Post-regulation Period Research Articles

The impact of mandatory CSR regulation on corporate financial policy: Evidence from India

This study examines how mandatory CSR spending regulation implemented in India in 2014 impacted the financial policy of corporate firms in a quasi-natural experiment setup. The analysis shows that the debt level of treated firms decreased significantly following the CSR regulation; however, no corresponding change was observed in control firms. We attribute this decrease to the greater value that the equity of such firms commanded in capital markets following the regulation. Further, we show that this positive change in the relative importance of equity compared to debt in the post-regulation period helped firms move toward their target capital structure faster. These results remain robust for various model specifications, estimators, and sample selection procedures. Overall, these results conform to the predictions of the stakeholder and legitimacy based theories on CSR.

Investor response to engagement quality review hours

PurposeThis study aims to investigate whether mandated disclosure of engagement quality review hours provides new information that affects investors’ decision-making.Design/methodology/approachIn 2014, Korean authorities mandated that audit engagement quality review hours must be disclosed in their audit reports. Using this unique field setting in Korea, this study presents empirical evidence of the policy initiative’s effect on earnings reliability by examining both pre- and post-implementation periods.FindingsFollowing the initial disclosure of engagement quality review hours in 2014, the authors observe that the capital market’s valuation of quarterly earnings surprises, measured by earnings response coefficients (ERCs), was significantly lower for firms with high levels of abnormal engagement quality review hours than for other firms. This paper also finds that the observed association between engagement quality review hours and ERCs in the postregulation period hinges on the probability of earnings management, proxied by discretionary accruals and just meeting or beating analyst earnings forecast.Originality/valueThis paper suggests that the policy mandating disclosure of engagement quality review hours provides original information that the market considers relevant for appraising the reliability of reported earnings.

Water Impacts and Effluent Quality Regulations of Canadian Mining

Energy transition relies on the scaling up of mineral production and may lead to increased pressure on water resources due to the intensity of water use in mining. The status of Canada as a major mineral producer and a country with effective environmental regulations prompted our study of the water impacts of Canadian mining. In 2002, the Canadian government introduced effluent quality regulations that targeted metal mining companies. By analyzing regional and sectoral data, we find that such regulations were important for mitigating both the water quality and water quantity impacts of metal mining. Despite increasing output, metal mining reduced its contribution to total mining withdrawals and discharge from 85% in the pre-regulation period to 62–65% in the post-regulation period. In the absence of such regulations, non-metallic mineral mining and, in particular, coal mining, increased their pressure on water resources. Finally, we find that since 2002, over 90% of regulated operations have met effluent quality standards. However, we document increased flows of discharge to mine tailings, a development which requires further analysis.

Evaluating the effectiveness of low-sulphur marine fuel regulations at improving urban ambient PM2.5 air quality: Source apportionment of PM2.5 at Canadian Atlantic and Pacific coast cities with implementation of the North American Emissions Control Area

Ambient fine size fraction particulate matter (PM2.5) sources were resolved by positive matrix factorization at two Canadian cities on the Atlantic and Pacific coast over the 2010–2016 period, corresponding to implementation of the North American Emissions Control Area (NA ECA) low-sulphur marine fuel regulations. Source types contributing to local PM2.5 concentrations were: ECA regulation-related (residual oil, anthropogenic sulphate), urban transportation and residential (gasoline, diesel, secondary nitrate, biomass burning, road dust/soil), industry (refinery, Pb-enriched), and largely natural (biogenic sulphate, sea salt). Anthropogenic sources accounted for approximately 80 % of PM2.5 mass over 2010–2016. Anthropogenic and biogenic sources of PM2.5-sulphate were separated and apportioned. Anthropogenic PM2.5-sulphate was approximately 2–3 times higher than biogenic PM2.5-sulphate prior to implementation of the NA ECA low-S marine fuel regulations, decreasing to 1–2 times higher after regulation implementation. Non-marine anthropogenic sources (gasoline, road dust, local industry factors) were shown to together contribute 38 % - 45 % of urban PM2.5. At both coastal cities, the residual oil and anthropogenic sulphate factors clearly reflected the effects of the low-S fuel regulations at reducing primary and secondary sulphur-related PM2.5 emissions. Comparing a pre-regulation and post-regulation period, residual oil combustion PM2.5 decreased by 0.24–0.25 μg/m3 (94%–95 % decrease) in both cities and anthropogenic sulphate PM2.5 decreased by 0.78 μg/m3 in Halifax (47 % decrease) and 0.71 μg/m3 in Burnaby (58 % decrease). Regulation-related PM2.5 across these factors decreased by approximately 1 μg/m3 after regulation implementation, providing a quantified lower estimate of the beneficial influence of the regulations on urban ambient PM2.5 concentrations. Further reductions in coastal city ambient PM2.5 may best consider air quality strategies that include multiple sources, including marine shipping and non-marine anthropogenic source types given this analysis found that marine vessel emissions remain an important source of urban ambient PM2.5.

