Firm Costs Research Articles

A Comparative Analysis of Separate and Joint Environmental Rights Trading Markets in China

The structuring of effective market-based environmental rights instruments can help to achieve energy efficiency and emission reduction goals while minimizing economic costs. As part of the global drive for sustainable development, pollution rights, carbon emission permits, and white certificates have become widely used as environmental rights trading schemes in many countries. However, interactions between environmental rights can create challenges. For instance, China has established a national carbon market, which it aims to connect with the energy consumption permit trading market. The effectiveness of separate and joint markets in achieving win-win outcomes is an area that requires further research. To address this question, we employed a mixed-integer linear programming model to simulate the potential incremental outputs and energy savings of 16 high-energy-consuming and high-emission industries in China from 2010 to 2019. Our findings indicate that the joint energy consumption permits and the carbon emission permits market yield the greatest economic benefits, but they lack a distinct advantage compared to the separate carbon market. Additionally, industries face less pressure to ensure energy savings in the joint market. The energy saving ratio of the joint market is 0.1% lower than that of the separate carbon market. We also found that the construction of a joint market will incur additional costs for firms and governments. Based on our benefit and cost analysis, we propose that governance subjects of pilot cities prioritize the establishment of the carbon market and not the rapid expansion of the pilot-level scope of energy consumption permits.

The Economic Agglomeration Effects of the Industrial and Business Sectors in Pengerang Johor, Malaysia from a Spatial Perspective

The economic agglomeration effects of the industrial and business sectors refer to the positive externalities that result from the concentration of firms in a specific geographic area. These effects can take different forms, including increased productivity, better innovation, and lower firm costs. Additionally, the concentration of businesses and industries in one area can result in knowledge spillovers, where firms can benefit from the expertise and knowledge of other firms in the same field. This study aims to provide spatial visualisation of the industrial area with GIS technology within the Pengerang District. Data from the Pengerang City Council and Companies Commission of Malaysia was utilised to conduct a Getis-Ord Gi* (Hot Spot) analysis to determine the agglomeration pattern of industrial and business activities in the study area. This study identifies Bandar Penawar and Pengerang as the areas with the highest concentration of industrial and business activities. The factors or effects of the economic agglomeration in the study area include the concentration of industrial and business activities, the presence of supporting industries and services, the availability of transportation infrastructure, and the availability of skilled labour. The study also identifies the positive spillover effects of economic agglomeration, such as increased productivity, knowledge spillovers, and innovation. The analysis results can guide future strategic planning in the industrial and business sectors in Pengerang District.

Research on Finance Reducing the Cost of Real Businesses

In the context of financial development tending to be digital and technological, exploring the relationship between fintech and the cost of real enterprises is significant for the high-quality development of real enterprises. Using provincial panel data from 2011-2020, this study empirically investigates the impact, heterogeneity characteristics and transmission mechanism of fintech on the cost of real enterprises using a two-way fixed effects model. This study demonstrates that fintech significantly lowers the cost of real businesses; in terms of different regions, the impact of fintech development on the cost of real enterprises is more significant in eastern regions than in central and western regions; corporate gearing, innovation capacity, financing constraints and financial regulation are the moderating variables of fintech impact on the cost of real firms. Based on this, suggestions are made in this paper related to the high-quality development of fintech, this is an important study to promote the deep integration of fintech and real businesses and to promote high quality development of the real economy.

An Analysis of Industrial Policy Mechanisms to Support Commercial Deployment of Bitumen Partial Upgrading in Alberta

Partial upgrading of bitumen (PUB) improves the quality (increases the value) of crude oil from bituminous sands to the level where pipeline specifications are met without—or with reduced use of—costly diluent. By reducing the cost of transportation to downstream refineries, PUB can serve as a solution to market access challenges and takeaway capacity constraints for oil sand producers. However, despite significant government and private investments, proponents in the Canadian province of Alberta still face challenges in commercializing the technology. We used a capacity investment model to explore the expected effects of different policy support types on a firm’s decision to invest in a partial upgrading facility integrated with an existing oil sands extraction facility. We evaluated 10 potential policy interventions and their expected effects on investments in partial upgrading. We focused our analysis of these policy interventions on the revenues and costs of firms, risk sharing, and overall public benefits and costs. We find that the majority of interventions are transferred from government to private interests, with little public benefits. Defensible policy actions include capital investment at the demonstration phase, providing incentives for industry collaboration, equity investment at the commercial stage, and reforming the government’s bitumen valuation methodology.

