Financial Firms Research Articles

The impact of COVID-19 on sustainability reporting: A perspective from the US financial institutions

PurposeThis article provides the first empirical study on the effects of the COVID-19 pandemic on sustainability reporting in US financial institutions using institutional, stakeholder and legitimacy theories.Design/methodology/approachThe study used the independent sample t-test and Mann–Whitney U test throughout as well as OLS, random effects, fixed effects and heteroskedasticity corrected model to test the impact of the COVID-19 pandemic on sustainability reporting in the US financial sector. A sample from all listed US financial firms was used after controlling for both the Refinitiv Eikon sector classification and the NAICS sector classification.FindingsUsing U Mann–Whitney test and independent sample t-test the study revealed that the average ESG score for the pre-COVID19 period is 53% compared with 62.3% for the COVID-19 period, indicating that the sustainability reporting during COVID-19 is much higher compared with the pre-pandemic period. The findings of regression analysis also confirm that the US financial companies increased their sustainability reporting during the COVID-19 pandemic.Research limitations/implicationsThis study is an early attempt to look at how the COVID-19 epidemic has affected financial reporting procedures, although it is focused only on one area and other entity-related factors like stock market implications, company governance, internal audit practice, etc could have been considered.Practical implicationsThis research offers useful recommendations for policymakers to create standards for regulators on the significance of raising sustainability awareness. The findings are crucial for accounting regulators as they work to implement COVID-19 and enforce required integrated reporting rules and regulations.Originality/valueThe study provides the first empirical evidence on the impact of the COVID-19 pandemic on sustainability reporting, by examining how US financial institutions approach the topic of sustainability during the COVID-19 pandemic and assessing the pandemic's current consequences on sustainability.

How does environmental regulation affect the double dividend for energy firms? Evidence from China’s EPT policy

Changes in international markets and strict environmental regulations have challenged Chinese energy companies to reconcile sustainable and low-carbon development. Therefore, this paper focuses on 296 energy firms in China from 2011 to 2021 and uses the Difference-in-Differences (DID) method to explore the impact of China’s environmental protection tax (EPT) reform on the dual dividend of energy firms from the perspective of resilience and CO2 emissions, and fully discusses the role of government subsidies and corporate social financing. This research finds that China’s EPT reform can improve the resilience of energy firms while reducing CO2 emissions, and thus bringing a double dividend to energy firms. At the same time, government subsidies can enhance the decarbonization effect of EPT reform, but excessive subsidies can reduce the resilience of firms. In addition, the EPT reform can expand the scale of social financing for energy firms, helping them to realize a double dividend. The study’s findings have important implications for the long-term low-carbon development of energy firms and provide a theoretical reference for China’s EPT reform.

Stock bubbles under sudden public crises: A perspective from the excessive financialization of firms

This paper examines the crowding-out effect of the sudden onset of COVID-19 on the share price bubbles of over-financialized firms, and identifies the mechanisms responsible for this effect. Our findings suggest that COVID-19 has a significant crowding-out effect on the share price bubbles of over-financialized firms, which can be attributed to its impact on subjective investor sentiment and objective stock liquidity. The crowding-out effect is heterogeneous between different ownership, debt structure, and COVID-19 pandemic shocks. Our research suggests that the virtual economy may face a higher risk of the bubble bursting under the sudden public shock.

Does innovation drive mergers and acquisitions in the financial sector?

AbstractDoes innovation drive mergers and acquisitions in the financial sector? This issue is challenging because classical measures of innovation are unavailable in the financial sector. Thus, we introduce an innovation measure that can be used for financial firms. Considering US financial deals, we highlight the impact of a financial firm's innovative activities on the likelihood of becoming an acquirer or a target. We detect a ‘like buys like’ effect, implying that financial mergers and acquisitions are more likely when firms are at a similar level of innovation. We further show that this effect is associated with greater synergistic value.

The Impact of Intellectual Capital Efficiency on Financial Performance and Market Value: Finance Sector Companies Listed on Colombo Stock Exchange

The study aims to find how efficient intellectual capital is by comparing valuations and financial performances of listed companies on the Colombo Stock Exchange. This research follows a positivist approach to understanding this issue and employs a deductive method. The study includes the commercial banking sector of all financial institutions operating within Sri Lanka. 46 companies were selected for the sample. This sample is comprised of specified numbers from twenty-six licensed financial firms, ten listed commercial banks, and one listed specialized bank. The remaining are eight listed insurance companies and one special-purpose leasing company. All of which belong to the main board of the Colombo Stock Exchange; From 2017 to 2021, secondary data from annual institutional reports were used to focus on a certain domain. That was otherwise neglected by the previous researchers and scholars. Statistical observations that can be observed through observations are such as Mean, and standard deviation to perform multivariate linear regression analysis. The output of the study is analyzed according to different criteria to make sense and draw a conclusion from it. The results indicated that the effectiveness of structural assets is less than human assets and overall assets. This study revealed that the market value of financial institutions is not affected by the intellectual capital in Sri Lanka. There is more evidence that for financial growth to happen, intellectual abilities are the prime requisite in underdeveloped countries. Research gives a clear view of how it works. While new technologies have an impact on the value of intellectual capital, there is a need to understand potential outcomes.

