Firm Level Research Articles

Green Financial Policy, Resource Allocation and Corporate Environmental Responsibility

Green finance policy has emerged as a powerful driver for sustainable development worldwide, which has arisen at the top of the political agenda. Drawing on resource allocation theory, this study empirically investigates whether and how green finance policy affects corporate environmental responsibility in achieving sustainable development goals on a micro level. Taking China’s green finance reform and innovation (GFRI) pilot policy as a quasi-natural experiment, this paper employs the difference-in-differences model to investigate the impact of green finance policy on corporate environmental responsibility. The evidence shows that the GFRI policy significantly promotes corporate environmental responsibility. The results hold robust after a series of checks such as parallel trend examination, placebo test, exclusion of other policies, and alternative variable measurement. Moreover, this study explores the potential mechanism channels from the perspective of resource allocation theory. Specifically, green finance policy ultimately accelerates corporate environmental responsibility through financing capacity and environmental protection supervision. The heterogeneity analysis shows that the positive impact of the GFRI policy on corporate environmental responsibility is more pronounced for companies in areas with superior green development, strong law enforcement, and higher levels of pollution. The above findings indicate that the formal institution of government-led green financial policy can positively affect corporate environmental responsibility, with regional green development and law enforcement factors enhancing the effectiveness of these policies. Furthermore, the level of local pollution further intensifies the corporate sensibility to such policy effects. Overall, our study sheds light on the significant role of green financial policy in fostering a sustainable economy, helping reconcile the mixed evidence on the financial function of green finance policy on the firm level.

A useful interpretation of firm level Tobin's q

AbstractIndustrial organization economists and financial analysts often employ firm level Tobin's q, typically interpreted as the firm's market value divided by its book value. The measurements, applications, and interpretations vary considerably enough to warrant the questioning of its usefulness. This paper develops a conceptual framework for Tobin's q and, in doing so, offers some useful interpretations that hopefully clear up some of the past misunderstandings regarding this useful metric.

Multi‐plant firms and the heavy tail of firm size distribution

AbstractThe right tail of the firm size distribution has a heavy tail. The origin of this phenomenon, especially the specific characteristics of firms driving this pattern, remain a subject of extensive debate. Previous work has shown that plant size distribution has thinner tails than firm size distribution, indicating the role of multi‐plant firms. However, we do not know whether this phenomenon is simply a mechanical effect arising from aggregation across multiple plants or whether the plants of multi‐plant firms are different from those of single‐plant firms. Using novel data with plant‐to‐firm mapping, we document that plants of multi‐plant firms are more heavy‐tailed than single‐plant firms, indicating the dominance of the selection effect at the intensive margin. Extensive margin via aggregation of sales at the firm level plays a less crucial role than the selection effect. Importantly, single‐plant exporters have a thinner tail than multi‐plant non‐exporters, suggesting a more dominant role of multi‐plant identity than export identity in explaining heavy tails.

Macro and micro of external finance premium and monetary policy transmission

We establish basic facts about the external finance premium. Tens of millions of individual loan contracts extended to euro area firms allow studying the determinants of the external finance premium at the country, bank, firm, and contract levels of disaggregation. At the country level, the variance in the premium is closely linked to sovereign spreads, which are important in understanding financial amplification mechanisms. However, country level differences only explain half of the total variance. The rest is predominantly attributed to variances at the bank and firm levels, which are influenced by the respective balance sheet characteristics. Studying the response of the external finance premium to monetary policy, we find that balance sheet vulnerabilities of banks and firms strengthen the transmission of policy measures to financing conditions. Moreover, our findings reveal an asymmetrical effect contingent on the sign and type of the policies. Specifically, policy rate hikes and quantitative easing measures exert a more pronounced impact on lending spreads, further magnified through their repercussions on the external finance premium.

