Firms In Countries Research Articles

Do US cross-listings, IFRS adoption and domestic investor protection impact earnings management?

PurposeThis paper investigates the impact of International Financial Reporting Standards (IFRS) adoption and domestic investor protection on the relationship between United States (US) cross-listing and earnings management.Design/methodology/approachThe paper applies ordinary least squares (OLS) regression analyses to a matched sample of cross-listed and non-cross-listed firms from 2000 to 2018, covering 38 countries.FindingsWe find that US cross-listed firms have lower real earnings management. The results also show that real earnings management is lower for US cross-listed firms that adopt IFRS and from high domestic investor protection countries. Our results further show that real earnings management is higher when cross-listed firms use Level 1 American Depository Receipts (ADRs) to cross-list but adopting IFRS and high domestic investor protection help reduce real earnings management. Using the SEC’s Rule 12h-6 as a quasi-natural experiment, we document that post-12h-6 Rule, firms in high domestic investor protection countries experience a reduction in both accruals and real earnings management. However, the result is the opposite in countries with low investor protection.Originality/valueOur findings have implications for regulators and policymakers on the impact of ADR levels and Rule 12h-6 on earnings management.

The impact of energy diversification on firm performance: The moderating role of corporate social responsibility

This paper examines the impact of diverse consumption of energy sources on firm performance, focusing on the moderating role of corporate social responsibility (CSR). The paper uses 45,579 firm-level panel data samples across 56 developing and developed economies from 2002 to 2021. It is observed that the impact of energy diversification in improving firms' performance (measured by the return on assets, return on equity, sales growth, and Tobin's Q) is more potent in firms with higher CSR engagement. The moderating effect of CSR is also more pronounced among firms in high energy-consuming industries than in low energy-consuming ones. Finally, the moderating role of CSR activities is more substantial for firms in countries with individualistic and long-term-oriented cultures.

INVESTMENT POLICY, GEOPOLITICAL RISK AND THE ROLE OF INSTITUTIONS: INTERNATIONAL EVIDENCE

In today’s world, given the increasing importance of geopolitical risk (GPR), this study investigates the impact of GPR on corporate investment, or capital expenditure, of nonfinancial firms considering institutional settings. Utilising data on 337,399 firm-years from 42 countries for the period 1996-2021 (retrieved from Datastream), empirical findings show that firms in higher GPR countries present fewer investment opportunities. Namely, firms use capital expenditures as a substitute for GPR. Next, the negative impact of governance on capital expenditures across the whole sample remains for the firms in civil law countries. However, it reverts to positive for those in common law countries. In other words, capital expenditures are a substitute for (outcome of) governance in civil (common) law countries.Overall, investors should be concerned about the level of GPR, governance, and legal system when determining where to invest. Policymakers should consider GPR and institutional quality to attract foreign investors.

Why do some African firms export? The role of regional economic communities?

AbstractThis article examines whether African manufacturing firms are strategically located for regional market access. The study uses a large dataset from the World Bank Enterprise Surveys and is based on 6800 firms from 26 African countries. The study findings show that firms located in countries with dual membership to Regional Economic Communities (RECs) exhibit a significantly higher propensity to export than firms in countries affiliated with a single REC. Additionally, our findings suggest that RECs enhance export participation by mitigating customs delays. However, constraints in the business environment can hinder the propensity of firms to export. In particular, the study identifies informal competition and power outages as substantial barriers that increase the cost of doing business and diminish the potential benefits of REC membership. These results underscore the importance of advancing economic integration across Africa to bolster export participation. Additional improvements in the domestic business environments should address the constraints that hinder firms' international competitiveness.

The effects of takeover laws on corporate financing policies: global evidence

Using a cutting-edge estimation method to address heterogenous treatment effects arising from differential treatment timing, we examine the effect of international takeover laws on corporate financing. We find that firms reduce their equity financing in response to takeover laws. Further analyses indicate that takeover laws’ negative effect on equity financing is more pronounced for firms with higher financial constraints and for firms in countries with strong investor protections.

