Corporate Equity Research Articles

Health in the age of asset manager capitalism.

A relatively small number of for-profit asset managers-financial intermediaries that invest capital on behalf of other investors-have emerged in recent decades to become some of the most influential commercial actors in the global political economy. Despite their important role in society, asset managers have received little attention from a public health perspective. In this article, we aimed to propose a conceptual framework of potential pathways and mechanisms through which asset managers may influence health and equity. The framework included asset class-specific pathways related to investments in publicly listed corporate equity, private equity, 'real assets' (e.g. housing, hospitals, farmland) and commodities. The framework also included more generalized pathways, focusing on ways in which the large and highly concentrated asset management sector can drive economic inequities, influence policy and political decision-making and shape the global 'development' agenda. We argue that measures challenging so-called 'asset manager capitalism', such as promoting and protecting the public ownership of companies and assets in essential sectors, are imperative to address the commercial determinants of ill health and inequity.

Impact of ownership concentration on stock returns: a case of developed economies

PurposeThe primary objective of this study is to determine how concentrated ownership affects stock returns by country and scale (by market capitalization), like large, medium, and small-cap firms in selected developed economies of the world.Design/methodology/approachUsing a dataset comprising 12,751 annual observations from 850 listed companies from developed economies from 2004 to 2018, the study employs panel data models and instrumental variable estimation to mitigate endogeneity bias.FindingsThe findings reveal a significant and positive correlation between ownership concentration and expected returns on corporate equities in developed economies. Furthermore, the study categorizes firms into distinct size categories and finds nuanced differences in the relationship between ownership concentration and stock returns across large, medium, and small-cap enterprises. The results of the study reveal that ownership concentration (by country) and scale (Large, medium, and small) have a significant and positive impact on the stock returns of firms in developed economies.Practical implicationsthe practical implications of this study extend to investors, firms, policymakers, regulators, and other stakeholders involved in the financial markets. By considering these implications, stakeholders can make informed decisions to enhance market efficiency, investor protection, and overall market integrity.Originality/valueTo the authors' understanding, this study is the first to examine the impact of concentrated ownership on excessive stock returns across countries and scales, with an explicit focus on large, medium, and small companies in select developed economies worldwide.

Punishment or deterrence? Environmental justice construction and corporate equity financing––Evidence from environmental courts

In this study, we explore the impact of the establishment of environmental courts, an environmental justice system, on the cost of equity capital. Based on a quasi-natural experiment of establishing environmental courts in China, we find that they have a deterrent effect and reduce the cost of equity capital for heavily polluting firms in localities. We also find that a low proportion of managerial ownership, a low level of analyst attention, and high environmental uncertainty induce this deterrent effect. Furthermore, mechanism tests indicate that environmental courts enhance corporate environmental engagement and corporate ESG ratings, increase long-term institutional investor ownership, and reduce urban environmental violations to achieve a deterrent effect. The findings are more pronounced for the trial court sample, firms in cities with lower public participation in environmental protection, and firms with lower environmental information transparency. We also suggest the impacts and underlying mechanisms of the environmental justice system on the equity capital market, which is conducive to long-term planning by firm managers.

Environmental protection investment on performance of heavy-polluting enterprises: evidence from China's A-share listed companies.

Heavy-polluting enterprises' investment in environmental protection will have a "crowding out effect" on their other inputs, affecting enterprise performance. However, if the environmental protection investment of enterprises improves their green technology innovation ability, resulting in the "innovation compensation effect," which can offset the "crowding out effect" of environmental protection inputs, it may have a positive impact on enterprise performance. This can offset the "crowding out effect" of environmental investment and may promote the performance of enterprises. At the same time, equity concentration plays the role of "tunneling effect" and "monitoring and incentive effect" in the process of environmental protection investment affecting the performance of heavy-polluting enterprises. The paper selects the data of A-share listed heavy-polluting enterprises in China from 2010 to 2019 and analyzes the impacts of environmental protection investment and green technology innovation on the performance of heavy-polluting enterprises by using a multidimensional panel fixed-effects model. The results show that environmental protection investment will improve the performance of heavy-polluting enterprises by improving their green technology innovation ability; green technology innovation plays a partly intermediary role in the process of environmental protection investment affecting the performance of enterprises, and the magnitude of this intermediary role is regulated by the concentration of corporate equity. Based on the results of the empirical study, it is recommended that heavy-polluting enterprises should accelerate the pace of green technology research and development and results transformation, optimize the proportion of equity allocation, and achieve the dual goals of fulfilling environmental responsibilities and enhancing corporate performance.