Dynamics of a discrete-time mixed oligopoly Cournot-type model with three time delays

This paper analyzes a discrete-time Cournot competition model with time delays taking into consideration the dynamics of market interactions involving one public firm and multiple private firms. The model assumes that the production output of the public firm is influenced by the past output levels of the private firms. The output levels of the private firms are affected by the past production outputs of both the public firm and their private competitors. The study identifies two equilibrium states within the nonlinear system: a positive equilibrium and a boundary equilibrium. Through a stability analysis, it is established that the boundary equilibrium is a saddle point. In the absence of time delays, the stability region for the positive equilibrium is determined. The research explores various specific delay scenarios, finding conditions under which the positive equilibrium is asymptotic stability. Additionally, the occurrence of flip and Neimark–Sacker bifurcations are examined. In order to illustrate the complex dynamics, the paper provides a series of numerical examples.

A stochastic production frontier model for evaluating the performance efficiency of artificial intelligence investment worldwide

As artificial intelligence (AI) begins to take center stage in technological innovations, it is essential to understand the business value of AI innovation efforts and investments. While some early work at the firm level exists, there is a shortage of literature that takes a larger country-level perspective. This study investigated the effect of AI innovation efforts on production efficiency across countries using stochastic production frontier approaches. In addition, our model also included the traditional economic inputs of capital and labor. We used both the Cobb–Douglas function and Constant Elastic Substitution model specifications. The significant findings of this study are as follows: Innovation efforts in AI measured by the number of AI-related patents and capital investment in AI have a substantial effect on economic output. The significance of AI investments indicates the need for a robust digital infrastructure as a prerequisite for harnessing AI capabilities. The complementary relationship between labor and AI-related patents implies that high-skilled labor is often necessary to incorporate AI inputs into production. However, as AI capabilities develop, they weaken the effect on labor input. The study also distinguishes between AI innovation (research and development activities indicated by AI patents) and the production efficiency of AI investments (return on every dollar invested), highlighting that more AI innovation does not always translate into better production efficiency. The findings indicate that while the United States leads innovation in AI, the UK has the best production efficiency. China ranked fourth in AI innovation and has the lowest production efficiency among the countries included in the study.

Exploring the Nordic numbers: an analysis of price clustering in Scandinavian stocks

PurposeThis paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland.Design/methodology/approachThis paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland. Univariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering.FindingsUnivariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering. Results reveal pervasive clustering, strengthening with higher prices and turnover but weakening with larger trade volumes, firm size, and smaller tick sizes. These empirical findings support the theoretical expectations of price negotiation and resolution hypotheses.Practical implicationsThe observed clustering presents an opportunity for investors to potentially capitalize on this market anomaly and achieve supra-normal returns.Originality/valuePrice clustering, the phenomenon where certain price levels are traded more frequently, challenges the efficient market hypothesis and has been extensively studied in financial markets. However, the Scandinavian stock markets, particularly those in the Nasdaq Nordic Exchange, remain unexplored in this context.

Sustainable entrepreneurial behaviours of family members at the intersection of family firm, cooperative and rural community: a multilevel perspective

ABSTRACT Little is still known about the approach and rationale of family members’ entrepreneurial behaviours for sustainability that occur at different interconnected levels. Our study helps to fill this void by examining a multilevel web that links a family firm, a cooperative and a rural community. We rely on an inductive semi-grounded approach guided by conceptual ideas from the sustainable entrepreneurship literature. We conducted 54 in-depth interviews within a Cypriot cooperative composed of small rural family businesses. Our findings reveal that sustainable entrepreneurship revolves around family members acting as sustainable entrepreneurs. Family sustainable entrepreneurs draw on collaborative entrepreneurship for sustainability and spillover sustainable entrepreneurship, which are key mechanisms for generating sustainable value at the family firm, cooperative and community levels. Family members’ affective attachment and sense of responsibility serve as motives behind these mechanisms. Our findings offer a model depicting family members’ motives and mechanisms of sustainable entrepreneurship across family firm, cooperative and rural community. This study extends our understanding on family entrepreneurship and sustainable entrepreneurship, offering practical contributions and opportunities for future research.