Audit Digitalization and Its Consequences on the Audit Expectation Gap: A Critical Perspective

SYNOPSISThis study examines how a paradigm shift from traditional to digital audits could affect the audit expectation gap. It uncovers possible new areas of the expectation gap and threats and challenges resulting from this paradigm shift. The findings suggest that audit digitalization will result in the audit profession transitioning from the defensive approach of educating users on auditors’ duties to a constructive approach of using digital tools to perform some of the duties that users expect of auditors. Specifically, digital technologies have the potential to enhance internal controls and facilitate fraud prevention and detection, thus narrowing the expectation gap in relation to these critical issues. It may further accelerate the elimination of future challenges and threats and the narrowing of future expectation gaps. The potential benefits of switching to the constructive approach are lower costs for audit firms, enhanced audit quality, and improved client perceptions of auditors.

Does carbon emission trading mitigate firm's default risk? Evidence from China

Reducing greenhouse emissions and mitigating the existential threat of climate change for the environment and ecological well-being have become a global consensus. On one hand, facing certain pressure of carbon emission reduction, the default risk of firms may increase due to higher costs of environmental regulations. On the other hand, firms' default risk may decrease as firms' sustainable development could tradeoff the transition costs of firms. Under such uncertain conclusions, we investigate the impact of carbon emissions trading (CET) system in China on firms' default risk. Using panel data of Chinese listed firms during 2010–2019, the difference-in-differences method (DID) is adopted to study the influence of CET on firm's default risk. The results show that the CET significantly reduces the default risk of firms. Further analysis shows that this improvement of firms' financial stability is affected by industrial heterogeneity, external financing constraint heterogeneity and firms' own characteristics such as innovation capacity. Overall, our findings not only expand the economic consequences of environmental regulations, but also provide implications on how to improve the Chinses CET pilot policy and construct a national CET market.

Does service-oriented manufacturing affect the sustainability performance of Chinese green manufacturing firms: an integrated study including empirical analysis and agent-based simulation

PurposeThere are two purposes in this paper. The first one is to explore the impact mechanisms and paths of service-oriented manufacturing (SOM) on the sustainability performance of green manufacturing firms and to pay particular attention to the mediating role of enterprise costs in the relationship between the two. The second one is to reveal the dynamic process and laws of SOM influencing on the sustainability performance of green manufacturing enterprises.Design/methodology/approachThis paper employs a combination of dynamic and static research from two aspects. On the one hand, based on 495 green manufacturing firms in China, the authors verify the SEM of SOM, enterprise cost and sustainability performance of green manufacturing firms through empirical research, analyze the path relationship and mediation effect, and demonstrate its complex impact mechanism. On the other hand, the authors use agent-based modeling and simulation to reveal the dynamic influence of SOM on the sustainability performance of green manufacturing enterprises and explore its dynamic laws and future development trends.FindingsThe study results indicate that (1) SOM has a direct positive effect on firm sustainability performance. (2) Reducing firm costs has a positive effect on firm sustainability performance, and firm costs play a partial mediating role in the mechanism by which SOM influences firm sustainability performance. (3) The dynamic impact of SOM on sustainability performance increases significantly over time. (4) Significant firm heterogeneity exists in the process by which SOM improves sustainability performance. (5) There are differences in the promotion of SOM for economic performance, environmental performance and social performance.Originality/valueThis paper makes two main contributions. First, compared with previous research on sustainability performance focusing on a certain dimension, this paper organically integrates the three dimensions of sustainability performance, regards them as a whole and considers the paths to improve sustainability performance. Second, this paper focuses on the complex relationship among SOM, enterprise costs and sustainability performance and reveals different sustainability performance improvement paths and dynamic impact processes, thereby expanding and deepening previous research on sustainability on the subject. These contributions lead to a better understanding of the driving forces and realization path for green manufacturing firms' sustainability performance from an integrated static and dynamic perspective.

Analysis of Optimal Solid Waste Recycling Policy: Evidence from U.S. Using Panel Data

Abstract We analyze how implementation of a market-based program of optimal recycling can be pursued and used to promote environmental quality. Presently in the U.S. economy, due to the relatively low private monetary costs of solid waste disposal, households and firms have little or no incentive to undertake recycling. As a result, most current recycling programs are apt to yield less than efficient outcomes. The paper offers a model for achieving an optimal level of recycling, and applies a combination of time-series and cross-sectional data to analyze and verify the potentials of an optimal recycling policy initiative toward an enhanced environmental management. JEL classification numbers: C33, Q24, Q28. Keywords: Recycling rate, Fixed and Random effects, Endogenous variables, Sample selection bias.

