Reduce Agency Costs Research Articles

Effect of integrated financial reporting on firm value with the role of adjusting corporate governance in companies listed on the Iraqi stock exchange

The issue of conflict of interests between shareholders and managers and the mechanism of corporate governance as a solution to reduce agency costs associated with it is one of the important issues that has attracted the attention of many researchers and experts due to its effect on the performance of companies. The purpose of this research is the effect of integrated financial reporting on company value with the role of adjusting corporate governance in companies listed on the Iraqi Stock Exchange. The current research is applied in terms of purpose and descriptive and correlational in nature. The time domain of the research covers a period of years, from the beginning of 2016 to the end of 2022. The studied sample included 10 companies that were selected by systematic elimination method. The results of the test of research hypotheses indicated that corporate governance does not have a modifying role in the effect of integrated financial reporting on the value of the company. It seems that in the Iraqi capital market, integrated financial reporting tools cannot help the shareholders in evaluating the company's value, and other factors affecting the stock price (company's value) are considered by the shareholders.

IS THE OIL AND GAS BLOCK POLICY IN IDONESIA EFFECTIVE? EMPIRICAL APPROACH BASED ON COMPANY RATING DEVELOPMENTS

Objective: This study aims to identify the empirical influence of the assessment criteria for Indonesian oil and gas auctions on total oil and gas block production. The role of remaining concession time, contract policy and block size are considered. Theoretical Framework: In this topic, the concepts and agency theories underlying the research are presented, providing a strong basis for understanding the context of the influence of oil and gas block policies in Indonesia. Method: This research uses an exploratory quantitative approach. The research sample consisted of 157 petroleum and 140 natural gas blocks that had carried out production activities. Ordinary least square (OLS) regression used to empirically test the hypothesis. Results and Discussion: The results show that the ranking of oil and gas companies has a significant positive effect on the productivity of blocks. Meanwhile, remaining concession time has a significant positive relationship only for the natural gas. This research also found a significant negative effect of the gross split contract on block production. Finally, it was found that company ranking had a positive and significant effect on production both in large and small blocks. However, the relationship between ranking and productivity is stronger and more consequential for large-scale blocks compared to small-scale blocks. Research Implications: Contract policymakers need to review the gross split policy because it is not in line with the initial goal of increasing efficiency. The results clearly show that strict government policies can reduce agency costs while encouraging oil and gas production, however, this can hinder the competitiveness of the sector. The government does not need to give excessive priority to high-ranking companies in managing small-scale blocks in order to attract new investors. Originality/Value: To the best of our knowledge, this research is the first study to develop a ranking method for oil and gas companies in Indonesia.

Exploring digital green convergence for firm competitiveness

Promoting digital green convergence is critical toward high-quality development. Sampling with 17,814 digital green patents of listed firms in China from 2009 to 2021, we find that digital green convergence significantly improves firm competitiveness. The dependability and relevance of our findings are further confirmed by several robustness tests. Our mechanism analysis shows that digital green convergence enhances firm competitiveness by reducing agency costs and increasing Environmental, Social, and Governance (ESG) performance. This paper provides theoretical and practical implications for uncovering the value of digital green convergence to improve firm competitiveness.

Should underwriters be trusted? Reducing agency costs through primary market supervision

We examine the mandated introduction of a supervised auction framework within China's primary bond market. This regulatory intervention resulted in a substantial reduction in debt costs for Chinese Bond issuers, primarily attributed to the alleviation of agency conflicts between underwriters and issuers. Leveraging unique bidder-level data obtained from a lead underwriter, our study provides replicable tools to discern collusive bidding behavior. This sheds light on instances of artificially inflated bond yields, highlighting economically burdensome practices. Our findings can assist regulators, issuers, and investors engaged in unsupervised auction mechanisms. Our insights offer potential enhancements to regulatory frameworks and operational efficiency across various sectors, including securities issuance, construction projects, and procurement.

