Financial Flexibility Research Articles

Executive team's digital background, financial flexibility and corporate innovation: Evidence from China

Taking China's Shenzhen and Shanghai A-share non-financial listed companies as a research sample from 2018 to 2022, this study explores the relationship between executive team's digital background and corporate innovation. The empirical study shows that executive team's digital background can significantly promote corporate innovation. Financial flexibility plays a mediating role in the relationship between executive team's digital background and corporate innovation. In non-state-owned firms with longer executive tenure, executive team's digital background has a more significant effect on corporate innovation. This study provides theoretical support and practical guidance for strengthening corporate innovation.

Emission Taxes and Capital Investments: The Role of Tax Incidence

ABSTRACT This paper examines investment responses to emission taxes and the role of tax incidence in passing on tax burdens. Using private firms from Spain and the introduction of an emission tax in 2013 in the Autonomous Community Valenciana, we show that investments decline in response to the emission tax. Importantly, this investment decline does not depend on the level of pollution but on economic factors related to tax incidence. Investments in firms operating in highly competitive markets, firms with low pricing power, and firms with low financial flexibility are the most affected by environmental taxes. We generalize the investment findings using the introduction of carbon taxes in France and Ireland in a stacked difference-in-differences design. Overall, our results indicate that emission taxes affect not only polluters but also other firms and stakeholders such as suppliers, customers, and consumers depending on the relative elasticities of supply and demand. Data Availability: Data are available from the sources cited in the text. JEL Classifications: H22; H23; H32; G31.

Does financial flexibility drive firm's risk‐taking in emerging markets? The moderating role of investment efficiency

AbstractUsing a sample of 2301 listed firms from emerging markets for 2014–2023, we examine the effect of financial flexibility (FF) on firm risk‐taking (FRT) and how this relationship is moderated by investment efficiency (INVEFF). GMM and bias‐corrected method of moments models indicate a positive impact of FF on FRT. Notably, INVEFF emerges as a significant moderator, influencing the FF–FRT relationship. High INVEFF strategically amplifies the effect of FF on FRT. Robustness analysis ensures the stability of study findings. This study contributes valuable insights to the nuanced understanding of the FF–FRT relationship in emerging markets.

Can the digital transformation of pharmaceutical enterprises' finance improve healthcare equity?

Using big data, cloud computing, and blockchain technologies, enterprise finance is gradually transitioning towards digital transformation. Academia has already researched the motivations, efficiency improvements, and ethical impacts of the digital transformation of enterprises' finances. However, there is little research from the social equity perspective to explore the impact of enterprise financial digitization transformation on regional social welfare. As important entities for improving residents' health conditions, pharmaceutical enterprises have not fully studied whether their financial digitization transformation can improve the quality and efficiency of healthcare services and enhance regional healthcare equity. Therefore, this study focuses on listed Chinese pharmaceutical enterprises from 2018 to 2022, empirically examining the impact of pharmaceutical enterprises' digital transformation on regional healthcare equity. Using A Hospital in China as a case study, the process of its financial digitization transformation is deeply analyzed. The results show that the financial digitization transformation of pharmaceutical enterprises has a significant positive impact on regional healthcare equity, and it can be further enhanced by improving financial flexibility and increasing data assets. These findings contribute to accurately assessing the social responsibilities of pharmaceutical enterprises and provide new perspectives and evidence for improving regional social welfare levels.

Supply-chain finance digitalization and corporate financial fraud: Evidence from China

Recently, supply chain finance (SCF) digitalization, which integrates emerging digital technologies with traditional SCF, has been attracting worldwide attention. While previous studies have highlighted the adoption of SCF digitalization, little is known about how it shapes corporate behaviors. Using a sample of Chinese A-listed firms from 2008 to 2021, this study investigates the relationship between SCF digitalization and corporate financial fraud. Based on the results of the propensity score matching and difference-in-differences approach and mechanism analysis, SCF digitalization is found to inhibit corporate financial fraud by reducing a firm's relational transactions with its suppliers and customers. Additionally, cross-sectional analysis reveals that the governance effect is more pronounced for small- and medium-sized enterprises and for companies with higher information asymmetry, more financial linkages, and lower financial flexibility. Overall, our findings facilitate the understanding of how the digital economy influences corporate behaviors.