이사회 내 여성임원의 선임동기와 역할은 무엇인가?

The role of female executives is becoming increasingly important as the gender composition of the workforce shifts and stakeholders, including consumers, become more diverse. In general, female CEOs, CFOs, and other female executives help to improve corporate governance by increasing board diversity, which in turn helps to increase transparency. This study focuses on the financial industry (banking, insurance, and securities), with a focus on publicly traded companies from 2020 to 2022. While the proportion of female registered directors has been increasing in recent years, it is still significantly below the European Union's recommended ratio. In addition, I examine the characteristics of financial firms that appoint women executives and find that there is no special propensity for the appointment of women executives other than the size of the board of directors. In addition, while previous studies have shown that women's prudent decision-making is closely related to financial conservatism, this study found no significant association between female executives and conservatism in the Korean financial industry, but rather a significant association between female executives and capital share. This study shows that female executives in the financial industry are formally selected in proportion to the size of the company and the size of the board, but it is significant in that I shed light on the new motivation and the role of female executives.

The value of FinTech innovations for the finance industry: Evidence from China

This paper explores the value effects of FinTech innovations on the finance industry in China, focussing on the banking system. We use a crawler-like application programme to grab patent filing information and manually identify and classify FinTech innovations based on their application fields. FinTech patents generally bring adverse value effects to various finance sectors, revealing a competitive relationship between innovators and financial firms. FinTech innovations applied to insurance and asset management cause the most harm to the industry, especially to state-owned and joint-stock commercial banks. Moreover, disruptive FinTech innovations by start-up firms appear to pose more potential threats to commercial banks.

How Brexit Damaged the United Kingdom and the City of London

Abstract This paper examines the economic cost of Brexit for the City of London. Even though the Covid pandemic may have delayed some plans for relocations by financial firms from London to the EU, the EU’s finance hubs are growing. Paris has become the bloc’s top trading hub, while Frankfurt, Dublin and Amsterdam are also emerging as hubs for different financial services specialisms. There were three drivers behind the UK government’s stance on Brexit which have been largely detrimental to City of London interests: First, Getting Brexit Done by concluding a boilerplate agreement on goods, while neglecting financial services; second, leaving the single market and ending freedom of movement making a deal on financial services impossible, and third, the false and arrogant mantra that ‘the EU needed the City more than the City needed the EU’. Prime Ministers Johnson, Truss and Sunak have led the UK into further self-inflicted economic and political decline and regulatory uncertainty. Brexit will over the next few years have a negative impact on jobs and tax receipts. The City of London will have to adapt to the harsh realities of a hard Brexit, perennial tensions with Brussels and growing competition from European financial centres and from New York.

Can sustainability performance mitigate the negative effect of policy uncertainty on the firm valuation?

Purpose The purpose of this paper is to test if building reputation capital through environmental, social and governance (ESG) investing can mitigate the negative effect of economic policy uncertainty (EPU) on firms’ valuation. Design/methodology/approach This study uses an unbalanced panel of 591 financial firms between 2005 and 2021 from Canada, France, Germany, Italy, Japan, the United Kingdom (UK) and the USA. Ordinary least square method is used in the empirical tests. To alleviate a potential endogeneity problem, robustness tests are performed using the two-stage least square approach with instrumental variables. Findings The results of this paper show that sustainable reporting can offset the negative effect of EPU on the valuation of financial firms. Consistent with the stakeholder-based reputation-building hypothesis, sustainability performance may have an insurance-like impact on firms’ valuation during periods of high uncertainty. Practical implications According to the findings, during high policy uncertainty periods, investors accept to pay a premium for the stocks of the firms which built social capital through environmental and social investments. Accordingly, it is suggested that regulatory bodies and governments motivate firms to increase their stakeholder orientation to attain higher reputation capital. Social implications Managers can mitigate the negative impact of policy uncertainty on the value of their firms via building social capital, which will increase financial market stability in return, and portfolio investors may use such firms for portfolio optimization decisions. Originality/value To the best of the authors’ knowledge, this paper is one of the first to examine the mitigating role of ESG investing on EPU and firm valuation relationships for financial firms. Thus, this study provides new insights related to the impact of ESG performance on valuation during uncertain times.