SME Failures Under Large Liquidity Shocks: an Application to the Covid-19 Crisis

Abstract We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization, where firms’ borrowing capacity to smooth temporary shocks to liquidity is limited. In this framework, firm exit arises from the interaction between this financial friction and fluctuations in cash flow due to aggregate and sectoral changes in demand conditions, as well as more traditional shocks to productivity. To evaluate the implications of our model, we use firm level data on small and medium sized enterprises (SMEs) in 11 European countries. We confirm that our framework is consistent with official failure rates in 2017–2019, a period characterized by standard business cycle fluctuations. To capture a large liquidity shock, we apply our framework to the COVID-19 crisis. We find that, absent government support, SME failure rates would have increased by 6.01 percentage points, putting 3.1% of employment at risk. Our results also show that in the presence of financial frictions and in the absence of government support, the firms failing due to COVID have similar productivity and growth to firms that survive COVID.

Exploring the innovative effort: duration models and heterogeneity

Perseverance in R&D effort is the first fundamental step towards any kind of innovation. We investigate the beginning of the innovation story, rather than its end, through duration models. Among the drivers of our unconventional IO approach, we focus on heterogeneity, path dependence and market power, measured as elasticity of firm-specific demand. The Schumpeterian hypothesis emerges at the firm level. Heterogeneity at the industry level reveals Schumpeterian and Arrovian patterns, as well as U-shaped and inverted U-shaped patterns. We suggest considering the entire supply chain from a holistic perspective when evaluating mergers and innovation policies that support small firms by reducing their financial uncertainty and improving their institutional environment.

Narrative disclosure and earnings quality: what is the nexus? Evidence from emerging countries

PurposeNarrative disclosures offer further elucidation of a company's financial performance beyond what is presented in numerical format. This can assist stakeholders in gaining a deeper comprehension of the elements that impact reported earnings, thereby improving the quality of financial information. The current research explores the impact of narrative disclosure on the earnings quality of firms listed on the Amman Stock Exchange (ASE).Design/methodology/approachAppropriating an index to measure the narrative disclosure level in the research sample firms, the research utilizes an analysis of the textual content of nonfinancial reports and statements issued by the management of the ASE-listed nonfinancial firms between 2013 and 2022. The financial statements issued in the annual financial reports are also adopted to extract data on earnings quality and the controlling variables. The analysis of the data and attainment of the findings necessitate using the panel data.FindingsIt is indicated that narrative disclosure affects earnings quality. To be precise, the greater the narrative disclosure, the lower the absolute value of the voluntary discretionary accruals and thus the higher the quality of accounting earnings.Research limitations/implicationsThe findings contribute to new research on disclosure issues, particularly narrative disclosure, which enhances reader confidence in financial and nonfinancial reports and prevents misleading and manipulated information.Originality/valueThis research helps decision-makers understand the relationship between reports, statements and earnings quality in a firm. It's unique in exploring this relationship, especially in developing countries. The study is the first of its kind in Jordan, known for its economic stability and strategic location in the Middle East, making its findings applicable to similar environments.

A study of the impact effect of digital transformation on environmental performance ——Based intermediation of financing constraints

This paper selects A-share listed companies in China's Shanghai and Shenzhen cities from 2015 to 2022 as the research sample, and puts forward the corresponding research hypotheses and empirically tests the relationship between digital transformation and environmental performance through the fixed effect model of digital transformation and environmental performance. The results show that corporate digital transformation can improve corporate environmental performance. The driving effect of digital transformation on corporate environmental performance is more prominent in enterprises with non-dual CEO and chairman positions, state-owned and high gearing ratios. Empirical evidence is provided at the firm level for the role of digital transformation in improving environmental performance, which contributes to the synergistic development of digital greening in firms.

