Panel Of Firms Research Articles

Tax information and corporate environmental investment

This study investigates the impact of tax information on corporate environmental investment using the staggered implementation of China's Third-Generation Golden Tax Project (CTAIS-3). Employing a difference-in-differences approach on a panel of Chinese public firms from 2007 to 2022, we find that increased tax information transparency significantly reduces corporate environmental investment. The effect is more pronounced in firms with less intense outside monitoring, higher stock synchronicity, greater analyst forecast errors and dispersion, and more opaque financial reporting. Cross-sectional analyses reveal more potent effects in non-state-owned enterprises and non-polluting industries. Our findings remain robust to various econometric specifications and alternative measures. We contribute to the literature on determinants of corporate ESG activities, the impact of tax information, and the mechanisms influencing strategic ESG behaviors.

Does ESG information disclosure increase firm value? The mediation role of financing constraints in China

This study examined the influence of environmental, social, and governance (ESG) information disclosure on firm value and the mediation effect of financing constraints using a panel of Chinese A-listed firms from 2013 to 2020. Based on linear regressions, we found that the relationship between ESG disclosure scores and firm value was significantly positive, and the results remained after robustness checks and endogenous tests. Furthermore, the mediation effect analysis indicates that the relationship is achieved by alleviating financing constraints. The subsample analyses showed that ESG disclosure scores positively affect firm value in non-state-owned, nonheavy polluting, and high-transparency firms. The results of each dimension’s relationship to firm value indicate that environmental and social dimensions significantly affected firm value in the panel data, whereas governance did not. Therefore, this paper determines the influence of ESG information disclosure and firm value in China and reveals the mediation effect of financing constraints, supplementing the influence mechanism of information disclosure and extending the previous studies bsed on the developed stock markets.

Exploring the corruption‐inefficiency nexus using an endogenous stochastic frontier analysis

AbstractSeveral scholars report that, due to reverse causality, the endogeneity problem makes it difficult to identify the real effect of institutional factors at the local level, such as corruption, on firm efficiency. This study employs a panel stochastic frontier analysis that endogenizes production efficiency and robustly assesses the effect of corruption at the local level on firms' technical efficiency. We analyze a large panel of Italian firms operating in the building sector from 2013 to 2019 showing that the determinants of local institutional quality affects firms' performance, with the rule of law and control of corruption playing a preeminent role. Controlling for endogeneity, the magnitude of the effects of institutional quality factors at the local level significantly increase. Our findings are robust to alternative IV strategies, alternative specifications of the production function, and the inclusion of other factors that may affect firm efficiency.

What a difference an OFDI makes. Firm-level evidence from the EU

Using a large panel of European firms covering the years 2007–2015, this study investigates the effects of outward foreign direct investment (OFDI) on performance. Controlling for self-selection through propensity score matching techniques at baseline in a two-way fixed effect difference-in-differences framework, we determine that OFDI firms exhibit higher productivity, value-added, sales, and profit compared with non-OFDI firms. Heterogeneity analysis by destination reveals that the highest performance premia accrue to firms that invested in non-European Union (EU) countries, developed economies and technology-advanced hosts. Heterogeneity analysis by ownership structure shows that OFDI established via joint-venture or wholly owned enterprises have similar, positive performance premia. Furthermore, investing abroad entails no reduction in the parent companies’ number of employees. Finally, we document an increase in research and development expenditure for OFDI firms at both intensive and extensive margins, indicating a potential driver of the observed performance premia.

Competing in Innovation-Intensive Environments: The Role of Soft Power, Learning, and CEO Heuristics

We start by exploring how the interplay of soft power and learning levers helps firms address competitive uncertainty in innovation-intensive environments (IIEs). We then theorize that firms’ motivation to pursue a specific combination of soft power and learning tactics in IIEs is shaped by CEO regulatory focus. The analysis of a panel of IIE firms supports our theorizing and reveals that accounting for CEO regulatory focus is elemental to the understanding of firms’ performance heterogeneity in such environments. We conclude that a perspective focused on a combination of soft power and learning tactics is better fitted to explain firms’ performance in environments plagued by extreme uncertainty compared to traditional theoretical lenses. Our main contribution is to the study of performance in innovation-intensive environments.