The Impact of Trade Credit Provision on Retail Inventory: An Empirical Investigation Using Synthetic Controls

Trade credit is an important source of short-term financing and an integrated part in supply contracts. Although a number of theories have been proposed on how trade credit could improve supply chain efficiency, causal studies on the impact of trade credit on operational decisions are scarce. In this study, we examine the impact of trade credit on inventory decisions using an empirical strategy that leverages (i) an exogenous shock imparted by the French government’s intervention to impose a ceiling on trade credit duration, (ii) a triple difference-in-differences identification strategy, and (iii) synthetic controls (SCs). By considering the 60-day ceiling coverage and SC construction requirements, we identify four French retail sectors as our main sample. Among them, in the postregulation period, the hardware retail sector firms on average exhibited a significant 16% decline in trade credit usage. Correspondingly, these firms also displayed a significant 11% decline in inventory level. In the remaining three sectors, we found mixed results in the main sample. All the four sectors, however, show consistent support for a causal link between trade credit and inventory in a subsample compiled using a stringent 90-day ceiling criterion. Collectively, our findings offer direct evidence that trade credit is an indispensable financing source for inventory procurement. Finally, in the postregulation period, the hardware retailers exhibited a 15.5% decline in revenue and 3.5% reduction in gross profit. This cautions policy makers that regulations limiting the use of trade credit may have unintended consequences on downstream firms, and may harm overall supply chain efficiency. This paper was accepted by Vishal Gaur, operations management. Funding: This work was supported by Indiana University Bloomington and the London Business School. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4600 .

Evidence of a decrease in sales of antimicrobials of very high importance for humans in dairy herds after a new regulation restricting their use in Quebec, Canada.

In the province of Quebec, Canada, a new regulation restricting usage of antimicrobials of very high importance for human health (Health Canada: category 1 antimicrobials) in production animals is effective since February 2019. The objective of this study was to estimate changes in AM sales in dairy herds after the implementation of the regulation. Therefore, invoice data were extracted from veterinary software, Vet-Expert, used by most dairy veterinarians in the province of Quebec, and antimicrobial quantities were transformed in Canadian defined course doses for cattle (DCDbovCA). The sum of antimicrobials sales monthly in each herd was estimated in DCDbovCA from June 2016 to May 2020. To evaluate the herd-level change in AM sales and the impact of different factors, the number of DCDbovCA by herd from June 2017 to May 2018 (pre-regulation period) were compared with those of June 2019 to May 2020 (post-regulation period). Total category 1 AM sales of 3,569 Quebec's herds went from a range of 14,258 to 21,528 DCDbovCA/month to a range of 1,494 to 4,707 DCDbovCA/month after the implementation of the new regulation. Moreover, using data from 3,337 herds, we estimated a mean (95% confidence interval) reduction in 19 DCDbovCA/herd-year (14.8, 24.2), while the pre-regulation herd-level category 1 AM sales was 26 DCDbovCA/herd-year. This reduction was achieved without evidence of an increase in other antimicrobials. Finally, the veterinary facility associated with the herd was an important determinant of the herd-level reduction in category 1 antimicrobials. This study was the first to quantify a significant reduction in category 1 AM sales following the implementation of a restrictive regulation in dairy production in Canada. These results demonstrate that such an approach is effective to reduce the sales of a specific category of antimicrobial in animal production.

