Firm-specific Characteristics Research Articles

Corporate Governance Mechanism for Carbon Emission Disclosure: Evidence from State-Owned Enterprises in Indonesia

Purpose: The purpose of this study is to explore how governance-related determinants affect carbon emission disclosure; if yes, whether government ownership, board diversity, and firm size mediates the relation between these determinants and carbon emission disclosure. We test ownership structure and firm-specific characteristics (board diversity, audit reputation, firm size, audit quality, leverage, and return on asset) towards carbon emission disclosure. Design/methodology/approach: Panel data analysis is used on a final sample of 120 firm-year observations of state-owned enterprises, having published sustainability reports with CED within the last 10 years (2012 - 2021). The direct and mediating effects were tested based on two econometric models and Sobel-Goodman test was conducted to check for the robustness. Findings: Results find that government ownership and board diversity can be employed as a corporate governance mechanism to facilitate public, institutional ownership and audit reputation respectively, towards improved accountability and transparency of CED. Smaller firms with lower financial performance tend to be more motivated to participate in CED in order to attract investment. Research limitations/implications: Several implications arise for various stakeholders including policymakers, and regulatory bodies interested in enhancing sustainability disclosure of firms through good CG mechanism, especially for firms with high government ownership. The findings of this research have wide implications in formulating an efficient CG mechanism for developing countries as SOEs are still prevalent. Originality/value: This study proposes the role of government ownership and board diversity as a CG mechanism and contributes to the voluntary literature, in particular, the link between CG determinants and practices underlying CED.

War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict

PurposeThis paper examines the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on the world’s largest defense firms.Design/methodology/approachThe authors examine the world’s 100 largest listed defense firms at and around the beginning of the military conflict between Russia and Ukraine using an event-study methodology.FindingsWe observe a positive and statistically significant stock price reaction at and around the beginning of the military conflict. These results are consistent with the asset-pricing perspective/expected cash flow hypothesis. Consistent with the captured regulator theory, we find superior market returns for the two portfolios with a greater weight of defense sales. Superior market returns are also found for defense firms with higher R&D and capital expenditure intensity. Finally, these reactions are reinforced or mitigated by other firm-specific characteristics such as size, profitability and institutional ownership.Originality/valueThe effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature.

The effect of 2020 lockdown on bank internal ratings

We investigate how banks’ internal ratings were affected by the first lockdown shock in Italy (March-June 2020). Using monthly proprietary data from a regional bank between October 2019 and January 2022, and adding credit registry data and balance sheet data of client firms, we estimate the lockdown effect on the change in six different ratings assigned by the bank to client firms in June 2020 and December 2020. We obtain three main results. First, controlling for both supply and demand factors, the lockdown is associated with a decline in four of the six ratings. Second, the lockdown effect also depends on specific firm characteristics, i.e. the lockdown effect appears to be mitigated in the presence of high turnover or for firms belonging to essential sectors. However, these interaction effects do not hold for all ratings, suggesting that each type of rating is influenced by different firm characteristics. Third, once we consider a full interaction model, the lockdown effect disappears in the medium term.

Modeling Job Creation to Aid the Attainment of SDGs: Firm Level Evidence from Nigeria

Employment is one of the most important social and economic issues in every country across the globe. Job creation however requires the combined effort of both government and private sector particularly considering that the private sector is recognized to have the leverage to provide jobs so long as a conducive investment environment is provided by the government. This study models the determinants of employment in the private sector to ascertain their ability to willingly contribute their quota towards the realization of SDGs 3, 8, and 10 through job creation and in the spirit of owners’ resources, firms’ specific characteristics, returns to owners, and tax and social cost burden. The study augmented the profit maximization framework of firms as contained in Jehle and Reny (2011) and applied a generalized least square technique on a panel data set of 13 banks quoted on the Nigerian Stock Exchange, over 17 years period. The study confirms that the level of employment is largely determined by resources available to firms, firm-specific characteristics as well as the level of profitability. The results also indicate that tax serves as a disincentive to job creation. Consequently, to encourage firms to create more jobs to aid the realization of SDGs in Nigeria, the study recommends amongst others, the establishment of the Private Sector Equity Development Fund (PSEDF), the entrenchment of a conducive environment to enhance the inflow of foreign direct investment, as well as tax incentives and other policies that enhance the long-term survival of firms in Nigeria.

