Lower Firm Value Research Articles

CEO turnover, ESG‐washing, and firm value

AbstractThis study investigates the effects of chief executive officer (CEO) turnover on myopic investment decisions and firm value. A variable for environment, social, and governance (ESG)‐washing is designed and employed as an alternative proxy for myopic investment. We find that firms with more frequent CEO turnover are more likely to engage in ESG‐washing as a form of myopic investment to meet short‐term performance goals. In addition, firms that engage in ESG‐washing report lower firm value than firms that are not involved in ESG‐washing because the lack of substantive investment accompanying these activities ultimately deteriorates firm reputation and value in return for short‐term improvement in ESG performance.

Donations by Disaster-Afflicted Firms and Changes in Firm Value: Self-Protection and Reputation-Building Perspectives

If a firm afflicted by a disaster chooses to donate to disaster relief, how will this decision affect the firm's market value? From a self-protection perspective, diverting resources to support the public may jeopardize a firm's continuity and thereby reduce its value. Yet from a reputation-building perspective, supporting the public in need may enhance corporate reputation and thus increase firm value. In this study, we contrasted the two perspectives to develop a conceptual framework consisting of various competing hypotheses. We tested these hypotheses using data on Chinese firms’ donations to disaster relief during the first coronavirus disease 2019 outbreak. Our analysis shows that firms’ donations generally led to an increase in firm value. This was especially true for firms that were smaller or less profitable, firms that donated goods in addition to cash, and firms that donated before an increasing number of industry peers had done so. These results support the reputation-building perspective, suggesting that even when firms are afflicted by disaster exposure, their donations are still recognized as a value-adding investment. In contrast, donating a larger amount of cash and donating on an earlier day after the onset of the outbreak resulted in a lower firm value. These results align with the self-protection perspective, pointing to the need to consider resource preservation.

Ionomic Concentration and Metabolomic Profile of Organically and Conventionally Produced ‘Rojo Brillante’ Persimmon

This study evaluates mineral concentrations, biocomponents contents and fruit quality attributes in ‘Rojo Brillante’ persimmon grown under organic and conventional managements. During two seasons, the concentrations of nitrogen (N), phosphorus (P), potassium (K), calcium (Ca), magnesium (Mg), iron (Fe), manganese (Mn), zinc (Zn), and boron (B) were determined in leaves and fruits. Weight, color, firmness, and total soluble solids (TSS) were also evaluated in fruits. Moreover, in the second season, organic acids (citric, succinic, and fumaric acids), main sugars (sucrose, glucose, and fructose), carotenoids (β-carotene, β-cryptoxanthin, violaxanthin, lutein, and zeaxanthin), phenolic compounds (gallic and ρ-coumaric), and ascorbic acid concentrations were determined in fruit flesh. The crop yield in the conventional plots was bigger than that for organic crops. Nevertheless, the highest agronomic efficiency was found in organic management. In general, the greater nutrient supply in the conventional compared to in the organic system did not result in higher concentrations of macro- and microelements in leaves and fruits. The organic fruit had higher color values and lower firmness values than the conventional fruit. The concentrations of malic acid, β-cryptoxanthin, and ascorbic acid were higher in the organic compared to in the conventional fruit, while no crop system effect was found in the other evaluated biocompounds.

Estimating the effect of climate change exposure on firm value using climate policy uncertainty: A text-based approach

Exploiting innovative measures of climate policy uncertainty and firm-specific climate change exposure derived from state-of-the-art textual analysis, we examine the impact of climate policy uncertainty on firm-specific climate change vulnerability and find that a rise in policy uncertainty exacerbates firm-specific exposure significantly. Then, using climate policy uncertainty to generate exogenous variation in firm-specific vulnerability in an instrumental-variable analysis, we show that companies more susceptible to climate change experience significantly lower firm value. In particular, an increase in firm-specific vulnerability by one standard deviation diminishes firm value by 5.4-5.9%. Climate policy uncertainty originates at the national level and is probably exogenous to individual firms’ characteristics. Our results are thus less vulnerable to endogeneity and likely reflect causality, rather than a mere correlation. Finally, the adverse effect of climate risk on firm value is more pronounced for firms with more fixed assets and for those located in the states or cities where the threat of climate change is more acute but is less evident for firms that pay higher dividends.

