Public Firms Research Articles

Taking Charge as a Contextual Cue: How New CEO Regulatory Focus Influences Strategic Change

Becoming CEO is an emotionally charged event that is characterized by a sharp increase in visibility, responsibilities, expectations, and job vulnerability. Thus, rather than a “honeymoon” period, new CEOs are extremely busy learning about each aspect of the firm, developing relationships with stakeholders, and determining the firm's strategic direction. We suggest that the increased job demands associated with leading the firm, coupled with accentuated job vulnerability, alter the regulatory fit new CEOs experience, thus eliciting unique reactions depending on their regulatory foci. We argue that the increased vigilance and responsibility associated with becoming CEO fit the preferred goal pursuit means of CEOs high in prevention focus, increasing their motivation to engage in strategic change during the first 3 years of their tenure. Conversely, promotion-focused new CEOs engage in less change because they experience a misfit. We also consider how dynamics of the succession event further increase job demands and job vulnerability, moderating these relationships. Using a panel dataset of more than 800 public firms from 2000–2020, we find broad support for our hypotheses. Our primary contribution is showing that the sharp increase in job demands and job vulnerability that executives experience when they first become CEO shifts their regulatory fit and subsequent motivation to engage in strategic change in ways that prior theory would not predict.

Do Markets react to Government and Stock Exchange-Disclosed ESG regulations and policies through Banks and Public Firms?

This paper studies how financial markets react to ESG-related policies proposed by governments or relevant regulatory authorities by examining abnormal returns of public firms and banks. With ESG being a growing field ever since increased attention has been paid to social and environmental issues specifically, assessing the way markets perceive enforcements to adopt these practices is a valuable way to gain insight into whether they will eventually include them in their business models or not. The study uses data from Yahoo Finance and looks at 6 different regulations to assess this market reaction by developing python models to calculate the respective abnormal returns. The results show how these reactions can be generally positive or negative, and are heavily dependent on the specific regulation, the region, as well as the institution analyzed – public firms or banks. The broader implications of this paper lie in its expandability and the way further studies can be conducted with more firms and regulations to see more distinct factors emerge.

The effect of venture capital backing on innovation in newly public firms

We study the effect of VC-backing on innovation in newly public firms and find that it is negatively related to patents produced and citations received within the initial years following an IPO – our estimates indicate that VC-backed firms produce 13% fewer patents than nonVC-backed firms within the first year post-IPO. Our findings suggest that this adverse effect is a consequence of VCs timing their portfolio companies’ IPOs at the peak of innovation followed by a decline post-IPO. Additionally, VC-backing leads to higher growth in sales and productivity in newly public firms pointing to a shift in VC focus from creating into commercializing innovation post-IPO. We address endogeneity concerns with an instrumental variables approach.

How can the compensation structure of Iran's natural gas distribution services be modified based on incentive-based regulations?

Although the government owns most of Iran's natural gas industry, outsourcing has begun via build-owned-and-transfer (BOT) contracts in development, and fixed-price service contracts for operation and maintenance. For instance, in the distribution industry, the private sector now performs 50 % of the tasks. Variable unit costs show the necessity for performance- and incentive-based rules to address the variability of enterprises' pay systems. These costs are greater for public firms in certain places and lower in others. Using the financial data of 31 Iranian natural gas distribution companies from 2010 to 2019, this study develops parametric models to evaluate time-variant, and time-invariant operational and capital efficiency. Besides, this paper studies four contextual factors that contribute to the heterogeneity of firms: network maturity, consumer density, consumer type, and consumption pattern. The results show that mature networks have an average 40 % higher operating unit cost. Moreover, the firms with more industrial customers in southern Iran recorded doubled sales costs. Based on unit expenditure modeling, the research suggests that merging small firms does not necessarily result in higher efficiency. Instead, mergers that optimize customer density, and average consumption growth are expected to be more effective.