Influence of Pharmacology Concepts on Medical Representative Sales Outcomes and Corporate Equity

Influence of Pharmacology Concepts on Medical Representative Sales Outcomes and Corporate Equity

Tax wedges, financial frictions and misallocation

We revisit the classical result that in a closed economy the incidence of corporate taxes on labor is approximately zero. We consider a rich general equilibrium framework, where agents differ in the level of their wealth as well as in their managerial and working ability. Potential entrepreneurs go through all the key decisions affected by corporate tax changes: the choice of (i) occupation, (ii) organizational form, (iii) investment, and (iv) financing structure. We allow both for the presence of financial frictions and the traditional tax advantage of debt over corporate equity, which jointly generate misallocation of capital and talent. In this environment we characterize the effects of increasing corporate taxes both analytically and for a calibrated version of the model. We show that this tax increase reallocates production from C corporations to pass-through businesses. Since, due to distorted prices, the latter have higher capital-labor ratios, this reallocation generates a reduction in labor productivity and wages. Furthermore, the corporate tax increase induces some C corporations to reorganize as pass-throughs, which implies more restricted access to external funds and thus a socially inefficient downsizing of production in these firms. Finally, the tax increase causes further misallocation of talent by inducing agents with low wealth relative to their managerial talent to switch from entrepreneurship to being workers, while the reverse happens for agents with higher wealth and lower managerial skills. Overall, we find that both labor and capital bear a large share of the corporate tax incidence, while entrepreneurs are net beneficiaries of the tax change.

A voice for change? Capital markets as a key leverage point in Canada's fossil fuel industry

Canada as an oil and gas producing nation will play a definitive role in the transition to a carbon-constrained world. Yet, Canadian climate policy continues to prop the ailing oil and gas industry with supply-side policies that enables the continued expansion of fossil fuel production. This study examines the role of financial actors as high-leverage intervention points that may be used to limit the production and expansion of Canada's fossil fuel industry. Using a combination of network modelling, sensitivity analysis, and a novel scoring tool, we find that equity ownership in Canada's largest fossil fuel firms is increasingly concentrated among a small subset of predominantly foreign and corporate equity owners. Moreover, the high debt load of fixed assets make Canadian fossil fuel firms particularly sensitive to shareholder intervention. The findings suggest that prominent shareholders are unlikely to use their voice to curtail carbon emissions in Canada's fossil fuel industry, unless mandated to do so. Thus, the study concludes with important policy insights, to drive effective decision making and change.

The Implications of Pillar Two for Corporate Tax Reform

Recent proposals for corporate tax reform in Canada call for changing the existing tax on shareholder income to a tax on rents or above-normal profits. A feasible option would be an allowance for corporate equity (ACE) system based on the territorial principle. Canada has agreed to the approach to international corporate tax reform developed by the Organisation for Economic Co-operation and Development, including the pillar two minimum tax proposal. We explore the compatibility of adopting pillar two with the ACE system. Several elements of pillar two would complement moving to an ACE system. Large multinational corporations would be liable for a top-up tax if their effective tax rates in any given jurisdiction fell below 15 percent. The effective tax rates and the top-up tax would both use the territorial approach and consolidated accounting. The top-up tax would be similar to a tax on excess profits. Pillar two might also mitigate tax competition and reduce the constraints that countries face in increasing their tax rates on excess profits. For these reasons, pillar two would facilitate moving to an ACE system. At the same time, the minimum tax would deter adoption of an ACE if the deduction for the cost of equity finance reduced the pillar two effective tax rate. On balance, pillar two would be compatible with proposed corporate tax reforms.

Taxes, risk taking, and financial stability

AbstractAfter the global financial crisis, the use of taxes to enhance financial stability received new attention. This paper analyzes the corrective role of taxes in banking and compares two instruments, namely, an allowance for corporate equity (ACE), which mitigates the debt bias in corporate taxation, and a Pigovian tax on bank debt (bank levy). We emphasize financial stability gains driven by lower bank asset risk and develop a principal‐agent model, in which risk taking depends on the bank's capital structure and, by extension, on the tax treatment of debt and equity. We find that (i) the ACE unambiguously reduces risk taking, (ii) bank levies reduce risk taking if they are independent of bank performance but may be counterproductive otherwise, and (iii) taxes are especially effective if regulatory capital requirements are constrained to low levels.