Firm-Value Effects of Carbon Emissions and Carbon Disclosures: Evidence from Taiwan

SYNOPSISExtant accounting research based on data from the United States, Europe, and Australia finds that increases in carbon emissions are associated with lower firm value. However, recent research indicates that investor perspectives on corporate social responsibility (CSR) in other parts of the world differ from those of Western investors. This study investigates whether increases in carbon emissions, as one indicator of poor CSR performance, are also associated with a lower firm value in Taiwan. Using carbon disclosure data from Taiwanese-listed companies between 2012 and 2016, we find that firm value is positively associated with carbon emissions, which contrasts with the findings of extant research. Likewise, firm value is not associated with a combined measure of financial information and carbon emissions in Taiwan. Our findings suggest that international generalizations of the findings of the extant research on the relationship between carbon emissions and firm value should be undertaken with caution.JEL Classifications: G32; M4; M48; Q56.

Enforcement and disclosure

Absent sufficient enforcement, disclosure regulations are often seen as inconsequential. However, enforcement could have unintended effects on firms' incentives to disclose information voluntarily. We develop a model to analyze the impact of enforcement on firms' mandatory and voluntary disclosure behavior. The model can accommodate different disclosure and enforcement regimes depending on its parameters, ranging from voluntary disclosure under stochastic information endowment to disclosure under an enforcement regime with punitive damages. In the generalized version, low-value firms disclose under a mandatory disclosure rule, medium-value firms do not disclose (some legally, some illegally), and high-value firms disclose voluntarily. Stronger enforcement does indeed increase the number of firms complying with the regulation. However, it also crowds out voluntary disclosure by making separation less attractive, resulting in a decrease in transparency overall. Nevertheless, stronger enforcement does still lead to positive capital market effects, such as lower mispricing. When we endogenize disclosure regulation, i.e., determine the rule according to firms' preferences, there exists a unique standard where no majority prefers a marginal change to the regulation, and that increases in enforcement.

Glass ceiling or glass cliff: an examination of the role of female board members on market performance in Poland

ABSTRACT We examine gender bias related to the effect of women in executive management leadership. Specifically, we examine when women are recruited to executive positions and follow companies’ market performance before and after their appointment. Our study is conceptually situated within the field of queuing theory, suggesting certain patterns of labour market queuing behaviour according to race, gender, and class. We formulate two hypotheses: (1) the presence of female executives is associated with lower firm value; and (2) companies with female-centric executive boards are valued lower by investors than companies with male-centric boards. We test these hypotheses employing panel data, using a unique sample of 159 companies listed on the Warsaw Stock Exchange in the years 2006–2015, with hand-collected data on the number of female directors on executive boards. Our results suggest that market queuing behaviour is evident in the case of Poland. Men are more often hired in executive roles than women, whereas females are more likely to be appointed to executive boards in firms which are performing poorly. Moreover, higher participation of women in executive positions is associated with resulting lower value in the long run. According to our interpretation, isomorphism and gender bias diffuse through the reproduction and valuation of capitalist markets.

CSR committee and firm value during the COVID-19 pandemic

This paper investigates whether the presence of CSR committees has a mitigating effect on firm value (measured by Tobin’s Q) during the COVID-19 pandemic. Analyzing UK listed firm data, we find that although the pandemic results in lower firm value, the presence of CSR committees helps to mitigate the negative impact of COVID-19 on firm value. The results suggest that the formation of CSR committees is not a symbolic impression management tool but an effective sustainability governance mechanism during the crisis. Our results should be helpful for regulators and companies in making decisions related to CSR committees.  

Capital Expenditure, Corporate Hedging and Firms’ Value: Evidence from the Oil and Gas Sector of Pakistan

The purpose of this study was to determine the effect of capital expenditure and corporate hedging on the firm’s value. According to theory, hedging can raise business value by lowering costs and volatility, but it can also lower firm value by optimizing manager's utility. The study employed secondary data and population was collected from seventeen oil and gas companies that were listed on the PSX from 2011 to 2022. Panel data have been examined for fixed effect models (categories of panel model). Software called Eviews was used for analysis. On the dataset, the Levin li chu, Hauseman and Durban Watson were run. The results revealed that the Capex, Profitability, Cash holding and interest rate hedge capex have significant but Forex hedge; forex hedge capex, interst rate capex and leverage have insignificant impact with firm’s value. The results of this study suggest that Pakistan's economy urgently needs to review as may protect existing as well as foreign investors.

