Non-financial Stakeholders Research Articles

Economic growth of the enterprise: modern models and evaluation experience

The aim of the study is the development of theoretical foundations and substantiation of methodological approaches to the definition, evaluation and organizational support of the economic growth of enterprises. The object of research of the article is the processes of enterprise development in the conditions of the post-industrial economy. The subject of the article is theoretical institutions, methodological approaches and applied aspects of evaluating the economic growth of an enterprise. The methodological basis of the study was formed on the basis of a set of general scientific and special principles and methods of scientific knowledge. The scientific results of the article were obtained using the following research methods: analysis and synthesis — to clarify the content of interrelated categories of economic growth of the enterprise; comparison, systematization, generalization, formalization — to determine the concepts of economic growth of the enterprise, development of a methodical approach to its assessment based on the criterion of the quality of capital and appropriate organizational support, financial-economic and VBM analysis - to assess the quality of financial results of capital formation in an enterprises. The article presents the results of a critical analysis of scientific approaches to the assessment of economic growth and features of the concepts and models of organizational growth of mechanistic and organic directions of research are determined. The typology of theoretical approaches to the study of organizational growth in terms of actualization has been improved and emphasis of a valueoriented approach as an independent direction of research, which reveals the content of organizational growth based on organic combination of axiological (management direction) and praxeological (capital direction) aspects of value. In the article, the authors justified the feasibility of using the quality of capital as a criterion for identifying and evaluating the economic growth of an enterprise on the basis of a generalization and study of analytical models for assessing the economic growth of an enterprise and evaluating the economic growth of the enterprise, which allows taking into account the resource-result meaningful nature of economic growth, as well as its qualitative characteristics. Resource aspects of quality are proposed to be define in the aspects of noospheric and functional capacity of capital on the basis of which the possibilities and ways of using the company’s resources are determined. It has been shown that the results of capital formation in terms of economic value, taking into account the interests of not only financial, but also non-financial stakeholders of the enterprise.

Stakeholder Value Creation through Business Restructuring: Post Sanctions Evidence from Russian Airlines

The study is devoted to evaluating of turnaround strategies used by Russian airlines to overcome negative influence of 2022 crisis caused by sanctions pressure of West regulators in terms of ability to create value both for financial and non-financial stakeholders. To conduct a quantitative analysis of the effectiveness of turnaround strategies, evaluation methods based on traditional accounting indicators were used, as well as VBM indicators that take into account an opportunity cost. A qualitative analysis includes the estimation of management actions and decisions in terms of whether they violate interest of companies’ major stakeholders. The study was carried out on the basis of such indicators as: PBITD/CE, PBITD/TD, ROA,Gross margin, EBITDA margin, Net Debt to EBITDA, EVA, Sustainable growth index and Interests harmonized index. As a result of the study, the features of turnaround strategies used by Russian airlines, namely PJSC Utair and LLC Pobeda were studied. The accounting ratios as well as the dynamic of economic profit were evaluated. The Growth sustainability matrix was constructed. The effectiveness of turnaround strategies in terms of value creation both for financial and non-financial stakeholders was assessed and the conclusions about prospects of companies’ further development were made. The above results can be taken into account in the development of more sustainable turnaround strategies by other companies faced with challenges.

Solving the choice puzzle: Financial and non-financial stakeholders preferences in corporate disclosures

The paper delves into the relationship between accounting conservatism, valued by financial stakeholders, and corporate social performance (CSP), esteemed by non-financial stakeholders. This study assesses the potential impact of financial reporting practices, specifically accounting conservatism, on a firm’s CSP activities, which has significant implications for diverse stakeholders. Employing an accrual-based proxy for accounting conservatism and the social contribution value per share from the Shanghai Stock Exchange as a proxy for CSP, the study utilizes a sample of 25,490 year-company observations of A-share listed companies on China’s Shanghai and Shenzhen stock exchanges spanning from 2008 to 2019. Empirical findings indicate a negative correlation between accounting conservatism and CSP. The study suggests that higher levels of social performance are associated with reduced conservatism in financial reporting, indicating that firms prioritize CSP over the interests of financial stakeholders by adopting less conservative financial reporting policies. Aligned with agency theory, these results underscore that socially responsible firms are less inclined to employ accounting conservatism in reporting earnings. This study establishes a connection between firms’ unconventional and less traditional activities, such as CSP, and conservative financial reporting, offering valuable insights for investors, analysts, and regulators. AcknowledgmentThis paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “Embracing EU corporate social responsibility: challenges and opportunities of business-society bonds transformation in Ukraine” – 101094100 – EECORE – ERASMUS-JMO-2022-HEI-TCH-RSCH-UA-IBA / ERASMUS-JMO-2022-HEI-TCHRSCH https://eecore.snau.edu.ua/

