Environmental Uncertainty Increases Research Articles

The influence of CSR on enterprise value: the case of China’s real estate industry

PurposeResearch on corporate social responsibility (CSR) within the real estate sector is limited, and the precise workings of its impact are still unclear. Under the premise that real estate enterprises face environmental uncertainty in China, this study explored the impact of CSR on real estate enterprise value.Design/methodology/approachTo investigate the impact of CSR on enterprise value, we studied 111 real estate enterprises with A-shares listed on Shanghai and Shenzhen stock exchanges from 2010 to 2020, and performed empirical tests to determine the moderating effect of environmental uncertainty on this relationship.Findings(1) The fulfillment of corporate social responsibility (CSR) significantly influences the value of real estate enterprises. A sub-dimensional analysis reveals that fulfilling stakeholder and social welfare responsibilities within CSR positively impacts enterprise value, whereas environmental responsibility does not exert a notable effect. (2) The uncertainty associated with environmental changes profoundly affects the relationship between CSR and the value of real estate enterprises. More precisely, as environmental uncertainty increases, it amplifies the beneficial impact of CSR on enterprise value.Practical implicationsThese findings are valuable for real estate enterprises as they navigate the transition towards sustainable development, and they also provide insight for the government in formulating policies aimed at regulating the real estate sector.Originality/valueThis study complements the existing discussion and research on corporate social responsibility (CSR) and enterprise value in the real estate industry, while elucidating the underlying mechanism of how environmental uncertainty mediates the relationship between the two.

CEO compensation and innovation premium

ABSTRACT The innovation premium of a firm is the excess market value over the shareholder expectation per a unit change in the capital stock. Using fixed effects models and cross-lagged structural equation models that address reverse causality and unobserved firm heterogeneity, we find that an increase in the innovation premium increases CEO compensation, consistent with the notion that innovation premium is shared between shareholders and managers. However, an increase in CEO compensation increases innovation premium when environmental uncertainty or firm innovativeness is high, indicating that an increase in environmental uncertainty or firm innovativeness makes the firm’s growth options more valuable, and CEOs exercise the growth options and seize the valuable growth opportunities that provide the firm the innovation premium. Our results are consistent with the managerial rent model in that the source of the innovation premium is the uncertainty associated with the innovative opportunities, which enhances the value of the firm’s growth options.

THE MODERATING ROLE OF ENVIRONMENTAL UNCERTAINTY IN THE EFFECT OF STRATEGIC CHANGE ON FINANCIAL PERFORMANCE

The increasingly competitive environment has led to the reduction of firm performance. Companies are strived to be able to create strategic competitiveness to maintain their competitive advantage, so that firm performance can be maintained. Strategic change is a company effort to adapt in a competitive environment. In addition, changes in the external environment create environmental uncertainty that will worsen firm performance, so strategic change is the primary choice for companies to improve performance when environmental uncertainty increases. This study aims to analyze the effect of strategic change on firm performance, as well as the role of environmental uncertainty in moderating the relationship. Using purposive sampling method, this study uses 503 data of manufacturing companies listed on the Indonesia Stock Exchange during 2016-2020 period. This study uses multiple linear regression analysis and moderated regression analysis as its analysis technique. The results of this study indicate that strategic change has a positive and significant effect on firm performance and environmental uncertainty is able to strengthen this influence.

How uncertainty can determine corporate ESG performance?

AbstractUsing Sino‐Securities Environmental, social, and governance (ESG) ratings data, we examine how environmental uncertainty affects the ESG performance of Chinese A‐share non‐financial listed firms from 2008 to 2020. Our findings show that environmental uncertainty harms corporate ESG performance. In particular, when environmental uncertainty increases, a firm's ESG score and ESG ratings decline due to factors such as financial constraints and industry competition. We argue that as the environmental risk premium rises, it increases the real options value of postponing sustainable investment for a firm. Consequently, the firms tend to cut down their ESG investment by weighing the long‐term benefits and short‐term direct costs. The value of real options changes with the investment opportunities available to the firms and the financing constraints and competitive pressure changes the size of investment opportunities. We argue that higher financing constraints and industry competition restrict available investment opportunities and dilute the negative impact of environmental uncertainty on corporate ESG performance. These results add to the existing literature investigating the impact of uncertainty on corporate ESG performance and offer insights to regulators and enterprise managers. These results are robust to alternate proxies of ESG performance and alternate regression techniques.

