Eurozone Companies Research Articles

Does ESG investing pay‐off? An analysis of the Eurozone area before and during the Covid‐19 pandemic

AbstractWe examine whether the stock return performance of 620 Eurozone companies based on their environmental, social and governance (ESG) ratings both before and during the Covid‐19 pandemic on both a nominal and risk adjusted basis. We also look at how country level governance indicators interact with our samples of ESGHigh and ESGLow companies to affect both nominal and risk adjusted investment returns. We use both panel data and cross‐sectional regressions as well as the difference‐in‐differences approach to derive the empirical results. We generally find some evidence that highly rated ESG firms performed slightly worse than lower rated ESG both overall and during the pandemic. However, once we control for governance at the country level, we find that in high governance scoring countries ESGHigh companies perform better than ESGLow companies. Finally, when we examine the relative performance of EU companies compared to companies in economies less impacted by the Covid‐19 pandemic, namely South Korea and Australia, we find that during the pandemic, the South Korean and Australian companies performed much better than their counterparts in Europe.

Strategic Behavior and Earnings Management: Evidence from Europe

Purpose – This study analyzes the relationship between strategic behavior and earnings management in a sample of Eurozone companies between 2009 and 2018. Theoretical framework – The theoretical lens used is the agency theory derived from the managers-owners problem. As support for understanding strategic behavior, we adopted Miles et al. (1978). For earnings information quality, we follow Dechow, Ge, and Schrand (2010). Design/methodology/approach – We opted for a positivist approach and tested our hypotheses on panel data, using regression models and the average test. From Miles et al. (1978), we used the measurement adopted by Bentley, Omer, and Sharp (2013) on public data from Eurozone companies to categorize them in the three typologies of strategic behavior. To estimate earnings management, we adopted the performance-modified Jones model. Findings – There is the suggestion that, in the case of Eurozone companies, business strategy is positively related to earnings management. It was not possible to find statistically significant results of prospectors managing their earnings differently from other companies. We tested the relationships for positive and negative abnormal accruals. We cannot affirm that there is any relationship with the strategy of managing positive earnings. In the case of negative errors, the study suggests that prospectors act to reduce their earnings. Practical & social implications of research – This study contributes to the literature on earnings information quality, especially regarding earnings management. The study both corroborates and departs from the previous literature. It shows the relationship between strategy and earnings management, however, we cannot confirm that prospectors engage in higher levels of earnings management. As practical implications, the evidence that emerged could serve as a contribution to other researchers, regulators, and players in the European financial market. Originality/value – The originality of the research derives from the application of agency theory, earnings quality studies, and business strategy to the European market. Keywords – agency theory; earnings management; strategy behavior.

Socially responsible investing and the performance of Eurozone corporate bond portfolios

AbstractThis paper investigates the performance of socially screened bond portfolios of 189 Eurozone companies between 2003 and 2016. Bond portfolios are formed on the basis of an aggregate measure of corporate social responsibility (CSR) and on specific dimensions of CSR, namely, Environment, Social, and Governance dimensions. Our results show that the performance of highly socially rated bonds is not significantly different from that of low‐rated bonds. We also observe that in an earlier stage, portfolios of high‐rated bonds outperformed portfolios of low‐rated bonds. Yet over time, this outperformance disappears. These results suggest that the errors‐in‐expectations and shunned‐security hypotheses are not only useful in explaining the performance of socially responsible equity portfolios but that they are also useful in explaining the performance of socially screened bond portfolios over time. Overall, our results indicate that investors can form bond portfolios based on sustainability criteria without compromising financial performance.

Socially Responsible Investing and the Performance of European Bond Portfolios

This paper investigates the performance of socially screened bond portfolios of 189 Eurozone companies between 2003 and 2016. Bond portfolios are formed on the basis of an aggregate measure of corporate social responsibility (CSR) as well as on specific dimensions of CSR: Environment, Social and Governance dimensions. Our results suggest that the performance of high socially rated bonds is not statistically different from that of low-rated bonds. We further analyze the evolution of bond portfolio performance over time. The results indicate that in an earlier stage portfolios of high-rated bonds outperformed portfolios of low-rated bonds. Yet, over time this outperformance disappears. These results suggest that the errors-in-expectations hypothesis and the shunned-security hypothesis are not only useful to explain the performance of socially responsible equity portfolios but they are also useful in explaining the performance of socially screened bond portfolios over time.

Determinants of Corporate Effective Tax Rate: Evidence for Eurozone companies between 2004-2014

This paper studies the effect of usual determinants of corporate Effective Tax Rates (ETR) based on a panel of 1.942 listed Eurozone companies. First, we carry out a comparative analysis of the Effective Tax Rate with special attention to the differences among the old and new members of the Eurozone. Then, from the Orbis database and the period 2004-2014, we estimate four regressions by random and fixed effects following the methodology of panel data. The results confirm that effective types supported by the new members (Slovenia, Cyprus, Malta, Slovakia, Estonia and Latvia) are significantly lower than those of older members. Moreover, corporate tax burden is negatively conditioned by capital intensity, economic profitability and the cost of debt; but positively conditioned by the level of debt and financial profitability, being a non-linear relationship with the size.

