact of informal institutions on firms' ESG scores.

COVID-19 Effect on Accelerating Technology and Innovation in Businesses

This paper assesses empirically the COVID-19 effect on businesses and the potential dynamic changes regarding post-COVID-19 automation and technology penetration using various logistic regression models. A field survey was used to collect the necessary data for testing various hypotheses. This study demonstrates the severity of the pandemic on businesses and how it has changed their perspectives on technology as a critical aspect of survival and future success. The results showed that capital-intensive firms are more resilient to the crisis. In addition, the firms that were affected severely in terms of employment due to the pandemic believe that technology will significantly impact hiring, investment, and value added. This paper investigates a unique phenomenon represented by COVID-19, its impact on businesses in a resource-rich context and their responsiveness concerning technology deployment and automation.

High-performance work practices and entrepreneurial firm performance: the moderating role of firm size and industry type

PurposeThis paper examines the moderating role of firm size (FS) and industry type in the relationship between high-performance work practices (HPWPs) and entrepreneurial firm performance.Design/methodology/approachA descriptive research design involving a five-year dataset from firms in the retail and services industries of Nigeria was used in the analyses.FindingsThe use of HPWPs is widespread among entrepreneurial firms, with ability- and motivation-enhancing practices being dominant. Country context influences the types of HPWPs implemented by entrepreneurial firms. FS and industry type do not have significant moderating effects on the relationship between HPWPs and the performance of entrepreneurial firms. The positive effect of HPWPs on performance is consistent with findings made in prior studies.Research limitations/implicationsFS plays a neutral role in the relationship between HPWPs and entrepreneurial firm performance. Within the broader retail and services industries, this relationship is weaker in capital-intensive firms compared to less capital-intensive ones. The restricted focus on only retail and service industries may limit the universal applicability of the findings.Practical implicationsFindings indicate that the efficacy of HPWPs is neither influenced by FS nor industry type. Entrepreneurial firms with higher capital intensity benefit relatively more from the use of HPWPs.Originality/valueUnlike other research efforts focusing on a single moderating influence, this study combines two important contextual factors, FS and industry type, to provide a better understanding of HPWPs. The study spotlights the effects of country context in the implementation of HPWPs in a way that prior studies have not done.

A Simple Model of Corporate Tax Incidence

We analyze the incidence of a linear corporate tax using a simple and portable competitive general equilibrium model in which capital owners choose to invest either in domestic production or a foreign investment opportunity and workers make extensive margin labor supply decisions. Our analysis explores the effect of corporate taxation on wages, employment, domestic profits, and domestic investment. Analytical results and numerical simulations generate insights in line with recent empirical evidence on corporate tax incidence: the burden of the corporate tax is shared between workers and firms, with larger responses among more capital-intensive firms.

IPO suspensions and labor employment decisions: Evidence from China

The Chinese regulator occasionally suspends all initial public offerings (IPOs) to maintain stability in the capital markets and facilitate capital market reform. These suspensions temporarily prevent firms that have obtained IPO approval from going public. We hypothesize that this suspension-induced listing delay influences firms’ labor employment decisions. Consistent with this argument, we find that a suspension-induced listing delay is associated with an increase in labor costs, both in terms of total and average employee payments. This positive relationship is more pronounced for human capital-intensive firms and non-state-owned enterprises. We also find that there is an increase in employment and employee turnover for firms facing suspension-induced listing delays. Moreover, IPO suspensions result in lower labor productivity and firm performance. Overall, our results indicate that government policy uncertainty leads firms to incur high labor costs and reduces capital allocation efficiency.