Business strategy and environmental information disclosure from a Confucian cultural perspective: Evidence from China

AbstractBased on social contract theory, this study investigates the impact of business strategy on environmental information disclosure from an informal institutional perspective. Using empirical data from a panel of Chinese listed A‐share firms in Shanghai and Shenzhen from 2010 to 2020, we demonstrate that firms following prospector strategies have higher levels of environmental information disclosure compared to those following defender strategies. Our findings also reveal that Confucian culture positively moderates the relationship between business strategy and environmental information disclosure. Specifically, we find that when environmental uncertainty increases, the moderating effect of Confucian culture weakens, while effective legal supervision strengthens the positive moderating effect of Confucian culture. Additionally, our results show that business strategy affects environmental information disclosure through the dual channels of economic benefits contract and social recognition contract. Overall, this research provides valuable insights for corporate sustainable development and effective government environmental governance.

Corporate innovation and analysts’ estimates of the cost of equity: Evidence from China

We examine the effect of corporate innovation input and output on analysts' estimates of the cost of equity based on data from public listed Chinese companies between 2007 and 2017. Analysts' estimates of the cost of equity significantly increase with corporate innovation input, whereas their estimates decrease with corporate innovation output, as indicated by this research. The results of additional analysis suggest that the role of corporate innovation input in increasing the estimates of the cost of equity is more significant with an increase in environmental uncertainty and negatively mitigated by strong survival ability. However, the role of corporate innovation output in decreasing analysts' estimates of the cost of equity is not significantly moderated by environmental uncertainty or corporate survival ability. Furthermore, we find that analysts consider financial constraints and information asymmetry when estimating the cost of equity. On this basis, the present study confirms that investors are significantly responsive to analysts’ estimates of the cost of equity during investment decision making.

A Study on the Impact of Digital Transformation on Corporate ESG Performance: The Mediating Role of Green Innovation

Corporate performance in ESG has received increased attention; however, the discussion on how digital development will affect corporate practice of ESG needs to be deepened. This paper discusses the impact of digital transformation on corporate ESG performance using multiple linear regressions with STATA 17.0 for 2707 companies listed in China A-shares in the period 2010–2021. Based on principal–agent theory, resource-based theory and signaling theory, the study finds that digital transformation can improve corporate ESG performance. From an external perspective, the contribution of digital transformation to ESG performance diminishes when environmental uncertainty increases; from an internal perspective, the positive effect of digital transformation on ESG performance is more significant in larger-scale enterprises. In addition, digital transformation will further enhance ESG performance by promoting green innovation, i.e., green innovation has a mediating role in the relationship between the two factors. The findings of the study introduce new thinking on the factors that influence corporate ESG performance, advance relevant research and provide important references for corporate managers and government departments who are concerned about ESG performance to make appropriate decisions.

Reverse Logistics Network Model of Dual-Channel Recycling Boxes Based on Genetic Algorithm Optimization: A Multi-Objective and Uncertain Environment Perspective

In the context of carbon neutrality, plastic ban, and green development, this paper aims to maximize the comprehensive interest of manufacturers in building a sustainable logistic network. It proposes a reverse logistics network model of a dual-channel model with multiple objectives and a random environment for the construction of recycling boxes projects and uses a Stackelberg game to develop pricing strategies for dual-channel recyclers and a genetic algorithm to optimize reverse logistics networks. This paper found the following: multi-objective evaluation is more conducive to sustainable development; when consumers are price-sensitive, a stronger rebate can significantly increase revenue; online platform recyclers should invest more in marketing than traditional recyclers; retailers’ willingness to cooperate in recycling has a significant impact on the overall benefits; the impact of government subsidies is marginal and needs to be controlled to a certain extent; the impact of green credit is insignificant, and the strength of commercial banks’ scrutiny of companies has little effect; an increase in environmental uncertainty within a certain range can lead to an overall loss of benefits, and an excessive impact can be out of line with extreme values. It provides a basis for decision-making on strategies for enterprises to build a logistics network of recycling boxes, government subsidies, green credit from banks, and dual-channel recyclers.

Does environmental uncertainty drive the use of management control systems and innovation?