Revisiting the Impact of Board Gender Diversity on ESG Disclosure in the US

The objective of this study is to examine the effect of board gender diversity on the disclosures of environmental, social, and governance (ESG) of Fortune 500 non- financial firms in the United States of America. This study utilized a sample of US non-financial firms between 2013-2022 and generated unbalanced panel data for 343 non-financial firms from the Bloomberg database comprising 2,145 firm-year observations. The results indicate that board gender diversity is positively associated with ESG disclosure. Besides, the board gender diversity also has a significant positive relationship with individual components of ESG disclosure: environmental, social, and governance disclosures. This study also explores the impact of a critical mass of women on boards on the ESG disclosure score and its three components individually. In addition, the findings suggest that the critical mass of female board members favorably impacts the environmental and governance components of the ESG score. However, their contribution to the social score is limited. This study contributes to the limited but expanding literature on the relationship between corporate governance and ESG disclosure and encourages firms in developing nations to appoint more women to the boards.

Revisiting the consequences of loans secured by patents on technological firms' intellectual property and innovation strategies

This article analyzes the impact of loans secured by patents (LSPs) on the intellectual property and innovation strategy of technological firms that benefit from them. The literature mostly emphasizes that LSPs, by reducing the risk taken by lenders in case of borrowers' default, facilitate the financing of technological firms. However, it remains silent on the impact of LSPs on the behavior and strategy of borrowers. With regard to this second point, our research suggests that LSPs are not neutral. In particular, we provide evidence that LSPs might induce technological firms to deviate from innovative activities toward more short-term strategies based on the monetization and litigation of their patents. We also show that financing groups might attempt to encourage this strategic change. Our research is based, first, on empirical insights provided by a qualitative analysis of publicly known LSPs offered by an international investment group and their consequences for four borrowers. Second, we propose a theoretical model that formally explores how LSPs might impact borrowers' strategies. Even though the welfare implications of these findings are difficult to evaluate, this research has likely important economic and managerial implications with regard to intellectual property management, the financing of innovation and the organization of the innovation process.

Comparative study of management accounting system models on company performance in Indonesia and Malaysia financial institutions

This study compares the management accounting system (MAS) model used by financial institutions registered with Financial Services Authority in Malaysia and Indonesia to ascertain how each affects company performance and identify any differences. A comparative study was used to compare the MAS models in the two nations. A quantitative study of 313 accounting and finance managers in financial firms from 160 firms registered with the Financial Services Authority (OJK) in Indonesia was obtained using a simple random technique. The Covariance Base Structural Equation Model (CB-SEM) was used for data analysis using Lisrel. In addition, a literature review of model comparisons was conducted using prior research findings on the MAS model at financial institutions listed on the Central Bank of Malaysia website. The results of the research in Malaysia demonstrate the impact of the MAS model, which was developed through the three variables of market competition intensity, technological advancement, and innovation on the company's non-financial performance. The research results in Indonesia also demonstrate the impact of the MAS model, which was developed through the three variables of management strategy, support, and competence on the company's financial performance. This study demonstrates how the variables created by the two models are used differently.

Leveling the playing field? The effect of disclosing fund manager activeness to individual investors

As of April 2018, several of the largest U.S. mutual fund firms have been imposed to disclose a measure of fund manager activeness to retail investors. We evaluate the effectiveness of this intervention. We find that, even for those funds with a large overlap of holdings with the benchmark, no measurable effort to increase management activeness can be observed subsequent to the imposed disclosure. By contrast, investors strongly respond to the intervention. However, an analysis of investor reaction suggests that they do not rationally trade on the newly available information. We discuss our results and propose potential disclosure improvements.

Impact of Corporate Board Characteristics on Financial Firms' Reputation: A Cross-Sectional Study

A firm's reputation is a critical intangible asset that affects its competitive advantage, stakeholder trust, and long-term sustainability. The contents and attributes of a company's "board of directors” are very important, especially in shaping its reputation in the financial industry. As the governing body responsible for strategic decision-making and oversight, the corporate board shows a significant exertion on shaping the firm's operations, policies, and its reputation. The expertise and qualifications of board members, particularly in financial matters, instill confidence in stakeholders, demonstrating the firm's commitment to sound governance and risk management. This paper explores the association between "corporate board characteristics” and the reputation of "financial firms". The findings of this study can help with further research and guide policymakers, executives, and stakeholders in their efforts to enhance financial firms' reputations through effective board governance. The study survey was conducted among 190 people working in the financial sector to know the role and impact of Corporate Board Characteristics on Financial Firms' Reputation. The study concludes that there is significant impact of Corporate Board Characteristics on Financial Firms' Reputation. &nbsp

Did the collapse of Silicon Valley Bank catalyze financial contagion?

We investigate whether the failure of Silicon Valley Bank catalyzed financial contagion in the G7 countries as well as Brazil, China, India, and South Africa. We compare four groupings: markets, banks, non-financial, and financial firms. Dynamic conditional correlation and Diebold Yilmaz spillover analyses show that contagion was pronounced within global banks but minor in other areas. The contagion was also short-lived, being most prevalent during the week following the failure of the Silicon Valley Bank. It is noteworthy that contagion following the largest US bank failure since 2008 was, beyond the banking sector, quite limited.