Responding to green finance with emission reduction and value-added: The role of enterprise environmental investment

Responding to China’s green finance policy with enterprise environmental investment (EEI) constitutes a crucial link in achieving environmental governance objectives, exerting crucial influence on the nation’s green transformation and high-quality development. Taking the pilot policy of China’s Green Finance Reform and Innovation Experimental Zone (GFRP) in 2017 as a quasi-natural experiment, this study systematically evaluates the effect of GFRP policy on the decisions of EEI and further explore whether the investments are used for passive end-of-pipe treatment (EOP) or positive source prevention (SP) by using firm-level data. The results indicate that GFRP policy can significantly promote EEI, and mainly reflected in SP, rather than EOP. Through potential mechanism analysis, it can be concluded that GFRP policy facilitates EEI by alleviating financial constraint, reducing agency cost, and enhancing environmental information disclosure. Heterogeneity analysis suggests that there exists asymmetry in policy effects, with greater impacts in high green finance development areas, low concentration industries and large-scale enterprises. Furthermore, micro-level performance consequences examination reveals that the enterprises’ decision to increase EEI under GFRP policy not only effectively realizes energy conservation and emission reduction but also contribute to facilitating enterprise value, to achieve green transformation. This study holds significant policy implications, providing empirical evidence to policymakers for the refinement and dissemination of green finance policy, and offering valuable insights for enterprise investment and management decisions.

Board diversity and stock price crash risk: exacerbate or mitigate

As China is the largest emerging capital market, stock price crash risk (SPCR) due to corporate governance failures is a frequent phenomenon. The board of directors stands as the cornerstone of corporate governance, wielding a substantial influence on the SPCR. The influence of board diversity (BD) on SPCR remains a topic rife with unanswered questions. To fill this gap, we construct a multidimensional index system to capture BD and examine its impact on the SPCR based on companies listed on the Chinese A-share market from 2010 to 2020. Our findings show that BD mitigates SPCR rather than exacerbates it. The foundational findings remain intact even after addressing issues of endogeneity and executing thorough validity tests. We further identify four mechanisms to lower SPCR through influencing board monitoring, including reducing agency costs, alleviating inefficient investments, improving information disclosure, and appointing diverse executives. Overall, our research underscores the pivotal importance of BD within the capital market and provides new insights into the mitigation mechanisms of the SPCR.

Carbon risk and corporate maturity mismatch

This study investigates the impact of carbon risk on the corporate maturity mismatch of investment and debt. We find that carbon risk exacerbates maturity mismatches, primarily by increasing debt default risk, which in turn reduces both the availability and maturity of bank loans. At the same time, carbon risk drives firms to undertake riskier investments, compelling them to rely more heavily on short-term financing to support long-term projects. Heterogeneity analysis reveals that the impact of carbon risk on maturity mismatch is more pronounced in firms that are smaller in size, exhibit weaker financial performance, have higher leverage, hold less cash, or engage in less green innovation. Moreover, under heightened carbon risk, increased maturity mismatch appears to reduce agency costs and enhance firm performance, thereby improving resource allocation. This finding supports the monitoring role of maturity mismatch. Our results remain robust across multiple sensitivity tests

Effect of Ownership Structure on Performance of Quoted Financial Firms in Nigeria

This study investigates the relationship between ownership structure and firm performance of quoted Nigerian financial firms in Nigeria. This study employs an Ex post facto research design, utilizing data extracted from annual reports of the financial firms listed on the Nigerian Exchange Group (NGX) between the years 2014 to 2023. The population of interest consists of 48 listed financial firms. Secondary data from the firms' annual reports were collected and analyzed using fixed effect panel regression analysis as specified by Hausman test. The findings reveal significant positive effects of managerial ownership, institutional ownership, and ownership concentration on firm performance. These results align with established theories such as agency theory and stewardship theory, as well as previous empirical studies in the field of corporate governance and ownership structure. The study concludes that increasing managerial ownership can align the interests of managers with shareholders, leading to improved firm performance. Attracting institutional investors who bring expertise, monitoring capabilities, and long-term investment perspectives can also contribute to enhanced firm performance. Furthermore, careful management of ownership concentration can enhance monitoring and decision-making efficiency, align shareholder interests, and reduce agency costs. However, the study finds no significant impact of foreign ownership on firm performance in the Nigerian context. This suggests the need for further research to better understand the specific dynamics and potential implications of foreign ownership in the Nigerian financial industry, considering factors such as regulatory restrictions, cultural differences, and information asymmetry.

