Financial Decisions Research Articles

Does firm culture influence corporate financing decisions? Evidence from debt maturity choice

This study establishes a relation between corporate culture and debt maturity choice. Specifically, superior corporate culture is associated with the choice of shorter-term debt, supporting the notion that superior culture reduces managerial agency problems resulting in managers being more receptive to external monitoring through the choice of shorter-term debt. The culture subcomponents of integrity, teamwork, and innovation are found to have a meaningful influence on the debt maturity structure choice. The relation between culture and debt maturity is more pronounced in firms with higher managerial stock ownership and those that are financially constrained, but is weakened in firms with a greater CEO sensitivity to stock prices. Additionally, firms with superior culture are shown to have higher long-term credit ratings. These findings contribute at the confluence of corporate culture and debt financing literatures. A battery of robustness tests, including addressing endogeneity concerns, validate the findings.

Green vs. brown: Climate risk showdown – who’s thriving, who’s diving?

Increasingly complex climate change poses unprecedented risks and challenges. We attempt to analyze the strategic responses of firms in dealing with climate risk and whether green firms outperform brown firms by exploring the relationship between climate risk and firms’ cash flow. To this end, this paper uses the high-dimensional fixed-effects model for empirical analysis based on panel data of Chinese listed firms from Q1 2010 to Q4 2022. We find that firms have the motivation to hold more cash in the face of climate risk, and that brown firms will be more proactive in cash flow management compared to green firms. In addition, there are significant industry and seasonal effects of climate risk on firms’ cash flow. Mechanism tests find that climate risk prompts firms to increase cash flow by forcing them to reduce financial leverage and erode operating costs, as well as by inducing increased media attention to the firm. Heterogeneity analysis shows that the positive effect of climate risk on cash flow is more significant among low digital transformation firms, high financial constraints firms, firms with low managerial myopia, and SOEs. An analysis of the economic consequences shows that climate risk leads firms to be more aggressive in capturing market share, increasing productivity and strengthening ESG performance. The above findings help to enlighten firms on how to manage their risk exposures and adjust their internal governance structures as a way to maintain stable operations in an environment of intensified uncertainty. In brief, this paper highlights the differentiated financial decisions that green and brown firms make in response to climate risk, providing empirical evidence and policy implications for advancing the green transformation of firms.

Advancing New Governance Models for Gender Data in Climate Resilience Funding

Abstract Globally, between USD 850 to USD 940 billion was allocated for 2021 climate finance. However, a mere 0.01 percent of this was directed towards projects addressing both climate change and women’s rights. Unfortunately, the climate crisis is not gender-neutral. Yet, gender data analysis and the significant role of women in climate action are often overlooked, resulting in critical issues being underrepresented in climate budgets. In today’s data-driven world, gender data assumes a critical role in highlighting women’s significant contributions to climate change, thereby influencing funding decisions. Within this context, the Room 9 sub-group of the “17 Rooms initiative” is currently exploring the potential of data cooperatives to facilitate financing for women’s groups transitioning towards climate-resilient practices. This paper explores the intersection of gender data and climate resilience funding and advocates for improved governance models that ensure accurate, comprehensive, and meaningful representation of gender data in climate funding decision-making processes.

Cash Flow Dynamics: Amplifying Swing Models in a Volatile Economic Climate for Financial Resilience and Outcomes

In a volatile economic climate, understanding cash flow dynamics is crucial for companies to improve financial resilience and outcomes. This research focuses on amplifying swing models such as Cash Flow Management (CFM), Solutions (CFS), Dynamics (CFD), Boosters (CFB), Innovations (CFI), and Strategic (CFS) - on cash flow dynamics in a volatile economic climate. By examining the relationship between these models and determinant variables, the study aims to provide insights that can assist companies in achieving financial resilience and outcomes. The data were collected from finance and accounting representatives of 200 companies ((manufacturing (107), services (56), and trade (37)) in Kosovo in 2023 (quarters 1, 2, 3, and the first two months of quarter 4), while processing was done through exploratory factorial, reliability, and multiple regression analyses conducted using SPSS and AMOS software. The results of the study reveal a significant relationship between each cash flow model and the determinant variables. This highlights the importance of these models in comprehending cash flow dynamics within a volatile economic climate. Factors such as optimization strategy clarity, continuous monitoring, effective working capital management, accurate financial decision-making, and technological improvements contribute to positive cash flow. Additionally, precise management of fluctuations, financial advantage, cooperative departmental approaches, and effective communication also play a role in cash flow dynamics. By extending swings models, the study provides valuable insights that can assist firms in achieving financial resilience and overcoming the challenges of a volatile economic environment.