Understanding the climate change adaptation policy landscape in South Africa

ABSTRACT Climate change is a key socioeconomic and environmental concern in South Africa. The South African government introduced several climate change initiatives to address the impacts of climate change, resulting in the proliferation of climate adaptation policies across spheres of government. This paper studies different climate change adaptation policies and climate policy paradigms (CPP) to understand the adaptation landscape; it explains and compares the changes in CPP in South Africa over time. We mapped 40 policy documents from 2004 to 2022, which shows 12 national policies, 12 provincial (sub-national) policy documents and 14 metropolitan city policy documents. We then used 12 national policy documents to illustrate and understand the CPP. The research shows that different stakeholders have shaped climate change adaptation policy, both private and public firms advised on climate change policy and there are a number of different funding partners supporting the adaptation policy like GEF, C40 and GIZ. The changing policy environment has introduced new frameworks, objectives and processes. Therefore, more efforts will be needed going forward to guide adaptation policy across national, provincial and local governments. We find that several CPPs have emerged, that is different paradigms encompassing a range of policy goals, framings and instruments. The present National CC Adaptation Strategy (NCCAS) mandates adaptation across all levels of government and allows all important stakeholders to address climate change consequences. This NCCAS increases the number and ambition of adaptation policy, encourages integrated approaches, policy coherence and clear direction on how to handle climate risks and impacts in varied South Africa and its global commitment. Changes in policy paradigm enable the use of new policy instruments, including funding and budget mechanisms. Finally, climate adaptation policy has become more ambitious and stringent, requiring all levels of government to plan for climate change.

The bright and dark sides of minority shareholder protection: Evidence from the separate vote counts disclosure rule in China

The separate vote counts (SVC) disclosure rule implemented in 2013 requires Chinese public firms to separately disclose the vote counts of minority shareholders for each proposal. Evaluating the policy's effectiveness in serving its goal of minority shareholder protection, we first find that SVC disclosure enhances minority shareholders' value by suppressing tunneling behaviors and increasing dividend payouts, leading to higher corporate valuation and stock returns. On the other hand, consistent with a principal-agent model that features the information disadvantage of minority shareholders, we find that SVC disclosure leads to lower investment efficiency among firms with higher information asymmetry. Additional tests highlight that counterbalances between majority shareholders, chairperson-CEO separation, and institutional ownership could act as internal and external governing measures that alleviate unintended consequences with respect to investment efficiency.

Bank Supervision and Corporate Credit Supply

We exploit the quasi-random assignment of federal bank examiners to syndicated loans to study the effect of supervision on corporate lending. Following supervisory rating downgrades, banks decrease credit commitments and downgrade internal risk assessments. Borrowers face larger commitment reductions whenever banks have low ex ante screening and monitoring incentives or whenever examiners’ assessments contain more information than banks’ assessments, suggesting that examinations complement bank monitoring. Although public firms can offset the loss of bank credit by tapping external capital markets, smaller and more opaque private firms draw on internal cash balances instead and reduce investment and sales growth. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4854 .

Impact of Managerial Entrenchment on Financial Flexibility and Leverage of Small Public Firms: Policy Implications for Global Economic Crisis

This paper examines the impact of managerial entrenchment on financial flexibility, and financial leverage decisions of small public firms compared to medium and large firms. We group firms into market capitalization quartiles where small public firms are within the first, medium firms are between the first and second, and large firms are above the third quartile. Results show that entrenched managers in small firms hold significantly less excess cash than entrenched managers in medium or large firms. Small public firms borrow significantly more money using short-term maturity compared to medium and large size firms, which borrow less money using long-term maturities. Compared to pre-2008 crisis levels, most firms borrowed more money and held more excess cash during and after the global economic crisis, though small firms had limited access to cheap long-term funding compared to medium and large firms. Managers adopted more antitakeover practices after the 2008 global crisis and they became more entrenched. Results have economic and policy implications.

Position and Differentiation of Firms in Technology Space

Although the rate of invention by firms and the effect on firm performance have been central themes in economics and strategy, the position and differentiation of invention by firms have received less attention. We develop a method to characterize a firm’s technology portfolio based on the semantic content of patents that allows us to map a firm’s unique spatial position relative to every other firm in technology space and to measure the overall differentiation of a firm’s technology portfolio. Using a large panel of U.S. public firms from 1980 to 2015, we illustrate that technology differentiation has a strong positive correlation with firm performance, particularly in research and development-intensive industries and industries with strong product market rivalry. We also show that technology differentiation is associated with subsequent differentiation from competitors in the product market and a reduction in outgoing technology spillovers to other firms. We provide open access to code and data to characterize the technology portfolio of firms and to measure the technological position and differentiation of U.S. public firms. This paper was accepted by Alfonso Gambardella, business strategy. Funding: S. Arts acknowledges support from KU Leuven [Grant 3H200208] and National Bank Belgium [Grant 3H160338]. B. Cassiman acknowledges support from Fonds Wetenschappelijk Onderzoek - Vlaanderen [Grant G071417N]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.00282 .

