Public Firms In China Research Articles

Environmental, social and governance (ESG) performance as a moderator in assessing the impact of government subsidies on underinvestment in China

In recent years, underinvestment has become common among subsidised enterprises in China. Stakeholder theory asserts that environmental, social and governance (ESG) performance forces enterprises to prioritise stakeholder needs by incorporating ESG principles into business operations, which in turn influences business investment decision-making. This study examines the impact of government subsidies on firm underinvestment and whether ESG performance plays a moderating role in this direct relationship. A dataset of 17,780 firm-year observations of A-share public firms in China for the period 2011–2021 was employed, and the data were analysed using the ordinary least squares regression model, fixed-effects regression model, propensity score matching difference-in-difference model, and instrumental variable approach. These results indicate that government subsidies mitigate firm underinvestment and tend to reduce underinvestment in firms with higher ESG performance. Moreover, the findings indicate that the performance in ESG factors influences the effect of government subsidies on the lack of investment in state-owned enterprises (SOEs), as opposed to non-SOEs. This effect is more noticeable in heavily polluting industries compared to non-heavily polluting industries. These findings imply that the government should promote the ESG performance of subsidised firms to enhance their overall corporate investment efficiency.

Product market competition and corporate maturity mismatch: evidence from China

ABSTRACT This paper studies the effect of product market competition on corporate maturity mismatch, aiming to show how market competition influences management decision-making in maturities of financing and investing. Using a sample of non-financial public firms in China over 2007–2021, we find that product market competition is positively associated with corporate maturity mismatch. The motivation for lowering debt costs and the deteriorated firm performance could be potential channels. The effect is more pronounced for non-state-owned firms, firms with higher risk-taking, internationalized firms, and firms in R&D-intensive industries. Firms’ competitive positions are negatively associated with maturity mismatch. Our findings highlight that competition could be an important determinant in maturity mismatch. This study enriches our understanding of maturity mismatch causes and the link to the external business environment and provides implications for management and policymaking.

Circular economy practices and corporate social responsibility performance: the role of sense-giving

ABSTRACT The circular economy (CE) has recently emerged as an innovative business model for firms to transform corporate social responsibility (CSR) into actions. Existing research tends to examine the CSR advantages of short-term CE practice adoptions, remaining silent on the benefits and drivers of their long-term implementation. This study fills the gaps by investigating the impact of the long-term adoption of eco-design (ECO) and reverse logistic (RL) practices on firm CSR performance and exploring the moderating roles of four sense-giving activities. Using a balanced panel dataset of 132 manufacturing public firms in China and a fixed-effects model, we find that: 1) the frequency of ECO and RL practice adoptions significantly improves firm CSR performance; 2) goal setting for CE performance, CE education and training, and employee feedback on CE practices positively moderate the RL-CSR relationship, while employee feedback on CE practices positively moderates the ECO-CSR relationship. This study has significant implications for both research and practice in the increasingly important domains of CE and CSR management.

Using Available‐for‐sale Securities to Smooth Earnings: Evidence from China

Utilizing a large sample of non‐financial public firms in China from 2009 to 2016, we find robust evidence that non‐financial firms smooth their earnings through realized gains and losses on available‐for‐sale (AFS) securities. This effect is more pronounced for firms with weaker internal and external corporate governance. Firms with an incentive to manipulate up their earnings are also less likely to smooth earnings through AFS securities. Moreover, firms with more accrual earnings management or real earnings management tend to smooth earnings to a greater extent through AFS securities. Firms smooth earnings only when their net income is positive or when net income is negative and the gains from AFS securities are large enough to offset negative earnings. We do not find supporting evidence for engaging in big bath earnings management through the realization of losses on AFS securities. These findings suggest that gains and losses on AFS securities allow non‐financial firms to actively smooth their earnings. Last, the accounting standards amendments in 2017 that essentially disable earnings smoothing through AFS securities increase price efficiency.

Individual investment banker human capital and SEO discount: Evidence from China

Using unique data of seasoned equity offerings (SEO) by public firms in China, this study examines whether and how human capital of individual investment bankers affects SEO discount. We find a robust negative relation between SEO discount and the human capital of individual investment bankers who underwrite the seasoned equity. Our mechanism tests reveal that for firms with higher information asymmetry or agency problems between controlling and minority shareholders, individual investment bankers with greater human capital can provide higher quality underwriting services. Additional analyses show that the human capital gained from previous fraudulent offerings can not provide effective intermediary services. And when more experienced investment bankers switch to a new bank, stock issuers are more likely to move with them. Human capital of individual investment bankers has positive relations with the tone of SEO sponsor letters. Furthermore, the role of individual investment bankers is more pronounced after the registration system reform in Chinese capital market.

