Public Firms Research Articles

Information disclosure as a means of minimizing asymmetric financial reporting: The role of market reaction

This study investigates the effect of information disclosure on financial accounting information comparability. We use a sample of Chinese A-share companies listed from 2001 to 2018 and discover that higher information disclosure quality can increase financial accounting information comparability. Our results reveal that high information disclosure ratings attract greater investor and analyst interest than does increased liquidity and that increased financial accounting information comparability is the main transmission pathway for this effect. Furthermore, the results remain robust after instrumental variables are used to solve endogeneity problems and also after robustness tests. Our findings suggest that regulatory activity to improve public firms’ information disclosure in the Chinese stock market can increase the market’s efficiency. In addition, when facing agency problems, enterprises should defer to external supervision and governance from investors.

Dissecting the listing gap: Mergers, private equity, or regulation?

The abnormal decline in the number of U.S. public firms is often blamed on merger activity, private equity investments, and stock market regulations. We compare the effects of these channels in a unified framework. In the U.S., an extra 100 mergers is associated with 22.01 additional missing public firms, whereas an extra 100 PE deals is associated with 3.62 fewer missing public firms. Regulatory changes contribute to the decline of U.S. listings too. We also specify the types of deals that most strongly affect listings. Finally, we document that similar listing gaps emerge in other developed economies.

Mergers and Acquisitions under Common Ownership

We provide new facts about the cross section and evolution of mergers and acquisitions for US public firms. Using a general equilibrium model with a hedonic demand system and data on institutional ownership, we document that mergers are increasingly concentrated among firm pairs with a high degree of product market interaction and a moderate to high degree of common ownership. We estimate how much mergers have raised aggregate corporate profits and reduced consumer surplus and quantify how the anticompetitive effects of mergers are affected by common ownership and shareholder value maximization motives.

Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence from Securities Class Action Lawsuits

Abstract Using three exogenous shocks to ex ante litigation risk, including federal judge ideology and two influential judicial precedents, we find that lower shareholder litigation risk reduces a firm’s propensity to delist from the U.S. stock markets. The effect is at least partially driven by indirect costs of litigation and that being a private firm can significantly reduce the threat of litigation. Overall, the results suggest that mitigating excessive litigation costs for public firms is crucial to ensure the continued vibrancy of the U.S. stock market.

The Effect of Incoming Board Interlocks With Public Firms on Private Firms’ Survival: Large-Scale Evidence From India

How private firms can overcome their unique governance challenges remains an important but understudied topic. Using novel data on more than 28,000 private firms in India from 1988 to 2017, we examine whether private firms can improve their survival prospects by having board interlocks with public firms and, specifically, interlocks whereby a public firm director subsequently joins the private firm's board. In our data, we found a U-shaped relationship between the number of incoming board interlocks and the probability of private firm exit. We also found that board interlocks formed by public firm directors of public firms audited by Big Four companies improve private firms’ survival more than other interlocks, consistent with the notion that such interlocks improve monitoring at private firms. Overall, our study points toward the importance of considering the role of incoming board interlocks when explaining private firm survival.

Dynamic capabilities in new product development – the role of operational capabilities

PurposeThis research investigated the individual and combined effects of dynamic and operational capabilities on new product success using an improved measurement instrument.Design/methodology/approachThe empirical data were collected from 872 manufacturing firms in Thailand via a questionnaire survey. Then data were analyzed by covariance-based structural equation modeling.FindingsThe improved measurement instrument provided good reliability and validity. Dynamic capabilities improved new product success through operational capabilities, which fully mediated this relationship. Dynamic capabilities negatively moderated the effect of operational capabilities on new product success.Research limitations/implicationsThe empirical model derived from private manufacturing company data should be further tested in service industries, public firms and nonprofit organizations.Practical implicationsThe research provided two implications: the complementarity between dynamic capabilities and operational capabilities and the measurement instruments and the industrial benchmarks.Originality/valueThis study contributes three new insights: firstly, the complementary role of dynamic capabilities and operational capabilities supporting new product success; secondly, the mediating role of operational capabilities and thirdly, the moderating role of dynamic capabilities in this relationship.