Post-crisis regulations, market making, and liquidity in over-the-counter markets

We augment a simple inventory model with new features of the post-crisis regulations to offer new predictions on the effects of post-crisis regulations on the over-the-counter markets. First, the increased capital requirements of Basel III lead to an overall increase in order rejection rates of large orders. Second, and more importantly, the effects on order rejection rates depend on the risk weights used in calculating risk-weighted assets (RWAs). More specifically, the increase in order rejection rates is more severe for assets with higher risk weights, but less severe for assets with lower risk weights. In fact, for the cases of the lowest risk weights, simulations suggest that we may even see a decrease in order rejection rate. Third, the price impact of assets with higher risk weights increases, while the price impact of assets with lower risk weight decreases in the post-regulation period. Overall, our paper points to an important unintended consequence of the post-crisis regulations—the re-distribution of liquidity among assets with different risk weights assigned to them.

Implications of flow regulation for habitat conditions and phytoplankton populations of the Nakdong River, South Korea

Anthropogenic regulation of hydrographs is a widespread approach to river management; however, the effects of river regulation on habitat conditions and aquatic communities have rarely been studied. In this study, we analyzed the physical, chemical, and biological data from the lower Nakdong River in South Korea from 2005 to 2009 before weir construction and from 2012 to 2016 after weir construction. A partial least square path model (PLS-PM) was applied to delineate the complex interrelationships of diatoms and cyanobacteria with physicochemical parameters, nutrients, zooplankton grazing, and hydrological parameters. Inferential modeling using the hybrid evolutionary algorithm (HEA) allowed the identification of differences in the importance and threshold conditions of population dynamics drivers of diatoms and cyanobacteria before and after flow regulation. The annually averaged trajectories of limnological variables displayed significant shifts in seasonality and magnitudes of phytoplankton, zooplankton, and nutrient concentrations between the two periods. The results of PLS-PM indicated that, after flow regulation, diatoms and cyanobacteria were directly affected by nutrients and zooplankton densities and the path coefficients of hydrological parameters decreased or even were insignificant. The inferential models suggested that diatom dynamics were essentially shaped by threshold conditions of water temperature (WT) and pH before regulation, but mainly by those of rotifers (below 51.1 ind. L−1) after regulation. As for cyanobacteria dynamics, WT was identified as a critical threshold condition before and after regulation, and the threshold of PO4− concentration above 145.4 L−1 was identified as the reason for occasional blooms during the post-regulation period. Overall, the results suggest that flow regulation gradually alters habitat conditions typically of rivers to those of stagnant waters. These findings must be taken into account for sustainable management strategies of regulated rivers.

Does the Disclosure of an Audit Engagement Partner’s Name Improve the Audit Quality? A Difference-in-Difference Analysis

On 15 December 2015, the Public Company Accounting Oversight Board (PCAOB) passed Rule 3211, requiring audit firms registered with PCAOB in the U.S. to disclose the audit engagement partner’s name in the Form AP, effective 31 January 2017. The regulation aims to improve the transparency and quality of audits, thereby increasing investors’ confidence in financial statements. Using the audit firms registered with the PCAOB and their clients as the treated sample, we employed a difference-in-difference analysis to investigate whether and the extent to which implementing Rule 3211 impacts audit quality and audit costs. We compared the audit quality (proxied by the abnormal discretionary accruals quality, the probability of restating the financial statements, and the ratio of the audit fees to the total fees) and audit costs (proxied by the total audit fees) from one year (up to three years) pre- to one year (up to three years) post-Rule 3211, to a control sample (comprised of U.K. audit firms, which were not subject to such regulation during the sample period). The empirical results generally indicate that there was an increase in the audit quality and in the audit costs from the pre- to the post-Rule 3211 period and also suggest that auditor independence increased in the post-regulation period compared to the pre-regulation period. Our empirical results are new and contribute to the research on the PCAOB and audits.