Internal alliance and firm risk

This paper studies the impact of internal alliances, measured by the fraction of top non-CEO executives and directors appointed during the current CEO's tenure, on firm risk. We find that firms with more executives or directors hired after the current CEO takes office are associated with higher-risk levels. This positive association is more prominent for rural and financially unconstrained firms, as well as periods outside the financial crisis. While internal coalition does not significantly affect low-risk investment, i.e., capital expenditures, it increases high-risk investment, i.e., research and development investment. Moreover, we find that firms with strong internal alliances are associated with lower firm value. Our results survive various robustness checks. Overall, this paper suggests that internal coalition is an important determinant of firm risk. Considering this aspect of board and management structures will lead to a better understanding of firm risk.

How to monetize data: An economic analysis of data monetization strategies under competition

With data being generated at an unprecedented rate, monetizing data has become a paramount issue in this era of the digital economy. Firms have traditionally leveraged consumer data to improve their product or service offerings and increase their sales revenue, which is indirect data monetization. The recent emergence of online data markets and the data brokerage industry have facilitated direct data monetization, enabling firms to obtain additional revenue by selling their anonymized data directly to data brokers. This study develops a game-theoretic model to investigate the impact of direct data monetization on competition between firms. Our results show that in equilibrium, high-value firms with competitive advantages in product or service value often sell less data than low-value firms, implying that high-value firms rely less on direct data monetization than low-value firms. Surprisingly, as direct data monetization prevails, high-value firms further dominate the market for selling products or services, especially when the data broker's analytics capability is high. This result reveals that data brokers with high analytics capabilities can hinder, rather than facilitate, market competition. Finally, direct data monetization may benefit both consumer surplus and social welfare because it facilitates data-sharing between firms, allowing firms to obtain additional insights to improve their product or service offerings. These findings are explored in-depth, along with different model extensions and their relevant managerial implications.

Legal origins of corporate governance: Choice of law in Egypt, 1887–1914

AbstractThis paper revisits the classic question of legal origins: whether laws originating from common or civil law traditions are more effective in promoting governance rules with stronger shareholder and investor protection. But corporate governance cannot be easily disentangled from other sources that can influence firm outcomes. This paper disentangles these effects by assembling a new dataset of corporations in Egypt between 1887 and 1914. Egypt had an unusual system of incorporation. The main legal system was a close French transplant but entrepreneurs – Europeans and Egyptians alike – had the option of incorporating under any European law. This practice allowed extraordinary legal flexibility in choice of law, governance provisions, and board composition. The new findings show that companies incorporated under British law provided weaker shareholder protection than companies incorporated under French laws, especially in giving weaker voting rights to minority shareholders, preventing oversight over directors' borrowing powers, and limiting director rotation. These rules mattered for firm performance. Corporations with weaker investor protection had higher failure risk, were less profitable, and had lower firm value.

Managerial compensation and firm performance: The moderating role of managerial ownership and other governance factors

AbstractThis study looks at how executive compensation affects firm value and the extent to which this relationship is sensitive to managerial ownership and corporate governance factors. We use data from UK FTSE 100 firms for the period 2007–2012, generating a total of 578 firm‐year observations. Consistent with optimal compensation theory, we find that the managerial compensation –firm value is more sensitive to executives’ ownership levels and other corporate governance indicators. Our results remain robust to alternative econometric models. We contribute to the literature on corporate governance and firm value . While the paper builds on the executive bonus compensation literature, it also furthers our understanding on the extent to which managerial ownership, institutional ownership, board size and non‐executive ownership matter in the executive bonus compensation—corporate value relationship with specific emphasis on UK FTSE 100 firms. Our second contribution is related to the moderating role of managerial (executive) ownership. We show that as executives residual interests go up, managers become more conscious of the firm's idiosyncratic risk, and hence lessen their aggressive investment and financing strategies culminating in lower firm value.

