Non-listed Firms Research Articles

Carry Trades and FX Risk Buffers: Foreign Currency Debt of Emerging Market Firms

Abstract The surge in foreign currency (FC) corporate debt in emerging economies has sparked concerns about macroeconomic stability, heightened by speculation about non-financial firms engaging in carry trades. Using firm-level data on the currency denomination of both assets and liabilities, we find evidence of firms' carry trades: firms save in local currency liquid assets and earn higher interest income after issuing short-term FC debt. They also set aside FC liquid assets as FX risk buffers. A large degree of heterogeneity in incentives is observed. Notably, listed firms participate more in carry trades and allocate less FX risk buffers than non-listed firms.

The historical origins of earnings management: a geographical discontinuity design based on the Great Wall

PurposeDoes the history of the bureaucratic system, along with the establishment of the Great Wall during the Ming and Qing dynasties (1368–1911), affect firm behavior across the borderlands of the Great Wall?Design/methodology/approachThe Ming and Qing dynasties built a centralized administrative system in the borderlands on the south side of the Great Wall, in contrast to the “feudal lordship” system on the north side. Employing a regression discontinuity analysis framework with the Great Wall as a geographical discontinuity, we examine the long-run effects of the Great Wall on firms’ earnings management.FindingsUsing a large sample of nonlisted firms in the central core frontier region, we show that the earnings management of firms in the region south of the Great Wall is significantly curtailed compared with firms in the north of it, and this effect is more pronounced for non-SOEs. Our findings are robust to a battery of tests to account for alternative explanations.Practical implicationsOverall, by emphasizing the role of institutions, like legal system, shaped in history on firms’ earnings management, this study sheds new light on institutional determinants of firms’ behaviors in earnings information disclosure.Originality/valueFirst, we enrich our understanding of the institutional determinants of firms’ financial reporting outcomes. Second, our findings shed new light on the long-term effects of historical ruling styles on modern corporate behavior.

The effects of green finance on pollution and carbon reduction: Evidence from China’s industrial firms

Reducing pollution and carbon emissions is important but requires a large amount of capital. Green finance is becoming an important market-based instrument. Few literatures have focused on the direct impact of green finance on corporate environmental performance. This study investigates the effects of green finance on air pollution and carbon reduction in China’s industrial firms from 2008 to 2015. Results show that green finance promotes CO2 and air pollution reduction. Moreover, green finance has a synergistic effect on SO2 and carbon reduction, but not on reduction of dust and carbon emissions. Our findings suggest that green finance reduces emissions by improving corporate energy utilization efficiency. Furthermore, we find that the effects of green finance on emission reduction are more significant among non-state and non-listed firms. These findings have important implications for the development of green finance and synergistic reduction of air pollutants and carbon.

The role of regional tax autonomy, firm size, and business groups in tax avoidance: evidence from Spain

ABSTRACT This paper investigates the influence of regional tax autonomy, firm size, and business group affiliation on corporate tax burden in a large sample of Spanish firms, including non-listed firms, from 2007 to 2016. Our findings reveal that firms located in tax-autonomous regions exhibit lower effective corporate tax rates (ETR), providing new empirical support for the horizontal tax competition theory. Additionally, we identify a positive relationship between firm size and corporate tax burden, aligning with the political cost theory. Furthermore, we find that group-affiliated firms face a higher ETR than independent firms, and that group affiliation attenuates the differences in the tax burden experienced by large and small firms.

OPERATING RISK AND FIRM’S PROFITABILITY: EVIDENCE FROM NON-LISTED MANUFACTURING FIRMS FROM V4 COUN-TRIES

Purpose. This study contributes to the ongoing debate on determinants of firms’ resilience strategies while facing a crisis, by referring to the operating risk. The purpose of our work is to examine the effects of operating risk on profitability of non-listed firms in manufacturing sector. Therefore, our study responds to the literature gap within investigating this problem at sector level, and among smaller firms. Methodology. Our evidence is based on accounting-based data, covering four countries (Poland, Czechia, Slovakia and Hungary) and large number of non-listed firms. We apply WLS (Weighted Last Squared) regression to test two models of the impacts of operating risk on firm’s profitability. Findings. Our results indicate that firms exposed to higher operating risk, tend to be less profitable. While considering cross-effects of operating and financial risk in our model, we found strong and sound evidence that the interplay between operating and financial risk exposure exerts a negative impact on firm’s profitability. These results have important implications, by demonstrating that during the period of crisis firms need equity financing to sustain resilience.