Corporate social responsibility and dividend policy in India

PurposeThe study investigates the relationship between corporate social responsibility (CSR) and dividend policy in the context of Indian firms, as well as how regulatory interventions in the form of mandated CSR can moderate this relationship.Design/methodology/approachA sample of the largest 500 companies listed on the National Stock Exchange from 2008 to 2019 is used in the study. The authors employ the system generalized method of moments since this estimation technique yields accurate and consistent findings in a dynamic panel data setting.FindingsThe authors find that CSR is positively associated with dividend payments. Increased incomes and lower financial constraints are the likely factors causing this relationship. Additional analysis suggests that the positive relationship is stronger for mature firms and for firms with higher information asymmetry. Financial reporting quality works in tandem with CSR to boost dividends. Regulatory interventions in the form of mandated CSR weaken the relationship. Finally, the speed of adjustment of dividends is relatively faster for socially responsible firms.Practical implicationsThe positive association between CSR and dividends suggests that the interest of shareholders and other non-financial stakeholders can be reconciled. Additionally, businesses should attempt to strategically implement their CSR plans in accordance with the requirements of Section 135 of the Companies Act, 2013 to avoid any unfavourable moderating effects of the legislation. The results also show that CSR disclosures complement rather than serve as a substitute for financial disclosures.Originality/valueThe study is the first to evaluate the relationship between CSR and dividends in the context of India, which is a pioneer in passing legislation that mandates CSR for firms surpassing a threshold. The authors also identify financial constraints as a channel through which CSR affects dividends.

Shareholder reaction to corporate philanthropy after a natural disaster: an empirical exploration of the “signaling financial prospects” explanation

Corporate response to natural disaster in the forms of cash and/or in-kind donations (corporate philanthropic disaster response, or CPDR) is a growing form of corporate philanthropy. Through an event study methodology based on 1,775 firms listed on the Tokyo Stock Exchange, we analyze shareholder reaction to CPDR announcements after the 2016 Kumamoto earthquakes in Japan. Controlling for the possibility that the most common explanations (buying goodwill and corporate governance) are at play, our results provide an empirical test of a little-explored explanation for the positive shareholder reaction to CPDR: namely, that corporate philanthropy is a market signal to outside investors of the firm’s future financial prospects. We find this explanation to be significant. Of note are also the facts that shareholder reaction is only significantly positive in the case of cash donation (as opposed to in-kind), and is more positive when announced early. Overall, our results align with the “strategic philanthropy” view grounded in resource-dependence theory. But instead of the typical focus on non-financial stakeholders, we argue that philanthropic donations can be used to directly influence investors.

Corporate Social Responsibility, Financial Materiality, and the Challenges of Forced Migration

Forced migration is a critical social challenge of our time. Corporate responses to social challenges of this magnitude have inspired a growing body of literature in management and strategy. In particular, prior work has investigated companies’ responses based on specific CSR policies with high financial materiality––e.g., energy firms’ policy commitments to climate change mitigation. However, the literature has yet to understand whether and how exposure to a social challenge influences the composition of a firm’s portfolio of CSR policies, comprising both more and less financially material actions and distinct social dimensions. To address this question, this paper studies the challenges of forced migration to Europe. We propose a novel empirical strategy leveraging headquarter proximity to tragic refugee incidents as a source of variation in the salience of forced migration as perceived by companies. Employing a phenomenological approach, we show that firms more exposed to forced migration adjust their portfolios of social CSR policies by progressively increasing the adoption of less material policies, vis-à-vis more material actions. In line with the argument that firms may see such responses as a means to strengthen their ties to nonfinancial stakeholders, we then show that responses are driven by firms with higher pre-existing social performance who, according to the literature, are more prone to use CSR to manage stakeholder relationships. Finally, we also show that firms’ responses are concentrated on dimensions related to employees and communities. Our paper contributes to literatures on corporate responses to social challenges, strategic CSR, and financial materiality.