THE IMPACT OF DIGITAL TRANSFORMATION ON GREEN INNOVATION IN MANUFACTURING ENTERPRISES

This study aims to investigate how digital transformation affects green innovation in manufacturing enterprises. As a result, this article used data from Chinese A-share manufacturing listed companies from 2012 to 2022 as a research sample and conducted empirical testing using a fixed effects model. Research has found that digital transformation has a positive promotion effect on both the quality and efficiency of green innovation in enterprises. The key path for enterprises to achieve green innovation and improve quality and efficiency is through the "bridge" role of risk-taking ability: digital transformation helps businesses obtain more funds and information resources, reduce agency costs, alleviate financing constraints, and thus improve risk-taking ability. Improving risk-taking ability can stimulate enterprises' willingness to invest in innovation activities, accelerate the research and development process, and promote green innovation in enterprises. This article enriches the research on the relationship between digital transformation and corporate green innovation, providing a theoretical basis for how digital transformation can better support the "quality and efficiency improvement" of corporate green innovation.

Sharpened “Real Teeth” of China's securities regulatory agency: Evidence from CEO turnover

This study examines the real impacts of the China Securities Regulatory Commission's (CSRC) enforcement actions on CEO turnover in China's fully circulated market. Using data on Chinese publicly listed firms from 2008 to 2022, we find that misconduct behavior alone does not directly lead to CEO turnover. In contrast, CSRC's enforcement actions elicit significant negative stock market reactions for both SOEs and non-SOEs post-2016 and substantially increase the likelihood of CEO turnover, with a notably larger impact on non-SOEs. Furthermore, enforcement actions involving more severe punishments and targeting information disclosure violations and operational misconduct are more effective at compelling CEOs to step down. Potential channels through which external regulatory actions influence firms' CEO replacement decisions include reducing agency costs and enhancing information transparency. These findings suggest that the “teeth” of China's securities regulatory agency now function primarily through market-based mechanisms rather than administrative force, and these “real teeth” are being sharpened by ongoing regulatory reforms.

The Impact and Mechanism of ESG Performance on Corporate Continuous Innovation: Evidence from China

In recent years, investing based on ESG performance has become a mainstream investment strategy in the market. In this context, this study selected A-share listed companies from 2010 to 2022 as samples and adopted a panel fixed-effect model to empirically test the impact and mechanism of ESG performance on continuous innovation. The research showed that ESG performance could significantly promote corporate continuous innovation. The mechanism tests found it worked mainly through the channels of alleviating financing constraints, increasing social trust, reducing agency costs, focusing on human capital, and enhancing social capital. Heterogeneity tests found that this effect was more significant for state-owned enterprises, weak marketization, and epidemic shocks. Further research showed that ESG exhibited a more significant level of sustained innovation in the growth and maturity stages. And ESG performance had a significant contribution to corporate innovation resilience. The conclusions of this study enrich the research in the field of ESG performance and corporate continuous innovation and provide empirical evidence for strengthening sustainable development strategies.