PurposeThis paper analyzes the effects of environmental uncertainty on the use of Management Control Systems (MCS) and product and process innovation.Design/methodology/approachThe hypotheses were tested with data from a survey carried out with 140 managers of innovative Brazilian firms using structural equation modeling.FindingsThe analyzes show significant negative effects of environmental uncertainty on MCS use and non-significant ones on product and process innovation, which suggests that when environmental uncertainty increases, the MCS use decreases. In contrast, significant positive effects of MCS use on product and process innovation were found, despite environmental uncertainty permeating innovation. However, no mediating effect of the MCS use on the relationship between environmental uncertainty and innovation was observed.Research limitations/implicationsThis study presents implications to the management literature grounded on the Contingency Theory by pointing out negative effects of environmental uncertainty on MCS use and product and process innovation. This encourages research on other contingency factors that might be predictors of MCS use and innovation.Practical implicationsThe findings provide evidence that the analyzed organizational practices (MCS use and innovation) are conceived and implemented to disregard external stimuli, which may bring dysfunctional consequences that need to be monitored.Originality/valueThe study contributes by revealing that environmental uncertainty inhibits the MCS use and does not favor innovation. It was expected that MCS that produce information about the external environment would be valued and would have effects on the strategic planning in these firms.

Public governance and firm total factor productivity: Evidence from a quasi‐natural event in China

AbstractEmploying a quasi‐natural event, that is, gangdom and evil forces (GEs) elimination in China, we examine how public governance proxied by GEs elimination affects firm total factor productivity (TFP) using data on Chinese‐listed firms between 2009 and 2020. Our findings show that GEs elimination significantly reduces firm TFP through two complementary channels: increase in environmental uncertainty and the weakening of the protective umbrella. We also reveal that the effects of GEs elimination on firm TFP are more prominent in SOEs and in firms exposed to weaker media attention. Our main results pass a series of robustness and endogeneity checks. We provide clear policy implications to regulators by identifying firm‐level evidence.

Does Innovation Efficiency Matter to Firm Performance the Moderating Role of Environmental Uncertainty?

We examine the relationship between innovation efficiency and firm performance, as well as the moderating role of environmental uncertainty in the relationship. Competitive globalization pressures, dynamic changes in customer demand, and rapid technological advances make it difficult for firms to achieve and maintain their competitive advantage. We argue that when environmental uncertainty increases, innovation is needed to maintain the firm’s competitive advantage, by making it efficient in its implementation. We tested manufacturing companies listed on the Indonesia Stock Exchange year 2013-2019 with a total number 564 observations. We find that a innovation efficiency improves firm performance, and environmental uncertainty can encourage firms to be more efficient in innovating to improve their performance. This study contributes to a greater understanding of the relationship between innovation efficiency and firm performance in the situation of dynamic environmental uncertainty from the perspective of contingency theory. The evidence shows that environmental uncertainty, as a contingency problem, is an opportunity for firms to improve their performance, by being more active in carrying out innovation projects. When environmental uncertainty increases, policymakers within the firm must ensure that the innovation projects carried out can run efficiently, thus providing great benefits for improving firm performance.

The efficacy of organizational control interactions: External environmental uncertainty as a critical contingency

We investigate the efficacy of organizational control interactions in contexts with varying levels of external environmental uncertainty. Specifically, we examine the contingent effect of external environmental uncertainty on the interactions of behavior and outcome control, behavior and clan control, and outcome and clan control on organizational performance. The empirical evidence draws from two temporally sequenced surveys of top executives in 203 firms. We theorize and find that these control combinations are complementary when the level of environmental uncertainty is low, and that this complementarity diminishes as environmental uncertainty increases. Further, in highly uncertain external environments, our findings reveal that higher performance is achieved through a high level of one organizational control type and a low level of the other, indicating a shift toward substitutive effects. Consequently, this study informs the complement-substitute debate in organizational control theory by explicitly investigating external environmental uncertainty as a contextual contingency.

The effectiveness of contractual and trust-based governance in strategic alliances under behavioral and environmental uncertainty

We examine the interplay of behavioral and environmental uncertainty in shaping the effectiveness of two key governance mechanisms used by strategic alliances: contractual and trust-based governance. We develop and test hypotheses, using a meta-analytic dataset encompassing over 15,000 strategic alliances across 82 independent samples. We find that contractual governance works best under low to moderate levels of behavioral uncertainty and moderate to high levels of environmental uncertainty, while it is detrimental to alliance performance when both types of uncertainty are low or high. Trust-based governance is most effective at high levels of behavioral uncertainty and low levels of environmental uncertainty. It suffers a large loss of usefulness at high behavioral uncertainty as environmental uncertainty increases.