Green finance and governance: The effect of climate change

This study aims to investigate the implementation of climate change policy, governance practices, and green financing and the impact of environment, social, and governance (ESG), specifically on the environment, which includes emissions and climate change policy on stock price and firm’s profitability. Qualitative and quantitative methods are employed. An in-depth interview is conducted with nine non-listed firms across Sumatera chosen based on the most significant emissions contribution in Sumatera for the qualitative approach. Furthermore, this research covers green finance variables, including financing spent to finance investments that can reduce carbon levels. An ordinary least square (OLS) is employed for the quantitative analysis. The observations are listed banks on Indonesia Stock Exchange. Eight banks reported ESG during the observation period from 2002 to 2021. The result reveals that ESG, such as environmental, resource use, innovation, and emission policy and practice, positively and significantly influence stock price and profitability which is consistent with Nawaz et al. (2021). This might indicate that ESG are important, as the investors observe. The choice of resources used, innovation in the product/services concerning environmental factors, environmental investment, and climate change action are crucial in affecting the stock price as one of the indicators of investors’ sentiment. In addition, this also indicates that the greater the company focuses on the environment, the higher the profitability and the reinvestment rate.

The Earnings Management Strategy of Indebted Non-Listed Firms: The Case of Italy

Design/methodology/approach: For a sample of Italian non-listed firms that file full financial statements, we conduct a cross sectional regression analysis to determine whether the managers of indebted firms complement real activity-based (REM) with accrual-based (AEM) earnings management. To model each technique, we estimate OLS regressions with robust standard errors to avoid heteroscedasticity problems.Purpose: This research analyses whether the managers of highly indebted Italian non-listed firms, financed mainly by bank-loans, are likely to undertake real activity-based earnings management (REM) and accrual-based earnings management (AEM) as complementary activities to boost the impact of earnings management (EM) on reported earnings and achieve desired earnings targets.Findings: Consistent with the extant literature, we find that indebted firms are likely to complement REM with AEM to enhance their creditworthiness. We also provide evidence that high-quality audit companies constrain neither REM nor AEM initiatives. Finally, firms suffering from financial problems are less likely to engage in either initiative as they are under greater scrutiny from lenders.Originality: The paper investigates the complementary use of accrual-based and real activity-based earnings management techniques in non-listed firms, suffering from a high pressure from lenders in the case of indebtedness.Practical implications: This research should be of interest to banks, managers, and standard setters as it highlights the earnings management strategy employed by firms with a high leverage ratio and provides evidence on the relative costs associated with each earnings management technique.

Exploring the Performance Dimensions of Indian Shadow Banks Through the CAMELS Framework

The role of shadow banks, otherwise known as nonbanking finance companies (NBFCs), in any financial system is well recognized. Since their failure has the potential spillover effect on other institutions creating vulnerability in the entire financial system, identifying key areas that require improvement will enable the firm to work at institutional level to prevent the same. Also this exercise provides crucial input to the regulator to initiate appropriate and timely policy interventions. In this article, the performance is explored by considering the relevant parameters of 100 systemically important nondeposit-taking NBFCs in India by using the CAMELS framework. As very few NBFCs are listed in the stock market, a comparative analysis is made to identify distinct characteristics of listed and nonlisted firms. From the analysis, antecedent profitability and management competencies emerged as main performance drivers across the firms. Further, the result shows that listed firms engaged in income diversification and disbursing credit by relying on internal sources able to reduce the risk and enhance their performance. But, in the case of nonlisted firms generating revenue only through their core financing activities is key to their financial health. At the firm level, emphasis on improving the competencies through capacity building that will help improve the quality of assets and revenue generation is suggested. Simultaneously, the regulator also needs to keep a strong vigil on the activities of nonlisted firms.