Business strategies, bureaucratic ties, and firms’ innovation novelty: insights from the World Bank enterprise survey

We draw intuitions from the systemic perspective of innovation to develop and test a conceptual model aimed at examining the various factors capable of influencing the novelty of innovations within firms in Visegrad countries. The empirical results based on the analyses of about 2,132 firms revealed that organisational strategies, external collaborations, engaging in research and development, and the legal status of firms marginally influence innovation novelties. Contrary to our expectations, we found that intellectual property rights and bureaucratic ties do not significantly influence innovation novelties. Business cities are also positively correlated with firms’ innovation novelties whilst legal status is not. The main practical implication of the research is that firm managers in the Visegrad Group aiming to improve and sustain the novelty of innovations should consider strengthening their external collaborations as well as having business strategies that must include innovations as well as research and development (R&D). We discuss some implications for theory and policy.

A Comparative Study on the Determinant Factors of Social Responsibility Performance in Individual Firms of Main Countries

ABSTRACT This paper analyses the relationship between ESG performance and its determinants from the data of 658 U.S. firms, 353 Japanese firms, 78 Chinese firms and 68 Korean firms, over the 2011 to 2021 period. An empirical analysis of this study's results is as follows. The policy factors are significantly positively related to the ESG in the firms that have shown a decrease in their grade and the firms with ESG performance grades that have increased. More specifically, firms also show a significant strong positive relationship between the specific fields within the ESG pillars and the policy dimension.

Using machine learning to identify and measure the family influence on companies

Many studies have focused on family firms. Yet, grasping the nature of these organizations remains challenging because firms’ familiness can take many forms, which are hard to trace with traditional data. We use ChatGPT – an application of machine learning – to try to unravel the complex and intangible influence of families on firms in large datasets. Whereas it often classifies family firms consistently with equity criteria, ChatGPT appears able to gauge families’ legacy and values. Hence, it detects more family firms in countries where families have a strong influence on firms even without large equity stakes. Also, ChatGPT often treats lone-founder firms as non-family firms, whereas it assigns a higher family score to firms that are eponymous, heir-led, and with multiple family directors. Finally, classifying family firms using ChatGPT provides financially relevant information to investors.

Impact of the environmental ESG pillar on firm sustainability: Empirical research in the V4 countries

The research aimed to define the impact of the environmental pillar of ESG principles on the sustainability of firms in the V4 region and quantify the impact of certain factors on the perception of firms’ sustainability. To this end, a questionnaire survey on the attitudes of managers and business owners was conducted in February 2024 in the Czech Republic, Slovakia, Poland and Hungary. Data were collected using the Computer Assisted Web Interviewing (CAWI) research method. The distribution of respondents by country was as follows: there were 338 respondents from the Czech Republic, 349 from Poland, 312 from Slovakia and 321 from Hungary. Correlation analysis and linear regression analysis were used to test the scientific hypotheses. The results suggest that firms that focus on the environmental education of employees, use green practices, provide truthful information about environmental impacts, and spend adequate costs on environmental protection are more likely to achieve sustainable growth. On the other hand, there appears to be no affect on corporate sustainability from policies pertaining to managing the company in accordance with specific regulations, minimising the environmental impacts of business activities, intensively addressing the energy efficiency of company buildings, and using renewable energy sources. In conclusion, firms in the V4 countries focus on that aspects of Pillar E that affect sustainable growth but do not significantly increase costs or increase the overall complexity of processes.

Secrecy culture and sensitivity of investment to stock prices: Evidence from emerging markets

This paper investigates the effect of secrecy culture on the relationship between corporate investments and stock prices. We argue that managers from secretive cultures are more likely to rely on stock prices as an additional source of information, thereby leading to greater sensitivity of their investments to stock prices. Consistent with our arguments, we show that firms headquartered in countries with higher levels of secrecy culture exhibit stronger sensitivity of corporate investments to stock prices. Our results hold across various estimation strategies, in different sub-samples and for alternative proxies of secrecy culture and corporate investments. Furthermore, we show that investments exhibit greater sensitivity to stock prices of peer firms in countries that score high on secrecy.

Does democracy shape international merger activity?

Democracy matters for international merger activity. Using a sample of 101,834 cross-border deals announced between 1985 and 2018, we show that merger flows predominantly involve acquirers from more democratic countries than their targets. This result is primarily driven by a “pull” factor: firms in countries with weaker democratic institutions attract more cross-border deals. We find evidence of bonding as the key mechanism behind this effect. The democracy effect is stronger when target countries have weaker corporate governance standards. Furthermore, target abnormal returns around deal announcements increase with the difference in democracy between acquirer and target countries. Importantly, differences in investor protection or economic development do not directly explain the democracy effect. Combined, our findings imply that democracy is a fundamental, yet previously overlooked, determinant of cross-border mergers.