The Unintended Benefits of Increased Disclosure Frequency: Evidence from the Brokerage House Industry

Using a plausibly exogenous shock to performance disclosure frequency by listed brokerage houses in China, we examine the impact of disclosure frequency on the quality of information production. Difference-in-difference estimation shows that analysts affiliated with listed brokerage houses exhibit lower forecast optimism in the post-regulation period, compared to their unlisted peers. Cross-sectional analyses suggest that the effect is more pronounced when the listed brokerage houses’ business relies less on their clients, when analysts have greater career concern, and when the covered firms exhibit lower valuation uncertainty/difficulty. Additional analysis indicates that forecast revisions by analysts affiliated with a listed brokerage house are more informative after the shock. Moreover, we find that analysts affiliated with listed brokerage houses issue more accurate and frequent forecasts and cover more companies than their peers do, which suggests that information production improves as a result of increased competition. Overall, our evidence suggests that increased performance disclosure by information intermediaries has positive externalities.

Impact of changing reimbursement criteria on statin treatment patterns among patients with atherosclerotic cardiovascular disease or cardiovascular risk factors.

Starting 1 August 2013, the eligible cholesterol level for statin reimbursement in patients with atherosclerotic cardiovascular disease (ASCVD) or cardiovascular disease (CVD)-related risk factors changed from LDL-C≥130mg/dl (or TC≥200mg/dl) to LDL-C≥100mg/dl (or TC≥160mg/dl) in Taiwan, which may modify clinician prescribing behaviours. We aimed to evaluate the impact of changing reimbursement criteria on statin treatment patterns. A before-after cohort design was conducted using Taiwan's National Health Insurance Research Database. Differences in statin treatment patterns between the pre- and postregulation periods were compared. Two prespecified study cohorts were identified to examine the impacts of this change on those who need statins for "secondary prevention" (patients newly diagnosed with ASCVD) and those who need statins for "primary prevention" (patients newly diagnosed with CVD-related risk factors, such as diabetes mellitus [DM]). Treatment patterns measured in this study included initiation, discontinuation, switching, dose increase, dose decrease and dose maximization. The proportion of patients who initiated statins during the postregulation period was higher than that of patients who initiated statins during the preregulation period (eg coronary heart disease (CHD) patients, pre- vs. postregulation: 41.23% vs. 48.25%). Notably, only 30%-40% of patients initiated statin use in the postregulation period across different conditions. In addition, the proportion of patients who discontinued statins remained very high. Even in the postregulation period, more than half of CHD patients discontinued statins during the 1-year follow-up period (eg CHD patients, pre- vs. postregulation: 59.07% vs. 52.75%). The new reimbursement criteria started on 1 August 2013 seemed to lower the barriers of access to the first statin prescription among patients with CHD, cerebrovascular disease (CBVD) and DM. Nevertheless, the proportion of patients who initiated statin use was suboptimal, and the proportion of patients who discontinued statins was very high in the postregulation period.

Effect of a Nationwide Real-Time Drug Utilization Review System on Duplicated Nonsteroidal Antiinflammatory Drug Prescriptions in Korea.

Since January 2013, a nationwide drug utilization review (DUR) system for therapeutic duplication (TD) of nonsteroidal antiinflammatory drugs (NSAIDs) has been implemented in Korea. Our objective was to perform an interrupted time series study to assess changes in the pattern of NSAIDs use in knee osteoarthritis patients after implementation of the regulations. We compared the prescribing patterns in 2012 and 2013 by means of an interrupted time series study, using the Health Insurance Review and Assessment Service database. TD was defined as use of concurrent NSAIDs either on the same or on different prescriptions for >3 days in a patient. Level change and trend change (with 95% confidence intervals [95% CIs]), and absolute and relative changes in the proportion of TDs, were estimated using segmented regression models. Multivariable logistic regression models were used to explore patient and provider characteristics associated with the TDs. Approximately 2.5 million patients were prescribed NSAIDs in both 2012 and 2013. The proportion of TDs before and after introduction of the DUR system was 7.4% and 5.6%, respectively. Overall, an absolute reduction of 89% and a relative reduction of 30% in TDs were observed. In the postregulation period, older patients, medical aid subscribers (odds ratio [OR] 1.87 [95% CI 1.84, 1.90]), and veterans (OR 3.28 [95% CI 3.10, 3.46]) were most likely to receive NSAID TDs. The prescription of NSAID TDs decreased with the introduction of the nationwide DUR system. Continuous adherence to the DUR regulations and safety monitoring are needed, especially with the elderly, medical aid subscribers, and veterans.