Brand capital and debt choice

This paper investigates the effect of brand capital on firms' choices of debt structure. Using a sample of publicly listed U.S. firms between 2001 and 2019, we find that firms with higher levels of brand capital rely less on bank debt financing. This finding is robust to the use of alternative regression models and alternate measures of brand capital and bank debt financing. Employing an industry-level positive shock to brand capital as a quasi-natural experiment, we demonstrate that such a shock negatively affects firms' reliance on bank debt. Our cross-sectional analyses reveal that the effect of brand capital on bank debt is more pronounced for firms with high information asymmetry, weak corporate governance mechanisms, and poor financial conditions. We also find that brand capital-intensive firms raise funds from the public debt market and issue more (or less) unsecured (or secured) debt. Taken together, we show that brand capital has an important bearing on corporate financing decisions.

The impact of high-speed railway on firms’ productivity

Using a multi-sector trade model with heterogeneous firms, this paper examines how the high-speed railway (HSR) results in changes in market access, and affects firms’ productivity. The model shows that with the opening of HSR in cities and decrease in trade costs, firm productivity increases through “competition effect” (proxied by consumer market access, CMA), but decrease through “scale expansion effect” (proxied by firm market access, FMA). To distinguish between these two competing effects empirically, we manually compile data of 110 prefecture cities which are sequentially connected with HSR during 2007–2013, and match these cities with China Industrial Firms Database during same period. We find that firm productivity increase by 0.0318 percentages due to one percentage increase in CMA, and decrease by 0.0552 percentages due to one percentage increase in FMA. We find significant heterogeneity in the effect of HSR opening on firm productivity in that the effect is the largest in the central area and mostly insignificant in the west; and the effect turns out the largest for technology-intensive firms, less for capital-intensive firms and the least for labor-intensive firms. We also find the impact of HSR opening on firm revenue, output, decision of entry or exit, as well as on regional productivity. Further analyses suggest that the effect of scale expansion dominates in the period after 2009 and hinders firm productivity, which explains the puzzling divergence of rising GDP and decreasing average TFP in that period.

Análisis de la estructura del capital e intensidad de capital. El caso de las empresas colombianas

Standard financial theories assume that investment and financing decisions are intertwined. Investment decisions involve selecting assets that generate positive cash flows and maximize shareholder value, while financing decisions involve identifying the optimal mix of debt and equity financing to fund these investments. The main objective of this paper is to analyze the interdependence of assets and liabilities in a sample of Colombian manufacturing firms with varying degrees of roundaboutness (capital-intensive nature). This study employs canonical correlation analysis to determine the interaction between balance sheet components. Subsequently, a threshold regression model is employed to evaluate the influence of financial indicators on the financial performance of firms with heterogeneous capital intensity. The findings reveal that low-capital intensity firms match the maturity structure of assets and liabilities. In firms with low roundaboutness there is a significant relation between throughput, working capital turnover and the proportion of capital expenditure to operating cash flow with ROIC. However, this relationship becomes non-significant at high levels of indebtedness. Conversely, capital-intensive firms exhibit a mismatch between asset and liability maturities, relying on shareholders’ funds to finance longterm assets and inventories. In this group of companies, throughput is positively associated with ROIC regardless of the level of debt, whereas the relationship between working capital turnover and ROIC is not significant until a certain debt threshold is exceeded. The impact of the capital expenditure to operating cash flow ratio on ROIC varies depending on debt levels. Companies with high roundaboutness that exceeds a debt threshold experience a negative impact.

Heterogeneity in shadow prices of water pollutants: A study of the seafood processing industry in Vietnam

Water pollution poses a critical challenge, especially in fast-growing regions, with profound implications for human well-being. Marginal abatement cost (MAC) estimation is crucial for designing efficient water pollution control policies. This study applied the directional distance function to estimate MACs for three water pollutants (Biochemical Oxygen Demand, Chemical Oxygen Demand, and Total Suspended Solids) within Vietnam's seafood processing industry. Additionally, the paper conducted a regression analysis to investigate the determinants of these MACs, utilizing primary data from 116 seafood processing plants in the Mekong River Delta. The median MACs for Biochemical Oxygen Demand, Chemical Oxygen Demand, and Total Suspended Solids were 2451 US$/ton, 3983 US$/ton, and 5519 US$/ton, respectively. The results revealed substantial MAC heterogeneity. Capital-intensive firms, less labor-intensive entities, those with a more complex ownership structure, entities not situated along the seashore or riverside, export-oriented firms, and those demonstrating higher compliance exhibited consistently lower MACs for the three water pollutants. These findings challenge the efficiency of uniform standards or environmental fees in controlling pollution, suggesting that a tradable permit system could offer a more cost-saving alternative.