Investigating environmental prioritization: role of financial resources and female entrepreneurship in the Mediterranean region

PurposeIn this study, we aim to define a new ecological financial pecking order. We examine how SMEs' adherence to the environment in the Mediterranean region is impacted by their financial resources and how women Entrepreneurship could play a moderating role in this relationship.Design/methodology/approachOur data are pooled cross-sectional firm level data across 14 Mediterranean countries, with a total of 5,949 observations over the period from 2018 to 2020. We look into the moderating influence of SMEs’ female ownership on the financial sources-environmental engagement link using GLS estimations. To reach our aim we focus on seven funding sources and develop a green engagement construct using JCA. Besides, we distinguish between the least and most environmentally engaged companies in the EU and its neighborhood and compare the different interactions and possible moderations.FindingsResults show that government subsidies foster environmental engagement, followed by supplier credits with a less significant positive impact. The bank credits have the least significant beneficial influence, while non-bank financial institutions have a non-significant effect. We underline that environmental engagements are hindered by the other funds, issued bonds and internal funds.Research limitations/implicationsSMEs in the Mediterranean region, particularly the less environmentally conscious, require strong legal frameworks to enforce environmental responsibility and raise awareness. Integrating less environmentally committed EU SMEs into state subsidy strategies is a chance to improve environmental responsibility in the region.Originality/valueTo our knowledge, there are no prior studies that present a detailed financial structure and environmental management investigation for SMEs within the Mediterranean region while considering the moderating effect of women's entrepreneurship.

State Ownership and Green Innovation

Climate change and digital transformation have significant effects on all aspects of society. With the increasing importance of state-owned enterprises (SOEs) that represent governments' stand to respond to environmental challenges, this study investigates how state ownership affects green innovation and how digital transformation factors play a role at both the firm level and the provincial level. Based on the data analysis of Chinese listed firms between 2008 and 2021, we find that state ownership hinders green innovation. However, with a high degree of digital transformation at the firm level and digital innovation capability at the province level, the state ownership and green innovation relationship can be weakened. Overall, this study advances both green innovation and SOE innovation literature by bridging state ownership, green innovation, and digital-related factors. We advocate government and SOE managers to invest more in digital transformation and improve their digital capabilities for better green innovation output.

Does client importance affect key audit matters reporting? New Zealand evidence

PurposeThis study aims to examine the relation between a client’s relative economic importance to its auditor and the number of key audit matters (KAMs) reported in the expanded audit report.Design/methodology/approachThe authors measure a client’s economic importance at the audit firm level as well as the audit partner level using the ratio of a client’s total fees to an auditor’s total fees earned from its listed clients and the ratio of a client’s audit fees to an auditor’s total audit fees from its listed clients. The authors estimate a multivariate regression model using a sample of New Zealand-listed company-years from 2017 to 2019.FindingsResults reveal a positive relation between client importance to auditor and the number of KAMs disclosed. Furthermore, the positive association between client importance and the number of KAMs reported is more pronounced for clients audited by the Big 4 auditors and less experienced audit partners. These findings suggest that auditors’ incentive to protect against potential losses from important client engagements outweighs any impairment to auditor independence and leads to a higher number of KAMs reported for the economically more important clients. Overall, the results suggest that auditors report KAMs strategically to mitigate engagement risks.Originality/valueThis study provides the first evidence on how client economic importance relates to the disclosure in the expanded audit report and contributes to the dialogue on auditors’ reporting of KAMs in the Asia-Pacific region.

Bank capital requirements and risk-taking: Evidence from basel III

We study the effects of both tighter and looser bank capital requirements on bank risk-taking. We exploit credit register data matched with firm and bank level data in conjunction with changes in capital requirements stemming from Basel III, including the introduction of a SME supporting bank capital factor in the European Union. We find that tighter capital requirements reduce the supply of bank credit to firms, while looser capital requirements mitigate the credit supply effects of increasing capital. Importantly, at the loan level (credit supply), banks more affected by capital requirements change less the supply of credit to riskier than to safer firms, and these asymmetric effects occur for both the tightening and the loosening of bank capital requirements. Finally, these effects are also important at the firm-level for total credit availability and for firm survival. Interestingly, our results suggest that those banks most impacted by the tighter Basel III capital requirements prioritize credit among ex-ante riskier firms to avoid their closure, consistent with loan evergreening.

