Firm Quality Research Articles

Green Bond Issuance and Peer Firms’ Green Innovation

Based on the realistic background of the rapid development of China’s green bond market, this paper uses the data of China’s non-financial listed companies from 2010 to 2020 to examine the impact of green bond issuance on peer firms’ green innovation. The results show that the issuance of corporate green bonds can significantly promote the quantity and quality of peer firms’ green innovation, and this promotion effect is sustainable. The heterogeneity test shows that when the issuer of green bonds is an industry leader or the issuer is highly concerned by the media, the green innovation promotion effect of peer firms is more significant. Similarly, when the issuer and the peer firm are close competitors or in the same board network, the peer firm has a higher level of green innovation. It is further found that the green innovation behavior adopted by peer firms can significantly improve their environmental performance. The article indicates that the issuance of corporate green bonds can produce a good spillover effect of green innovation in the industry, which is conducive to China’s strategic goal of “carbon neutrality, carbon emission peak”.

Time Pressure Influence and Audit Quality of Audit Firms in Abuja, Nigeria

Time Pressure Influence and Audit Quality of Audit Firms in Abuja, Nigeria

Governance effects of digital transformation: from the perspective of accounting quality

ABSTRACT With the rapid development of digital economy and technology in China, we research on whether corporate digital transformation in traditional industries can improve accounting quality as well as corporate governance. Our findings suggest that, firms proceeding more digital transformation have lower degree of earnings management and higher degree of accounting qualities. Digital transformation can improve accounting quality by reducing three types of agency costs. Specifically, digital transformation can improve corporate internal control, as well as attract more analyst tracking, to improve accounting qualities. Additional analysis suggests that, the governance effects of corporate digital transformation are more prevails in non-state firms, or weak information quality firms, as well as in long-term oriented firms. Corporate digital transformation can decrease real earnings management and stock price synchrony, increase accounting quality, reveals a positive governance effect.

Making honest men of them: Institutional investors, financial reporting, and the appointment of female directors to all-male boards

In this paper, we theorize that dedicated institutional investors are more likely than transient institutional investors to appoint female directors to investee firms with all-male boards, particularly those with high opacity. We conjecture that dedicated investors appoint female directors as a governance mechanism to improve the financial reporting quality of these investee firms. Specifically, we find that through the appointment of female directors, dedicated institutional investors trigger the release of stockpiled negative accounting information, thereby increasing the likelihood of a stock price crash risk. We also show that dedicated investors, through the appointment of female directors, improve investee firms' corporate disclosure environment by decreasing earnings management. Finally, we find that through continued service on investee firms' boards, female directors reduce the future likelihood of a stock price crash.

Conflict Management Styles by Multinational Oil Firms in the Niger Delta Region of Nigeria

Conflicts between oil multinationals and host communities have become a recurring decimal resulting in hostility between the parties and in some cases the shutdown of oil exploration of oil multinationals by host communities in the past decades in Nigeria. This study ascertains the relationship between the use of integrating, dominating, obliging, avoiding, and compromising styles of managing conflicts and the quality of relationship multinational oil firms have with host communities. The questionnaire was used to gather data from 200 top managers and personnel in the public relations department sampled from thirteen (13) multinational oil firms. Data analysis was carried out using multiple regression. It was revealed that the quality of relationship multinational oil firms have with host communities is negative and significantly related to the use of dominating and compromising styles of handling conflict, but positive and significantly related to the use of integrating, obliging, and avoiding styles of handling conflict. The study recommends that multinational oil firms should change from the deployment of dominating style to integrating and obliging styles in handling conflict with host communities.