Does carbon emission trading scheme inhibit corporate executives' pursuit of excess compensation? Evidence from a quasi-natural experiment in China

Carbon regulation, which affects corporate management's carbon reduction and related decisions, has the potential to influence corporate executives' pursuit of excess compensation. Using the pilot policy of the carbon emissions trading scheme (CETS) in China as a quasi-natural experiment, we examine the impact of this policy shock on corporate executives' excess compensation through data from listed manufacturing companies from 2007 to 2020. Our findings show that the executives' excess compensation of manufacturing companies in the pilot regions shows a significant decline owing to the policy shock of CETS, which is supported by a rich set of robustness tests. Furthermore, the mechanism tests indicate that reducing agency costs and stimulating employment demand are two channels for CETS to inhibit excess compensation of corporate executives, and that the factor marketization and the nature of firms' property rights play moderating roles in this inhibitory effect. Heterogeneity analysis indicates that the inhibitory effect of CETS on the excess compensation of corporate executives also varies depending on the differences in corporate governance characteristics. Overall, these findings provide evidence for the regulatory effect of CETS in the contract design of corporate executives' compensation and also provide empirical support for emerging economies to alleviate income inequality by achieving carbon equality.

Can digital tax enforcement reduce the risk of corporate debt default?

The development of technology has led to the widespread use of digital technology in tax enforcement. Using the Chinese digital tax enforcement reform as a quasi-natural experiment, this study shows that digital tax enforcement reduces the risk of debt default by improving accounting information quality and reducing agency costs. Further analysis shows that this impact is more significant in enterprises with poorer external information environments, lower internal control quality, lower customer concentration, and lower digitalization levels. This study enriches the research on the economic consequences of digital tax enforcement. This has practical implications for the government when using information technology to strengthen tax administration.

Mispricing and debt maturity structure

This paper examines the relationship between mispricing and debt maturity structures, using Chinese A-share listed companies from 2015 – 2022 as research samples. We find that the mispricing results in the reduction of debt maturity, driven by the overvaluation predominantly. Information asymmetry in overvalued firms intensifies this effect, but can be mitigated by reducing agency costs. Default risk and investment efficiency further moderate this relationship, being more pronounced in enterprises of private and stringent financing constraints.

Non-controlling large shareholders and dynamic capital structure adjustment in China.

Using the sample of Chinese A-share listed firms from 2010 to 2020, this study examines the impact of non-controlling large shareholders (NCLSs) on corporate capital structure adjustment. The results show that NCLSs significantly increase the dynamic capital structure adjustment speed and reduce capital structure deviation. NCLSs have an asymmetric influence on capital structure adjustment speed for different deviation directions, i.e. compared to the speed of upward adjustment after a downward deviation of the capital structure, the effect of NCLSs on the speed of downward adjustment of the capital structure after an upward deviation is stronger. Whether in state-owned enterprises (SOEs) or non-state-owned enterprises (NSOEs), NCLSs significantly increase the dynamic capital structure adjustment speed. However, compared with SOEs, NCLSs in NSOEs have a more significant positive impact on the dynamic capital structure adjustment speed. The mechanism analysis suggests that reducing agency costs and mitigating financing constraints serve as the important channels through which NCLSs influence the dynamic adjustment of capital structure. This paper not only enriches and improves the theoretical basis of dynamic capital structure adjustment, but also helps to deepen the understanding of dynamic capital structure adjustment of Chinese listed firms.

Inhibit or stimulate? Green credit guidelines and corporate financialization

Although the green credit guidelines (GCGs) can force firms to engage in green transformation, it is still unknown whether the GCGs inhibit or stimulate corporate financialization. This research explores the effects and mechanisms of GCGs on financialization of heavy polluters using difference-in-differences estimators. The results indicate that the GCGs tend to strengthen heavy polluters’ motivations for precautionary saving and stimulate them to allocate liquid financial assets, while weakening their motivations for investment substitution and inhibiting their speculative allocation of financial assets. After several robustness tests, these conclusions remain valid. The mechanism tests suggest that the guidelines affect corporate financialization through increased financing constraints and reduced agency costs. Further analysis reveals that both types of financial asset allocation used by heavy polluters increase their levels of total factor productivity and green innovation. Heterogeneity analysis demonstrates that the impact of GCGs is more pronounced in nonstate-owned enterprises and firms which are located in regions with underdeveloped financial development and weak environmental law enforcement. In summary, this research explores the differentiated impacts and economic outcomes of GCGs, which not only provides insights into how financial institutions prevent corporate credit risk and achieve the targeted implementation of GCGs but also has certain reference value for the rationalization of asset allocation and green transformation for heavy polluters.