Effect of Firm Characteristics on Timeliness of Corporate Internet Financial Reporting of Malawi Public Firms

The purpose of this paper was to investigate the impact of firm characteristics on the timeliness of corporate internet financial reporting in Malawi. The research is a quantitative study, guided by the post-positivist philosophy and a deductive approach. Content analysis of secondary data was done through a disclosure index on corporate internet financial reports. Regression analysis was performed to find the impact of firm characteristics variables (leverage, size, and profitability) on the dependant variable timeliness of corporate internet reporting. The study focused on 50 companies, comprising of 13 listed companies on the Malawi Stock Exchange and 37 limited companies that are not listed using their industry sector. The study found out that 86% of the sampled listed and non-listed companies had a corporate website. Of these, 24% are engaged in internet financial reporting which signifies a low level of internet financial reporting in Malawi. In addition, the researchers found out that of those presenting financial reports on their website, the lag time is more thus making the information not to be timely presented to the stakeholders.

Geography of firms and propagation of local economic conditions

AbstractThis study shows that the geographic network of public firms facilitates the propagation of local economic conditions across the United States. We identify economic connections among U.S. states based on the 10‐K listings of public firms and show that the returns and liquidity of firms headquartered in connected states exhibit excess comovement. The economic connections also generate spillover effects where the economy of a state affects its connected states and amplifies the impact of local economic conditions on the U.S. economy. In particular, a 1% production increase in a large state like California is associated with a 6.71% change in annual U.S. GDP growth, relative to average GDP growth.

Chief executive officer private firm experience and idiosyncratic risk

AbstractResearch Question/IssueWe examine chief executive officers' (CEOs) lifetime work experience in private firms and its potential influence in shaping managers' style in public firms and their corporate policies and thus the market's perception of a firm's risk.Research Findings/InsightsWe find that the idiosyncratic risk of public firms increases with the extent of CEO work experience in privately owned firms (CEO private experience). While there is no evidence of higher investment risk taking by private CEOs, the proportion of private‐firm work experience has a positive association with disclosure deficiency, decrease in manager‐owner agency conflicts, and an increase in political risk revelations at earnings conference calls, which, in turn, are associated with the elevation of idiosyncratic risk.Theoretical/Academic ImplicationsThe findings of this study underscore arguments in the upper echelons theory, imprinting theory, and behavioral agency theory. The study also has implications for literature related to corporate disclosure, governance, and political risk.Practitioner/Policy ImplicationsIdiosyncratic risk is important for firms, as the literature suggests it hurts a firm's ability to finance future capital investments; therefore, it is optimal for corporate boards to have strategies in place to monitor and offer orientation packages targeted at alleviating CEO style heterogeneities presented by their prior work experience in private firms.

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.

Monitoring by busy compensation committee members

This study examines whether members who serve on multiple compensation committees (i.e., busy compensation committee members) are effective monitors, as reflected in their ability to curb excess executive compensation. We propose that by serving on compensation committees of different firms, busy members are more likely to garner rich knowledge and sophisticated skills that are required to effectively monitor the compensation-setting process. Based on a sample consisting of Taiwanese public firms over the period 2011–2019, our empirical analyses indicate that the percentage of busy members on the compensation committee significantly and negatively relates to excess executive compensation. The overpayment reducing effect of busy members is weakened by low attendance rate, and is strengthened by long-term experience. Taken together, a clear practical implication is that firms seeking to inhibit overpayment problem should consider recruiting busy members to sit on the compensation committee.

The Spillover of U.S. Regulatory Oversight to Foreign Markets: Evidence from the Effect of PCAOB International Inspections on Executive Compensations

We examine the spillover effect of the Public Company Accounting Oversight Board (PCAOB) international inspection program on improving the contracting role of accounting numbers in executive compensations in an international setting. For a sample of non-U.S.-listed foreign public firms with PCAOB-inspected foreign auditors, we find a significant increase in the sensitivity of their executive cash compensations to earnings after the release of the first inspection reports on their auditors by the PCAOB, relative to those without PCAOB-inspected foreign auditors. Such a result suggests that the compensation committees of firms with PCAOB-inspected auditors infer that the quality of earnings as a performance measure for determining executive compensations improves due to the PCAOB’s inspections of their auditors. We also find that a clean inspection report issued to the firm’s auditor has an incremental effect on increasing earnings pay-for-performance sensitivity. Our findings provide novel evidence on the effectiveness of U.S. regulatory oversight in foreign markets and should interest the PCAOB and local audit regulators around the world.