Integrated Reporting and Protection of Non-Financial Stakeholders in Nigerian Deposit Money Banks

Disclosure quality has been the motivation behind every corporate reporting evolution and recently integrated reporting (IR). However, the concern is its focus and coverage. Studies have shown that IR gives more protection to financial capital providers than to other stakeholders. Thus, this study examined the impact of IR on non-financial stakeholder (employee, customer, and society) protection in Nigeria with focus on Deposit Money Banks (DMBs). This study sampled and analyzed 13 DMBs listed on the Nigerian Exchange (NGX) as at 31 December 2020. The study found that IR had a significant difference in pre- and post-IR Framework eras and a significant effect on employee, customer, and society protection. The study concluded that IR affected protection of non-financial stakeholders in Nigerian DMBs. It was recommended that regulators, corporate leaders, and researchers should pay more attention to and treat the non-financial stakeholders as capitals, rather than a means to corporate performance.

Does Multiple Capitals Disclosure Affect the Capital Market? An Empirical Analysis in an Integrated Reporting Perspective.

Integrated reporting (IR), as a novel corporate reporting approach, focuses on how six forms of capital promote corporate value. This paper explores whether this kind of multiple capitals disclosure (MCD) framework has an impact on the capital market. Using a sample of Chinese A-share firms from 2012 to 2016, we examine the relationship between MCD quality and firm value. The results indicate that a higher MCD quality leads to a greater firm value. Our results are robust to a variety of sensitivity tests. Further evidence suggests that MCD quality could increase profitability by affecting the decision-making of non-financial stakeholders and enhance the value relevance of financial information by affecting the decision-making of investors. The paper helps understand how the IR approach affects the perception of investors on the value of a firm. The findings of the paper are of interest to academics, corporate management, investors, and governmental officials.

Corporate Resilience During Crisis: The Role of Sustainability, Risk Management, and COVID-washing

Resilience is the ability of an organization to anticipate, prepare for and respond to sudden disruptions. Using the COVID-19 pandemic as a research context, we study the relationships between corporate sustainability and resilience in times of crisis. Indeed, it is debatable whether the so-called environmental, social and governance (ESG) initiatives do or do not immunize stocks against crises such as the COVID-19 pandemic. Moreover, despite the importance of risk management for crisis management efforts and the potential for “COVID-washing,” there is no evidence that either lead to greater resilience. In our paper, we analyse global firms which disclose about COVID. Results from multivariate regression analyses show that top ESG performers fare better during the crisis but worse during the recovery period. We also find evidence that firms with more advanced risk management approaches handle the crisis better. Lastly, COVID-washing, though beneficial in the short-term, does not pay off in the long-term. In this respect, we address important knowledge gaps for managers, investors, and other non-financial stakeholders by offering robust empirical evidence on predictors of corporate resilience and the effects of corporate sustainability, risk management, and COVID-washing on financial performance.

Disclosure on the Sustainable Development Goals – Evidence from Europe

This study examines disclosure on the sustainable development goals (SDGs) in firms’ annual reports. For a sample of European firms listed in the STOXX Europe-600 index and a reporting period of four years, we use textual analysis to assess both firms’ explicit reference to the SDGs in their annual reports as well as the implicit prevalence of SDG topics. In addition, we use content analysis to manually assess the quality of firms’ disclosure on the SDGs based on eleven reporting items. The results show a substantial increase in SDG reporting quality over time but a distinct lack of disclosure of quantitative and forward-looking information. Further analyses reveal the relevance of both financial and non-financial stakeholders. Specifically, SDG disclosure is particularly associated with a high relevance of socially responsible investors, customers or environment-related public pressure, while financial analysts, employees and the media are not associated with SDG disclosure.

The Limits of Green Finance: A Survey of Literature in the Context of Green Bonds and Green Loans

In response to the rapid development of green finance, this study evaluates a systematic literature survey with a focus on the determinants and the potential benefits of corporate engagement in environmentally responsible practices in the context of green bonds and green loans. We show that research has discovered that environmentally responsible practices not only enhance shareholder value but also the value accrued to nonfinancial stakeholders. Further, we provide an updated overview of research developments in relation to green bonds and syndicated loans. Lastly, we discuss the limitations in the nascent green finance research and propose new lines of research supporting our aim of advancing our knowledge of sustainable investments.