CSR preference, market competition, and corporate financial performance

AbstractAlthough the relationship between corporate social responsibility (CSR) and corporate financial performance has been concerned by academia, little is known about how to fulfill CSR. Using a sample of 2111 A‐share public firms in China, this research examines the effects of the way of fulfilling CSR on corporate financial performance and the moderating effects of market competition environments. The results show that firms' CSR behavior of preferred primary stakeholders has a positive effect on corporate financial performance whereas that of preferred secondary stakeholders harms corporate financial performance. Furthermore, this research finds that the stronger the market competition faced by the firm, the more obvious the effect will be, whether it is positive or negative. The findings are helpful to guide the managers on how to better fulfill their CSR, which is of great significance for the sustainable development of CSR.

Striving to improve investment efficiency among Chinese firms: does the role of venture capital matter?

PurposeThis study aims to investigate the impact of venture capital (VC) involvement on investment efficiency (IE) and its potential action mechanisms from the perspective of financial resource allocation.Design/methodology/approachUsing data of Chinese firms between 2008 and 2020, and the propensity score matching–difference in differences method, the authors investigate the relationship between VC and IE.FindingsThe results show that VC involvement significantly promotes IE, and the effect exhibits an inverted U-shape dynamic over time. The authors find two mechanisms through which VC promotes IE: alleviating financing constraints and improving corporate governance. Supplementary tests indicate that VC institutions with high reputations play a significant role in enhancing IE; the promotion effect is more pronounced for firms in non-high-tech industries, firms facing higher industrial competition and firms located in areas with better property rights protection systems.Originality/valueThis study provides several original contributions. First, based on principal–agent and financing constraint theories, this study enhances the literature by revealing how VC drives the IE of newly public firms in China. Second, to the best of the authors’ knowledge, this is the first attempt to identify the mechanisms between VC and IE; Third, from an empirical perspective, besides discussing the average and dynamic effect of VC on IE, this study also explores the impact of the interaction between VC and market competition and property rights protection on IE.

Do Employee Stock Ownership Plans Affect Corporate Social Responsibility? Evidence from China.

Few studies have discussed the relationship between employee stock ownership plans (ESOPs) and corporate social responsibility (CSR). Using a sample of 895 A-share public firms in China, this research examines the effects of ESOPs on CSR, and the moderating effects of wedge structure and firm size on this relationship. This research mainly used the OLS model to test the research hypotheses, and all regressions were performed in Stata15. The results show that the ESOPs of Chinese public firms provide external economic incentives and internal psychological incentives for employees, increase their motivation to engage in CSR activities, and ultimately contribute to CSR. At the same time, this research finds that this relationship is stronger for firms without wedge structure and small firms. This research provides insights for understanding the relationship between ESOPs and CSR and has important managerial implications for firms to pay attention to the interests of employees to achieve sustainable development.

Friend or foe: On a common shareholder relationship between mutual funds and public companies

We examine a novel business tie between mutual funds and public firms in China via a common shareholder (CS) relationship, in which a fund management company (FMC)'s shareholder also has a substantial stake in a public company invested by this FMC. The CS relationship may give connected funds an information advantage about the company over non-related funds. Meanwhile, mutual funds may engage in investment activities that help support stock prices of its CS-connected companies. Empirical evidence supports the superior information hypothesis but not the price support hypothesis. The holdings of CS-connected FMCs significantly predict subsequent stock returns. Moreover, such superior information is related to company fundamentals rather than short-term corporate events.

Mining semantic features in current reports for financial distress prediction: Empirical evidence from unlisted public firms in China

It is difficult to predict the financial distress of unlisted public firms due to their longer disclosure cycle of accounting information and more inadequate continuity of market trading information compared to listed firms. In this paper, we propose a framework to predict the financial distress of unlisted public firms using current reports. Specifically, to better represent the meaning of current report texts, we propose a semantic feature extraction method based on a word embedding technology. Empirical results show that current reports contain more effective information for predicting the financial distress of unlisted public firms compared with periodic reports. In addition, semantic features extracted using our proposed method significantly improve the predictive performance, and their enhancing effect is superior to that of topic features and sentiment features. Our study also provides implications for stakeholders such as investors and creditors.