Quantifying qualitative survey data with panel data

We develop a novel methodology to quantify forecasts based on qualitative survey data. The methodology is generally applicable when quantitative information is available on the realization of the forecasted variable, for example from firm balance sheets. The method can be applied to a wide range of panel datasets, including qualitative surveys on firm-level forecasts or household expectations. As an application, we employ a panel of Greek manufacturing firms and quantify firms' forecast errors of own sales growth. In this context, we conduct a variety of exercises to demonstrate the methodology's validity and accuracy.

R&D Subsidies in Spain: are they Really Useful?

AbstractThis article is aimed at estimating the impact of R&D subsidies on the demand for researchers, using information provided by a panel of Spanish firms belonging to the industrial and services sectors followed up during the 2004–2016 period. Estimates include corrections for the endogeneity bias generated by wages and by a set of variables measuring R&D public financing, as well as for the sample selection bias coming from the fact that the only wage data available are those from firms that are internal R&D performers and hire researchers. Estimate results show that public R&D financing has a positive and relevant impact on the demand for researchers. This result allows supporting the implementation of policies to promote public research funding in Spain, regardless of the origin of the funds received.

Dissecting performance gains from export-induced marketing and technological investments: Revisiting learning by exporting in Indian manufacturing

The impact of export decisions on firm performance has been extensively studied empirically, yet little attention has been given to the investments resulting from these decisions and their subsequent returns. Moreover, existing research predominantly examines export choices from a technological perspective, with minimal emphasis on the marketing aspects of exporting. Our study offers new insights by examining whether exporting induces firms to invest in marketing and research and development (R&D), and how these investments affect their performance before and after entering export markets. Using a panel of Indian firms from 2002 to 2019, our two-step methodology employs propensity score matching (PSM) to extract export-induced expenditures and production function estimation to assess their impacts on firm performance. The findings reveal that both export-induced marketing and R&D expenditures positively influence firm performance, with marketing investments exhibiting a stronger impact. The combined effect becomes significantly evident post-export entry. We also utilized the instrumental variable (IV) method to validate our findings. Heterogeneous IV analysis highlights that mature firms and those facing financial constraints particularly ramp up these investments post-export entry. Our results hold implications for managers and policymakers, emphasizing the importance of carefully designing export investment policies alongside other export support programs.

Choosing innovation alliance governance structure: The roles of performance feedback and top management team characteristics

Abstract While the importance of innovation alliance for high-technological firms is well-documented, existing literature provides little guidance on the role of performance feedback in an alliance governance structure choice. Drawing on performance feedback theory, this study sheds light on the association between performance deviating (either above or below) from firms’ social aspirations and the governance structure choice of innovation alliances. Using an unbalanced panel of Chinese biopharmaceutical firms spanning from 2007 to 2020, we find that firms experiencing negative performance feedback prefer a non-equity innovation alliance structure, whereas those with positive performance feedback are more likely to adopt an equity one. The strength of these relationships is contingent on top management team average tenure and educational-level diversity. Our findings both provide theoretical and practical insights into guiding how firms under different states of performance feedback select alliance governance structures.

The mediating role of corporate borrowings in the nexus between financial inclusion and performance of ICT firms: new insights from Vietnam

ABSTRACT This paper examines the effect of financial inclusion on firm performance and whether corporate borrowings serve as an effective channel of the impact. In doing so, we use principal component analysis to calculate a financial inclusion index for Vietnam. We then conduct mediation analysis on this index and a large panel of Vietnamese firms in information and communication technology sector from 2008 to 2018. Empirical results indicate a negative influence of financial inclusion on firms’ return on assets. More importantly, corporate borrowings significantly mediate this relationship. In particular, financial inclusion increases corporate borrowings, which then affects return on assets. Although corporate borrowings are positively associated with firm sales, they reduce return on assets and net profit margin of firms. The findings are robust to different estimation methods and inclusion of control variables. They convey important policy implications for governments, academic researchers, and industry practitioners wishing to design programmes and policies to help firms obtain the financial resources necessary for their development.