The Effect of Regional Financial Management on Financial Distress of Local Government in Indonesia

Deficits experienced by local governments can lead to financial difficulty, often referred to as financial distress. Although local governments experience deficits, local governments can avoid these conditions with good regional financial management. This research aims to determine regional financial management's effect on local governments' financial distress in 2019-2022. The sample in this research uses a total sampling technique at all provincial and local government levels in 2019-2022. This research uses secondary data with documentation techniques. Binary logistic regression was obtained to perform data analysis. The results showed that financial independence significantly negatively affects financial distress. Financial flexibility has a significant negative effect on financial distress. Operational solvency does not have a significant adverse effect on financial distress. Short-term solvency has a significant positive effect on finances. Service solvency has a significant negative effect.

Financial Constraints and Corporate Finance: Insights from Nepalese Firms

The purpose of this study is to investigate how managers navigate the capital market amidst financial constraints. Expanding upon the findings of Graham and Harvey (2001), Campello et al. (2010), and Bancel and Mittoo (2014), we confine our attention to Nepal as a developing nation. Our approach encompasses criteria and delves into the challenges associated with securing financing, utilizing descriptive analysis. The study entailed surveying 198 financial executives using a structured questionnaire. Among the respondents, nearly half of them indicated that they experienced financial issues at a specific point in time. The survey focused on the financing challenges that managers face when considering potential projects for their undertakings. The findings revealed that managers prioritize the use of internal equity, followed by external equity, and lastly, debt. Interestingly, this order contradicts the hierarchical theory. Financially constrained firms identified several major obstacles when raising funds from banks, including high interest rates, lengthy banking processes, and bank fees. Additionally, it has been uncovered that maintaining financial flexibility and considering firm size are crucial factors for the company in addressing their financial shortfall.

The Role of Fair Value Accounting in Debt Structure Decisions: Evidence from Priority Structure and Financial Flexibility

Synopsis The research problem This study investigates whether the debt structure of a firm — that is, how a firm organizes its debt contracts — depends on the extent to which fair value measurement is applied to the balance sheet. Motivation Most public firms have a nontrivial percentage of balance sheet items measured at fair value under the mixed attribute accounting, and there is a lack of understanding of its effect on the reporting entity’s debt structure. This study focuses on two aspects of the debt structure that have both practical and theoretical relevance, namely the priority structure and the financial flexibility. A priority structure involves the simultaneous use of different priorities of debt and is common among risky borrowers. Survey results show that financial flexibility is of first-order importance regarding the debt policy of firms. Here, financial flexibility refers to a firm’s ability to pursue new investment opportunities via debt issuance. The test hypotheses The first hypothesis states that a borrower with a higher percentage of balance sheet items measured at fair value is less likely to have a priority structure. The second hypothesis states that a borrower with a higher portion of balance sheet items measured at fair value likely has a debt structure that is more financially flexible. The third hypothesis states that the fair value of liabilities and the fair value of assets are equally relevant to debt structure decisions. Target population This study focuses on nonfinancial firms in North America that are subject to the mixed attribute accounting, which measures a certain percentage of assets and liabilities at fair value. Adopted methodology The main tests use multivariate analysis that includes both logistic regressions and OLS regressions. Additional tests include cross-sectional analyses and the Granger causality test. Analysis Using a sample constructed from Compustat North America and Capital IQ (6,220 firms and 36,487 firm-year observations), the main tests regress dependent variables, namely the priority structure measures and financial flexibility, on the exposure to fair value measurement. Findings Results show that fair value measurement reduces information asymmetry and has favorable effects on the debt structure. A high exposure to fair value measurement reduces the need for a priority structure. A high exposure to fair value measurement also enhances financial flexibility. Additional analyses reveal that the favorable effect mainly comes from assets measured at fair value. The effect becomes weaker with respect to liabilities measured at fair value.

Subjective perception of economic policy uncertainty and ESG performance: Evidence from China

ABSTRACT This paper explores the relationship between subjective perception of economic policy uncertainty (SPEPU) and ESG performance. We find that SPEPU could deteriorate ESG performance, especially corporate social performance and that this negative effect works through increasing financialization and weakening internal control, but could be mitigated by enhancing digital transformation and improving financial flexibility. Heterogeneity analysis further confirms that this negative effect of SPEPU on ESG performance is more pronounced for enterprises with no political connections, less information transparency and low marketization. Our conclusions are of practical significance for enterprises to maintain good ESG performance and promote their sustainable development.