Corporate Social Responsibility Disclosure Quality and Firms’ Investment Efficiency: Evidence from Chinese Listed Companies

In China, where the corporate social responsibility (CSR) process is relatively underdeveloped, the government has promulgated a series of laws and regulations on CSR disclosure in recent years to promote the sustainable transformation of the economy. Using data from A-share listed Chinese firms from 2009 to 2021, this study empirically examines the relationship between CSR disclosure quality and firm investment efficiency in China. The results indicate that (1) improvements in CSR disclosure quality significantly mitigate firms’ underinvestment and overinvestment, thereby enhancing investment efficiency. (2) Further analysis shows that high-quality CSR information also promotes investment efficiency by reducing agency costs and financing constraints and improving media evaluations of firms. (3) A heterogeneity analysis suggests that the positive effect of CSR disclosure on investment efficiency is stronger for firms with lower equity incentives, more severe financing constraints, and higher media attention. Our study extends the understanding of the mechanisms through which CSR disclosure affects firms’ investment efficiency, potentially providing insights for research in related fields and guiding future CSR disclosure practices in other developing countries.

The Proof Dilemma of Porter’s Hypothesis: Analysis of Its Verification Difficulties

The Porter Hypothesis, proposed by Michael E. Porter, suggests that stringent environmental regulations can enhance corporate innovation and competitiveness, challenging the traditional view that regulations increase business costs. It argues that regulations motivate firms to innovate, leading to improved productivity, cost reductions, and new market opportunities. However, there are proponents and critics in academia regarding the hypothesis. Supporters claim regulations change corporate behavior, reducing agency costs and boosting research and development. Critics argue that if win-win situations exist, businesses would naturally pursue them without regulatory incentives. Key challenges in proving or refuting the hypothesis include its various versions, the difficulty in quantifying innovation and competitiveness, the complex interplay between regulation, innovation, and competitiveness, and the varying impacts across industries and regions. Additionally, the effects may require a long time to manifest, and the hypothesis’s applicability is influenced by evolving environmental policies and market environments. Despite mixed empirical findings, the Porter Hypothesis provides a valuable framework for understanding the relationships among environmental regulation, innovation, and competitiveness, but its validation requires a more comprehensive assessment.

Affiliated guarantee risk control and firm cash holdings: Evidence from China

As an inseparable part of a company's business risk, the ability to reduce the impact of affiliated guarantee risk on business decisions has become a topic of great concern to governments. This paper focuses on the “Circular on Enhancing Risk Prevention and Mitigation of Loans from Corporate Guarantee Circles” (ERPML) and explores its impact on affiliated guarantee risk control and firms' cash holdings. The findings suggest that affiliated guarantee risk control increases firms' cash holdings, a conclusion supported by robustness tests. This increase is primarily driven by preventive motives and the reduction of shareholders' agency costs. The heterogeneity test indicates that the influence of affiliated guarantee risk control is more pronounced in nonstate-owned firms and firms with low institutional shareholding, low debt financing and low financialization. Finally, the economic results suggest that affiliated guarantee risk control helps reduce firms' business risks and improve their performance. Overall, this paper provides empirical evidence of the positive economic consequences of strengthening the regulation of associated guarantee risk.

Is it just for shareholders or for all stakeholders? Evidence based on carbon emissions and cash dividends from China

AbstractAs people become more aware of the catastrophic risk of carbon emissions, investors demand compensation for their exposure to carbon emission risk. However, it is unclear how a firm's carbon emissions affect its dividend policy to cater to shareholders and its implications for other stakeholders. Using publicly listed A‐share companies in China, we find that carbon emissions positively affect firms' cash dividends. The positive effect is more pronounced for firms with higher growth, better performance and those in heavily polluting industries. Furthermore, the cash dividends induced by carbon emissions benefit all stakeholders by reducing agency costs and promoting green innovations.