An empirical investigation on the impact of marketing strategy style on firm performance: evidence from public firms in China

PurposeThe mechanism of marketing strategy style and its impact on firms are research issues received wide attention. In particular, the aggressive style of marketing strategy has been chosen by many companies, but recent studies have shown that it has a negative effect on corporate performance. This leads to the core issue of this paper – does the aggressive style of marketing strategy always had a negative impact on corporate performance? Are there any factors that can alleviate this negative impact?Design/methodology/approachBased on the resource-based theory and agency theory, this paper takes the Growth Enterprise Market (GEM) listed companies as the research objects, collects secondary data and conducts the research by regression model.FindingsThe empirical research shows that: (1) the aggressive style of marketing strategy significantly and negatively affects the performance of firm; (2) the resource constraint can moderate the main effect and resource control play a weak adjustment role.Practical implicationsIn practice, this paper confirms the adverse impact of aggressive style of marketing strategy on the performance of listed companies on GEM and inspires the industry to strengthen the control and supervision of marketing resources.Originality/valueThis paper makes up for the research gap in the field of cross-research in finance and marketing theoretically.

When Beauty is Beastly: Facial Attractiveness of Female CEOs and Investor Reactions to Acquisitions

The increasing presence of women in corporate executive positions has sparked research on gender bias against female leaders. Prior work in the management area has focused on between-group gender bias in which female executives are compared to their male counterparts, which has led to mixed findings. In this study, we move beyond prior management work to explore within-group variability of gender bias in which some female executives encounter greater levels of gender bias than others do. Specifically, we investigate a personal attribute that contributes to within-group variability: facial attractiveness. Building on gender role congruity theory and the beauty-is-beastly effect, we propose that more, as compared to less, attractive female CEOs are viewed as less competent to manage stereotypically male-typed strategic actions, such as acquisitions. In a sample of female CEOs of public firms in China, we hypothesize and find that investors react more negatively to acquisitions conducted by more attractive female CEOs than to those conducted by less attractive female CEOs. Moreover, we find that this within-group bias is reduced under conditions in which there are more positive media reports about the focal female CEO, and in industries in which female CEOs are represented at a higher rate. Finally, in supplementary analyses, we assess within group male CEO attractiveness, but find that it does not influence investor perceptions of male CEO competence in conducting acquisitions.

Functional diversity of alliance portfolio and corporate social responsibility

This paper seeks to bridge them by exploring the impact of a firm’s alliance portfolio on its CSR. Drawing from the organizational learning lens, we propose that alliance portfolio represents an important source of knowledge and insights that are necessary for a firm to adopt and implement various CSR practices. As the functional diversity of a firm’s alliance portfolio increases, it can gain more distinctive CSR-related knowledge, and its CSR performance will reasonably increase. Further, we propose that the learning from alliance portfolio demonstrates an incremental nature and is contingent upon the governance structure of a firm’s alliances. The empirical findings in the sample of 521 public firms in China strongly support the positive linkage between functional diversity of alliance portfolio and CSR. The findings also reveal that this relationship weakens for firms with more prior alliances and a higher reputation – two variables we employ to indicate the incremental effects of learning from alliance portfolio. And the relationship becomes stronger as a firm’s portfolio includes more equity-based alliances.

Entrepreneurial alertness: Exploring its psychological antecedents and effects on firm outcomes

ABSTRACT Recognition of potentially valuable business opportunities is often the start of entrepreneurship. The present research focused on entrepreneurial alertness, which has been found to play a role in this process. Previous research has highlighted the effects of alertness; we seek to extend this research regarding alertness by investigating its antecedents. Drawing upon psychological capital literature, we focus on two potential contributors to alertness: self-efficacy and optimism. We also seek to clarify the relationship between alertness and firm outcomes. Data collected from CEOs of public firms in China were first used to validate the alertness scale, and data collected with entrepreneurs of private small and medium-sized enterprises in Taiwan were used to test our theoretical model. Results indicated that both entrepreneurs’ self-efficacy and optimism are positively related to alertness. Findings also clarify the effects of alertness by indicating that it is positively related to firm innovation which, in turn, is positively related to financial performance.

Firm Size, Firm Age, and Firm Profitability: Evidence from China

This study aims to investigate the relationship among firm size, firm age, and firm profitability in China’s stock market. We use data from all the public firms in China’s stock market from 2008 to 2018 and adopt a fixed effects model to examine these relationships. We find a positive relationship between firm size and profitability and a negative relationship between firm age and profitability, which is consistent with existing studies conducted in other countries. The findings of our study can contribute to future research in China by offering a sound basis and appropriate reference point, given that no previous research has been conducted in China on this exact topic. This study also offers a comprehensive model for use in future studies.

The unfriendly board: Antecedents and consequences of board dissent

This study examines the antecedents and consequences of board dissent. Drawing from agency theory and the information-processing perspective, we propose that the level of earnings management is negatively associated with the likelihood of board dissent, and that this relationship is moderated by environmental complexity. We also contend that board dissent may improve firm performance, but it may prompt managers to use more deviant strategies. Using a sample of public firms in China, we find support for our hypotheses. Our findings contribute to the literatures on board effectiveness and corporate governance.