Price-Cost Margins, Fixed Costs and Excess Profits

Abstract This paper provides a new method to estimate price-cost margins in the presence of fixed costs of production. By exploiting properties of the primal and dual sales-based and cost-based Solow residuals, we are able to simultaneously estimate price-cost margins and the share of fixed costs in total costs for each input. Ignoring fixed costs in production underestimates price-cost margins and overestimates excess profit shares. Using a thirty-year panel of Belgian firms, we estimate price-cost margins, as a fraction of sales, of 25.4% on average, which can be decomposed between fixed costs of 22.9% and excess profits of 2.5%. Belgian price-cost margins have declined (−5.9%) in the past three decades due to a combination of falling fixed costs (−4.0%) and decreasing excess profits (−1.9%), suggesting that output markets have become even more competitive over time. While large firms have higher profit shares than small firms, they have lower fixed cost shares as well as lower price-cost margins.

Banks’ Market Power, Access to Finance, and Leverage

Abstract How does lending-market competitiveness shape new firms’ financing? Using a unique U.S. representative panel of new firms, we document that in more concentrated local lending markets: (a) new firms are less likely to access credit; (b) new firms have lower leverage; and (c) the best-performing firms are more severely affected by reduced debt financing. We develop a contingent-claims model with monopolistically competitive banks that rationalizes these facts and shows how credit-market conditions determine loan fees and concentration. Our findings highlight banks’ market power as a channel through which the financial sector influences firms’ development and, hence, economic growth. (JEL D82, G21, G32, G34, L26)

Direct and moderating effects of public R&D support on external knowledge acquisition: the interaction with performance feedback

ABSTRACT We argue that public R&D support may not only lead firms to increase their technological cooperation breadth, enhancing knowledge acquisition, but also influence how firms frame and approach R&D alliance decisions in response to their innovation performance feedback. From a behavioural perspective it is firms performing above or below innovation aspirations the ones that are more willing to gain access to new sources of external knowledge. We argue that while public funding of a firm’s R&D activities has a positive direct effect on cooperation breadth, it also exerts a negative moderating influence when firms deviate from their innovation aspirations, because managers’ external knowledge acquisition strategies tend to align with the objectives of subsidised projects. Using a panel of technological-intensive Spanish firms, we find support for our hypotheses, showing the importance of incorporating performance feedback as a key factor when analysing the impact of public R&D instruments on firms’ collaborative behaviour.

Allocentrism and numerator-based innovation: Panel data evidence

We explore the existence of a relationship between firms' allocentric approach, measured by their collaboration activities for innovation, and the orientation of their innovation. In particular, we propose a distinction between numerator-driven and denominator-driven innovation and how that relates to collaboration. We discuss the theoretical underpinnings of this relationship and test its existence using survey data from the PITEC, a panel of Spanish firms. We find that cooperation is indeed associated with a greater emphasis on numerator-driven innovation relative to denominator-driven innovation.

Measuring Intangible Capital with Market Prices

Accounting standards prohibit internally created knowledge and organizational capital from being disclosed on firm balance sheets. As a result, balance sheets exhibit downward biases that have become exacerbated by increasing levels of intangible investments. To offset these biases, researchers must estimate the value of these off-balance sheet intangibles by capitalizing prior flows of research and development (R&D) and selling, general, and administrative (SG&A). In doing so, a set of capitalization parameters must be assumed (i.e., the R&D depreciation rate and the fraction of SG&A that represents a long-lived asset). We estimate these parameters using market prices from firm exits and use them to capitalize intangibles for a comprehensive panel of firms from 1978 to 2017. We then use a series of validation tests to examine the performance of our intangible capital stocks versus those developed from commonly used parameters. On average, our estimates of intangible capital are 15% smaller than estimates from status quo parameters while exhibiting larger variation across industry. Intangible capital stocks derived from exit price parameters outperform existing measures when explaining market enterprise values and identifying human capital risk. Adjusting book values with exit-based intangible capital stocks markedly attenuates well-documented biases in market-to-book and return on equity ratios while increasing the precision of the high-minus-low asset pricing factor. We conclude that our capitalization parameters create intangible stocks that perform equal to or better than status quo measures in various applications. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.02058 .