Searching for greener pastures: effect of past performance and target differences on M&A premium

PurposeThe purpose of this paper is to provide an understanding of how backward intelligence and forward-looking intelligence interact and impact decision making in the context of acquisitions. Past experiences provide essential information used for decision making, however, the ex ante nature of premiums, which require forward-looking intelligence, can change how experience is utilized.Design/methodology/approachThe authors utilize a fixed effects model to examine acquisitions conducted by US public firms during the period of 1993–2015.FindingsThe authors find that as past acquisition returns increase, acquirers are likely to adopt a backward-looking perspective of past performance that leads to higher premiums, as opposed to a forward-looking perspective of consequences. The relationship between past performance and premium is moderated by differences in the target's industry and the target's slack levels relative to the acquirer. The study findings suggest that forward-looking intelligence can alter attention and ultimately behavior based on backward-looking intelligence. By focusing on how these two contrasting perspectives interact, our findings extend research on the tension between backward-looking and forward-looking logics of decision making.Originality/valueUnlike extant literature of acquisition premiums that have mainly focused on the valence and magnitude of experience, the authors focus on how backward-looking decision behavior changes when the firm's expectations of the future are incorporated. The authors empirically demonstrate how a lower acquisition premium is achieved when the decision of how much to pay is an interaction of the past and the future.

LABOR INTENSITY, ADVERTISING INTENSITY, AND FIRM PERFORMANCE: EVIDENCE FROM MERGERS & ACQUISITIONS

This study examines the relation between a firm’s labor intensity and its operating performance. Using a large sample of US public firms from the period 2001 to 2018, we find that firms with a higher level of labor intensity are less likely to engage in mergers & acquisitions (M&As) activities. Our main finding suggests that a firm’s operating performance, proxied by return on assets and return on equity, decreases with a higher level of labor intensity. Further analysis shows that if labor-intensive firms engage in M&As, they are less likely to use cash and stock as payment methods and consider the target’s legal forms of business orientation. The negative relation between labor intensity and firm performance is aggravated (attenuated) by the firm’s advertising intensity (stock payment method and private target of potential M&A characteristics). Finally, labor productivity is also negatively associated with labor intensity.

Is Red or Blue More Likely to Narrow the Gap? The Effect of CEO Political Ideology on CEO‐Employee Pay Disparity

AbstractHow does CEO political ideology influence the pay disparity between a CEO and typical firm employees? Drawing on the upper echelons theory, we postulate that politically liberal CEOs are more inclined to address within‐firm vertical pay disparity versus conservative or neutral CEOs, because liberals attend more closely to potential inequality issues and are more open to social changes. We furthermore contend that the effect of CEO political ideology varies across certain contextual factors. Results based on a sample of United States public firms support our arguments. Our study contributes to the literature on income inequality by highlighting CEO political ideology as a crucial determinant and investigating the boundary conditions.

PENGARUH AUDIT FEE, AUDIT TENURE, ROTASI AUDIT DAN REPUTASI KANTOR AKUNTAN PUBLIK TERHADAP KUALITAS AUDIT

The purpose of this study was to analyze the influence of audit fees, tenure, rotation, and accounting public firms’ reputations on audit quality. Audit quality is the ability of the auditor to detect irregularities or errors in financial statements and report them to users of who use the financial statements. The population in this study are all transportation sub-sector companies listed on the IndonesiaiStock Exchange (IDX) in 2016-2020. Purposive sampling was utilized to choose the study's sample. Twelve businesses were chosen as the sample in this study using pre-established criteria.The data analysis method used is multiple linear regression. The results of the study show that the audit fee and the reputation of the public accounting firm have an effect on audit quality. Meanwhile, audit tenure and audit rotation have no effect on audit quality

Managerial concentration, ownership concentration, and firm value: Evidence from Spanish SMEs

Various corporate governance theories indicate that governance in small and medium-sized enterprises (SMEs) differs to that of larger corporations due to the ownership-management function within the organizational structure. This article provides empirical evidence of enhanced firm value in a sample of listed SMEs resulting from certain corporate governance mechanisms related to managerial and ownership concentration. The empirical analysis conducted in this paper is based on a panel data set consisting of 108 small and medium-sized public firms on the Spanish alternative stock exchange over a time frame of five years (2015-2019). The results suggest that CEO duality, the controlling shareholders, and the second largest shareholders all improve firm value. Conversely, the ratio of independent directors has a negative impact on firm value. These findings are robust to alternative model specifications such as dynamic panel estimators (Generalized Method of Moments -GMM-) and instrumental variable methods. Overall, we show that the governance configuration of listed SMEs can mitigate several of the central issues, such as agency problems, that large corporations face.