Geographic Distance and State's Grip: Information Asymmetry, State Inattention, and Firm Implementation of State Policy

In this study, we develop the argument that geographic distance between the state and local governments undermines the state's capacity to influence the implementation of state policies by local organizations. Drawing from information economics and the attention-based view, we propose that physical distance reduces the state's monitoring effectiveness through two interrelated mechanisms: information asymmetry and state leaders’ inattention to distant issues. Using data of Chinese public firms’ implementation of environmental activities between 2008 and 2016, we find that firms conduct fewer environmental activities required by the state when they are regulated by local governments that are more geographically distant to Beijing. This distance effect is, however, attenuated in regions with higher levels of gross domestic product growth and Internet activism. Furthermore, firm characteristics that draw the direct attention of state leaders and provide alternative information channels—namely, firm visibility and government subsidy received—negatively moderate the effect of geographic distance. This study contributes to the literatures by identifying a geography-based view of state capacity in shaping organizational behaviors and its underlying mechanisms.

From Home to Corner Office: How Work–Life Programs Influence Women's Managerial Representation in Japan

Although researchers have suggested that work–life programs (WLPs) help increase the representation of women in management (WIM), stigmatization and gender stereotyping can prevent this beneficial effect. We adopt a contingency approach by taking the roles of time, gender context, and the purposes of different practices into consideration and examine the effects of WLPs on WIM longitudinally. Our analysis of a sample of Japanese public firms spanning 14 years addresses endogeneity concerns and shows that: (1) increases in WLPs are weakly associated with subsequent increases in the proportion of WIM within firms; (2) this positive effect is stronger in organizations where the percentage of female employees is growing; and (3) there is no evidence to suggest an effect in the opposite direction. We further propose different temporal patterns by which the effects of flexibility practices (e.g., remote work) and resource practices (e.g., childcare benefits) emerge due to the varying degree of changes in job structures and work norms involved in their implementation. Our analysis provides supportive evidence that the effects of flexibility practices that require more changes inconveniencing decision-makers, users, and coworkers take longer to emerge compared to resource practices that incur fewer changes and inconveniences. These findings contribute to a more detailed understanding of the WLPs–WIM relationship and offer insights for research on WLPs and women's career advancement.

Debt Analyst Coverage of Private Firms

ABSTRACT This study examines how information spillovers from equity to debt markets (“equity spillovers”) affect sell-side debt analysts’ activities and the informativeness of their reports. To explore this relation, I compare debt analyst reports for firms without equity spillovers (private firms) to firms with equity spillovers (public firms). I find that, absent equity spillovers, analysts rely more on mandatory SEC filings to fill the information gap for private firms. This additional effort, however, reduces debt analysts’ coverage of private firms overall. Conditional on coverage, the content of debt analyst reports is remarkably similar across private and public firms. Finally, I find that debt analyst reports are more informative for private firms than for public firms. Collectively, my findings shed light on the externalities created by equity spillovers and how debt market intermediaries contribute to the price discovery process.

Individual Wealth Taxes and Corporate Payouts

ABSTRACT We examine the effect of individual wealth taxes on dividend policy. Using a comprehensive sample of European public firms from 26 countries, we document that wealth taxes paired with substantial increases in stock prices are associated with significantly larger dividend payouts. This pattern is stronger among closely held firms, family firms, and firms with shares directly owned by individuals. We also find evidence suggesting that the dividends induced by wealth taxes have meaningful economic consequences; the announcement of dividends with a higher probability of being induced by wealth taxes elicits lower stock returns, and such dividends are associated with lower levels of subsequent investment. Overall, our evidence contributes to the rekindled debate on wealth taxes by showing that this type of taxation affects corporate financial policies. JEL Classifications: G14; G20; G28; G30; K2.

Capital Structure with Company Size as a Moderating Variable in Food and Beverage Companies on the Indonesia Stock Exchange

The purpose of this research is to identify and analyse the relationship between business size and capital structure in the food and beverage industry in Indonesian public firms listed on the Indonesia Stock Exchange in the years 2028-2021. Three factors profitability, liquidity, and asset structure are evaluated here, with a moderating variable, namely company size. 28 food and beverage companies were sampled in this study using method of selecting samples on purpose. Two types of regression analysis, multiple and moderated, are used in this investigation. The findings of this research show that capital structure is influenced by profitability, liquidity, and asset structure, and that the impact of these factors is tempered by firm size.