The impact of intangible assets on market valuation: evidence from EURO STOXX 50 companies

The impact of a company's intangible assets on its market value has been a topic of great interest. Many studies have focused on various factors, such as industry, size, age, indebtedness, and profitability of companies, which influence decisions regarding the disclosure of information about intangible assets. This study examines the role of intangible assets in the valuation of a company's market value and takes into account other firm-specific characteristics. Our analysis was conducted on a sample of 50 publicly traded companies that are part of the EURO STOXX 50 index and come from eight countries in the eurozone: Belgium, Finland, France, the Netherlands, Ireland, Germany, Spain, and Italy. The study covered a five-year period from 2018 to 2022.The results of our study indicate that intangible assets have a significant impact on a company's market value. In conclusion, our study highlights the growing importance of intangible assets in today's economy and their significant influence on a company's market value. Investors can benefit from a deeper understanding of these factors, aiding them in investment decisions. For companies, the strategic management of intellectual assets is essential for long-term success. As the importance of intangible assets continues to rise, further research in this area is necessary to gain deeper insights into their impact on the business world.

Gender of the Firm Owner and Export Determinants of the Firms in India: an Empirical Analysis

"This study aims to analyse the factors that influence the export decision of firms in India. These factors are unorthodox to the macroeconomic variables, for example, specific firm characteristics and resource stock variables that an enterprise in India may or may not have command over. The most significant of the firm characteristic variables is the gender of the firm owner. Given the binary identity of the explained variable (Export Status of a Firm), the paper uses Binary Logistic Regression. It reports the odds ratio for the individual variable interpretation. The study has also examined descriptive findings and model fit using the Hosmer. The study ceases a statistically significant relationship between the gender of the firm owner and the export decision of a firm. The odds of the firm being an exporter increases when the firm owner is a female. Further, the study also interprets several firm characteristics and resource stock variables that had an impact on the export decision of a firm in India."

Capital Structure Determinants of Listed Private and State Companies

Purpose. The purpose of this paper is to determine and analyze the determinants of the capital structure of joint-stock companies in Bosnia and Herzegovina that are listed on the Banja Luka Stock Exchange. This study will answer the question as to which factors determine the capital structure of BiH companies and whether existing financial theories of the capital structure hold true in that context. The main research objective is to estimate the effects of a firm’s level determinants on its capital structure measures in different ownership structures. Those findings will certainly advance our understanding of listed companies financing behavior. Methodology. For the research, we took into account firm-specific characteristics and divided joint-stock companies into private and state-owned. The results of the research show that the capital structure of these two groups of enterprises is differently affected by individual determinants. Findings and implications. While state-owned enterprises rely more on borrowed resources to finance both short-term and long-term assets, private enterprises even finance part of their short-term assets with their own capital. However, the most important determinant in both groups of enterprises is the share of inventories in short-term assets, which confirms that short-term liabilities, i.e. free sources of financing in the form of liabilities to suppliers are the determinant that most positively affect the indebtedness of all enterprises. Unlike previous research that observed enterprises according to their size or affiliation to individual industries, the focus of our research is enterprises of different ownership structures. The empirical statistical results provide basis for logical conclusion and appropriate policy implications. The study points to the specifics of the capital structure in private and publicly listed joint-stock companies. The stated opposite influence of certain ratios on the indebtedness of the enterprises is explained by a number of factors. Limitations. This study focuses only on the presentation of the recent indicators of capital structure of listed companies - listed on the Banja Luka Stock Exchange, which is one of its major limitations. The limitation of this search is the sample size which can be considered low. Further research may be conducted by using other capital markets to explore more information regarding the effect of the variables affecting the capital structure. In addition, further research may also be conducted by using other proxies or by adding more variables, sample size, and research period to get a better result. Originality. The study is an original research paper. It has not been published in any other peer-reviewed journal not under consideration for publication by any other journal. The paper adds to the existing literature on Bosnia and Hezegovina by giving an overview of recent developments in the flexi purity concept, pointing out the areas that require policy response.

Does the credibility of open market share repurchase matter?