Economic Analysis of Mandated Protocolized Sepsis Care in New York Hospitals.

Initial evidence suggests that state-level regulatory mandates for sepsis quality improvement are associated with decreased sepsis mortality. However, sepsis mandates require financial investments on the part of hospitals and may lead to increased spending. We evaluated the effects of the 2013 New York State sepsis regulations on the costs of care for patients hospitalized with sepsis. Retrospective cohort study using state discharge data from the U.S. Healthcare Costs and Utilization Project and a comparative interrupted time series analytic approach. Costs were calculated from admission-level charge data using hospital-specific cost-to-charge ratios. General, short stay, acute care hospitals in New York, and four control states: Florida, Massachusetts, Maryland, and New Jersey. All patients hospitalized with sepsis between January 1, 2011, and September 30, 2015. The 2013 New York mandate that all hospitals develop and implement protocols for sepsis identification and treatment, educate staff, and report performance data to the state. The analysis included 1,026,664 admissions in 520 hospitals. Mean unadjusted costs per hospitalization in New York State were $42,036 ± $60,940 in the pre-regulation period and $39,719 ± $59,063 in the post-regulation period, compared with $34,642 ± $52,403 pre-regulation and $31,414 ± $48,155 post-regulation in control states. In the comparative interrupted time series analysis, the regulations were not associated with a significant difference in risk-adjusted mean cost per hospitalization (p = 0.12) or risk-adjusted mean cost per hospital day (p = 0.44). For example, in the 10th quarter after implementation of the regulations, risk-adjusted mean cost per hospitalization was $3,627 (95% CI, -$681 to $7,934) more than expected in New York State relative to control states. Mandated protocolized sepsis care was not associated with significant changes in hospital costs in patients hospitalized with sepsis in New York State.

Corporate social responsibility and cash holdings in India: Evidence from a natural experiment

The relationship between CSR and cash holdings is not conclusive from prior studies due to the endogeneity issue. In this study, we use a natural experiment setting, i.e., the implementation of mandatory CSR spending regulation in India in 2015, to test the relationship between CSR and cash holdings. Our results show a positive relationship between CSR and the value of cash holdings. As a result of such positive valuation, we observe that the firms which are required to spend on CSR activities under the Act, increased their cash level in the post-regulation period.

Breaking “bad” links: Impact of Companies Act 2013 on the Indian Corporate Network

Board interlock networks are known to exhibit concentration of influence by a small group of elites. In this paper, we study a policy intervention aiming to curb this influence. We analyze the evolution of Indian board interlocking network from 2008 to 2016, a period that covers pre- and post-enactment of government regulation (Companies Act, 2013) limiting the number of directorships held by a single director. We utilize this enactment as an exogenous shock to analyze its effects on architecture of the network. To quantify the changes in cohesiveness, we extract the core-periphery structure in terms of the k-cores of the network and study its evolution over the years. Impacts of the regulation are strikingly demonstrated by fracture of the innermost core of the pre-regulation period into two new cores in the post-regulation period. At the macroscopic level, we find substantial changes in the degree distribution as the network became more egalitarian in terms of connectivity from an erstwhile highly unequal degree distribution. While the actual degree and coreness of companies had undergone substantial changes, we find that relative ranks in terms of degree or coreness of individual companies were very persistent. Empirically, we find that the same social and economic factors that determine the degree/coreness of a company before and after the regulation. We conclude that the regulation reduced concentration of elite control through changes in the core-periphery organization and degree distribution, while mobility of the companies across the network was low and stable throughout the entire period.