Does aid for trade promote FDI from enterprises of donors to recipient countries? Based on the spatial spillover effect of China's Aid for Trade

AbstractThis paper investigates the direct and spatial spillover effects of China's Aid for Trade (AfT) on Chinese enterprises' foreign direct investment (FDI) in recipient countries. The results show that China's AfT can effectively promote FDI by Chinese firms in recipient countries, and the promotion effect is determined by both the direct effect and the spatial spillover effect. The mechanism test finds that China's AfT can promote FDI by Chinese firms through improving the infrastructure of the recipient countries and enhancing the image of the residents of the recipient countries toward China. The study suggests that the introduction of spatial spillover effects in the study of aid is of great significance in promoting the development of research in the field of aid. This paper enriches the conclusions of aid research in the field of economics on the one hand and broadens the boundaries of aid effectiveness research on the other hand.

The impact of economic uncertainty on corporate ESG performance: Global evidence

This paper examines the impact of economic uncertainty on firms' overall environmental and social governance (ESG) performance in 3448 companies in 40 economies from 2006 to 2022. It is found that the overall ESG performance of corporations improves with increasing economic uncertainty for both, but more so in developed countries than developing countries. Higher competition further strengthens this relationship indirectly in developed countries but directly weakens it in developing countries. The results are also robust to run different model specifications, samples, and time selections. The findings are consistent with the Stakeholder Theory in developing country firms and a larger group of developed country firms. The results also highlight the substantial influence of economic uncertainty on corporate ESG policies, shedding light on the uncertainty-mitigating aspects of corporate ESG performance.

The mediating role of risk management in the relationship between audit committee effectiveness and firm sustainability performance

Purpose This study aims to investigate the direct relationship between audit committee effectiveness and sustainability performance and the mediating role of risk management in the relationship between audit committee effectiveness and firm sustainability performance. Design/methodology/approach The Hayes Process regression mediation model was used in this study. The data included 2,590 firm-year observations from 518 publicly non-banking and finance companies on the Indonesia Stock Exchange from 2017 to 2021. Findings This study proves the important role of risk management in mediating the effect of audit committee effectiveness on firm sustainability performance. Audit committee effectiveness was found to positively and significantly affect risk management. However, the effect of audit committee effectiveness on firm sustainability performance was statistically insignificant. The robustness checks and additional tests support all the main regression results. Research limitations/implications Sample firms from Indonesia were used as representatives of developing countries. Further research may use more sample firms from multiple countries or provide a comparative study between firms in different countries. Practical implications The authority must enhance the audit committee’s role in risk management quality due to the indirect effect between the audit committee and sustainability disclosure. It should also expand the audit committee’s role to include sustainability disclosure. Social implications This study could increase community awareness of firm sustainability. Where a company is required to provide more eco-products, stakeholders are, therefore, expected to have more equal concerns. Originality/value To the best of the authors’ knowledge, this study is the first to examine risk management as a mediator of the effect of audit committee effectiveness on firm sustainability performance.

Can rising urban house prices actually limit the outward FDI by firms in a home country? A story from China

We investigate the effects of rising urban house prices on manufacturing firms’ decisions on outward foreign direct investment (outward FDI) in a home country. By utilizing the panel data of Chinese industrial enterprises in 2005–2013, our estimates suggest that, for every 210 manufacturing firms or 13 listed companies in China, one firm will forgo outward FDI when house prices double. As a result, there could have been 95 percent more manufacturing firms or 70 percent more listed firms conducting outward FDI if house prices remained unchanged during the study period. To address potential endogeneity issues, we exploit a fixed-effects instrumental variable model, a difference-in-differences strategy, and housing discontinuities at provincial borders among neighboring city/county pairs. To elucidate potential mechanisms, we employ the “Olley and Pakes” covariance to assess resource allocation efficiency and observe its negative correlation with house prices. Furthermore, we delve into the impact of house prices and resource allocation efficiency on TFP, and find that house prices and TFP are negatively correlated, while resource allocation efficiency and TFP are positively correlated. Finally, heterogeneity analyses reveal that rising house prices exert a stronger negative influence on outward FDI entry for firms that are less productive, larger, domestically-owned, more closely linked to the real estate industry, labor-intensive, and in industries with higher levels of outward FDI participation. These results underscore the fact that rising house prices could exacerbate resource misallocation, leading to a decline in enterprise TFP and subsequently reducing their outward FDI.