Shortening replacement by emulsion and foam template hydroxypropyl methylcellulose (HPMC)-based oleogels in puff pastry dough. Rheological and texture properties

Shortening plays an essential function in the formulation of sweet laminated bakery products, but has a potential health risk due to their high percentage of saturated fatty acids. In this paper, the feasibility of hydroxypropyl methylcellulose (HPMC) oleogels prepared with emulsion template (ET) and foam template (FT) approaches as fat sources in a puff pastry dough was investigated. Spreadability and thermal properties of control shortening, 100% ET and FT oleogels and shortening/oleogel (50/50) blends were measured. The different systems were applied as the fat source in a puff pastry dough, and their effect on rheological and texture properties was investigated. Results showed that partial replacement of shortening with oleogels could significantly decrease the firmness values (from 115 to 26 N) (P < 0.05) and increased the spreadability of shortening. The methodology to prepare the oleogel (FT or ET) also significantly affected the texture parameters. FT blends had the highest spreadability with significantly lower firmness values and area under the curve. Thermal values showed that both oleogels could slightly increase the melting point of shortening from 47 to 50 °C. The replacement of shortening with oleogel decreases the viscoelasticity of puff pastry dough and increases its thermal stability but does not significantly change dough viscoelasticity in the shortening/oleogel mixture. These results indicated that both oleogels have promising potential to replace shortening in puff pastry dough formulations, but the ET oleogel showed a more similar behavior to the control shortening than the FT oleogel.

Fermente edilmiş pseudo-tahılların glutensiz ekmek üretiminde kullanımı: Fiziksel ve tekstürel özellikler üzerine etkileri

Bu çalışmada karabuğday, kinoa ve amarant 2 farklı yöntemle (spontan ve maya kullanılarak) fermente edilmiş ve hazırlanan hamurlar, mısır nişastası ile pirinç unu kombinasyonunu içeren glutensiz ekmek formülasyonunda farklı oranlarda (%0, 15, 30 ve 45) kullanılmıştır. Fermente edilmiş pseudo-tahılların, glutensiz ekmeklerin fiziksel ve tekstürel özellikleri üzerindeki etkileri değerlendirilmiştir. Karabuğday fermente hamuru içeren ekmeklerde kabuk ve iç parlaklık (L*) değeri, kinoa ve amarant katkılı ekmeklerden daha düşük bulunmuştur. Formülasyonda pseudo-tahıl fermente hamuru (PFH) oranının artması ekmeklerde kabuk parlaklık değerinin azalmasına, kırmızılık (a*) değerinin ise artmasına neden olmuştur. Ekmeklerde en yüksek hacim değeri kinoa katkılı örneklerde belirlenmiştir. Maya kullanılarak fermente edilen pseudo-tahılları içeren ekmeklerde, spontan fermentasyona kıyasla daha yüksek hacim, spesifik hacim ve daha düşük sertlik değerleri elde edilmiştir. Artan PFH oranı ile 2. 24. 48. ve 72. saat sertlik değerleri önemli artış göstermiştir (p&amp;lt;0.05). Karabuğday katkılı ekmekler 72. saatte en yüksek ekmek içi sertlik değerini verirken, en düşük sertlik değeri ise kinoa içeren ekmeklerde belirlenmiştir.

Busy Boards, Entrenched Directors and Corporate Innovation

We provide a comprehensive study of how different corporate governance mechanisms influence corporate innovation. Using panel data regression analysis across a sample of more than 13,600 firm-years for firms based in the United States between 1996–2010, we find that entrenched boards, though commonly associated with lower firm value, actually generate substantial innovation. We find that busy boards hinder innovation unless they also have interlocking relationships. Conversely, interlocked directors enhance innovation, unless they are busy. Directors who are CEOs or Board Chairs at other companies hinder innovation. Interestingly, despite being significant determinants of firm value in other studies, director experience, independence and ownership are not related to innovation. In order to be innovative, firms should appoint directors to leverage their professional relationships and directors must have a long-term perspective.