The impact of underpricing on newly public firm investments

Going public not only provides access to capital, but it is also an important mechanism through which firms can obtain feedback on opportunities from a wider set of stakeholders and market participants. We develop this argument by examining how feedback from the Initial Public Offering (IPO) process in the form of underpricing influences a firm's subsequent investment decisions. Our results indicate that underpricing is associated with increases in investment spending in R&D and Capex post-IPO. Further, we find that at extreme levels of underpricing these shifts in investments have a detrimental effect on firm outcomes. Our work highlights that going public significantly alters the information environment and shapes the perceived opportunities of newly public firms in important ways. As such, the IPO and underpricing are not simply outcomes, but rather are important contributors to how firms allocate resources and pursue opportunities into the future. Further, findings suggest that effectively interpreting information from markets may be a previously overlooked capability that influences successful transition to public firm status.

The Impact of Market and Non-Market-Based Environmental Policy Instruments on Firms’ Sustainable Technological Innovation: Evidence from Chinese Firms

A firm’s sustainable technological innovation (STI) is an important strategy to cope with the global challenges of the climate emergency and resource constraints. To encourage firms to pursue sustainable innovation, the government put its efforts into designing a proper environmental policy (EP). According to Porter’s hypothesis, a well-designed and flexible EP will advance the pace of a firm’s innovation. This paper argues that a flexible EP portfolio combining market and non-market-based EP instruments may affect a firm’s STI. Market-based EP instruments are cost-effective and consistent from a long-term view, whereas non-market-based EP instruments are more forceful and effective in the short term. Hence, these two kinds of EP instruments could complement each other. Furthermore, technical executives in top management teams will moderate the relationships between EP instruments and firms’ STI. Data analysis results of 618 Chinese public firms, who constantly participated in R&D activities during 2015–2019, supported these hypotheses. Contributions to EP and firm innovation theory, as well as suggestions for policymakers and firms’ top management teams, are discussed.

Impact of China’s Belt & Road Initiative (BRI) on Foreign Institutional Investment: Winners and Losers among Pakistani Publicly Listed Firms

ABSTRACT We investigate the impact of China’s BRI on foreign institutional investment in Pakistani public firms. The question of interest is whether the BRI attracted foreign institutional investment in Pakistani firms in the presence of low government transparency about the BRI. We find that, on average, Pakistani public firms did not experience significant growth in foreign institutional investment between the pre- and post-BRI periods. However, we find that foreign institutional investment increased for Pakistani firms affiliated with business groups relative to non-affiliated Pakistani firms between the pre- and post-BRI periods. We note that the results become stronger with higher levels of groups diversification. Our finding of increased institutional investment for affiliated Pakistani firms also holds relative to matched Indian affiliated firms. These findings suggest that foreign institutional investors prefer business groups in emerging economies as a source of opportunity to overcome the institutional voids problem.

A Research on ESG Commitment and Corporate Performance

ESG management matters ever more - globally. Firms, especially public firms are practically required to make investments in ESG. ESG investment is a way to satisfy social requirements on the one hand, but costs, on the other. Further, corporate governance is expected to affect the way ESG commitment is related to firm value. We test this idea using a data set of 3,943 firm-years from KRX from the years of 2011 to 2020. So we try to check what role ESG and corporate governance play in determining corporate market valuation in KRX market. We find that ESG commitment is mostly insignificantly, and sometimes negatively related to corporate market valuation. Again, ESG commitment in connection with governance in the form of chaebol affiliation is mostly significantly, and negatively related to corporate market valuation. So our research suggests that ESG commitment is currently not so much appreciated in KRX market, and that ESG investment with governance consideration is strongly likely to turn out with negatively significant effect on firm value. Why? It maybe because Korean firms, chaebol affiliated firms also, are not so much interested in ESG commitment yet. Lack of interest of firms leads to less ESG commitment, which, in turn, may call about lower evaluation of ESG activities in the market.