Kaizen Approach to Quality Improvement and its Financial Implication

Purpose: This study aims to investigate the impact of kaizen practice and how it affects the quality of large manufacturing firms particularly, Kilimanjaro international leather company.
 Design/methodology/approach. In this study, the Plan-Do-Check-Act (PDCA) cycle technique was employed to lower the production process's defect rate. The fishbone served as a tool for support. The PDCA cycle and fishbone are two top-notch techniques that aid in reducing the number of defective parts.
 Findings: The defect rate decreased by 2%. Improvement in the production process was achieved.
 Research limitation: One large manufacturing industry is insufficient to generalize the study's primary results. This will be achieved in the future by doing additional investigations in several large manufacturing firms.
 Practical implication: This study will provide consultants and practitioners with a valuable understanding of how Kaizen improves the financial performance of large manufacturing industries in Tanzania.
 Social Implications: The majority of learning exercises carried out during kaizen projects seek to enhance social outcomes in terms of staff members' problem-solving skills and attitudes. Particularly, Kaizen coordinators are concerned with group members' understanding of continuous improvement as well as their communication and problem-solving abilities.
 Originality/Value: Although some studies on kaizen have been conducted, it is currently discovered that there is insufficient literature on the application and impact of the kaizen concept in large manufacturing enterprises. Based on this case study, the framework of kaizen philosophy practices is offering useful insights for leather companies, other manufacturing industries, and organizations, including the Tanzania Kaizen unit, practitioners, and academicians.

The FDI-spawned technological spillover effects on innovation quality of local enterprises: evidence from industrial firms and the patents in China

ABSTRACT Foreign direct investment is a topic of crucial importance for emerging market countries for capital accumulation, innovation and sustainable development. From the perspective of technological innovation, the article explores how ‘desirable’ the FDI is in stimulating domestic innovation. Using industrial firm-level data from 1998 to 2013 combined with patent database from China National Intellectual Property Administration and patent citations from Google Patents, the article captures the significant impact of innovation quality of regional FDI on the innovation quality of local firms with both multi-fixed effects and instrumental variable estimations, which are proved to be reliable with robustness checks. Further, under different entry modes, the article finds that M&A FDI plays a more positive role in spillovers compared with greenfield investment. Finally, the article explores the upstream and downstream linkage benefits and intra-industrial benefit from FDI innovation, which shows that the intra-industrial benefit, or the demonstration effect is prominent. Our article renders a more direct micro evidence of FDI spillovers and sheds light on FDI attracting policies.

Exploring the Knowledge Gaps of Crowdfunding Firms: A Survey of Crowdfunding Firms and Auditors

Prior research shows that the accounting and financial reporting quality of startups and early-stage firms is lower than that of public firms and firms later in their life-cycle. A growing source of financing for these startup and early-stage firms is equity crowdfunding. This paper provides evidence, through survey responses and semi-structured interviews with a subset of respondents, about “knowledge gaps” and accounting “weak spots” that exist for firms raising capital through Regulation Crowdfunding. “Knowledge gaps” are accounting areas where startup companies think they understand the proper accounting for these items, while auditors say these firms struggle with these concepts. Accounting “weak spots” are accounting areas where startup firms and auditors agree there is difficulty in accounting for certain items, and where more guidance or clearer standards may be beneficial. Better understanding specific accounting “knowledge gaps” and “weak spots” can help inform these startup firms, their auditors, their investors, and their regulators when evaluating and considering the reported financial condition of these companies.

Bankruptcy Prediction using Machine Learning Techniques: Evidence on Indian companies under Insolvency and Bankruptcy Code

This paper attempts to evaluate the predictive ability of four machine learning models: logit, decision tree, random forest and 2-class support vector machine and to identify the key predictors of default. The models are applied on a dataset of 57 companies under the Insolvency and Bankruptcy Code (IBC) in India and a matched sample of 55 solvent companies spanning over ten years from FY06-FY 2016. The solvent companies are matched on size (log of total assets) and sector and are rated ‘AAA’ and ‘AA’. 31 explanatory variables are identified by us for the study which include (i) financial ratios (ii) size and age of the company, (iii) ownership pattern and (iv) market ratios. The empirical findings reveal that random forest strongly outperforms all other models in their predictive ability, followed by SVM, DT and logit model. The findings also confirm relevance of size and age of the firm, market ratios and ownership pattern as predictors of default in addition to financial ratios. We conclude that both parametric (logit) and non-parametric models are useful in the study of default prediction as reflected in the robustness of all models with accuracy of over 75 percent. These models can help banks in strategizing their lending decisions based on credit quality of borrower firms. Our contribution is that to the best of our knowledge this is the first paper that is using the database of companies that are legally defined as insolvent and bankrupt and also taking a balanced sample to avoid biasness and inaccuracy from data imbalance. Also, this study has gone beyond traditional financial statements in identifying key default drivers.