Effect of Integrated Reporting on Firm Value of Listed Companies in Kenya

The aim of this paper was to evaluate potential benefits of the Integrated Reporting &lt;IR&gt; on listed firms at NSE. The study draws on stakeholders, legitimacy and agency theories to analyze the effects of &lt;IR&gt; on firm value. The study hypothesizes that there are positive associations between firm value and integrated reporting. The study used content analysis procedures to examine the extent of &lt;IR&gt; in annual reports (2015-2019) of 56 listed firms on NSE. The study developed proxies for Integrated Reporting index based on IIRC framework. The study used panel data regression to establish the association between the &lt;IR&gt; and firm value. The study found that &lt;IR&gt; affect firm value (using TQ measure) and had no significant effect on firm value (using ROA). It also showed that &lt;IR&gt; is positively related to ROA and negatively related to TQ among listed companies in Kenya. The findings also shows that firms that implement &lt;IR&gt; Framework have higher values with respect to ROA. This finding indicate that high value firms tend to embrace &lt;IR&gt; framework that is consistent with the prior studies unlike low value firms. However, the result shows that the most forthcoming companies in terms of &lt;IR&gt; have inferior firm value with respect to TQ compared to firms that had not embraced &lt;IR&gt;. Integrated reporting rate of adoption was low, but grew steadily from 9% (5 out of 56) in 2015 to 41% (23 out of 56) in 2019. This indicates that &lt;IR&gt; is gaining prominent and is the future of corporate disclosure. The study is limited to emerging countries like Kenya on the effect of &lt;IR&gt; on firm value. The finding is helpful to policy maker and prepares of corporate reports to establish the benefits of &lt;IR&gt; and embrace the integrated thinking of all aspect of business.

Founding family ownership and firm performance: Evidence from the evolution of family ownership and firm policies

AbstractWe use a novel dataset to follow the evolution of family ownership, firm value and firm policies for up to 25 years post initial public offering (IPO). Firm value, measured by Tobin's Q, increases as family ownership decreases over time. Firms with higher family ownership invest less in research and development (R&amp;D) and have greater R&amp;D sensitivity to internal cash flow. A path analysis reveals the lower R&amp;D investment as a mechanism through which firm value relates negatively to family ownership. Firms with higher family ownership rely more on debt financing, and firms with higher levels of family ownership at the IPO are less likely to conduct seasoned equity offerings. Altogether, the valuation, investment and financing patterns are consistent with the premise that firms with higher levels of family ownership are unwilling to issue equity and dilute family ownership. A reluctance to issue equity creates financing constraints that limit the firms’ abilities to fully exploit their investment opportunities and contributes to lower firm value among firms with more concentrated family ownership.

Do liquid assets lure managers? Evidence from corporate misconduct

AbstractWe examine the effect of asset redeployability on corporate misconduct and find a significant positive relationship. Utilizing a large sample of public US firms for the period of 2001 to 2015, we find that a one standard deviation (SD) increase in the proportion of redeployable assets leads to a 7.2% increase in corporate fines. We also find that the positive association between asset redeployability and corporate misconduct varies across types of misconduct and industrial heterogeneity. In our channel analysis, we find that managerial risk‐taking is a potential mechanism through which asset redeployability is associated with misconduct. Additional tests reveal that corporate misconduct associated with asset redeployability leads to lower firm value. Our results remained robust in a series of sensitivity tests and continue to hold after accounting for potential endogeneity concerns. Our paper contributes to the ongoing discourse on the costs and benefits of asset redeployability.

OPTIMAL DECISION-MAKING IN MANUFACTURING INDUSTRY UNDER BUSINESS RISK

In the modern global economy, emerging economies have become the main source of manufactured goods to supply the advanced economies. The profits of a manufacturing firm normally increase in the amount it can produce and sell. However, in an environment of uncertainty, it is not always optimal for a manufacturing firm in emerging economies to accept big production orders even though this might mean higher revenues. This is because a corresponding higher operating leverage will necessarily increase business risk and the resulting discount rate, which may result in a lower firm value. In this study, we provide a structural framework targeting this problem where demand is stochastic, discount rate is endogenously determined based on business risk and operating leverage. We use lithium battery, an essential component in electric and hybrid cars, to demonstrate how the framework is developed and implemented. Our model helps decide the optimal production capacity as the result of the cost structure, risk aversion, and value maximization. We show how the valuation process is carried out in a theoretically consistent manner. Our framework may be extended for different sectors in emerging economies when production decisions are to be made under uncertainty.