Does the inverted U-shape between corporate indebtedness and investment hold up for emerging markets? Evidence from Türkiye

While corporate indebtedness has increased substantially in emerging countries over the last decade, the literature on the negative consequences of this large build-up of debt on real consequences is very limited. In addition, they provide mixed results and suffer from the lack of representativeness of their samples, which can be attributed to data availability. Unlike the previous studies, this study investigates the link between corporate indebtedness and investment by utilizing a novel firm-level data covering the universe of all incorporated manufacturing firms in Türkiye over the last decade. The results of the panel regression model with multi-dimensional fixed effects provide significant evidence of an inverted-U relationship between indebtedness and investment, indicating that leverage increases investment up to a certain level, and after that, further increase in leverage has an adverse impact on investment. This non-monotonic relationship is evident for all firm size groups. Conspicuously, the indebtedness level that impedes investment is significantly lower for Small- and Medium-Sized Enterprises (SMEs) than large firms, which supports the arguments that small firms are more likely to be affected by debt overhang. Results also reveal that firms holding more cash can sustain higher levels of debt without hurting investment activity. This is also the case for high capital-intensive firms and exporters. Findings of this paper highlight the importance of policies to make equity financing more attractive, incentivize the uptake and provision of equity capital from private investors, and deepen the capital markets.

Reallocation and productivity in resource-rich economies

I study the firm-level dynamic response of a commodity-exporting economy to global cycles in commodity prices. I propose a heterogeneous-firms model endogenizing manufacturing productivity slowdowns through reallocation towards less productive firms. Within a given sector, commodity booms reallocate market share away from exporters because of exchange rate appreciation and away from capital-intensive firms because of the increase in the required rate of return to capital. Using microdata for Chile, the largest copper producer worldwide, I provide empirical evidence for these channels. When fed with the commodity super-cycle of 2004–2012, the calibrated model generates between 13% to 32% of the observed productivity slowdown.

How Does Protectionism Impact Multinational Firm Reshoring? Evidence from the UK

There is growing interest in the nature and possible extent of de-globalization. This paper explores the impact that protectionist measures have on multinational enterprise (MNE) reshoring back to the UK. Besides taking into account the global trends indicating a return to protectionism, the existing literature highlights various firm-level and structural country-level determinants of reshoring decisions. We test a conceptual model with parent-subsidiary firm-level data for the period 2009 to 2017. We conclude that firms that are more sensitive to wage costs in their overseas subsidiaries were more likely to reshore. We did not find that more capital-intensive firms had a higher propensity to reshore. We find that our results are mostly driven from UK MNEs with subsidiaries in EU. This result has clear implications for a potential Brexit effect. Theoretically, we base our findings in transactional cost economics to help explain why different types of firms behave in the way they do, and why different types of firms may respond in quite different ways to the same mix of institutions.

Unraveling the rectifying role of transportation improvement on resource misallocation among manufacturing firms in China-Facts and mechanism.

China's High-speed railway (HSR) network had experienced rapid expansion during 2009 to 2013, and how the HSR expansion affects China's economy has been considerable concerned by both policymakers and researchers. Using firm-level data, this study accessed the effects of HSR on productivity distribution and resource misallocation among manufacturing firms. Incorporating difference in difference idea into a multilevel model, the results suggest significant misallocation rectifying effect of HSR at firm level. This effect is stronger for capital-intensive firms. City-specific analysis indicates that the effects of HSR on firm-level resource misallocation varies with city size, and firms grouped in small cities gain more misallocation rectification than those grouped in big and medium cities. Market potential, which is an important way through which the HSR affects efficient allocation of production resources, is found boost the marginal effect of HSR by reducing labor market segmentation and increasing agglomeration.