기업 내 노동조합의 특성과 원가하방경직성

[Purpose] This study investigates the effect of a labor union and its characteristics on a firm’s cost behavior, with a particular focus on both listed and non－listed firms.
 [Methodology] We employ labor union data obtained from the Human Capital Corporate Panel (HCCP) provided by the Korea Research Institute for Vocational Education and Training. We examine how the labor union affects cost stickiness (selling, general, and administration costs) using the model developed by Anderson et al. (2003).
 [Findings] First, we find that firms exhibit cost stickiness in their cost behavior and the presence of labor unions mitigates this cost stickiness. These results suggest that labor unions serve as monitoring mechanisms, thus mitigating cost stickiness arising from agency problems. Second, the bargaining power of labor unions has no incremental impact on cost stickiness. However, we find that cost stickiness is alleviated only when labor unions and firms maintain a cooperative relationship. In other words, labor unions play the role of corporate governance structures as stakeholders of the firm only when labor－management relations are cooperative.
 [Implications] This study examines the impact of labor unions as one of the stakeholders in a firm’s economic decision－making process and their role in corporate governance in alleviating cost stickiness. It underscores the importance of a cooperative labor－management relationship, as labor unions effectively serve their monitoring role in the corporate governance structure only under such conditions. Furthermore, even in a sample primarily comprised of non－listed firms, labor unions can influence cost stickiness.

Going public and innovation: Evidence from the ChiNext stock market

Innovation can drive corporate value and enhance competitiveness. Due to the high risks, long-term nature, and exclusivity of innovative projects, it is difficult for companies to meet R&D (Research & Development) investment needs through internal funding. An IPO (Initial Public Offering) represents the first major liquidity event in a firm’s lifecycle since founders and initial investors realize value from the sale of their equity stakes and consequent diversification of ownership. Firms raise funds from investors in the capital market through initial public offerings (IPOs), which serve as an essential means of corporate financing. Based on this, this paper investigates the effects of going public on innovation using the Difference-in-Differences approach. The treatment group comprises public firms on the ChiNext stock market between 2010 and 2016. As a control group, non-listed firms submitted IPO applications to the China Securities Regulatory Commission (CSRC) but failed during the same period. Consequently, the final data is collected from 2007 to 2019, encompassing the three years pre and post-IPO periods. We find going public can prompt corporate innovation, and this positive effect is achieved through three channels: alleviating financing constraints, accumulating human capital, and mitigating agency problems. Heterogeneity analysis reveals that the positive relation is more pronounced in non-high-tech firms, higher competitive industries, weaker intellectual property protection firms and the growth-stage firms. Taking into account the characteristics of IPO, we find that the promotion of corporate innovation is more pronounced in samples with pre-IPO venture capital or private equity investments and lower levels of underpricing during IPO. Additionally, the increased innovation induced by IPO positively impacts long-term value and total factor productivity. The analysis reveals a complex trade-off between public and private ownership. It enriches the research on the impact of IPO behavior on innovation and provides new empirical evidence to improve the multi-level capital market.

The impact of the global financial crisis and the European sovereign debt crisis on the capital structure of firms in Europe: do SMEs, and listed firms respond the same?

This study examines the evolution of the capital structure of European firms during the global financial crisis and European debt crisis. We compare the experiences of SMEs, listed firms and private firms in different industries and investigate the role of country and institutional factors in affecting capital structure. We find that SMEs, private firms, and non-listed firms experience lower declines in leverage relative to large firms during the global financial crisis and the European debt crisis. During these crises’ periods, SMEs experience steeper declines in debt maturity, which suggests reliance on short term debt that carries high roll over risks. This behaviour is protracted for firms in the agriculture industry. Both the global financial crisis and EU debt crisis have asymmetric effects on leverage, long term debt issuance and debt maturity across different industries, and across firms of different sizes. Moreover, in countries with more developed financial systems, stronger frameworks for insolvency, resolving firm insolvency, and strong systems for shareholder suits, and director liability, SMEs experience much lower reduction in leverage and debt maturity. This finding suggests that institutional factors help attenuate adverse capital supply shocks.