Pengaruh Intellectual capital, Environmental performance, Green innovation, dan Financial flexibility terhadap Sustainable growth

This study aims to test and analyze the effect of intellectual capital, environmental performance, green innovation, and financial flexibility on sustainable growth. The data used in this study are secondary data obtained from financial reports, annual reports, and sustainability reports of companies in the non-cyclical consumer sector listed on the Indonesia Stock Exchange for the period 2020–2022, which obtained an environmental performance assessment from the Ministry of Environment and Forestry of the Republic of Indonesia. The sample of this study consisted of 97 companies. This research was processed using the regression analysis method using EVIEWS 12. The results of the analysis show that intellectual capital has a positive effect on sustainable growth. However, environmental performance, green innovation, and financial flexibility have a negative effect on sustainable growth.

The impact of financial flexibility of the banking sector’s capital structure on the general index of the Iraqi stock market

The impact of financial flexibility of the banking sector’s capital structure on the general index of the Iraqi stock market

Risk assessment when granting credit to non-financial legal entities

Purpose: This study aimed to verify risk assessment procedures when granting credit by a legal entity via financing in negotiations with its customers. Methodology: A documentary approach was used, emphasizing qualitative analysis, during the experimental study conducted at an XYZ organization linked to information technology. Results: They point out that the credit score and rating score, established through the evaluation stages, taking into account the company's history, documentation, guarantees, financial health, cash flow, indebtedness, corporate governance, and market prospects, enable the risk classification of their analyzed clients, ranging from AAA for the "alpha" client to D for the "beta" client. This result made it possible to deduce that credit assessment is appropriate automation in financing decisions for commercial activities, capable of promoting financial flexibility and commercial agility. Customer risk classification is therefore seen as a fundamental tool for improving XYZ's financial decisions, minimizing default risks, and guaranteeing the financial security of its commercial operations, resulting from establishing risk scores for both defaulting and non-defaulting companies. Contributions of the Study: This study makes a relevant theoretical contribution to the field of research by highlighting the importance of validating the criteria used in granting financing, as well as the contextual factors that can affect decisions. The practical contribution of analyzing a non-financial institution under the pandemic context and how they minimize their default by establishing credit analysis mechanisms provides improvements and consequently greater security as lenders.

The Role of Financial Flexibility in the Financial Performance of the Automobile Sector: Asian Perspective

The Role of Financial Flexibility in the Financial Performance of the Automobile Sector: Asian Perspective

Is enterprise risk-taking less sensitive to financial flexibility post COVID-19? Evidence from non-linear patterns

We explore the non-linear relationship between financial flexibility and enterprise risk-taking, investigating the non-linear nature of this association across distinct periods: pre-pandemic, post-pandemic, and the overall sample period. We analyze a sample of 2503 Chinese listed firms, segmented into different time phase. Our design allows for an examination of how financial flexibility relates to risk-taking under various economic circumstances. Utilizing a two-step system GMM approach, as expected, we evidence a positive relationship between financial flexibility and risk-taking. However, squared financial flexibility has a negative and significant impact on risk-taking before the pandemic and across the overall period, while insignificant post-pandemic. These results are consistent with a shift towards enterprise risk-taking being less sensitive to levels of financial flexibility during times of excess financial resources. Moreover, we evidence diminishing returns in risk-taking opportunities beyond a specific threshold of financial flexibility, consistent with this association having non-linear dynamics. These findings highlight the crucial role of maintaining a balanced financial approach for fostering healthy firm-level risk-taking behavior.

Trade credit and corporate profitability: Evidence from EU‐based SMEs

AbstractThis study provides empirical evidence about the impact of granting trade credit to customers on the profitability of EU‐based SMEs over 2012–2019. Results show an inverted U‐shaped relationship between corporate performance and trade credit – proxied by receivables, meaning a positive relationship between creditors and customers for low levels and a negative relationship for high levels of trade credit. This evidence is concentrated on firms with less financial flexibility, for which any deviation from the maximum point of investment in trade credit represents a negative impact on its performance due to payment delay or even a default event. Results are robust to potential endogeneity issues.

Luxury Car Leasing

This study aims to provide insights and knowledge to new entrepreneurs on developing their businesses by utilizing luxury car leasing services, focusing on the benefits of leasing versus buying, personalizing the lease experience, and supporting business activities through upgraded personal branding. The objectives are to analyze the advantages of luxury car leasing over purchasing, explore the personalized leasing experience for customers, and examine the role of luxury car leasing in enhancing business operations and personal branding. This research employs a qualitative approach, utilizing case studies and interviews with both leasing companies and lessees. Data was collected through structured interviews with key stakeholders in the luxury car leasing industry, including leasing company representatives and customers who have leased luxury cars. Additionally, market analysis and literature reviews were conducted to support the findings. The findings indicate that luxury car leasing offers significant advantages over purchasing, including financial flexibility, access to the latest car models, and lower maintenance costs. Personalized leasing experiences were highly valued by customers, contributing to higher satisfaction and loyalty. Furthermore, leasing luxury cars positively impact personal branding and business operations by providing entrepreneurs with a sophisticated image and reliable transportation for business activities.