A theoretical and empirical investigation of property rights sharing in outsourced research, development, and engineering relationships

This article considers the use of property rights to structure ex post bargaining positions in client‐sponsoredRD&E. By focusing on the positive externality created by uses of the technology not targeted by the client, the theory produces a novel set of predictions that diverge from standard transaction cost and property rights reasoning; that is, greater contractor property rights are associated with more transaction‐specific investments by the client. Contractor property rights are also predicted to increase as environmental uncertainty increases and as more applications of the technology fall outside the client's intended fields of use. Contract‐level data from 147RD&Eagreements in technology‐intensive settings provide support for these predictions. A secondary examination shows that clients who share property rights with their contractors face reduced opportunism during project execution. Copyright © 2013 John Wiley & Sons, Ltd.

Operational Slack and Venture Survival

Slack can act as a double‐edged sword. While it can buffer against environmental threats to help ensure business continuity, slack can also be costly and reduce profitability. In this study we focus on operational slack, the form related to the firm's production processes. We investigate the role of operational slack on firm survival during its venture stage when its survival is significantly challenged by environmental threats. Specifically, we explore how change in three types of environmental uncertainty, namely dynamism, complexity, and lack of munificence, affect the relationship between operational slack and venture survival. Results suggest that with an increase in environmental uncertainty, operational slack lowers the likelihood of venture failure.

How can clusters sustain performance? The role of network strength, network openness, and environmental uncertainty

This paper draws on social network theory to develop a model of regional cluster performance. We suggest that high performing regional clusters are underpinned by (1) network strength and (2) network openness, but that the effects of these on the performance of a cluster as a whole are moderated by environmental uncertainty. Specifically, the positive effects of network openness on cluster performance tend to increase as environmental uncertainty increases, while the positive effects of network strength on cluster performance tend to decrease as environmental uncertainty increases. Our findings have theoretical and practical implications for social network research in general, and cluster research in particular.

Uncertainty, Pay for Performance, and Asymmetric Information

This article develops a new rationale for the emergence of pay-for-performance contracts where the labor market is competitive, workers are risk averse, and firms are risk neutral and unaware of workers' productivities. The article shows that the prevalence of pay for performance rises and the pay-for-performance sensitivity falls as environmental uncertainty increases. This empirical regularity is unaccounted for alternative models such as the standard agency model. (JEL D86, L2, M5, J3) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Top Management Team Functional Background Diversity and Firm Performance: Examining The Roles of Team Member Colocation and Environmental Uncertainty

Prior findings on the association between top management team (TMT) functional diversity and firm performance have been inconsistent. We consider the moderating effects of internal context (colocation of TMT members) and external context (environmental uncertainty) on the TMT diversity-firm performance relationship. Additionally, we consider both dominant and intrapersonal functional diversity. In our results from 207 U.S. firms in 11 industries, the effects of TMT functional diversity on firm performance become more positive as the proportion of TMT members with offices in the same location increases. The effects of intrapersonal functional diversity also become more positive as environmental uncertainty increases.

The Influence of Top Management Team International Exposure on International Alliance Formation

abstract This study examines the effect of top management team (TMT) international exposure on the formation of international alliances. We develop our arguments based on relational capital theory to suggest that top executives with international exposure are critical to firms’ international alliance formation. Supporting this view, we find that TMT international exposure is positively associated with the formation of international alliances. Moreover, we find evidence to suggest that the effect of TMT international exposure on international alliance formation is more positive as the level of environmental uncertainty increases. We discuss implications and directions for future research.

Uncertainty and Planning in Indigenous and Non-Indigenous Small Firms in The South Pacific

This article looks into the differences in the level of entrepreneurship and sophis tication of planning between indigenous and non-indigenous firms and their strategic response to an increase in environmental uncertainty in the South Pacific. Data analyses suggest that non-indigenous firms engage in more sophisticated planning than indigenous ones. As the perceived uncertainty in the environment increases, planning activity declines among indigenous firms. However, the article does not find any significant relationship between strategic planning sophistication and entrepreneurial intensity.