Exploring the asymmetric cost behaviour in the context of European non-listed firms

ABSTRACT This study provides international empirical evidence for the asymmetric cost behaviour of operating expenses in the context of the European non-listed firms. We employed a data sample of 4,177,625 firm years observations from Amadeus Database for the period 2009–2017 to explore the asymmetric cost behaviour phenomenon at the EU-28 countries pool and country level. Substantial variation in the direction of the asymmetric cost behaviour, across countries and firm size clusters, has been observed. However, in a considerable number of cases operating expenses exhibit symmetric cost behaviour. We conjecture that the reasons behind the observed pattern of asymmetric cost behaviour in the organizational setting of non-listed firms are the relative low availability of entrepreneurial economic resources and the presence of entrepreneur which might affect the resource allocation decision-making process.

Conservatism and its determinants for Portuguese small and medium entities

In this study, we aim at analyzing whether Portuguese small and medium entities (SMEs) are accounting conservatively and what the determinants for conservatism are. While conservatism remains on accounting for a long time, both within the local accounting standards and IFRS firms may opt for a revaluation model to subsequently measure fixed assets. As the number of assets may be carried to higher values than firm becomes less conservative. Therefore, we propose that revaluations are a negative proxy for conservatism. We find that revaluations are not used in an often manner and they are higher for listed than for unlisted firms. Furthermore, our results suggest that debt and firm size are both positively associated with conservatism. Both associations are more significant for listed than non-listed firms. In addition, return on equity tends to increase conservatism, but only for the most indebted unlisted firms. These pieces of evidence are consistent with conservatism being a mechanism to regulate managers’ activity and to capture the confidence of stakeholders.

Research Trends of Board Characteristics and Firms’ Environmental Performance: Research Directions and Agenda

The current study investigates the association of board characteristics with firms’ environmental performance to provide further research and policy implications by carrying out systematic bibliometric analysis. The most potent contribution of the current study was to evaluate the performance of authors, geographical regions, journals and academic institutions to document their impact on the development of current literature. Moreover, the current study has used analytical statistics to examine how current research themes have evolved, and how impediments in existing literature can be overcome. Our analysis allows us to conclude that there is a lack of research collaboration between researchers and institutions in developing and developed countries. Finally, we summarize that the economic literature focuses more on BOD diversity, and there is less focus on theoretical development; non-listed firms, geographical proximity and mediating variables are research areas that need further academic attention. We conclude the current research investigation by identifying new research avenues.

Corporate governance and performance in the UK insurance industry pre, during and post the global financial crisis

PurposeDue to stakeholders’ concerns on the contribution of corporate governance in monitoring insurance companies during financial crisis, this study aims to investigate whether and how various corporate governance practices would have affected firm performance of listed and non-listed insurance firms in the UK during financial crisis.Design/methodology/approachThis study uses a unique manually collected data set from listed and non-listed insurance firms in the UK and applies different regressions models to test the hypotheses and to address the endogeneity problem.FindingsThe findings show that board non-duality and the presence of a majority shareholder improve firm performance in insurance companies. Furthermore, the findings for the sub-samples indicate a stronger positive association between board of directors and firm performance in listed insurance companies after the financial crisis, while a positive impact has been found between large shareholders and external audit firms in non-listed insurance companies before and during the crisis.Practical implicationsThe results offer important practical implications for the government, management, shareholders and policymakers. For example, regulators and policymakers should benefit from these results to revise the recommendations for corporate governance mechanisms that prove to be effective on firm performance, as well as those mechanisms that have different or unexpected effects among listed or non-listed firms and/or during the turbulent periods. Investors should be aware of those specific corporate governance mechanisms that would have higher effect on performance of UK insurance firms in which they are considering to invest in.Originality/valueThis study contributes to the current literature by exploring the effect of corporate governance on financial performance by comparing between listed and non-listed insurance companies during financial crisis. Further, to the best of the authors’ knowledge, this is the first study to use two new insurance-related performance measures, the revenue growth ratio and the adjusted combined ratio, as performance proxies to explore whether these new variables create any insights.