At‐the‐market equity offerings and cash flow shortfalls: Evidence from real estate investment trusts

AbstractThis article examines how access to at‐the‐market (ATM) equity offering programs can help mitigate the adverse effect of temporary cash flow shortfalls on firm performance. Using asset‐level exposure to the spread of COVID‐19 as a proxy for a REIT's sensitivity to a future operational cash flow shock, we find that ATM program access reduces the magnitude of the negative performance effect by nearly 70%. We extend our analysis outside of the pandemic period to provide further evidence of the broader importance of ATM program access as an important source of financial flexibility during more general periods of cash flow uncertainty.

Corporate Resilience During the Covid-19 Pandemic: the Role of ESG Performance and Financial Flexibility

Stocks of substantial ESG firms have been claimed to perform better during crisis periods and consequently serve as an "equity vaccine" for investors. This study explores ESG ratings and financial flexibility's impact on stock performance. We test these hypotheses in the ASEAN-5 setting by assessing the relation between ESG and financial flexibility to stock price resilience in terms of time to recover during 2020 and 2021. The method used in this study is a cross-sectional data regression analysis. In a sample of 142 stocks from 5 countries consisting of Indonesia, Malaysia, Thailand, Philippines, and Singapore, we found that firms with higher ESG ratings had a better stock market performance. They tend to recover faster to achieve their lowest price in 2019. We also discovered that having more cash and liquid assets before Covid-19 doesn't make a company better at dealing with the impacts of the pandemic compared to other companies. Keywords: ASEAN-5; corporate resilience; covid-19; ESG; financial flexibility

Conditional accounting conservatism and financial flexibility: the Corona pandemic in the formation of legal claims

Purpose The purpose of this research is to investigate the importance and status of conditional accounting conservatism indicators and financial flexibility for the management of legal claims of the company during the outbreak of Corona. Design/methodology/approach The research method was implemented using statistical analysis in the SPSS environment. The participants of this research can be experts and specialists working in companies admitted to the stock exchange and expert professors in accounting fields; auditing; economy; financial engineering and financial management, categorized. The data related to the localization tool of research variables were collected by snowball sampling method in the summer of 2022. Findings One of the main results of the research is that based on the opinions and professional experience of experts and professionals working in companies admitted to the stock exchange and academic experts, within a range of seven, “The number of legal claims of the company with electronic businesses” under the title of the main indicator in the legal claims of the company in the outbreak of Corona from the importance dimension; “Exchange rate fluctuations in financial resilience” under the title of the main indicator in financial resilience in the Corona outbreak from the functional dimension; “The number of legal claims of the company with government institutions” under the title of the main indicator in the company’s legal claims in the Corona outbreak from the functional dimension; “The company’s conservatism score” under the title of the main indicator in the conditional conservatism of accounting in the Corona outbreak from the functional dimension; “oil price fluctuations in financial resilience” under the title of the main indicator in financial resilience in the Corona outbreak from the importance dimension; and “type of industry based on total assets” under the title of the main indicator in the conditional conservatism of accounting in the Corona outbreak was calculated from the importance dimension. Originality/value Although the previous literature has studied the direct correlation between accounting conservatism and financial flexibility, this work focuses on examining the direct association between accounting conservatism and financial flexibility in the post-Corona era and is carried out to resolve legal claims.

Financial flexibility and enterprise entity investment preferences

With the growing trend of firms investing in financial products rather than physical assets, concerns about losing the industrial basis of the real economy have arisen. This study aims to determine how financial flexibility influences corporate investment decisions in China and how operational risk moderates this relationship. As such, we examine the impact of financial flexibility on the investment preferences of Chinese firms, specifically focusing on A-share listed companies from 2012 to 2021. Employing a theoretical and empirical framework, the research reveals that higher financial flexibility is associated with a lower preference for physical investment. However, business risk significantly mitigates this negative effect, suggesting that firms with higher operational risks are more likely to convert financial flexibility into physical investments to enhance expected returns and manage risks. These findings highlight that the influence of financial flexibility on investment preference is most pronounced in small- and medium-sized companies. This research underscores the importance of rationally utilizing financial flexibility, effective risk management, and differentiated strategies based on firm size to promote sustainable investment and economic growth. The implications extend to policymakers, suggesting the need for supportive measures to guide firms toward increased physical investment and a strengthened national economic basis.