Foreign and Russian Studies of Share Buyback Practices: A View from the Corporate Governance Perspective

The paper discusses the mechanism of shares buyback and its implementation in foreign countries and in Russia. The publication purpose is to study the practice of buybacks in the aspect of corporate governance, satisfaction of stakeholders interests being in the new economic realities by the impact of sanctions and the COVID-19 pandemic. The authors use the method of content analysis of publications by Russian and foreign researchers based on Google Scholar since 1990 to 2020, considering buyback programs in relation to corporate governance and influence on stakeholders. Also, the authors analyze the state of the Russian stock market by capitalization, by the number of issuers of shares on the MICEX-RTS from 2013 to 2020. There are analyzed programs for repurchase of shares of Russian companies for the period 2018–2020. There have been put forward and tested three hypotheses related to the impact of sanctions and the coronavirus pandemic on the policy of implementing buyback deals by the companies. The “share buyback” is usually considered to a greater extent from the point of view of corporate finance in the Russian business field, outside the context of corporate governance and even more so outside of relations with stakeholders. There is a dominant approach to buybacks from the point of view of shareholders rather than from the point of view of stakeholders in Russian business practice. There is no discussion about the negative impact of buybacks on their interests in the public opinion and in the expert environment, due to the relative weakness of the positions of Russian stakeholders. The future research may focus on assessing the impact of share buyback programs on the risks system and benefits for financial and non-financial stakeholders. Also, there should be emphasized on studying the impact of share buybacks on the corporate governance quality and on studying their impact on top management remuneration, being assessed the effectiveness and efficiency of programs buybacks.

Corporate Beneficence and COVID-19

This article explores the motives underlying corporate responses to the COVID-19 pandemic. The analysis begins with Thomas Dunfee’s Statement of Minimum Moral Obligation (SMMO), which specifies, more precisely than any other contribution to the business ethics canon, the level of corporate beneficence required during a pandemic. The analysis then turns to Milton Friedman’s neoliberal understanding of human nature, critically contrasting it with the notion of stoic virtue that informs the works of Adam Smith. Friedman contends that beneficence should play no role in corporate settings. Smith, by contrast, emphasizes the need for prudence, beneficence and self-command in all human endeavours. The article then uses these competing frameworks to reflect on a published survey of 145 corporate responses to COVID-19. In many of these responses, the benefit to a non-financial stakeholder is clear, while the financial consequence to the firm remains nebulous. This supports the contention that during a pandemic, beneficence provides a more complete explanation of many corporate actions than the profit motive alone. The article contests Friedman’s Chicago School profit imperative and goes beyond Dunfee’s SMMO by endorsing the more full-throated embrace of beneficence and stoic virtue found in the works of Smith.

Nonfinancial Stakeholder Orientation and Conditional Accounting Conservatism

This study examines the relation between conditional accounting conservatism and nonfinancial stakeholder orientation. Using the staggered passage of constituency statutes to identify increases in nonfinancial stakeholder orientation, we document that firms report more conservatively after statute adoption. Cross-sectional analyses indicate the increase in conditional conservatism after statute enactment is more pronounced for firms with higher agency costs between shareholders and managers, and less pronounced for firms with customers that have greater bargaining strength. Collectively, our study sheds light on how the increasing trend of nonfinancial stakeholder orientation plays a role in shaping financial reporting practices.

Accounting conservatism and corporate social responsibility

We examine the association between accounting conservatism, expressed in the form of asymmetric timeliness of recognition of economic gains and losses, and corporate social responsibility (CSR). We provide evidence that, under unfavorable macroeconomic conditions and financial constraints, as well as increased levels of outside pressure from debtholders and equity holders, catering for capital providers through conservative reporting becomes a managerial priority over engagement in CSR. Our results overall indicate that, for our whole sample period (starting in the early 2000s), higher levels of conservatism are negatively associated with a CSR orientation shown by firms; however, our analysis also indicates a significant reversing trend regarding the effect of conservatism on CSR, coinciding with the post-financial-crisis period. The findings are robust to a number of specifications and tests, including the use of an instrumental variable approach explicitly addressing endogeneity biases related to reverse causality concerns. Our study suggests that, under monitoring pressure from financial stakeholders, firms prioritize commitment to accounting conservatism over the needs of non-financial stakeholders and other interest groups.

Media Sentiments on Stakeholders and Daily Abnormal Returns during COVID-19 Pandemic: Early Evidence from the US