The Evolution of Gravel-Bed Rivers during the Post-Regulation Period in the Polish Carpathians

This study provides a conceptual model of the functioning of gravel-bed rivers during the post-regulation period in Poland and forecasts their subsequent evolution. The main difference between fluvial processes during the pre-regulation and post-regulation period is that they are limited to a zone that is currently several times narrower and trapped in a deep-cut channel. During the river post-regulation period, the construction of additional river training works was significantly limited in river channels. Moreover, all forms of economic activity were significantly reduced in the channel free migration zone, particularly bed gravel extraction operations. As a result of these changes, a limited recovery of the functioning and hydromorphology of the river channel occurred via a return to conditions in effect prior to river regulation. In recovering sections of river, the channel gradually broadens, and its sinuosity and number of threads increase. The overall process can be called spontaneous renaturalization, which yields a characteristic post-regulation river channel. The conceptual model was developed on the basis of the evolution of the gravel-bed river, the Raba River, during the post-regulation period in the Polish Carpathian Mountains.

Does social responsibility improve firm value? Evidence from mandatory corporate social responsibility regulations in India

AbstractThe debate on the impact of corporate social responsibility (CSR) on firm value is still unsettled. Empirically, research designs cannot unequivocally prove that CSR affects firm value because CSR and firm value could be predetermined. Using a natural experiment, we prove that CSR positively affects firm value. In this study, we use the mandatory CSR spending regulation implemented by India in 2015, as a natural setting. We compare the changes in the firm value during the pre‐ and postregulation period. Our results show that market value increases for firms that were forced to spend on CSR during postregulation period.

Ice-jam flood regime of the Peace-Athabasca Delta: Update in light of the 2014 event

Major ice jams forming in the lower reaches of Peace River during the spring breakup of the ice cover have been identified as the main agents of flooding and replenishment of the perched basins of Peace–Athabasca Delta, one of the world's largest inland freshwater deltas. The paucity of ice jamming in the lower Peace River following construction of the Bennett Dam (1968) and the potential impacts of climate change have raised concerns regarding habitat degradation. The most recent ice-jam flood, which occurred in 2014, was only the fifth in the post-regulation period and the first since 1997. Despite the sizeable number of years in the regulation period, conventional estimates of flood frequency are shown to be uncertain, but become robust when based on the slope of the cumulative number of floods. The evolution of ice breakup in 2014 was in full accord with previously postulated mechanisms for the flat reach of Peace River, which extends for several hundred kilometres above its mouth. An updated examination of historical hydrometric data at the WSC Peace Point gauge took into account the years 2003–2018, extending the record of the regulation period by 50%. The analysis further confirmed and fine-tuned physically based predictions of the effects of the freezeup level, the breakup flow, the thickness of the winter ice cover, and the accumulated degree-days of thaw on the incidence of ice-jam flooding. Commercially motivated reduction of freezeup flows in recent years likely contributed to the occurrence of the 2014 flood. Total winter snowfall at an index station appears to have reversed a pre-2000 decreasing trend, but its benefit to breakup flow may be moderated by increased incidence of mid-winter thaws.

Price Discovery in the Chinese Stock Index Futures Market

ABSTRACTWe investigate China’s three stock index futures, and their underlying index in Chinese financial markets, to test their long- and short-run price discovery ability. Additionally, we analyze the regulation change of September 7, 2015, which greatly affected the futures market by imposing restrictions on trading volumes. The results suggest that the futures market tends to dominate price discovery compared with the corresponding stock indices, and that this effect became stronger in the post-regulation period. However, CSI 500 index futures initiate price discovery in the futures market, whereas the SSE50 lead spot market indices before the September 2015 regulation. A crash in CSI 500 futures would easily result in a market-wide crisis, as we conclude from analysis of monthly price discovery dynamics. This suggests one possible explanation for the market crash of 2015. Our results provide the first description of whole futures market price discovery characteristics in the Chinese stock market.

The Consequences of Management Earnings Forecast Regulation: Stock Price Informativeness and Disclosure Externalities

We examine the consequences of a management earnings forecast regulation implemented in a staggered manner. The regulation substantially increases the directly affected firms’ frequency of management forecasts. Nevertheless, approximately 14% of the directly affected firms fail to comply with the regulation (noncompliant firms). The regulation helps increase the stock price informativeness of the directly affected firms that issue a forecast. The regulation also helps increase the stock price informativeness of the noncompliant firms (a spillover), but we find no evidence of a similar spillover for the firms that are not required to issue mandatory forecasts in the post-regulation period.