Previous studies indicate that stock prices react positively to announcements of open market share repurchases (OMR). However, global evidence indicates that some firms announce OMR programs without repurchasing shares. Kracher and Johnson (1997) define such firms as guilty of poor credibility firms. This study investigates whether credibility measurements are associated with market responses using a sample of OMR announcements from 2001 to 2021. Benefitting from the complete information disclosure in Taiwan, an accurate completion rate and cost location variables are adopted to measure a firm's credibility. The results show that the proxy of credibility, i.e., the product of the completion rate and the cost location, positively affect market responses. In addition, a probit model is utilized to predict which firm-specific characteristics lead to high credibility. The findings reveal that firms with low market-to-book ratios, low return volatility, high insider ownership, good firm performance, low dividend yield, and are classified as electronics industry have a high probability of conveying credible signals to investors. Overall, the paper supports the existence of credibility effect and suggests that firms should value their credibility.

An Empirical Study on the Dynamic Impact of Monetary and Fiscal Policies on the Herding Behavior among Manufacturing Companies

This paper investigates the dynamic interplay between monetary and fiscal policies and their influence on herding behavior among manufacturing companies in China. Herding behavior, characterized by the tendency of firms to mimic the actions of others rather than making independent decisions, can significantly affect market stability and efficiency. The study employs a comprehensive dataset spanning a period that encompasses various monetary and fiscal policy interventions, alongside fluctuations in market conditions. Using advanced econometric techniques, including Vector Autoregression (VAR) models and Granger causality tests, we analyze the short-term and long-term effects of monetary and fiscal policies on herding behavior within the manufacturing sector. The study also examines the moderating role of firm-specific characteristics such as size, industry, and financial health on the relationship between policies and herding behavior. Preliminary findings suggest a complex and dynamic relationship between policy interventions and herding behavior. Monetary policy tools, such as interest rate adjustments and open market operations, exhibit significant short-term effects on herding behavior, influencing firms' decisions to follow prevailing market trends. Similarly, fiscal policy measures, including tax incentives and government spending, demonstrate varying degrees of impact on herding behavior, contingent upon the economic context and firms' financial positions. Furthermore, the study explores the transmission channels through which monetary and fiscal policies influence herding behavior, including their effects on market liquidity, risk perceptions, and investor sentiment. Understanding these mechanisms is crucial for policymakers and market participants to anticipate and mitigate the adverse effects of herd behavior on market stability and efficiency. In conclusion, this empirical study contributes to the existing literature by providing insights into the dynamic relationship between monetary and fiscal policies and herding behavior among manufacturing companies in China. The findings have important implications for policymakers aiming to design effective policy interventions to foster a more resilient and stable market environment, ultimately promoting sustainable economic growth and development.

Unveiling the Art and Science of Investment and Financing Decision Making

Purpose: This study explores the intricate dynamics of investment and financing decision-making, emphasizing the integration of qualitative judgment and quantitative analysis. The research investigates the foundational theories, empirical findings, and practical implications that shape these decisions, highlighting their significance in financial management and economic activities. Research Design and Methodology: The research employs a comprehensive literature review methodology, systematically analyzing existing scholarly works to identify themes, patterns, and relationships within the literature. This approach involves identifying relevant sources through extensive search strategies, critically evaluating the quality and relevance of the selected literature and synthesizing key findings and theoretical insights. Findings and Discussion: The study reveals that a complex interplay of theoretical frameworks and empirical evidence drives investment and financing decisions. The Modigliani-Miller theorem and the efficient market hypothesis provide foundational insights, while behavioral finance highlights cognitive biases that influence decision-making. Empirical findings emphasize the role of firm-specific characteristics and market conditions in shaping capital structure choices and investment behavior. Practical considerations, including managerial overconfidence and asymmetric information, further complicate these decisions. Implications: The insights from this research are valuable for practitioners, policymakers, and researchers. Understanding the multifaceted nature of investment and financing decisions can enhance financial management practices, inform regulatory frameworks, and guide future research directions. Integrating theoretical insights with empirical evidence and practical considerations enables stakeholders to navigate the complexities of financial markets, fostering informed decision-making and promoting sustainable economic growth.

Beneath the surface: The asymmetric effects of unconventional monetary policy on corporate investment

This paper explores the asymmetric effects of unconventional monetary policy on corporate investment in the aftermath of the Great Recession. Using a comprehensive dataset of US listed firms, our research unveils a compelling insight: firms with higher investment irreversibility and market power are less responsive to fluctuations in corporate bond yields following an unconventional monetary policy announcement. These results emphasize the critical importance of taking into consideration firm-specific characteristics when formulating monetary policy, providing valuable insights for central banks aiming to enhance the effectiveness of their policies.

