Role Of Financial Constraints Research Articles

The inverted U-shaped relationship between corporate social responsibility and default risk: The role of financing constraints

With increased corporate liquidity and debt repayment pressure, CSR's “insurance” role has received more attention. We conducted a comprehensive empirical analysis of 4988 listed companies in the Chinese context during 2011–2020. Our research has three findings: First, the initial increase in CSR will lead to a rise in default risk. However, once the CSR level exceeds a specific threshold, the default risk decreases as the CSR rises. We tested the robustness of the results by replacing the explanatory and the explained variables and taking into account the lag time effect, which proved the reliability of our research conclusions. Second, the mediation analysis shows financing constraints play an important mediating role in this inverted U-shaped relationship. On the left side of the U-shape, CSR performance intensifies financing constraints, while on the right side, increasing CSR reduces financing constraints. Finally, we confirm heterogeneity in the impact of CSR on the default risk of different enterprises' ownership and size. Our study complements the current literature on the effects of CSR on default risk. We are making policymakers and stakeholders aware of the importance of mandatory CSR disclosure.

The role of financing constraints and environmental policy on green investment

Despite ambitious carbon reduction targets set by policymakers worldwide, current investments fall well short of the net-zero emissions scenario. This paper investigates the impact of financing constraints (FCs) on green investment among large, publicly listed firms across diverse sectors and countries. We find that FCs significantly reduce the propensity to undertake green investments by 2.5 percentage points. This result is even more pronounced in a difference-in-differences framework when focusing on the exogenous increase in financing costs resulting from the Great Financial Crisis of 2007/08. The study reveals further that the negative impact of FCs can be reduced by market-based environmental policies.

Does macroprudential policy matter for corporate green innovation? The role of financing constraints and public environmental concerns

Green development ideas are gradually being incorporated into macroprudential policy frameworks, which can be of great significance for enterprises’ green development. Most studies focus on the macroeconomic impact of macroprudential policies (MPPs). However, the extent to which MPPs affect corporate green innovation (GI) at the corporate level remains unclear. Based on 12,280 firm-year records from China's A-Share Listed Companies spanning 2011–2020, combined with Environmental Kuznets Curve (EKC) hypothesis, we discover a firm tendency to promote GI under loosening MPPs, which is then curtailed after reaching a certain threshold. The impact is primarily channelled through public environmental concerns and financing constraints, as evidenced by an inverted U-shaped relationship. Additionally, MPPs are more likely to influence corporate GI in regions with high green finance development. Furthermore, we observed a consistent superiority of strategic over substantive GI, with green process innovation being the least impacted. Our results highlight the importance of rational design of MPPs not only at the macro level but also as a priority at the corporate level, as such a policy loosening and tightening will affect the GI activities of corporations.

Research joint ventures: The role of financial constraints

This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak or external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation also increase consumer surplus and tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.

The role of financial constraints in firm transition—Evidence from Indian manufacturing

AbstractIn developing countries' manufacturing, the prevalence of small firms poses a conundrum, as few successfully transition to larger categories. Scholarly attention to the reasons behind this limited upward mobility remains scarce. This study, focusing on Indian manufacturing, explores the role of limited financial access as a significant obstacle hindering small firms' transition. Analysing data spanning 2001–2016, encompassing both formal and informal firms, we find robust evidence that access to finance is crucial for small firm transition in Indian manufacturing. The findings are robust to alternate specifications and methods, and also to concerns arising from reverse causality.

Environmental regulations, finance, and firm environmental investments: an empirical exploration

Environmental regulations (ERs) drive financial decisions, influencing firms to invest in sustainable practices. Balancing economic goals with eco-friendly initiatives is pivotal in today's business landscape. This study investigates the intricate relationship between ERs, and firms’ environmental investments, focusing on the nuances of command-based and market-based ERs. With the backdrop of China's rapid economic growth and its subsequent environmental challenges, this research aims to shed light on how ERs influence firms’ environmental investments and innovative practices while considering the role of Financial Constraints (FCs). The study empirically examines the interplay of these factors using a comprehensive dataset of listed companies in China. The study utilizes 750 observations from the China Environmental Statistical Yearbook (2019-2020) and investigates the relationship between ER, finance, and firm environmental (FE) investments in diverse Chinese industries and regions. The study utilized diverse statistical methods, baseline, mediating effect, robustness tests, and linear regression to analyze China's environmental data, emphasizing descriptive analysis. The theoretical contribution of this study is that highlighting regulatory pressure fosters financial gains, driving firms to invest in environmental initiatives for long-term profitability proactively. These findings underscore the significance of taking into financial dynamics while creating and implementing ER. Policymakers should focus on mechanisms that enhance firms’ access to funding, such as promoting transparency through environmental and social responsibility reporting.