Cost-efficiency and quality regulation of energy network utilities

This paper studies linear cost-efficiency and quality incentives that are increasingly being used to regulate electricity and gas network utilities. The analysis shows that cost and quality incentives have asymmetric impacts on firms’ choices of efficiency and quality, and that the incentive powers should be equal and less than maximal when there is information asymmetry about firm costs and a dislike for network utility surplus. As in most existing regulations quality incentives have a higher power than cost-efficiency incentives, the model predicts that supplied quality is too high. Finally, the paper discusses examples of linear sliding-scale incentive regulation in Norway and Great Britain. The findings of this study provide guidance for regulators and policymakers looking to optimally use linear incentives to regulate energy network utilities.

When and where does it pay to be green? – A look into socially responsible investing and the cost of equity capital

We investigate the circumstances under which socially responsible investing (SRI) enhances firm long-term financial performance, and therefore provides incentives for firms to self-regulate their environmental performance. Aggregating portfolios across SRI mutual funds, we estimate the effect of SRI investment with environmental screening criteria on firm cost of equity capital. We find that accounting for interactions between firm and non-shareholder stakeholders, and potential agency costs associated with certain environmental activities of the firm, SRI can facilitate the alignment of firms’ environmental and financial goals. We also find that an industry group’s environmental performance and diversity influence the extent to which a firm in that group can benefit from SRI investment.

Hiring family or non-family managers when non-economic (sustainability) goals matter? A multitask agency model

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic and non-economic tasks in family firms. Comparing the performance of family and non-family managers under moral hazard and imperfect performance measurement, we find that incentive pay leads to an effort distortion towards economic outcomes for both manager types, however less so for family managers. This effort distortion is less pronounced when economic and non-economic management tasks are complements. We show that family managers with excellent skills regarding non-economic goals of the owner family often outperform non-family managers even if they have poor skills in economic tasks or, what is more, if they have lower average abilities altogether. We further show that the interdependence between economic and non-economic goals in the manager’s job tends to have a moderating effect on the family manager’s relative performance. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family firms’ hiring decisions. By highlighting the importance of non-economic goals, it moreover adds to the current discussion about the compliance with firms’ sustainability goals.

Did quantitative easing reduce the borrowing costs of firms? The risk‐taking channel

AbstractThis paper examines the effect of the Federal Reserve's quantitative easing (QE) on the cost of bank loans and documents large heterogeneous effects across different firms. In QE1, the average loan spread is 22.7 percent lower compared to the non‐QE period. This effect falls in QE2 and OT and then rises in QE3 and the tapering period. The rates of riskier loans are restrained more than less risky loans during QEs as banks take more risks by offering lower rates to attract risky borrowers. The Fed mortgage‐backed securities purchases have a larger impact in narrowing the borrowing cost difference between riskier and safer loans than the Fed Treasury purchases. Our results are robust to borrower, year‐quarter and bank fixed effects. Overall, our findings support that the risk‐taking channel of QE plays a significant role in the corporate bank loan market.

Environmental Regulation and Green Technology Innovation under the Carbon Neutrality Goal: Dual Regulation of Human Capital and Industrial Structure

Green technology innovation is increasingly becoming an important driver of modern development. Facing the pressure of the carbon neutrality target, China has been strengthening environmental regulations in recent years, and the green technology innovation ability of market players has been affected. Moreover, the impact of environmental regulations on green technology innovation and the strategies to develop green technology innovation still need to be further explored. Here, we used 285 cities from 2010–2020 as research subjects, constructed indicators such as environmental regulation and green technology innovation capability, and used panel regression, threshold effect and mediating effect methods. The results reveal that: (1) environmental regulation has a disincentive effect on green technology innovation, as increased environmental regulation increases production costs, external costs and opportunity costs for firms, causing a mismatch of resources and creating a “crowding-out effect” that inhibits innovation development; (2) further study finds that when the human capital level reaches a certain threshold value, the impact of environmental regulation on green technology innovation shifts significantly, i.e., there is a threshold effect; (3) industrial structure can further be upgraded and optimized by environmental regulation, which will have an impact on green technology innovation, thus industrial structure optimization plays a mediating role. We conclude with recommendations for improving green innovation techniques for market players, and provide some lessons for accelerating the goal of carbon neutrality and promoting quality economic development.

How and When Does Mandatory CSR Disclosure Affects Firms’ CSR Disclosure Strategy?

ABSTRACTResearch on corporate social responsibility (CSR) disclosure recognizes the importance of the government and examines how firms respond to government CSR regulations. However, little attention is given to how government regulations affect firms’ disclosure strategy in multiple fields of CSR. Based on institutional theory, this study proposes that mandatory CSR disclosure increases the legitimacy management cost for firms, and thus firms disclose more CSR scope to gain legitimacy and less CSR emphasis to reduce costs. Using data from Chinese A-share listed firms in 2008–2018, this study finds that mandatory CSR disclosure is positively related to CSR scope but negatively related to CSR emphasis. In addition, firm visibility strengthens the aforementioned positive and negative relations, whereas market competition weakens the relation between mandatory CSR disclosure and CSR emphasis. This study contributes to the literature on CSR disclosure and studies on organizational responses to the government mandate.