Export product quality and markup of firms: evidence from China

ABSTRACT In this study, we analyse how export product quality affects the markup of firms. First, on the basis of the heterogeneous firm trade model, we clarify the internal mechanism of the effect of export product quality on the markup of firms through the channels of firm marginal production cost and product pricing. Second, using the micro data of Chinese firms from 2000 to 2007 and by estimating firm-level markup and export product quality, we construct a dynamic panel model to empirically analyze the impact of export product quality on the markup of the Chinese firms and mechanism of the impact. Results of the empirical analysis support the prediction of the theoretical model, that is, improvement of export product quality will positively affect the markup of firms by increasing their marginal cost of production and product pricing. From the product quality perspective, we provide new insights for understanding the impact of the export market on the markup of firms.

Will temperature affect the export quality of firms? Evidence from China

PurposeThis study aims to investigate whether temperature affects the product quality of exporters and whether the effect is non-linear. More specifically, whether the impact of high temperatures differs from the impact of low temperatures, and whether different types of companies or industries are affected differently.Design/methodology/approachThe paper uses detailed data covering all Chinese exporters from 2000 to 2016 to estimate the effects of temperature on the product quality of export firms. To clarify the relationship between them, the authors use a semi-parametric regression method, trying to test whether there is a non-linear relationship between temperature and the export quality of firms.FindingsThe increase in the number of high temperature days significantly reduces the quality of exported products, and this negative effect increases as the temperature rises. High temperature has the most significant negative impact on export quality for firms with low technical complexity, private firms and firms with no intermediate imports and located in historical hot cities. Product quality of both labor-intensive and capital-intensive firms will be affected by heat. High temperatures have the greatest negative impact on the export quality of newly entering products, followed by exiting products, with the least negative impact on persisting product.Originality/valueTo the best of the authors’ knowledge, this paper is the first to examine the impact of temperature on the quality of economic development. The findings of this paper again show that the potential economic impacts of global warming are huge. In addition to some potentially devastating impacts in the future, global warming is already causing imperceptible impacts in the present. Public and economic agents need to fully understand the possible adverse impacts of climate change and take corresponding adaptation measures to cope with global warming.

Research on the social capital, knowledge quality and product innovation performance of knowledge-intensive firms in China.

Given the importance of social capital for the success of knowledge-intensive firms (KIFs), scholars have investigated how social capital promotes product innovation through knowledge transfer. However, in contrast to the quantity of transferred knowledge, the role of knowledge quality has been largely ignored. Drawing on the knowledge-based view (KBV) of the firm, this study explores the influences of structural, relational, and cognitive social capital on product innovation and the mediating role of knowledge quality. A questionnaire-based survey was conducted from firm executives and core members of R&D department and data of 159 Chinese KIFs were obtained. Partial least squares-structural equation modeling was used for hypotheses testing. The results reveal that relational capital and cognitive capital have positive effects on product innovation performance, which are mediated by knowledge quality. However, the effect of structural social capital on knowledge quality is not significant. The results contribute to literature on firm innovation by examining how social capital indirectly affects product innovation performance through the quality of transferred knowledge. Moreover, the conclusions can help top management of KIFs to design more effective informal knowledge management approaches according to differentiated effects of three types of social capital on knowledge quality.

Application of machine learning techniques to predict entrepreneurial firm valuation

AbstractVenture capital (VC) is the main contributor to entrepreneurial firms' funding and thus plays a crucial role in their sustainable development and rapid growth. However, early‐stage VC investors often face valuation obstacles to predict firm valuation since entrepreneurial firms lack operational performance records and information asymmetry exists between them. In this paper, an integrated differential evolution algorithm and adaptive moment estimation method scheme (Adam‐ENN) is proposed for early‐stage VC investors to predict entrepreneurial firm valuation. Experimental results show that the proposed machine learning method outperforms the baseline methods. The feature contribution analysis and partial dependence plots were performed to open up the black box of the relationships between entrepreneurial firm valuation and its features. Results indicate that the number of VC investors in the funding syndicate is the most important feature, and VC investors' social capital also plays a significant role in the prediction model. Interestingly, the number of patents cannot convey an effective signal in entrepreneurial firm quality especially in the early‐stage entrepreneurial firm valuation. Finally, this paper helps to guide entrepreneurial firms' valuation using machine learning techniques and offers deep insight into the entrepreneurship financing mechanism from the perspective of VC.