The Foreign Exchange Exposure of Domestic Companies in Eurozone: Case of the Baltic States

JEL Classification: G32, F31 Introduction In an increasingly globalizing world, companies in small open economies such as Baltic are not isolated from the effects of international economic cycles, currency movements, and global competition. Since mid-2008, foreign exchange markets have become more volatile due to the financial crisis in 2008 and the currency wars. Between mid-2012 and mid-2014, the euro increased in value by 10% compared to other currencies, but this trend has reversed over the last six months, and the effective exchange rate has fallen by 5.2%. Between spring 2014 and late January 2015, the euro depreciated by almost 20% against the US dollar and by about 10% against the British pound, driven by increasingly diverging monetary policy stances and growth dynamics. Generally, risk contribution from unhedged currency exposures could be higher than it used to be in the past. For this reason foreign exchange risk management may be more of a priority than ever. Nowadays companies face the challenge of evaluating the potential loss of transactions, especially in light of the recent financial crisis that showed what can happen as a result of poor risk management policy. Value -at-Risk (VaR) holds a special place in the risk management--it is used almost everywhere. VaR is particularly important because it is used to calculate the market risk component of regulatory capital under the Basel Committee and it is one of the most applied risk measure in investment portfolio theory, financial control and financial reporting as well. In this paper we have applied VaR methods for non-financial companies' foreign exchange exposure measurement. As a misleading VaR estimate can lead to bad judgement on foreign exchange exposure and, consequently, to bad risk management, there is a need for an examination of VaR applications in the context of Baltic non-financial companies. The measure of foreign exchange exposure lies in the variety of difficulties. First of all, there is no single unambiguous method of risk assessment, as different methods may produce different results. Secondly, each method has its own faults. The object of this research is foreign exchange risk measurement and management for the Baltic States companies. The purpose of this research is by analysing different issues relating to the measurement and management of foreign exchange exposure to propose Baltic companies better ways to manage their outstanding currency positions. To achieve the purpose the following tasks were conducted: 1. Analysis of the theoretical aspects of the measuring and managing currency exposure. 2. Analysis of Baltic companies' financial reports data to clarify risk management activities. 3. Clarifying firms' attitudes towards foreign exchange risk management in the Baltic States. 4. Estimating different VaR methods to measure foreign exchange exposure. 5. Development of recommendation how Baltic companies should manage their outstanding currency positions. The research methodology used in this paper is generally accepted qualitative and quantitative methods of economic research, including Value-at-Risk (VaR) methods to measure risks for different horizons and by testing different observation periods of open positions. The paper starts with a literature review in order to highlight the difficulties faced by non-financial companies in identifying, measuring and managing foreign exchange risk. The analysis conducted in this paper is based on companies' financial reports' data and statistics, and certain empirical studies. The data set is based on firms that were publicly listed on NASDAQ OMX Baltic Stock Exchange lists. Baltic Regulated market is the primary market of the NASDAQ OMX Baltic exchanges, which is regulated under EU directives and is under the supervision of the national FSA. The listing requirements are based on European standards and EU directives, and intended for companies that are well established. …

Does it pay to be good? An analysis of vice and virtue stock performance in the Eurozone

This paper provides a performance analysis of vice and virtue stocks in the Eurozone for the period between January 2005 and December 2014. In order to do so, a vice index consisting of listed Eurozone companies operating in selected vice industries is created and subsequently matched with a corresponding virtue index, which for the purpose of this analysis is represented by the DJSI Eurozone. The tools used to conduct the performance evaluation are the Sharpe ratio, the capital asset pricing model and the Carhart four-factor model. The analysis indicates no consistent outperformance or underperformance of one or the other index, yet the realised performance over the whole period favours the vice index. Consequently, it can be concluded that from a statistical point of view, there is no substantial advantage or disadvantage in being “good” when investing into stocks, as such it is a matter of investor preference, with the note that historical returns do favour vice stocks.

The Foreign Exchange Exposure of Non-Financial Companies in Eurozone: Myth or Reality?

The authors of this paper are looking for answers: are domestic companies operating in small market economies such as the Baltics with little or no direct foreign involvement also at risk, taking into account that our companies mainly as a mean of exchange are using euro. The aim of this study is to examine the foreign exchange rate exposure of domestic corporations in the Baltic States. The study shows that companies in the Baltic States tend not to manage their foreign exchange risk properly and some of the companies are thus exposed to significant losses due to fluctuations in currency exchange rates. The VaR estimates are proposed and evaluated as a method to measure the position that is necessary to hedge.