Exchange Rate Shocks and Quality Adjustments

Abstract Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that refreshes its product line twice-yearly, we document that higher quality products are more profitable than lower quality ones, but that the number of high-quality products experiences a relative decrease after a large ruble devaluation in 2014. We show that rising firm costs—and not shrinking consumer incomes—explains the reallocation, and rationalize the data with a model that features consumer expenditure switching between high and low qualities. The reallocation to lower quality products reduces average pass-through by 26%.

Capital Structure and Agency Costs

Capital structure and agency cost. Objectives: The study empirically investigates the relationship between capital structure and agency cost of non-financial firms. Prior Work: This extended and build on the studies of Hajis said (2020) and Omuemu and Olowe (2020); Kumar (2017); Awan and Amin (2014); Jaelani (2017) and Zakaria (2016) that also research in the same direction of our study. Approach: this study adopted a longitudinal research design and the Ordinary Least Square method of data analysis. Results: The study showed that total debt to equity ratio and long term debt to asset ratio have a negative and significant relationship with agency cost, whereas short-term debt to asset ratio, long term debt to equity ratio, and equity to assets ratio have a positive and significant relationship with agency cost. Implication: the study has ushered prospective and existing investors and organizations, the knowledge of the relevance of short and long term debts to agency cost Nigeria. Value: the demonstrated that the ratio of short-term debt to assets has a positive and significant effect on agency.

Improving audition costs of agricultural products under economic modernization

General production costs are reflected in the item “Costs of production and organization of management”. This article also takes into account insurance payments for buildings, structures, machinery, equipment, inventory and other fixed assets directly used in the production of products. Insurance payments are distributed by crops and types of products in proportion to the costs of production. Insurance payments are reflected in the accounting records in the debit of the “Agriculture” account and in the credit of the “Insurance settlements” account. The article “Other expenses” reflects the expenses directly related to the production of products, but none of the above items is included. This article reveals modern methods of intra-company management of the formation of the cost of agricultural products, the composition of the costs of agricultural firms, the procedure for their control, optimization and audit. A structural model is proposed that represents the methodology of internal control and audit at the macro- and micro-levels of the hierarchical management of an agricultural enterprise. The composition of the information necessary for the implementation of the methodology of intra-company control, accounting and analytical procedures used to evaluate cost items and make management decisions are determined. The features of the audit (external, internal) of production costs are revealed - establishing the validity of the formation and correctness of accounting for production costs, identifying unused reserves. The conceptual scheme of the technique of this type of audit is given.

Did Quantitative Easing Reduce the Borrowing Costs of Firms? The Risk-Taking Channel

Did Quantitative Easing Reduce the Borrowing Costs of Firms? The Risk-Taking Channel

The Impact of Digital Transformation on the Debt Financing Costs of Firms

The digital economy, with digital technology as its core driving force, is subverting the traditional economic and social operating model. In the context of the deep integration of the digital economy and the real economy, digital transformation is the consensus of almost all firms. As the first driving force of the firm’s operations, financing activities will inevitably be affected by the digital transformation of firms. Based on the perspective of financing, this study empirically tests the impact of digital transformation of firms on the cost of debt financing. When measuring variables, this study uses the technology of data mining and text analysis to measure the extent of digital transformation of firms. The research results show that the digital transformation of firms is significantly negatively related to the cost of debt financing. In addition, for firms with different equity nature, there are significant differences in the impact of digital transformation on the cost of debt financing.

A review of corporate governance effectiveness: Developed vs emerging markets

In recent years, a thriving academic debate evaluating the trend of convergence in corporate governance regulations around the world (Samanta, 2020) has taken place. Academics and practitioners question the transplantation of corporate governance regulatory environment, typically from the developed world to emerging countries, without much consideration for local economic and business environment and culture. Based on a review of empirical studies published in high-quality journals from 2001 to 2021, we synthesize evidence related to the effectiveness of corporate governance mechanisms in developed markets compared to emerging markets. We focus on benefits accruing from these mechanisms in reducing agency costs of firms in terms of improved accounting performance, market valuation, and financial reporting quality of firms. We find that only a few governance mechanisms, for example, board diversity, family management, and equity-based compensation for top management are effective in reducing agency conflicts and promoting good governance. Other governance-improving tools seem to vary in terms of the degree of effectiveness in developed and emerging markets. The analysis suggests that cultural, political, economic, and legal features of an economy should be considered carefully by policy makers and regulators while adapting corporate governance regulations from developed economies in emerging markets.