The role of financing constraints and environmental policy on green investment

The role of financing constraints and environmental policy on green investment

The impact of environmental, social and governance (ESG) score on dividend payment of large family firms: What is the role of financial constraints? International evidence

AbstractThis article studies the relationship between environmental, social and governance (ESG) score and dividend payment for 274 large family firms in the period 2015–2021. This research has three contributions to the literature. First, to the best of our knowledge this is the first article to focus on large family firms considering their greater importance in stock ownership around the world. Second, this sample covers both developed and emerging nations. Third, our study not only establishes a connection between ESG (Environmental, Social, and Governance) criteria and dividend payments but also considers how financial constraints moderate the relationship between ESG scores and dividend payments. The results indicate a positive influence of ESG scores on dividend payments. Furthermore, financial constraints of family firms are negatively related to dividend payments. Finally, the moderating effect of financial constraints on the relationship between dividend payment and ESG show that for high levels of financial constraints that dividends are less sensitive to ESG score. The opposite effect is reported when firms show low levels of financial constraints. Practically speaking, the study demonstrates the value of creating a dividend policy that is in line with the ESG score because they are complementary signals. Additionally, it is important to consider financial limitations when planning financial reserves in family firms. This is due to the diminished correlation between ESG score and dividend payments in the presence of financial constraints.

Industrial Disasters, Financial Constraints, and Innovation: Firm-Level Evidence from China

ABSTRACT This paper presents empirical evidence on the impact of industrial disasters on firm-specific innovation, focusing on the role of financial constraints. Using panel data of manufacturing firms in China from 2000 to 2013, our two-way fixed effects analyses confirm a statistically negative effect of industrial disasters on innovation in both the short run and the long run, and the negative effect is enhanced with the frequency of disasters. Another prefecture-level city panel from 2000 to 2019 further confirms the long-run and frequency-enhanced negative effect. The mechanism analysis shows that industrial disasters significantly increase interest rates and reduce bank lending to firms, which in turn reduces innovation. Moreover, ownership and size discrimination lead to asymmetric innovation effects on firms in the short and long run. Our results provide empirical evidence for the government to better allocate reconstruction funds and ensure firm innovation in the post-disaster period.

Research Joint Ventures: The Role of Financial Constraints

Research Joint Ventures: The Role of Financial Constraints

Inefficient investment and digital transformation: What is the role of financing constraints?

This paper empirically examines the effect of inefficient corporate investment on digital transformation, using Chinese listed companies from 2007 to 2019 as a sample, and finds that inefficient investment is not conducive to improving digitalization. We find that the greater the financing pressure on a company, the worse the digital transformation, and financing constraints exacerbate this negative effect. Among state-owned, private and highly digitalized companies, the negative impact of inefficient investment on digital transformation intensifies as the pressure of financing constraints increase. To combat inefficient investment, enterprises should optimize their investment structure, reduce their financing constraints, and improve their risk prevention mechanisms.

The role of financial constraints in firm investment under pollution abatement regulation

This paper empirically analyzes pollution abatement regulation within the context of the Clean Air Act's nonattainment status designation and shows that financial constraints are an important determinant of whether spending on mandatory pollution abatement crowds out or stimulates R&D investment and capital expenditure. We show that spending on mandatory pollution abatement and other investments are complements for financially unconstrained firms but substitutes for constrained firms. Financially unconstrained firms invest more and have lower current profits but higher future profits; financially constrained firms invest less and have stable current profits but lower long-term profits. (JEL: G32, G38, Q58).

FDI and firm productivity in host countries: The role of financial constraints

This paper studies the effect of FDI firms’ financial advantages on firm productivity in host countries and examines the related policy implications. If FDI firms face lower financing costs but have higher fixed production costs than local firms, a simple Melitz-type model predicts that FDI firms could have even lower cutoff productivity than local firms, especially in financially vulnerable sectors. The same mechanism will also lower the average productivity of FDI firms especially in financially vulnerable sectors, although FDI firms on average are still more productive than local firms. These predictions are supported by the Chinese firm-level data. Then, we study policy implications in a two-country model that resembles these empirical patterns. The counterfactual policy analysis shows that offering tax benefits to FDI firms could be counterproductive because it attracts FDI firms that are even less productive than local firms. The policy in the host country to improve its financial market efficiency could also hurt the country’s welfare because of the interaction between financial market reforms and the distortionary taxes imposed on local firms to finance FDI subsidies.

Sustainable behaviors and firm performance: The role of financial constraints’ alleviation

Financial mechanisms play a vital role in maintaining firm performance alongside sustainable growth practices, which include factors such as low-carbon emissions, green energy, and climate change. External investors increasingly incorporate environmental, social, and governance (ESG) considerations into their investment decisions. However, there is limited data on the potential mechanisms underlying ESG and how ESG performance relates to firm performance. This paper, therefore, focuses on the relationship between firms’ ESG performance and explores whether firm performance is moderated by ESG-related financial mechanisms. Our empirical analysis is based on data from 215,110 firm-year observations from global, publicly-traded firms during the period 2016–2020. Using ROA and ROS as measures, we found that ESG performance has a significant and positive effect on firm performance. Second, we discovered that ESG performance improves firm performance by alleviating financial constraints. Third, our results show that ESG performance improves external financing, including long-term and short-term debt. Finally, we demonstrate that strong ESG performance sends a high-quality signal to the credit market, which helps firms gain more trade credit, allowing them to improve their performance and the financial environment.