Leveled odds? Attorney capability, team litigation, and outcomes in administrative patent cases

AbstractWe examine the impact of legal representation in an administrative setting. Focusing on adversarial proceedings within the United States Patent and Trademark Office and employing new data on patent litigation, we investigate patent rights—a legal area dominated by specialized, upper‐hemisphere litigation teams that generally represent parties with ample resources. Even in an environment with substantial parity in representational capability, we find that litigation team quality matters. Perceived firm quality and litigation team size both enhance the likelihood of victory; these findings are robust under a number of different approaches used to account for the ability of attorneys to select their clients.

The moderating effect of managerial discretion on cross-border knowledge search and the innovation quality of high-tech firms in a global health emergency: evidence from China

PurposeThis study aims to analyze the moderating effect of managerial discretion on the relationship between cross-border knowledge search and the high-tech firms’ innovation quality in a global health emergency and addresses the following issues: the influence mechanism of different types of cross-border knowledge search on the high-tech firms’ innovation quality in a global health emergency; and the moderating role of different dimensions of manager discretion on the above relationship.Design/methodology/approachBased on the firms’ strategy selection methods, the authors divided cross-border knowledge search into three aspects, namely, breadth, depth and balance, and analyzed the impact of cross-border knowledge search on the innovation quality of high-tech firms in a global health emergency, taking managerial discretion as the moderating variable, and divided it into position rights, pay rights and operation rights according to the key rights of firms’ strategic management. Furthermore, the authors constructed a theoretical model, and for an analysis sample, the authors collected data from Chinese high-tech firms from 2013 to 2021.FindingsThe empirical results show that there is an inverted U-shaped relationship between cross-border knowledge search breadth, depth and balance and the innovation quality of high-tech firms. The position rights, pay rights and operation rights of managerial discretion have partially significant moderating effects on the relationship between cross-border knowledge search breadth, depth and balance and the high-tech firms’ innovation quality.Originality/valueConsiderable literature has grown around the theme of the impact of knowledge search on the firms’ innovation quality. Nevertheless, only a few studies draw on the combination of global health emergency, cross-border knowledge search and the innovation quality; in particular, no literature has analyzed the relationship between the three from the managerial discretion perspective. Exploring the above relationships has great theoretical value for enriching and improving knowledge management and innovation management theories and provides a theoretical basis and practical support for high-tech firms to face challenges of a global health emergency and to break through the innovation dilemma.

Does CEO duality worsen or fosters audit quality: evidence from Chinese firms?

The objective of this study is to examine the role of CEO duality in audit quality of Chinese firms. To address the effect of CEO duality, this study considered four characteristics of CEO duality; corporate audit culture, audit committee independence, decision making through enormous power and single leadership. The indirect effect of audit committee decision is considered between CEO duality and audit quality. A questionnaire survey is carried out to collect primary data. A questionnaire was designed to collect data from Chinese firms. Respondents of the study were the CEO’s and directors of Chinese firms; therefore, questionnaires were distributed among them by using online survey. 135 valid questionnaires were used in data analyses which is carried out by using Partial Least Square (PLS)-Structural Equation Modeling (SEM). Results of the study highlighted that; CEO duality has both positive and negative effect on audit quality. Due to the single leadership style and supportive corporate audit culture, the audit quality may be improved. However, CEO duality influences negatively on audit committee independence which has negative effect on audit committee decisions. Similarly, CEO duality allows to enjoy enormous power which may affect negatively on the decision making. Thus, decision-making through enormous power has negative effect on audit committee decisions. Finally, while making the strategies to enhance audit quality, the practitioners can consider the important points highlighted by the current study to promote audit quality.