Sharing is caring: Designing incentive rebate strategies for information‐sharing alliances

AbstractInformation security plays a crucial role in organizational governance and management, and information‐sharing alliances (ISAs) have emerged as effective platforms for the secure and controlled sharing of information security knowledge. Despite their potential, many ISAs face financial and operational challenges, including inadequate pricing policies and insufficient incentives for information sharing. This study addresses these challenges by proposing a modeling framework for the fee rebate strategies that ISAs can deploy to motivate effective information sharing. Taking into account the economic implications of both information sharing and information security technology investment, we propose two ISA‐based pricing rebate strategies for information sharing: the split‐return rebate strategy and the swap‐return rebate strategy. Analytical and numerical analyses are conducted to demonstrate the dynamics in different ISA settings under these pricing rebate strategies. The results suggest that in addition to firm size, the price for participating in sharing should be adjusted based on each participating firm's technology investment level, its information‐sharing level, and the marginal cost of information sharing. Also, by focusing on various information‐sharing environments, the study identifies specific conditions under which unfair sharing practices are likely to occur.

Corporate financialization and litigation risk

This study empirically analyses the impact of corporate financialization on litigation risk and finds that there is a U-shaped relationship between corporate financialization and litigation risk, whereby an increase in the level of financialization reduces litigation risk before a firm's level of financialization reaches the optimal level, and an increase in the level of financialization exacerbates litigation risk after a firm's level of financialization exceeds the optimal level.

The effect of firm‐level economic policy uncertainty on labor share: Empirical evidence from China

AbstractIn the 21st century, various unexpected events such as the financial crisis and COVID‐19 have exacerbated the uncertainty of economic policies, whose influence, especially those at the firm level, on the labor share remains to be studied. This article constructs the firm‐level economic policy uncertainty (FEPU) through text analysis and empirically analyzes its impact on labor share. Empirical evidence suggests that FEPU can significantly decrease labor share, particularly among firms with financing constraints, low productivity, and high market shares. And the results hold up after a series of robustness tests. Moreover, mechanism analysis indicates that precautionary saving motives play a crucial role in driving firms’ reduction in labor share rather than capital substitution motives. Finally, we further find that although FEPU harms the labor share, it significantly reduces executive payment and has no significant effect on the payment of ordinary employees, thus reducing within‐firm inequality. This study enhances our comprehension of how economic policy uncertainty at the firm level affects firm behavior and provides theoretical and practical guidance for increasing labor share and employee welfare.

Reshoring manufacturing: the influence of industry 4.0, Covid-19, and made-in effects

AbstractEmpirical investigations of how the reshoring of manufacturing is affected by Industry 4.0 technologies, supply chain disruptions, and made-in effects are rare in the extant academic literature. This paper contains an empirical analysis of how these variables affect reshoring and reshoring intentions. Results from a 2022 questionnaire survey including 152 offshoring manufacturing firms show that reshoring and reshoring intentions are associated positively with investments in automation in manufacturing, and with employee made-in. Results also showed that while Covid-19 associated disruptions increased firms’ reshoring intentions equally across firm sizes, smaller and larger firms reacted quite differently towards more well-known disruption types: larger firms decreasing reshoring intentions with higher levels of uncertainty and smaller firms increasing reshoring intentions with higher levels of uncertainty. These results point to the importance of creating consciousness about the dynamics of production localization and how firm-level and situation-specific contingencies may interfere with Industry 4.0 technology-, supply chain disruption-, and made-in effects on strategic reshoring decisions.