YouTube Sustainability Reporting: Empirical Evidence from Eurozone-Listed Companies

ABSTRACT CSR reporting is gaining momentum among Eurozone companies. The objective of this paper is to provide evidence regarding companies using YouTube as a communication and engagement channel for sustainability issues. Legitimacy theory and stakeholder theory are applied as a theoretical background for this study. Data on 306 Eurozone companies listed on the STOXX Euro 600 Index were collected to describe these practices and to identify whether sustainability reporting on YouTube follows the same patterns as CSR reporting in general. The main findings indicate that, in spite of its potential, sustainability reporting using YouTube is still in an early stage. The independent measures examined in this study only influence the extent of environmental reporting via YouTube; they do not affect other sustainability disclosures. Specifically, the factors influencing environmental YouTube disclosure are the sector in which the company operates, the proportion of independent directors, and company size.

CSR reporting practices of Eurozone companies

For most of the world's largest companies, reporting on non-financial information appears to be a continuing trend.Communication of social and environmental dimensions of the company plays a key role in the sustainable development of organizations, and therefore should be investigated more in depth.The aim of this empirical study is to analyse the extent to which Eurozone companies report on CSR indicators, according to the Integrated Scorecard Taxonomy Scoreboard of the Spanish Accounting and Business Association (AECA), and the factors that can influence its use.A content analysis was conducted on the annual sustainability reports on the websites of 306 Eurozone companies listed in the STOXX Europe 600.The results revealed an intensive use of corporate governance indicators, a moderate disclosure of environmental key performance indicators (KPIs), and a low use of social indicators. Our study also showed that there is an influence of sector, and the listing in DJSI on the extent of sustainability reporting.

Corporate YouTube practices of Eurozone companies

Purpose – The current study extends the investigation into online relationship building by examining how Eurozone companies belonging to the EURO STOXX 600 index use the popular video platform YouTube to facilitate dialogic communication with their stakeholders. The purpose of this paper is to analyse the extent and main purposes of the channel's usage, the companies’ activities and online practices, as well as the factors on this platform influencing the channel's activity, the audience, and the stakeholders’ engagement. Design/methodology/approach – To achieve this goal a sample of 306 Eurozone companies listed in the STOXX Europe 600 index, including 19 subsectors and 12 countries, have been analysed. Stakeholder and dialogic theory were applied as a theoretical background for this study. Findings – The results indicated that 44 per cent of companies studied have an official YouTube channel, which is mostly used for promotional purposes. It was found that the size of the company, the sector, and its country of origin determine YouTube channel activity, and that higher activity leads to a higher number of subscribers, thus fostering an initial step to better stakeholder engagement. Originality/value – Given that this is the first study of its kind to provide this type of analysis, the resulting unique contributions may provide value to the information systems field and also contribute to the advancement of information systems research.

Corporate LinkedIn practices of Eurozone companies

– The aim of this study is to analyse the extent to which Eurozone companies use the social network LinkedIn, how they manage their online practices, what is their typical audience, and which are the potential factors influencing both extent and audience. , – To examine how stakeholder engagement is managed by using LinkedIn, a sample of 306 companies listed in the STOXX Europe 600 index, including 19 subsectors and 12 countries, is analysed. To measure the extent of LinkedIn usage, an index was defined and calculated on a scale from 0 to 5. , – Although the majority of the companies (79 per cent) do use LinkedIn, they mainly focus on a particular group of stakeholders: current and potential employees. Their focus is thus mostly related to professional purposes such as providing information about employees and career opportunities. Just a few of them engage in blogging or updating statuses. Only a very small number of companies are using this platform for marketing or other purposes. The findings also show that the audience of a corporate LinkedIn channel is influenced by the extent of usage of that channel as well as by the size of the company. , – This study is the first one providing an overview of Eurozone companies' practices on LinkedIn. Hence both academics and professionals can benefit from this research.

Corporate Value, Corporate Earnings and Exchange Rates: An Analysis of the Eurozone

This study examines the impact of the introduction of the common currency on the value of European firms. In general, the introduction of the euro appears to have influenced the valuation of Eurozone companies. In particular, based on estimates using an adapted residual earnings model and observed equity prices in the period both before and after currency convergence, it is shown that an appreciation of the exchange rate had greater positive effects on the value of Eurozone companies in the pre-euro period than post-euro. The robustness of these findings is demonstrated in the paper using panel methods that allow for cross-sectional and time-series dependencies, thus extending the research method beyond the pooled regression approach that has been adopted to date in most published applications of the Ohlson accounting-based valuation model. It is also shown that, in general, multinational Eurozone companies, like their counterparts in the US, are affected adversely by changes in the exchange rate. Overall, the conclusions of this study are relevant both for policy makers and investors in the effort to assess the factors affecting the market value of European firms.