Financial Literacy among Unorganised Workers - A Bird’s View

Financial literacy refers to the skill, knowledge, capabilities, awareness, behaviour and attitude to achieve the financial well-being of an individual by making sound and viable financial decisions. It refers to the capability to manage financial substances competently and make suitable decisions about investing, planning, budgeting, managing, and controlling. It is the ability of understanding and apply financial management aids to accomplish financial stability concerning investing, management of debt, and allocation of income towards several goals instead of unjust expenses and making an individual self-sufficient. The purpose of this paper is to examine the perception of workers towards financial literacy components and to analyze the impact of financial literacy on financial decision-making.

The Influence of Leverage, Profitability, Liquidity and Tax Planning on Company Value in Consumption Goods Industry Sector Companies on the Indonesian Stock Exchange

This study aims to examine and analyze the effect of leverage, profitability, liquidity, and tax planning on company value in consumer goods industry sector companies listed on the Indonesia Stock Exchange (IDX) from 2019 to 2021. It is a quantitative study using panel data analysis, employing methods such as the Chow test, Hausman test, Lagrange multiplier test, classical assumption tests, and hypothesis testing through Eviews 12 software. The study population includes companies in the consumer goods sector registered on the IDX between 2019 and 2021. A purposive sampling method was applied, resulting in 28 companies and a total of 84 observations. The data utilized are secondary and obtained from the official IDX website (www.idx.co.id) and company websites. The findings demonstrate that profitability has a positive and significant effect on firm value, indicating that more profitable companies tend to increase their market value. In contrast, leverage, liquidity, and tax planning do not show significant effects on firm value. However, when considered simultaneously, leverage, profitability, liquidity, and tax planning collectively influence firm value. These results underscore the importance of profitability as a key driver of firm value in the consumer goods industry, suggesting that companies should prioritize strategies to enhance profitability to improve market valuation. The study’s findings have implications for financial managers, investors, and policymakers, as they highlight the limited role of leverage, liquidity, and tax planning in directly influencing firm value, prompting a reevaluation of how these variables are considered in strategic financial decision-making.

Does institutional location matter? The effect of agency type on resource distribution for nonpoint water pollution

ABSTRACT With the rejuvenated emphasis on nonpoint pollution under the Water Quality Act (WQA) of 1987, states seek ways to address nonpoint pollution sources. States can use Clean Water State Revolving Funds (CWSRF) to address nonpoint needs; these funds are administered by state agencies, and funding decisions are typically made by agency personnel. While some states have aggressively funded nonpoint projects, other states have been much more reticent. Moreover, states have created different administrative structures to administer these funds. Does the nature of the structure impact the distribution of loans? Utilizing a dataset spanning state-level data from 1988 to 2016, we test a novel negative binomial cross-sectional time-series model employing the number of CWSRF loans directed to nonpoint projects as the dependent variable. We find that states where water quality management is buried within a ‘mini-EPA’ agency are the least likely to allocate CWSRF loans for nonpoint source issues, whereas states with ‘super’ agencies or combined environmental/health agencies allocate a higher number of CWSRF loans to nonpoint source projects.