Assessment of suppliers’ collaboration on construction project in Ebonyi state

In Nigeria, the concept of suppliers’ collaboration is still a new area to construction stakeholders. The construction companies in Ebonyi State are faced with enormous challenges which involve the integration of all construction processes and activities of different agents and specialists hired by clients for successful project delivery. To address the problem of construction project in Ebonyi State, construction stakeholders require collaboration which suppliers’ collaboration is the most pertinent. The aim is to assess the factors affecting contractors–suppliers relationship on successful construction project delivery in Ebonyi State. The general objective is to identify and determine the factors affecting contractors–suppliers relationship in construction industry and impact of supplier’s collaboration on the cost of construction project in Ebonyi State. The research sought to ensure at least 95% level of confidence with a total population of 400 and sample size set to 250. Primary and secondary sources were used to generate data with the aid of structured questionnaire and oral interviews directed to both private firms and public firms in construction industry. In total, 250 forms containing a set of question were submitted randomly to selected medium and large-sized construction firms in Ebonyi State. Data collected were presented in tables containing frequencies of the responses and their corresponding percentages. Frequency distribution, relative importance index (R11), Chi-square (X2), Python spyder IDE, statistical package for social science students(SPSS) and Pearson product moment correlation coefficient were the analytical tools used in the study. The result of the analyses revealed that, correlation matrix used to measure the relationship between contractors and supplier variables. The matrix depicts there is a linear correlation between all possible pairs about contractors and suppliers. There exist a relationship between contractors and suppliers as shown with other pairs in the correlation matrix that connects to objective number 3 and addresses the research question number 3. This implies that as the contractor-supplier approach short term or/and long term increases, the supplier collaboration on the cost of construction project in the Ebonyi State is expected to increase. The study concludes that the main drivers of the success of supplier collaboration appear to be the elements of trust and teamwork. It is these which ensure the continued relationship and ensure that both parties derive the benefits necessary for the partnership to continue and therefore; made the following recommendation. A detailed schedule of materials supply should be provided by the contractor. The schedule should contain the time required for material to arrive on site. Thus, results in reducing unproductive time on site and cost saving.

최저한세 납부 대상 기업의 자기자본비용

This study analyzes effects of alternative minimum tax (AMT) on firm’s cost of equity capital. Investigating a sample of public firms for 2011-2020, we find that firms paying AMT have a higher cost of equity capital. We also find that the cost of equity capital is higher when the firms paying AMT are non-small and medium-sized enterprises (SMEs). This study contributes to expanding the literature by empirically analyzing how tax regulation affects the capital market. Firms’ behavior motivated by tax regulation could affect the cost of equity capital which is the basis of the firms’ real economic decisions. Thus, the results suggest that tax policymakers make tax regulation more sophisticated.

Impact of Metaverse Investment on the Market Performance of Public Enterprise in China

This paper provides evidence on the impact of Metaverse investment on the market performance of public enterprises in China. Our empirical analysis is based on event study and the data of 58 public firms which made Metaverse investment announcements between 2021 and 2022. The results show that Metaverse investment announcements have a significant positive impact on the market value of firms in the short term, but show a downward trend over time. Meanwhile, firms with larger size, stronger innovativeness and higher operation efficiency can obtain higher stoke price, resulting in more returns. Nevertheless, firms in different industries all get positive market feedback. Industry differences have no significant effect on the market performance of enterprise Metaverse investment.

Strategic deviation and idiosyncratic return volatility

This study examines the relationship between strategic deviation and idiosyncratic return volatility (IRV). Using a large sample of U.S. public firms, we find that firms that strategically deviate from industry peers are related to higher IRV. This relationship is weaker for firms with transparent information environments and better corporate governance. Robustness tests show that our results are not affected by endogeneity problems. Additional analyses reveal that strategically deviant firms are associated with higher earnings volatility and cash flow volatility. Taken together, we reveal that strategic deviation has important implications for firms’ risk.

Leasing as a Mitigation of Financial Accelerator Effects

Abstract We document that leased capital accounts for about 20% of total physical productive assets used by US public firms, and its proportion is more than 40% among small and financially constrained firms. The leased capital ratio exhibits a strong countercyclical pattern over business cycles and a positive correlation with cross-sectional idiosyncratic uncertainty. We argue that existing macro models with financial frictions assume that firms cannot rent capital and overlook the effects of leasing activities on business cycle dynamics. We explicitly introduce a buy-versus-lease decision into the Bernanke–Gertler–Gilchrist financial accelerator model setting to demonstrate a novel and quantitatively important economic mechanism: that the increased use of leased capital when financial constraints become tighter in bad states significantly mitigates the financial accelerator mechanism and thus also mitigates the response of macroeconomic variables to negative total factor productivity shocks and risk shocks. We provide strong empirical evidence to support our mechanism.