The debt bias in company financing decisions - problems and possible solutions

Purpose : The purpose of the present article is to compare the relative strengths and weaknesses of thin capitalisation rules and allowances for corporate equity which are the main approaches used in modern tax systems to address the debt bias and have been an integral part of proposals for international coordination of corporate income taxation. Methodology: The theoretical methods applied in the article are review of the existing literature on the topic and comparative analysis of the strengths and weaknesses of the main approaches to the debt bias. Results: Although thin capitalisation rules and allowances for corporate equity contribute to the reduction of the problems associated with the debt bias, both types of methods have their limitations. The two approaches are analysed in the article from the perspective of international reform proposals within the BEPS project and the EU as the effective elimination of the distortions caused by the debt bias can be achieved only in coordinated manner. Originality : The paper adds to the growing body of literature on the topic by summarising the main strengths and weaknesses of the two main methods for resolving the debt bias and analysing them from the perspective of the reforms of international tax rules. Keywords: Corporate income taxation, Debt bias, Thin capitalisation rules, Allowances for corporate equity, International tax coordination https://doi.org/10.58869/EJABM008/SI05

Bumiputera Corporate Equity Ownership and Value Relevance within the Integrated Reporting Framework

Bumiputera Corporate Equity Ownership and Value Relevance within the Integrated Reporting Framework

Can the Reform of the Transfer Tax System Affect Corporate Green Innovation—Evidence from China’s “BT to VAT” Reform

Taxation has long been an important tool for dealing with externalities, and studying whether tax policies can be linked to today’s green development trend can help macroeconomic decisions influence the green transformation of enterprises. The article uses the business tax to VAT reform (BT to VAT), the largest turnover tax reform in recent years that took place in China from 2012 to 2016, as an example. The policy effect model was constructed using the difference in difference method to explore the driving effect of the tax reform and related variables on corporate green innovation. The results show that the policy effect of tax reform can effectively promote an enterprise’s green innovation behavior, with the promotion effect on invention-based green patents being significantly higher than that on utility-based green patents; there is a certain time lag in the promotion of green innovation by the policy effect of tax reform, with a significant effect starting from the third year of the policy. The green innovation behavior of enterprises is influenced by the characteristics of enterprises, with a significant positive correlation with enterprise size and operating capacity. Green innovation behavior is influenced by the characteristics of enterprises and has a significant positive correlation with the size and operating capacity of enterprises. The implementation of the policy of ‘reducing taxes and fees’ is conducive to green innovation, and an effective tax reform should be formulated gradually in response to the national conditions and market situation; on the basis of quality assurance, unnecessary steps in the process of green patent application and approval should be reduced to improve the efficiency of green innovation; effective social supervision or the appropriate realization of corporate equity can be adopted to promote green innovation. Corporate equity to promote corporate green innovation.

The income bond puzzle

The income bond puzzle

Managerial connections and corporate risk-taking: evidence from the Great Recession

In this paper we analyze the relationship between managers’ connections, corporate risk-taking and corporate performance during a period of crisis. Using the Great Recession of 2007–9 as a laboratory experiment, we show that corporate equity volatility increased substantially for firms operating in sectors severely affected by this crisis. We also show that this effect was greater for firms with well-connected managers and that these firms adopted riskier corporate policies. However, further results suggest that managers’ connections also helped firms to recover to their precrisis levels of performance faster.

Exploring the Influence of Brazil's Interest on Equity System on Corporate Finances: A Variant of the Allowance for Corporate Equity Tax Deductibility Framework

Exploring the Influence of Brazil's Interest on Equity System on Corporate Finances: A Variant of the Allowance for Corporate Equity Tax Deductibility Framework

On the way out: Government revenues from fossil fuels in Australia

AbstractAustralia is moving from a fossil fuel‐dominated energy mix to one that is increasingly powered by solar and wind. Fossil fuel exports are also likely to decline given their poor compatibility with the net zero emission targets of key trading partners. There is the potential for a variety of new exports of zero carbon energy and products to emerge. This paper reviews implications of the ongoing energy transition for government revenues from fossil fuel extraction and use and discusses policy options in response. It concludes that the transition heightens the need for efficient government revenue‐raising mechanisms across the economy. Among the possible reforms, this paper reviews the potential for Australia's corporate income tax to be reoriented towards the taxation of above‐normal profits via an allowance for corporate equity approach. Other revenue‐raising options that are discussed include carbon pricing, electronic road user pricing, wider use of progressive royalties, the use of industry levies as applied in Australia's agricultural sector, and the generation of revenue from government co‐investments.