Does corporate green innovation unlock financial doors? The mediating role of environmental performance

Purpose This study aims to respond to the latest research calls to precisely revisit the nexus between corporate green innovation (CGI) and financial decisions through deeply investigating the mediating effect of corporate environmental performance measured by the effectiveness of emission reduction. Design/methodology/approach This study analyzes nonfinancial-listed firms on the Australian Securities Exchange from 2002 to 2019 using multiple regression analysis on a panel data set. Initially, different static panel data approaches were used. To account for the potential endogeneity issue and generate robust outcomes, the authors apply the one-step system generalized method of moment, two-stage least squares and lagged model approaches. Findings The results provide a clear indication that the practices of green innovation can favorably contribute to the level of environmental performance, which in turn affect the firm’s ability in opening the new financial doors and shape solid capital structure. In this context, the effective environmental performance fully mediates the nexus between CGI and capital structure of a firm. More importantly, the outcomes are robust and coherent across different estimation techniques. Originality/value The originality of this study lies in its utilization of mediation analysis to explore the relationship between CGI and a firm's financial structure. This approach distinguishes it from previous research by offering a thorough and nuanced understanding of how green innovation practices influence the financing decisions of a firm.

Financing Indigenous entrepreneurs: A review and research agenda

Empowering Indigenous communities through entrepreneurialism is touted as key for reducing Indigenous disadvantage, but little headway has been made. One core and persistent issue is difficulty accessing finance to support growth. To understand why and to guide future policy and research, we review the current state of research on Indigenous financing and develop a thematic framework around four themes: political-economic environment; antecedents to the financing decision; financial solutions; and financial preferences, decisions and outcomes. Indigenous entrepreneurs face unique intercultural, social and economic barriers to finance, and these need to be better understood to help accelerate Indigenous community development through entrepreneurial activity. JEL Classification: G21; G28; J15; N20

Beyond banks: Navigating the shift to peer-to-peer lending for small enterprises

This study sheds light on how non-traditional lending avenues, specifically peer-to-peer (P2P) lending platforms, influence the financing decisions of small businesses. It introduces a theoretical framework where borrowers weigh the option between opting for a cost-effective traditional bank loan versus an expensive option through crowdlending platforms. The findings suggest that crowdlending platforms become a more appealing choice in the event of credit supply disruptions in traditional banking sectors. Leveraging the phased introduction of mobility restrictions during the COVID-19 pandemic as a case study, our research demonstrates a noticeable pivot of small businesses towards alternative funding sources, such as P2P lending. These findings emphasize the value of offering a variety of financial tools to small businesses so they can weather economic storms.

The Role of Nudges and Behavioral Interventions in Financial Decision Making

Financial decision-making, both at individual and institutional levels, plays a critical role in determining economic outcomes. Traditional economic theory posits that individuals are rational agents who make decisions based on complete information and a consistent set of preferences. However, behavioral economics has challenged this notion, highlighting cognitive biases, heuristics, and social influences that can drive suboptimal decisions. Nudges and behavioral interventions have emerged as tools to guide individuals toward better financial choices without restricting their freedom of choice. The purpose of this research is to present a descriptive investigation of behavioral interventions and nudges in financial decision-making. The main cognitive biases influencing financial behavior are first described, and then several nudge kinds and their applicability in diverse financial contexts— retirement savings, debt management, spending control, and investment decisions—are explored. Along with reviewing empirical data on nudges' efficacy, the paper addresses the ethical issues surrounding their application and pinpoints the variables that affect their effectiveness. This study aims to educate consumers, financial institutions, and policymakers about the potential advantages and constraints of behavioral interventions by providing a thorough overview of how nudges might impact financial decision-making. Keywords: Nudges, Behavioral Intervention, Financial Decision-Making, Cognitive Biases, Financial Literacy.

EXPRESS: The Last Hurrah Effect: End-of-Period Temporal Landmarks Increase Optimism and Financial Risk-Taking

Understanding what drives risk-taking is fundamental for the study of choice under uncertainty. One widely discussed question is when and why people engage in risk-taking. Prior work finds evidence for an ending effect, where risk-taking increases on the last gamble in a series when outcomes are immediately realized. We test whether socially ubiquitous endof-period temporal landmarks (e.g., last day of the work week, month, year) alter financial risk-taking even when outcomes are not immediate. Using data from a large peer-to-peer investment platform in the United States, we show that investors make riskier financial investment decisions on Fridays relative to those made earlier in the week. Consistent with a broader end-of-period effect, risk-taking also increases on the last day of the month, last day of the year, and on weekdays prior to a long weekend. Follow-up lab experiments identify a novel mechanism driving ending effects: As people near the end of a temporal period, they feel more optimistic that their financial risks will pay off, driving greater financial risk-taking. The shift in risk-taking is not without consequence: In our specific peer-to-peer context, we show that end-of-period investments perform worse over time, losing money relative to investments made on other days.