Membership duration of tourism firms in the United Nations Global Compact Programme

This study examines the membership duration of travel and leisure (tourism) firms in the United Nations Global Compact Sustainability Reporting Programme between 2007 and 2020. Important factors of duration include firm characteristics (such as size and ownership) as well as contextual country-specific elements relating to environmental progress and control of corruption. Data originate from 693 member firms entering the programme at any point during the analysis period. Estimation results, based on the Cox proportional hazard model, show that tourism firms in countries that decouple emissions from economic growth are more likely to endure in the programme. A high level of corruption control in the home country is also associated with a significantly higher probability of membership duration. Larger firms, publicly listed firms and members of local Global Compact networks are also more likely to remain in the programme. Control of corruption is only important for duration outside the OECD; meanwhile, environmental performance at the country level is crucial independent of location. Environmental performance is particularly significant in more recent years, in parallel with an accelerated green transition in many countries.

On the Economics of Cross‐border Reparations Payments: The Case for a Bank of International Reparations

ABSTRACTThis article considers the challenge of ensuring that international reparations payments are effective in benefiting the recipient countries of such reparations. To guarantee that these financial flows provide long‐term benefits to the recipient economies, the article recommends the adoption of a developmental state approach to the use of the funds. It also considers in detail the advantages of establishing a Bank of International Reparations that serves as a trustee for the receipt and distribution of reparations, facilitates coordination of the use of reparations across countries to avoid disadvantageous forms of competition, provides investment banking services to support the use of the reparations to fund a domestically focused ‘sovereign wealth fund’, and provides ‘public option’ commercial banking services to recipient country firms in order to foster the growth of recipient country economies. Finally, the article finds that the most effective means of funding the reparations would be to use Special Drawing Rights (or SDRs).

The Moderating Role of Country Governance in the Link between ESG and Financial Performance: A Study of Listed Companies in 58 Countries

Corporate environmental, social, and governance (ESG) performance is expected to positively affect financial performance because it helps firms gain sociopolitical legitimacy from receiving positive stakeholder awareness and gaining key resources. However, the research on the relationship between corporate ESG performance and financial performance has yielded mixed results. This paper explores the impact of the country governance environment on the ESG–financial performance link. We propose that the positive ESG–financial performance relationship is stronger for firms in countries with better governance. Empirical analyses using a large panel dataset covering 11 years and 58 countries support our arguments. We found that countries with more effective governance in political stability, regulatory quality, and control of corruption strengthen the positive ESG–financial performance relationship. The implications of our findings are significant for firms that face different governance environments and develop sustainable business strategies.

Linking Developing Country Firms’ Relational Capital to Their Export Performance in Global Value Chains: The Moderating Role of Technological Turbulence

Global value chains (GVCs) involve globally dispersed activities among interdependent firms. They provide an avenue for developing country firms to improve their export performance. A dominant view is that they can accomplish this outcome with close or trusted relationships with more established GVC partners. However, other factors determine how much such relational capital translates into superior export performance. Drawing on an interfirm learning perspective, we explain why the export effects of developing country firms’ relational capital with GVC buyers and suppliers could depend on technological turbulence. We hypothesize a positive relationship between these firms’ export performance and their relational capital with GVC buyers and suppliers. But we expect technological turbulence to weaken this relationship. Based on a sample of 95 Bangladeshi firms in the ready-made garment industry, this quantitative analysis reports evidence that partially supports our predictions. Specifically, we find a positive relationship between these firms’ relational capital with GVC buyers and their export performance. In addition, the higher the technological turbulence, the weaker this relationship. Overall, this research adds to the theory and practice of interfirm learning in GVCs from the perspective of developing country firms.

Targeting behavior and capital structure theories: An empirical analysis of gulf cooperation council countries

This study examined the dynamic nature of capital structure decisions and the effectiveness of trade-off, pecking order, and market timing theories in explaining the changes in leverage ratios. A partial adjustment model was used to examine the practice of setting a target (optimal) leverage, estimate firms’ speeds of adjustment in reaching their target leverages, and identify the capital structure theories that best explain the changes in leverage levels of firms in the Gulf Cooperation Council countries. Firms in these countries reach their target leverages at estimated average speeds of adjustment of 59.8 %–72 % annually. These speeds of adjustment are sensitive to country- and firm-specific characteristics. The targeting behavior factor of the trade-off theory better explains the changes in capital structure compared with the pecking order or market timing theories.