Sustainable investment conditions and firm performance in the Middle East and North Africa: a holistic approach

ABSTRACT We analyze the effect of sustainable investment conditions on firm performance in the Middle East and North African countries. We measure sustainable investment conditions by the extent of market preparedness for sustainable investment and the percent of total assets under management qualifying for sustainable investment with and without Shariah-compliance characteristics. We use both accounting and market-based performance measures to capture alternative influences due to sustainable investment conditions. We control for firm-specific characteristics and country-level sustainability-related, economic, and institutional factors. We find that higher market preparedness is positively associated with all performance measures, whilst sustainable investment volumes are negatively associated with accounting measures of firm performance but positively associated with market performance. The effects remain broadly robust to various sensitivity tests and endogeneity analyses. Country-level institutions moderate the sustainability conditions effect. Our dominance analysis identifies the factors that are key in improving firm performance, providing clear directions for effective policy intervention.

The effects of polluting behaviour, dirty energy and electricity consumption on firm performance: Evidence from the recent crises

We examine the effects of polluting behaviour, dirty energy, and electricity consumption on firms' profitability during the recent crises (climate change, 2016 oil crisis and COVID-19) using a dataset of around 40,000 Vietnamese firms from 2011 to 2020. More specifically, we study how firm-specific characteristics affect energy consumption, polluting behaviour, and profitability. Our results show that (1) dirty energy consumption has a positive impact on firm performance; (2) larger firms and firms located in industrial zones tend to exploit dirty energy more than others; (3) state-owned firms manage resources better than privately owned firms; and (4) polluting firms are more profitable. After controlling for the Paris Climate Agreement, we find smaller polluting firms are affected more intensely than other firms. We also find that electricity consumption negatively impacts firm profitability, but the impact was alleviated during the oil and COVID-19 crises. Finally, our results indicate that recent crises negatively affected firms' profitability in the electric power generation, transmission, and distribution sectors. The findings of this paper suggest that more stringent policies are required around dirty energy consumption, and these policies must target larger organisations—particularly in industrial zones.

Corporate sector cash holding – optimal levels, macro context, or external shocks?

Abstract The objective of this paper is to validate the existence of an extensively documented secular upward trend in corporate cash holding. To do this, we use the new data for Poland and review original datasets from Bates et al. [2009] for the U.S. We find no trace of a trend for Poland and believe most trends for the U.S. come from the cash piling toward the end of the sample period. At best, the U.S. trend applies merely to small firms. We believe cash holding is a period-dependent time-varying variable which also depends on external shocks (e.g., the pandemic or tax regulations). We show that simple addition of macro data (GDP in our case) vastly improves models focused only on optimal cash holding and firm-specific characteristics. We call for a new three-stage approach to study corporate cash, in which micro considerations are complemented by macro data and external liquidity shock analysis.

Do emissions reduction initiatives improve financial performance? Empirical analysis of moderating factors

PurposeThis study aims to examine the relationship between carbon reduction initiatives and financial performance. Additionally, it explores potential moderating variables, such as corporate social responsible (CSR) strategy and corporate governance practices, that may strengthen the link between carbon reduction initiatives and financial performance.Design/methodology/approachThe empirical analysis is conducted using 1,740 firm-year observations from UK firms listed on the FTSE 350. Data on carbon emissions and firm-specific characteristics are obtained from the Refinitiv Eikon database for the period 2011–2020. Various econometric techniques, including ordinary least squares and system generalized method of moments, are used to examine the relationship between carbon reduction initiatives and financial performance. Additionally, alternative samples are used to further explore this relationship.FindingsThe author observes a significantly positive association between carbon reduction initiatives and financial performance in this study. Additionally, the significance of this relationship is found to be present specifically after the announcement of the Paris Agreement. Furthermore, a channel analysis reveals that moderating factors like CSR strategy and corporate governance quality influence this relationship.Practical implicationsThe study underscores the importance of carbon reduction initiatives for sustainable business growth and financial performance. Managers can use these insights to prioritize investments in sustainable practices. Policymakers should consider implementing supportive regulations to incentivize companies to adopt carbon reduction strategies.Originality/valueThis study adds value to the existing body of literature by empirically examining the moderating role of CSR strategy and best corporate governance practices in the relationship between carbon reduction initiatives and financial performance. The findings contribute to a deeper understanding of how these factors interact and influence the outcomes.