Does digital transformation of enterprises help reduce the cost of equity capital.

Digital economy is regarded as the main economic form following agricultural economy and industrial economy. And the digital transformation has given enterprises new development momentum. Can it reduce the equity capital cost? This paper uses text analysis obtained by crawling the annual reports from 2010 to 2021 and investigates the impact of digital transformation on the corporate equity capital cost. The results show that: 1) Digital transformation will reduce the equity capital cost; 2) The digital transformation has a heterogeneous impact on the equity capital cost of enterprises with different scales, natures and levels of leverage, which is more significant for large-scale enterprises, state-owned enterprises and highly leveraged enterprises; 3) Digital transformation mainly affects the equity capital cost by improving enterprise value, rather than by increasing analysts' attention and influencing the level of corporate risk bearing.

Corporate tax-shields and capital structure: leveling the playing field in debt vs equity finance

A common feature within most corporate income tax systems is that the cost of debt is deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion is the creation of under-capitalized firms – raising default risk in the process. Using a difference-in-differences approach, this paper shows that a reduction in tax discrimination between debt and equity finance leads to better capitalized banks. The paper exploits the exogenous variation in the tax treatment of debt and equity created by the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment increases bank capital ratios, driven by an increase in equity rather than a reduction in lending activities. The change also leads to a reduction in risk taking for ex-ante low capitalized banks. Overall, these results suggest that the ACE could be a valuable policy instrument for prudential bank regulators.

Equity Incentive and Firm Value: Evidence from the Chinese Stock Market based on Panel Regression Model

Nowadays, more and more firms use equity incentives to encourage executives to improve firm value. In order to have a better understanding of it, this article analyzes the relationship between the equity incentives and the firm value. Based on agency theory and management incentive plan, we explore the influence of corporate equity incentives on corporate value. We download data of A-share listed companies in China’s two big Exchanges. In our process, panel regression model is set to prove our point. Our financial data come from CSMAR database and relevant data from the Wind financial terminal. After using Stata and calculating, we get 15,556 firm -year observation value, and our results show that in those companies, the implementation of corporate equity incentives will significantly promote corporate value improvement, and this relationship is still significantly established after experiencing A series of robustness. Further, there also provides us data to analyze four different types of companies. The result shows that the positive effect of equity incentives is greater in state-owned enterprises, enterprises audited by the Big Four auditors, enterprises with a high proportion of shares held by institutional investors, and companies with high growth. This paper provides support for the positive effect of the current equity incentive. At the same time, our analysis of different types of companies provides a basis for future research on a particular type.

The Impact of Corporate News on Stock Prices: Evidence from the Russian Stock Market

In the face of complex sanctions, Russian companies are looking for new mechanisms to ensure sustainability. An overcrowded corporate news backdrop could be the source for a significant decline in a company’s market value or growth. Given the importance of information disclosure and corporate news for investors’ expectations, we estimate the effect that four types of corporate news (Official publication of financial results for the quarters and for the year; M&A; Appointment of new persons; Dividend policy) impose on shares of three Russian companies in different industries: the financial, energy and high-tech sectors. In order to reflect corporate news’ influence, we developed an index of corporate news for the companies concerned utilizing daily data ranging 2015–2021. By applying a vector error-correction model, we demonstrate that corporate news and corporate equities are related over the long run. Short-run results obtained with the Granger test suggest no evidence of causality. At the second stage, we construct impulse response functions that affirm the effect of corporate news on stocks. Corporate news has a high and positive effect on stock prices in the high tech and energy sectors, while the financial sector reacts in a mixed manner to corporate news, and the effect is weak. Obtained results serve as the basis for practical recommendations to individual and institutional investors, as well as to companies for market value management.