Understanding Behavioural Biases Driving Equity Investors in India: A Factor Analysis Approach

In the dynamic realm of equity investment decisions, this study challenges the traditional assumption of investor impartiality and rationality, arguing that investors’ choices are often shaped more by beliefs and psychological inclinations than by objective reasoning alone. Drawing from behavioural finance theory, which contests the adequacy of the standard finance model in capturing the nuances of decision-making, this research delves into the psychological forces influencing private investors. Recognizing the prevalent biases coloring their decisions, the study investigates common prejudices impacting investor choices. Leveraging survey data from 375 equity investors, the research employs exploratory factor analysis and regression models to disentangle the effects of cognitive biases, such as the gambler’s fallacy, overconfidence, aversion to ambiguity, lack of representativeness, aversion to loss, and anchoring. The findings challenge the assumption of investor rationality, offering valuable insights into the complexities of financial decision-making. Notably, the study underscores a robust and positive association between these biases and equity investment decisions, shedding light on the intricate interplay between psychological factors and investment behaviour.

Cognitive Biases in Financial Decisions Made by Teenagers

Teenagers are a vital part of the economy today and make up a large proportion of the consumer industry. In a highly digitalised world, teenagers and adolescents have a strong and active presence on social media and influencers and marketers are reaching out to this demograph who are now a backbone in the decision making process in most families. Behavioral Economics, a relatively recent branch of the science, unlike traditional approaches which believe that people make economic and financial decisions on utility, suggests that financial decisions are more likely to be made by people on the basis of their inherent cognitive biases, their sense of fairness and psychological biases such as loss aversion and overconfidence bias. This study aims to extend this hypothesis to study adolescent and teenage behavioural patterns and answer the question how.

Political Polarization and Finance

We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms through which partisanship may influence financial decisions, and the available data sources used to infer individuals’ partisan leanings. We then describe and discuss the empirical evidence. Our review suggests an economically large and often growing partisan gap in the financial decisions of households, corporate executives, and financial intermediaries. Partisan alignment between individuals explains team and financial relationship formation, with initial evidence suggesting that high levels of partisan homogeneity may be associated with economic costs. We conclude by proposing several promising directions for future research.

Financial constraints and sustainability in bioeconomy firms

AbstractIn the current scenario, sustainability has become vitally important. This paper focuses on bioeconomy as it links the economic systems and sustainable development, promoting innovative and environmentally friendly solutions. The bioeconomy firms need financial resources that play a critical role in their ordinary activities and in the activities that contribute to sustainability. The relationship between firms' ESG (environmental, social and governance) factors and their financing decisions has received little attention. Therefore, the objective of this article was to analyse the relationship between financial constraints and ESG performance focusing on bioeconomy firms. To carry out the analyses we have used 227 European bioeconomy firms developing three machine learning models. The main findings highlight the importance of the profitability (return on equity—ROE and return on assets—ROA) and the indebtedness in characterising firms' constraints, and the impact of non‐disclosure of ESG results. The study emphasises the economic importance of ESG practices in enhancing companies' financial conditions and access to capital, by using their corporate strategy and management: non‐disclosure of ESG information is related to an increase in funding constraints for listed bio companies. Thus, improving both economic and ESG performance can enhance access to capital, guiding business decisions.