Can Reducing Knowledge Network Sharing Degree Improve Innovation Performance of Specialized and Special New Enterprises? The Role of Financial Constraints

This paper takes the specialized and special new A-share listed companies from 2012 to 2021 as the research samples, and uses the method of combining theoretical and empirical research to explore the impact of knowledge network sharing degree on the innovation performance of specialized and special new enterprises, and analyzes the regulatory effect of financing constraints on this relationship. The empirical results show that reducing the sharing degree of knowledge network of specialized and special new enterprises can significantly improve the innovation performance of enterprises, and financing constraints play a positive regulatory role in this relationship. The heterogeneity test based on the micro characteristics of enterprises shows that in the enterprises with the integration of the chairman and the general manager and the high degree of corporate equity balance, due to the low degree of information asymmetry, reducing the degree of knowledge network sharing has a more significant effect on the improvement of enterprise innovation performance and the regulatory effect of financing constraints. What’s more, further research finds that the digital transformation of specialized and special new enterprises can significantly enhance the positive regulatory effect of financing constraints on knowledge network sharing degree and enterprise innovation performance. The research conclusion of this paper is of great significance for the specialized and special new enterprises to strengthen the protection of intellectual property rights, strengthen the “differentiation” competition strategy, and make full use of knowledge resources to create core competitive advantages to achieve sustainable development of enterprises.

Fintech and Corporate Advertising Expenditures: The Role of Financial Constraints

Fintech and Corporate Advertising Expenditures: The Role of Financial Constraints

Can Reducing Knowledge Network Sharing Degree Improve Innovation Performance of Specialized and Special New Enterprises? The Role of Financial Constraints

This paper takes the specialized and special new A-share listed companies from 2012 to 2021 as the research samples, and uses the method of combining theoretical and empirical research to explore the impact of knowledge network sharing degree on the innovation performance of specialized and special new enterprises, and analyzes the regulatory effect of financing constraints on this relationship. The empirical results show that reducing the sharing degree of knowledge network of specialized and special new enterprises can significantly improve the innovation performance of enterprises, and financing constraints play a positive regulatory role in this relationship. The heterogeneity test based on the micro characteristics of enterprises shows that in the enterprises with the integration of the chairman and the general manager and the high degree of corporate equity balance, due to the low degree of information asymmetry, reducing the degree of knowledge network sharing has a more significant effect on the improvement of enterprise innovation performance and the regulatory effect of financing constraints. What’s more, further research finds that the digital transformation of specialized and special new enterprises can significantly enhance the positive regulatory effect of financing constraints on knowledge network sharing degree and enterprise innovation performance. The research conclusion of this paper is of great significance for the specialized and special new enterprises to strengthen the protection of intellectual property rights, strengthen the “differentiation” competition strategy, and make full use of knowledge resources to create core competitive advantages to achieve sustainable development of enterprises.

ESG and Stock Price Crash Risk: Role of Financial Constraints*

AbstractThis paper investigates whether corporate performance measured from three aspects—environmental, social responsibility and governance (“ESG”)—are associated with stock price crash risk, and also examines how the relation between ESG ratings and stock price crash risk is affected by the degree of financial constraint. Our empirical results show that ESG ratings reduce the stock price crash risk, and this relation is significantly alleviated for financially constrained firms. The results imply that greater financial constraint suppresses the positive role of corporate social responsibility in mitigating the risk of a stock price crash.

The Role of Financial Constraints in Business Environment; Evidence from Business Group Affiliated and Non-Affiliated Firms in Pakistan

The main purpose of this study is to investigate the relationship between Cash Flows, Growth Opportunities, Firm Size, Firm Age, Firm Performance, Investment, Financial constraints and Leverage between the B.G AFs and NAFs of Pakistan. Current study consists of the balanced panel data containing 86 B.G AFs vs. 90 NAFs of the Pakistan. This study covers the yearly data period from 2007 to 2017. The findings showed that the cash flows are positively correlated with the return on assets, investments, financial constraints, while leverage is negatively correlated with the financial constraints. The positive correlation between cash flows and return on asset is higher for the B.G AFs, which means the B.G AFs are more profitable than the NAFs. The correlation of cash flows with the investment and financial constraints is positive but lower for the B.G AFs, showing that AFs investment is less sensitive and less financially constrained than NAFs. The inverse correlation between leverage and financial constraints shows that the B.G AFs have easy access to the financial sources. The positive and higher correlation of growth opportunities with cash flows and return on assets shows that the AFs growth is higher than NAFs.

Referring young people to psychosocial support in the context of a youth active labour market/education strategy

ABSTRACT This study explores how experienced Danish caseworkers who work with young people at municipal job centres justify and make decisions regarding referring young clients to psychosocial interventions. Twelve caseworkers and a line manager from two municipalities were interviewed. A thematic analysis was conducted. Key themes were: in-house and out-of-house collaboration; referral as an ongoing process; matching the young person with the service provider based on information about the service providers’ target groups, and information about personal factors and individual contextual factors; dealing with regional gatekeepers; and the role of financial constraints and bureaucratic procedures. The caseworkers experienced a high degree of autonomy and were pragmatic in their approach to referring their young clients to service providers.