The Roles of Finance in ESG Management

AbstractAs shareholder capitalism has revealed its limitations since the outbreak of Covid‐19, there has been a growing demand for a shift toward stakeholder capitalism. Environmental, social, and governance (ESG) management seeks an optimal way to allocate resources to both financial and social values in order to enhance stakeholder utility. Given the various legal, theoretical, and empirical limitations of pluralistic stakeholder capitalism, it is necessary to focus on achieving instrumental stakeholder capitalism. In this regard, we present three roles that finance should play in promoting more firms to adopt ESG management. First, infrastructure needs to be established to measure and assess ESG value in a fair and objective manner. Financial firms should make efforts to develop a non‐financial disclosure and certification system, create an ESG index, expand research and investment in this area, and improve credit ratings. Second, there is a need to boost the intermediation of ESG‐linked finance in order to enhance utility for firms, investors, and governments. Third, it is crucial to facilitate the trading of ESG value in the market, as this could provide incentives for firms and help them cover the costs associated with ESG investments.

Climate uncertainty and marginal climate capital needs

The paper shows that climate policy uncertainty affects the future marginal capital shortfall of global financial firms, and 11.28% more capital will be needed under a severe climate scenario. After the signing of the Treaty of the Paris Agreement, the effect has been stabilized at the global level. However, there are strong indications that the USA's withdrawal from the agreement increased the climate capital needs for US firms. Our results have significant implications for regulators, as they are related to the stability of the financial system under a significant climate stress scenario.

A new approach to close-out netting legal opinions in respect of OTC derivatives and securities financing transactions

Close-out netting has been, and remains, crucial to the success of capital markets transactions such as OTC derivatives. A key credit risk mitigant, it has significant regulatory capital impact for prudentially regulated financial firms if they have obtained reasoned legal opinions confirming the enforceability of the close-out provisions of the relevant master trading agreement. These legal opinions are, however, complex and extremely nuanced, resulting in excessive costs in reviewing and (sometimes incorrect) application of the advice they provide. This paper considers the inherent challenges in the review and application of these legal opinions and whether they could perhaps be partly expressed in formal logic to address these challenges.

Research on the impact of environment, society, and governance (ESG) on firm risk: An explanation from a financing constraints perspective

With the concept of sustainable development becoming a consensus in social development, external factors such as environment, society, and governance (ESG) are gradually attracting the attention of enterprises and their stakeholders. Firm risk is crucial for the survival and development of enterprises, but few studies have focused on the impact of ESG performance on firm risk. Therefore, based on quarterly data of 1587 A-share listed companies in China from 2018 to 2022, this study empirically discusses the impact of ESG performance on firm risk by integrating various methods. The results indicate that positive ESG performance can significantly reduce firm risk. Further analysis indicates that positive ESG performance is beneficial for alleviating firm financing constraints and thereby reducing firm risk. Meanwhile, the inhibitory effect of ESG performance on firm risk may exhibit heterogeneity due to differences in firm size and ownership. Studying the impact of ESG performance on firm risk from the perspective of financing constraints provides new evidence for a deeper understanding of the value of ESG performance, and also provides a new and effective approach for risk management in enterprises.

Capital Structure, Corporate Governance and Cost Efficiency in Selected Listed Financial Firms in Nigeria

The study analyzed the cost efficiency of a subset of Nigerian listed financial firms and looked at the impact of corporate governance on the subset of listed financial enterprises. Additionally, it evaluated how corporate governance affected the chosen listed financial organizations in Nigeria taking into consideration capital structure and cost efficiency. They were with the intention of supplying details on the interactions between capital structure, corporate governance, and cost efficiency in a number of Nigerian financial organizations between 2005 and 2020 which is the post-consolidation period and the time the country was affected by the infamous virus that shook the whole world. The objective of this study is to examine the capital structure, and corporate governance on cost efficiency of selected listed financial firms in Nigeria. The study used secondary data from 20 quoted, carefully chosen financial firms in Nigeria and used a descriptive survey design. These data were analyzed using Stochastic Frontier Analysis (SFA) and the findings indicated that the deposit money banks in Nigeria had an average cost of efficiency of 54.6%. The capital structure was significantly impacted by corporate governance factors such as board size (t= 2.285, p0.05) and board expertise (t=-2.311, p0.05). Finally, the outcome demonstrated that elements of corporate governance such as board size (t=-2.807, p 0.05), board independence, and board composition, which acted as intermediary variables between corporate governance and cost-effectiveness, were both statistically significant at the 5% level. According to the study's findings, there was a significant association between cost-effectiveness, corporate governance, and capital structure.