Weather, credit, and economic fluctuations: Evidence from China

We constructed an Extreme Weather Index to measure extreme weather risks in China. Analyzing macroeconomic data through a structural vector auto-regression model suggests that a negative weather shock leads to persistently low GDP and credit obtained by non-financial firms. In our regression analysis of a panel of firms listed in China, the negative effects of weather shocks on firm level loans were statistically and practically significant. Further analysis suggests that credit risk and expectations are two important impact channels. A high existing credit risk or low confidence among firm managers, amplifies the negative effects of extreme weather on loans.

When Do Shareholder Agreements Add Value? Mitigating Superprincipal-Agency Conflicts in Family Firms

Researchers are divided on whether shareholder agreements (SAs) improve or hurt firm value. We offer family firms as a context where SAs add value and explain why; SAs limit “superprincipal” agency conflicts between family owners and other family members. A panel of French firms and a second study of French Initial Public Offerings show shareholders value SAs more in family than in nonfamily firms. Among family firms, SAs add greater value when weak governance undermines family owners’ resistance to other family members’ demands. Our study helps reconcile competing theory about SAs and distinguishes superprincipal conflicts from other family-firm agency problems.

Navigating trade policy uncertainty: Conservatism in cash holding and investment

ABSTRACT Amidst the escalating attention paid to trade policy uncertainty (TPU), we explore its influence on crucial corporate strategic decisions – cash holdings and investment choices. Using an ordinary least squares regression model to analyse a panel of US non-financial firms, we find that firms adopt conservative cash policies as pure cash holdings increase while cash equivalents decrease in response to heightened trade policy uncertainty. Cross-sectionally, we observe that the positive link between TPU and cash holdings is stronger for firms facing higher product market threats and those that are less vertically integrated. Furthermore, a firm’s long-term strategies are also adversely impacted by TPU, reflected in reduced capital investments and employment growth. Additionally, we show that increased trade policy uncertainty is linked to both reduced incentives for risk-taking by CEOs and an increase in doubtful accounts. This shift in both incentives and firm operational risk may explain why firms change their behaviour in response to TPU. Our study has broad implications that firms may consider adopting effective risk management practices and policymakers could establish monitoring mechanisms for timely adjustments.

Minority shareholders and tax avoidance

This paper examines whether and how external country-level corporate governance devices affect corporate tax avoidance. Using a panel of public firms across 33 countries, I show that laws empowering minority shareholders hinder corporate tax avoidance, consistent with shareholder protection laws spilling over to tax avoidance through reduced income diversion. I corroborate the validity of these findings using a major corporate governance reform in Italy. In cross-sectional tests, I further document that firms in countries with stricter transfer pricing rules and stronger tax enforcement reduce tax avoidance to a larger extent. Finally, through path analysis, I provide evidence consistent with firms shifting less income to foreign countries in response to stronger minority shareholder rights. Overall, these findings suggest that minority shareholder protection laws can safeguard outside investors and the government against expropriation by insiders.

At what cost? Environmental regulation and corporate cash holdings

This paper examines the relation between environmental protection laws and corporate cash holdings. Using a panel of public firms across 31 countries, we show that laws protecting the environment reduce cash holdings, consistent with environmental protection regulations weakening firms’ liquidity positions through heightened operating costs and lower profit margins. In cross-sectional analyses, we document that high-market power firms and firms in countries with lenient anti-tax avoidance rules suffer from cash-holding reductions to a lesser extent. Overall, these findings suggest that environmental protection laws map negatively into firms’ cash balances and shed new light on the economic consequences of environmental laws.