Corporate Tax Cuts and the Decline of the Manufacturing Labor Share

We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment.

The effects of capital-biased tax incentives on firm energy intensity: Environmental dividend or consequence?

Capital and energy are essential input factors in the production and operation of firms, and they are closely interconnected. Nudging firms to improve energy performance during capital investment is crucial for attaining green competitiveness. Nonetheless, little is known about how capital-biased tax incentives affect firm energy performance in the process of encouraging firms to update or expand fixed assets. To fill this critical gap, this paper leverages the 2014 and 2015 accelerated depreciation policy for fixed assets as quasi-natural experiments to investigate the impact of capital-biased tax incentives on firm energy intensity. This study uses information from a unique dataset of Chinese firms, and the staggered difference-in-difference strategy is constructed to address identification challenges. The findings of this paper are as follows: (1) The accelerated depreciation policy for fixed assets significantly increases firm energy intensity by approximately 11.2%. A series of validations reinforce the robustness of this result. (2) Restructuring energy use and the factor substitution of energy for labour are the main channels through which the accelerated depreciation policy for fixed assets increases firm energy intensity. (3) The accelerated depreciation policy for fixed assets has a more remarkable effect on the energy intensity enhancement of small-scale firms, capital-intensive firms, and firms in energy-endowed regions. These conclusions support shaping policy options moderately by coordinating tax incentives and government regulation as key factors in promoting sustainable firm development. Overall, this research provides empirical evidence regarding the micro-environmental consequences of capital-biased tax incentives and offers valuable insights for enhancing corporate energy performance.

Corporate shareholder value creation as contributor to economic growth

PurposeThe purpose of this paper is to determine if there is a link between corporate shareholder value creation and economic growth. The first objective of this paper is to determine which specific shareholder value measurement best explains shareholder value creation for a particular industry. The next objective of the study is to establish, for each of nine different categories of firms examined, a set of value drivers that are unique and significant in expressing shareholder value for that particular category of firms. Lastly, the relationship between shareholder value creation and economic growth is tested.Design/methodology/approachTo quantify and measure value creation, the paper investigates the various value creation measurements that are being applied. The next step is to ascertain whether various industries have different value creation measures that best explain value creation for the respective industries. Then, the value drivers of these specific value creation measures can be determined and their relationship with economic growth tested.FindingsThe results of this study indicate that each industry does have a specific shareholder value creation measurement that best explains shareholder value creation for that industry; for example, for five of the nine categories (industries) that were analyzed, market value added was found to be the best shareholder value creation measurement, but for capital-intensive firms and manufacturing firms, the Qratio is the best measure, while for the food and beverage industry, the market to book ratio was found to be a better measure of shareholder value creation than other measures tested. It was further found that an increase in corporate shareholder value creation is to the detriment of economic growth.Originality/valueThe contribution of the present study is its determination of a unique shareholder value creation measurement for particular industries. In addition, a specific set of variables per industry that create shareholder value is identified. Lastly, the important link between shareholder value creation and economic growth is exposed.

Cui bono? Large-scale evidence on the impact of COVID-19 policy measures on listed firms

By using a large international firm-level data set this paper aims to make a contribution in better understanding how COVID-19 related stringency and economic support measures actually affected the corporate sector. Our most important findings can be summarized as follows: First, we find robust evidence that stringency measures had a statistically and economically significant positive impact on listed firms. Second, with respect to the effects of economic support measures the evidence seems, at best, to be weakly in favor of a positive impact. Third, small and employment intensive companies profited most from economic support measures. Fourth, also highly leveraged or even Zombie firms profited more from these support measures than others. Overall, the results are in line with official policies aimed at sheltering SMEs and human capital intensive firms from the Corona shock waves. However, it also seems that governments unintentionally supported firms in financial difficulties or with non-viable business models already before the pandemic.