How does the stock market react to the media coverage about a firm’s efforts in addressing non-financial stakeholder claims during COVID-19 pandemic? Focusing on daily data in the first quarter of 2020, I have examined the relationship between daily abnormal returns (AR) of US listed companies and independent media sentiment on a firm’s issues related to customers, employees, community, and the environment. Merging Compustat security daily data and TruValue Labs daily sentiment data, I constructed a panel data of 313,049 firm-day observations, representing 5,133 listed firms in the US. I first measured sentiment for each stakeholder’s issues as four dummies: no news, negative sentiment, neutral sentiment, and positive sentiment. Random-effect panel regressions report that, compared to no news or neutral sentiment, negative and positive sentiment on customer issues may result in an additional daily AR of 13.207 p.p. (p<0.001) and 14.316 p.p. (p<0.001) respectively. On employee issues, negative sentiment would result in a lower daily AR by 6.394 p.p. (p<0.05), compared to no news, neutral or positive sentiment – the three of which appear to have no statistically significantly different effects on daily AR. On community issues, whether there is news or whether the news was in a negative, neutral, or positive sentiment would not have statistically significantly different effects on AR. On environment issues, positive and negative sentiment would cause a lower daily AR by 8.724 p.p. (p<0.01) and 7.539 p.p. (p<0.01) respectively, compared to no news or neutral sentiment. Finally, I measured sentiment as a continuous value between -1 (most negative) and 1 (most positive), and found that only employee sentiment has statistically significant linear effects on AR. Daily AR would increase by 7.325 p.p. (p<0.1) and 9.277 p.p. (p<0.05) respectively if the sentiment on employee issues increased by 1, under the assumptions of “no news is missing information” and “no news is neutral news”.

Share repurchases, coronaeconomy and stakeholders’ interests

The purpose of the paper is to consider the mechanism of share repurchases in the context of the coronaeconomy and the COVID-19 pandemic. The English- and Russian-language publications discussing share repurchases from the perspective of the stakeholder approach in corporate governance are reviewed. The practice of the Russian firms implementing share repurchase programs is analyzed, with the focus on the companies included in the Sustainable Development Ranking-100. It is concluded that share repurchases should be studied with regard to the impact they have on the interests of a wide range of company’s financial and non-financial stakeholders, and to the mutual influence of buybacks and parameters of sustainable economic development.

Accounting Conservatism and Corporate Social Responsibility

We examine the association between accounting conservatism, expressed in the form of asymmetric timeliness of recognition of economic gains and losses, and corporate social responsibility (CSR). We provide evidence that, under unfavorable macroeconomic conditions and financial constraints, as well as increased levels of outside pressure from debt-holders and equity holders, catering for capital providers through conservative reporting becomes a managerial priority over engagement in CSR. Our results overall indicate that, for our whole sample period (starting in the early 2000s), higher levels of conservatism are negatively associated with a CSR orientation shown by firms; however, our analysis also indicates a significant reversing trend regarding the effect of conservatism on CSR, coinciding with the post-financial-crisis period. The findings are robust to a number of specifications and tests, including the use of an instrumental variable approach explicitly addressing endogeneity biases related to reverse causality concerns. Our study suggests that, under monitoring pressure from financial stakeholders, firms prioritize commitment to accounting conservatism over the needs of non-financial stakeholders and other interest groups.

The effect of labor unions on innovation and market valuation in business group affiliations: new evidence from South Korea

This paper examines how non-financial stakeholders, especially labor unions, affect firms’ innovation in business group affiliations. Using firm-level labor union data unique to Korea, we find that firms’ innovation activities are negatively related to unionization. This negative relationship is more pronounced for large business groups, suggesting that Korean chaebols are more concerned with the influence of powerful stakeholders—union workers. Also, equity market valuation of R&D reduction under union pressure is not negative for chaebol-affiliated firms, whereas it is negative for non-affiliated firms. These results indicate that the equity market perceives that chaebols’ internal capital market facilitates group-oriented R&D investment decisions.

Towards corporate transparency

PurposeThe purpose of this paper is to determine whether companies recognised for the quality of their sustainability reporting are also adopting investor relations (IR) best practices for their IR webpages. Quality communications to all stakeholder groups may then speak to organisational transparency and integrated corporate communication management (CCM).Design/methodology/approachAn ordinary least squares regression model was developed to test the hypothesis that companies with quality sustainability reporting also adopts best practices in online IR. Sustainability reporting quality was signalled by inclusion of the company in a socially responsible investment (SRI) index. IR quality was proxied by disclosure scores compiled from content analyses of investor relations webpages.FindingsThis study find that inclusion in the SRI Index was positively and significantly associated with online IR quality, while controlling for other variables associated with voluntary disclosure behaviour.Practical implicationsFor retail and institutional investors in SRI Index companies, cost of information discovery is reduced as they can use the investor relations webpages as comprehensive source.Originality/valueThis study contributes to the literature on corporate transparency by operationalising reporting “transparency” in that it considers the combined communications output to both financial and non-financial stakeholder groupings. A 2 × 2 conceptual framework for corporate disclosures is proposed that reconciles legitimacy theory and voluntary disclosure theory as motivations. It also contributes to the paucity of research on the links between public relations and investor relations in corporate communications by demonstrating a joint contribution to transparency.