A tale of two emerging market economies: evidence from payout smoothing in China and Taiwan

PurposeThe purpose of this paper is to investigate payout smoothing in two emerging markets – China and Taiwan. The authors conduct a comparative study of two emerging market economies that have common cultural and historical characteristics but have experienced different government systems and different approach to the market-based system.Design/methodology/approachThe authors collect firm-level data from Standard and Poor's Compustat Global database, which covers 5,298 public firms in China and Taiwan during the period 1996–2015, and use a variance decomposition methodology to estimate the smoothness of corporate payout in a common empirical framework that includes net income, and debt and investment policies.FindingsOverall, the empirical findings support recently proposed theories of joint determination of corporate payout behavior with debt and investment policies. The authors find that debt and investment policies absorb the majority of shocks to net income, and that debt policy is the main shock absorber. Furthermore, the authors show that firms in China follow a similar strategy with their counterparts in United States and smooth their payout. In contrast to firms in China and US, the payout of the Taiwanese firms is relatively highly sensitive to net income shocks.Originality/valueTo the best of authors’ knowledge, this study is the first to use a joint model to empirically investigate the extent to which debt and investment policies are used to keep corporate payout smooth in emerging markets.

What Dimension of CSR Matters to Organizational Resilience? Evidence from China

Prior work on corporate social responsibility (CSR) has focused mainly on its effects on the short-term performance of firms from developed countries. In this article, we shed light on its effects on organizational resilience, which is defined as the firm’s ability to positively cope with environmental turbulence, and operationalized by long-term, improved sales growth and financial volatility. In line with this operationalization, we adopt CSR’s performance-enhancing and performance-insuring mechanisms to disentangle the relationship between CSR and organizational resilience. Furthermore, we divide CSR into five dimensions, namely shareholder, employee, business, society and environment-related CSR, and respectively examine their impacts on organizational resilience. The empirical study on a large sample of public firms in China from 2010 to 2017 shows that CSR as a whole significantly increases the firms’ long-term growth and reduces their financial volatility. As for the five specific dimensions, they all have a significant negative effect on financial volatility, and the employee, business, environment-related CSR are positively associated with long-term growth. Yet, the empirical results did not indicate significant associations between shareholder and society-related CSR and firms’ long-term growth. This study first explores the impacts of CSR’s different dimensions on organizational resilience. Also, we contribute to enriching the literature on CSR by examining the long-term performance-insuring effect of CSR with a quantitative analysis of emerging markets. Finally, we discuss some important managerial implications, as well as promising directions for future research.

An Empirical Study of Corporate Default Rules and Menus in China, Hong Kong, and Taiwan

Competing theories of default rules and menus in contract law and corporate law provide different accounts of their effects. However, empirical studies are scant, and all focus on U.S. law. Given that corporate ownership outside of the United State is usually concentrated, and institutional settings are vastly different, one might wonder whether corporate law and economic theories on default rules and menus aptly explain corporate practices in other countries. To that end, this article analyzes a unique dataset of 498 randomly sampled and hand‐coded charters of public firms in China, Hong Kong, and Taiwan. While the data do not enable us to make causal inferences, we make a descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the U.S. theories. The major findings are that firms often opted into menus and rarely opted out of default rules without menus, thereby supporting the minimization of transaction cost theory. However, Chinese firms may follow default rules for noneconomic reasons. Hansmann's delegation theory explains the short corporate charters observed in Taiwan, but not those in China and Hong Kong. Corporations in China, Hong Kong, and Taiwan do not appear to be systematically more pro‐minority or pro‐controller than their jurisdictions' corporate laws. This contradicts the principal‐agent theory.

The Impact of Internationalization on Home Country Charitable Donation: Evidence from Chinese Firms

Does internationalization promote or inhibit home country charitable donation for firms from developing countries? This is an important question that remains poorly studied. This paper aims to address this question by focusing on Chinese internationalizing firms. We maintain that while broadening overseas markets brings financial returns to Chinese firms, their domestic charitable donation may decrease with the level of internationalization. Drawing on the resource dependence theory, we argue that the more Chinese firms depend on overseas sales, the less important domestic stakeholders are for their survival, and therefore they are less likely to make charitable donations within China. Further, we maintain that this negative relationship between internationalization and home country charitable donation is attenuated by Chinese firms’ state-ownership. This is because state-ownership provides the firms with alternative sources of critical resources that alleviate their dependence on the international markets. We tested and supported our theory using data collected from all public firms in China between 2008 and 2012. Theoretical and policy implications are provided.