Bias in media coverage of antitrust actions

One of the main goals of competition authorities is to deter anticompetitive practices. That is one of the reasons why antitrust decisions are made public: to reinforce the deterrence effect, as the impact of the mass media on public opinion may affect firms’ reputations. Our empirical strategy focuses on identifying how the nature of specific antitrust actions by competition authorities affects the size of news items and their visibility within the newspaper. We study this relationship by using a new database containing all news published in Spain over a 30-month period, regarding all cases analysed by the Spanish competition authority. Our analysis produced two key conclusions about how the media deals with positive and negative news on the reputation of listed and non-listed companies. On average, the difference in size between positive and negative news for listed firms is greater than the difference present in the actions referring to non-listed firms. Secondly, newspapers concede greater visibility to them by positioning more favourably, both on the right-hand side of the paper and on initial pages. These results suggest that the deterrence effect that competition authorities seek by making their decisions public may be weakened by the presence of bias in media.

Access to finance, social capital and the improvement of corporate performance: evidence from Southeast Asia

PurposeThis study examines the influence of access to finance and social capital on the improvement of the corporate performance of non-listed firms of Southeast Asian countries. Furthermore, this paper also explores the mediating role of firms' access to finance between the association of social capital and the improvement of corporate performance.Design/methodology/approachThis study utilizes the Bank Business Environment and Enterprise Performance Survey from 2015 to 2017. Specifically, the survey was administered by the World Bank. Data were analyzed using structural modeling in Smart-PLS.FindingsThe findings show that firms' access to finance and social capital significantly influences the improvement of corporate performance. Additionally, the study’s analysis further reports the mediating role of firms' access to finance between the association of social capital and the improvement of corporate performance.Practical implicationsThis study has implications for governments, regulators and policymakers for enhancing access to finance and social capital, and improving corporate performance.Originality/valueThis paper establishes the importance of firms' access to finance and social capital for improving firms' overall performance in the broader context of Southeast Asia.

How can SMEs signal their quality and growth orientation to the market? An analysis of the cost of Italian corporate mini‐bonds

AbstractWe examine how small and medium‐sized enterprises (SMEs) may signal their quality and growth orientation to the market and the effect on the cost of bond funding, which is often high for unlisted firms and SMEs mainly because of their information opacity and higher riskiness. The paper contributes to the growing European debate on market innovations aimed at facilitating funding for smaller and nonlisted firms, breaking from the prior main focus on the cost for large and listed companies of accessing liquid bond markets. We analyze 220 mini‐bonds listed in Italy between 2013 and 2017 to examine determinants of yield spreads. Our explanatory variables are size, age, and tangible assets—all indicators of the firm's information opacity—together with the issuer's growth opportunities, rating availability, and the presence of a guarantee. The findings suggest that tangible assets can ease the asymmetric information and associated monitoring costs for investors, thus reducing the bond yield spread. More significantly, the yield spread depends on the type of investment project financed: risky growth projects are associated with a higher cost of funding than other types of projects. Under such circumstances, the rating represents an informative instrument for the market in assessing issuers' growth orientation.

Monetary policy surprises and investment of non-listed real sector firms in China

This study examines the dynamic effects of monetary policy on investment of non-listed real sector firms in China. We employ proxy vector autoregression analyses to extract China's monetary policy surprises and use firm-level data to investigate the dynamic effects of monetary policy. Empirical findings show that unanticipated expansionary monetary policy prompts investment of China's non-listed real sector firms in the first year of monetary policy surprises but has no positive accumulative effect on investment in the fourth year, suggesting that monetary easing shifts firms' investment to an early date rather than increases investment permanently. Group-division results present discrepancies between state-owned and private firms and among firms with different sizes. Further analysis provides evidence that the effect of monetary policy on non-listed firms' investment relates to external finance rather than investment opportunities.

Property rights protection, financial constraint, and capital structure choices: Evidence from a Chinese natural experiment

We examine how changes in property rights security impact firm capital structure decisions by exploiting a quasi-natural experiment, specifically, the implementation of China's Property Rights Law in 2007 (the Law). Using a large dataset of non-listed firms and a difference-in-differences (DID) design, we examine the Law's cross-sectional heterogeneous effects on firm leverage. We find that financially constrained firms exhibit a significant increase in leverage relative to unconstrained firms after the Law's implementation. Our results are robust to three alternative measures of financial constraint: asset tangibility, ownership structure, and firm size. This finding is consistent with the financial constraint hypothesis that states that lenders are willing to extend more credit to constrained firms given that the Law strengthens creditor rights. Overall, we find that the Law has had a significant impact on firm leverage decisions and that it is particularly important to financially constrained unlisted firms.