The fundamental effects of ESG disclosure quality in boosting the growth of ESG investing

This paper investigates the link between firms’ ESG disclosure quality and the growth of ESG investment based on a cross-country/region firm-level panel dataset. We find evidence supporting moderating effects of ESG disclosure quality on increasing firms’ Tobin’s Q, ROA, and reducing downside risks. ESG disclosure quality has a larger effect on enlarging the ESG investment scale, accelerating the growth of ESG investing and promoting the ESG investment more dispersed among all firms in mandatory CSR reporting countries/regions compared with other countries/regions. Our findings also suggest the importance of good and continuing good ESG disclosure quality for firms to benefit from implementing ESG practices.

Towards a Comprehensive Corporate Sustainability Performance Evaluation in Pakistan. An Investigation into Corporate Sustainability Disclosure Quality and Comparison of GRI and non-GRI Firms

The purpose of this study is to evaluate the Pakistani corporate sector for its corporate sustainability initiatives. Over a sample of 80 non-financial firms for the period of 7 years ranging from 2014 to 2020, the study captures comprehensive corporate sustainability scores. The firms’ scores have been captured based on both the quality and level of disclosures and a comparison has been made between GRI and non-GRI reporting firms. The study finds that GRI firms are disclosing a greater amount of quality and quantity of sustainability information than non-GRI firms. The GRI guidelines are driving both the quality and level of disclosure. Overall, the disclosure is low, and it is inconsistent. The environmental disclosure is relatively lower than economic and social disclosures among the non-GRI firms. The study also provides evidence of sustainability disclosure at COVID-19 times. The disclosure scores of 21% of firms have been found in a declining trend in the year 2020. The study provides some policy implications that could lead to guide the regulatory authorities in shaping the behaviour of firms toward sustainable initiatives.

Does corporate governance affect financial analysts' stock recommendations, target prices accuracy and earnings forecast characteristics? An empirical investigation of US companies.

This paper investigates how corporate governance quality affects the analyst’s stock recommendations, forecast efficiency and target price accuracy on New York Stock Exchange. In particular, as corporate governance is often uncertain and ambiguous to investors, expert financial advisors may use transparent corporate governance information to set their recommendations and improve the level of accuracy of their earnings forecasts. According to agency and signaling theories, good governance mechanisms aim to mitigate agency conflicts and boost corporate transparency. Thus, we argue that they can serve as mediators during the forecasting process and we expect a strong significant relationship between the effectiveness of corporate governance mechanisms and analyst activity. Five hypotheses are tested with a large sample of 154 US market firms over a 17-year period (2004–2020). Our empirical findings point out some special features of US stock markets. We find evidence that analysts tend to issue favorable recommendations, more accurate, less dispersed and more optimistic earnings forecasts for most well-governed firms. Furthermore, we show that higher-quality governance transparency is an important determinant of financial analysts’ behavior in the USA. The results also indicate that higher-quality governance appears valuable with financial analysts during pre- and post-crisis period, while it is not generally detected in COVID-19 times. However, we report the weakness of analysts’ outputs–governance quality for small firms. Thus, our findings cast doubts over the corporate governance-based analyst practices of US small and unaffiliated firms. The main implication of these findings is to improve understanding of how investors’ behavioral characteristics affect the transmission mechanism of information in money market and capital market prices. This paper has important implications for the decision making of financial analysts and investors by requesting firms to significantly improve their information environments in the good and bad times. It also offers insights into how firms establishing good corporate governance mechanisms can help the analysts to predict future stock prices.

Choice between IEO and ICO: Speed vs. Liquidity vs. Risk

This paper analyzes a financing problem for an innovative firm that is considering launching a web-based platform. The model developed in the paper is the first one that analyzes an entrepreneur’s choice between initial exchange offering (IEO) and initial coin offering (ICO). Compared to ICO, under IEO the firm is subject to screening by an exchange that reduces the risk of investment in tokens; also the firm receives access to a larger set of potential investors; finally tokens become listed on an exchange faster. The paper argues that IEO is a better option for the firm if: (1) the investment size is relatively large; (2) the extent of moral hazard problems faced by the firm is relatively large; (3) the degree of investors’ impatience is relatively small. Furthermore, a non-linear relationship between firm quality and its financing choice is found. Most of these predictions are new and have not been tested so far.