2024 UK and Ireland modified Delphi consensus on myopia management in children and young people.

This work aimed to establish the largest UK and Ireland consensus on myopia management in children and young people (CYP). A modified Delphi consensus was conducted with a panel of 34 optometrists and ophthalmologists with expertise in myopia management. Two rounds of voting took place and 131 statements were agreed, including that interventions should be discussed with parents/carers of all CYP who develop myopia before the age of 13 years, a recommendation for interventions to be publicly funded for those at risk of fast progression and high myopia, that intervention selection should take into account the CYP's hobbies and lifestyle and that additional training for eye care professionals should be available from non-commercial sources. Topics for which published evidence is limited or lacking were areas of weaker or no consensus. Modern myopia management contact and spectacles are suitable first-line treatments. The role and provision of low-concentration atropine needs to be reviewed once marketing authorisations and funding decisions are in place. There is some evidence that a combination of low-concentration atropine with an optical intervention can have an additive effect; further research is needed. Once an intervention is started, best practice is to monitor non-cycloplegic axial length 6 monthly. Research is needed to identify those at risk of progression, the long-term effectiveness of individual and combined interventions, and when to discontinue treatment when myopia has stabilised. As further evidence continues to emerge, this consensus work will be repeated to ensure it remains relevant.

Financial Accountability, Resources and Competence of Proprietors, and Performance of Private Universities in Uganda

Abstract: The purpose of this study was to examine the effect of financial accountability on performance of private universities in Uganda. The study is guided by a hypothesis, that financial accountability have a statistically significant effect on the performance of private universities. The study taps into the voices of university stakeholders seeking their opinion on how to address the university performance challenges and 162 sample units were selected and participated in the study. The study follows the post-positivism philosophical stance which calls for the use of mixed techniques, while a descriptive, analytical and cross-sectional research design was utilized. Data was analyzed using two statistical software programs: Analysis of Moments of Structures (AMOS) for structural equation modeling (SEM), and SPSS was used for preliminary data analysis. In contrast, content analysis was employed in the qualitative approach. The results were presented using, Scatter plots, regression analysis, correlation coefficients and percentage tables while SEM was used to perform confirmatory factor analysis, principle component analysis, variance analysis, correlation coefficients and regression analysis. There was positive significant correlation between the financial accountability and the University performance (r = 0.641, P<0.01). The results further indicate that financial accountability individually explains 41.1% (R Square Change = .411) of the variations in University performance. The study found out that all dimensions of financial accountability exhibit a positive and significant relationship with performance. Hence value for money, financial reporting and audited accounts can ensure transparent financial transactions avoid diversion of funds, create robust strategies for mobilizing resources and save funds that can be utilized to improve financial sustainability and education quality in private universities. The study recommends that private universities should establish transparent financial reporting, promote active engagement of proprietors in financial decision making and resource mobilization, adherence to fiscal responsibilities, and effective financial governance as well as training proprietors in university financial management.

Bank Branches Expansion and Corporate Cash Holdings: Evidence from the Distribution of Bank Branches in China

ABSTRACT Using the geographical distribution data of banks’ physical branches at micro-firm level, this paper investigates the impact of bank branches expansion on corporate cash holdings. We find that the more the number of bank branches around firms, the less corporate cash holdings, implying that bank branches expansion helps reduce the level of corporate cash holdings. And the negative effect is more prominent in small-sized firms and non-SOEs. Further mechanism tests show that bank branches expansion reduces cash holdings mainly through intensified bank competition and shortening the geographical distance between bank and firm. We also find that bank branches expansion speeds up the dynamic adjustment to the target level of corporate cash holdings and mitigates agency problems. Our study highlights the crucial role played by the geographical distribution of bank branches in shaping corporate financial decisions and provides important policy implications for banking sector reform.

Pension Insurance Contribution and Corporate Maturity Mismatch of Investment and Financing: Evidence from Contribution Rate Reduction in China

ABSTRACT Pension insurance contribution is an important factor affecting corporate financial decision-making. This study investigates the influence of the pension insurance contribution rate reduction policy on the corporate maturity mismatch between investment and financing. We found that the pension contribution reduction policy reduces actual contribution burden of firms, and the average actual contribution rate decreases by 0.26% after the nominal rate is reduced by 1%. However, the policy also significantly aggravates the corporate maturity mismatch of investment and financing, which survives a battery of robustness tests. The positive effect of pension insurance contribution rate reduction on the maturity mismatch of investment and financing is more apparent in private, smaller-scale firms and in firms with higher ownership concentration and lower management incentive levels. The pension contribution reduction policy strengthens long-term investment tendency by reducing the actual contribution burden of companies and shortens debt maturity by increasing principal-agent costs. The results of this study provide a new perspective for understanding the mismatch between corporate investment and financing.