The Matthew effect: Evidence on firms’ digitalization distributional effects

This paper explores the relationship between Information and Communication Technologies (ICT) diffusion and labor productivity at the firm level. We propose a model that explains labor productivity based on firm-specific characteristics (sector, size, location and year fixed effects), on the level of diffusion of digital technologies, and on human capital. We use quantile regression techniques to gain a more precise understanding of the association between ICT's diffusion and labor productivity for a heterogeneous firm landscape. Our results show that more productive firms are able to extract higher gains from digitalization than low productive ones, which exacerbates productivity differences between them. This requires from a tailor-made policy agenda to promote firm convergence, focused on helping firms to extract the most of digitalization.

Mayday! Mayday! The airlines stock returns are failing. Analysis of the impact of Russia–Ukraine war

PurposeThis paper investigates the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on a set of airline stocks listed.Design/methodology/approachThis study uses an event study methodology, cross-section analyses and interaction effects to study the effect of the war on airline stock prices and firm-specific characteristics that explain the cumulative abnormal return.FindingsThe authors observe a negative and statistically significant stock price reaction at and around the beginning of the military conflict between Russia and Ukraine, for 74 listed airlines. These results are consistent with investment portfolio rebalancing and asset pricing perspective. Moreover, this study's results show a higher negative stock market reaction for airlines based in Europe. Empirical evidence suggests the existence of a “proximity penalty” for European companies. Finally, this study's results provide insights into which airline-specific characteristics emerge as value drivers. Larger, well-capitalized (high liquidity and low debt) and profitable airlines firms with less institutional ownership have superior stock market returns and show more able to handle with the losses resulting from the war.Originality/valueThis paper fills a gap in the literature about the impact of the Russia–Ukraine war on the airline industry.

The influence of internal factors on micro and small enterprises performance: evidence from Tanzanian agri-food processors

Abstract Building upon resource-based view (RBV) theory, this cross-sectional study employed binary logistic regression to examine the influence of firm-level factors on the performance of 435 Tanzanian micro and small agri-food processing firms. The results of the study show that intangible resources, age (enterprise, manager), and management practices (target setting, working capital management, and performance monitoring) have a significant influence on firm performance. Firm size, tangible resources, and managers’ education level were not significant predictors of firm performance. The findings confirmed the RBV argument that intangible resources contribute more to the variation in firm performance compared to tangible resources. This study adds to the limited research on the combined effect of firm-specific characteristics, firm resources, managerial characteristics, and selected management practices on the performance of micro and small firms in emerging economies. The findings will help managers to identify success factors that are significant for better performance and will support policymakers to design strategies that can effectively contribute to the development of micro and small enterprises in the agri-food subsector.

Resilience of the hospitality industry during crises: A comparison between the 2008 financial crisis and COVID-19

Crises play a significant role in the business world by causing unexpected and negative impacts, and the hospitality industry is known to be volatile and highly sensitive to external forces, such as crises. Due to the on-going global crisis of the COVID-19, impacts of the pandemic on businesses in both general and hospitality contexts have been extensively examined. Especially, how firm-specific characteristics help a firm survive a crisis with better resilience has been closely explored based on the resource-based view, but this investigation has not been fully extended to a comparison between major crises. Therefore, this study is conducted to compare two major crises, the 2008 financial crisis and the COVID-19 pandemic, on how seven firmspecific financial characteristics (firm size, leverage, dividend payout, retained earnings, capital intensity, cash holdings, and previous return on assets) and two business strategies (franchising and internationalization) provide better resilience for the hospitality industry.

Firm-level political risk and intellectual capital investment: Does managerial ability matter?

This paper examines the impacts of firm-level political risks on intellectual capital investment decisions and how managerial ability adjusts this relationship. Using a broad sample of U.S firms from 2002 to 2021, our results show that firms with higher political risks reduce their investment in intellectual capital. This impact is more prominent for high-tech firms and firms with high financial distress, external financial dependence, and lower institutional ownership. Further, we find supportive evidence that managerial ability can prevent a substantial dimension (around 20%–40%) of the destructive impact of political risk on intellectual capital investment, which is also driven by firm-specific characteristics. These findings hold after a battery of robustness tests.