Severe Financial Constraints Research Articles

Emission rights mortgage and stock price crash risk: evidence from China

ABSTRACT Using the emission rights mortgage (ERM) policy in China as an exogenous shock, we employ a difference-in-differences approach to examine how ERM affects stock price crash risk of heavy-polluting firms. We find that the implementation of the ERM policy reduces stock price crash risk. Heterogeneity analysis reveals that this effect is stronger for firms with more severe financial constraints, those with lower information disclosure quality, those located in regions with greater local government’s environmental concerns, and non-SOEs. Our findings further our understanding of the economic consequences of ERM policy.

Short-sale constraints and firm investment efficiency: Evidence from a natural experiment

We examine the causal effect of relaxing short-sale constraints on firm investment efficiency using the experiment of the SEC Regulation SHO pilot program. Using a difference-in-differences approach, we find significant treatment effects of the pilot program on mitigating both underinvestment and overinvestment during the pilot period. These treatment effects disappear after the end of the pilot program. The effect on mitigating underinvestment is stronger for firms with severe financial constraints before the pilot period. The pilot program mitigates underinvestment and alleviates financing constraints more for pilot firms that experienced greater improvement in price efficiency after the pilot program began. The effect of the pilot program on mitigating overinvestment is more pronounced for firms with weaker governance and firms with more severe agency problems before the pilot period. These results suggest that relaxing short-sale constraints mitigates underinvestment through the external financing channel by improving price efficiency that alleviate financial constraints; and mitigates overinvestment through the managerial incentive channel by strengthening the disciplinary role of short sellers that enhances managers’ incentives to take correct actions.

Financialization and sluggish recovery of firms' investment: Global evidence from the 2007–2008 financial crisis

AbstractAfter the financial crisis of 2007–2008, the global economy witnessed a trend of sluggish investment recovery and continuous deepening of financialization. Using data on nonfinancial firms from 108 countries over the period from 2000 to 2017, we examine the impact of financialization on firms' postcrisis investment recovery with a probit model. We find that firms' financialization inhibited postcrisis investment recovery, and this finding remains stable under a series of robustness checks. Further discussion shows the hindering impact of financialization on investment recovery is especially dominant among firms with severe financial constraints and firms from advanced economies. Higher financial market yield also exacerbates the restraint effect of financialization on investment recovery.

Greening through social trust?

This study examines whether and how social trust affects corporate green innovation. Using the panel samples of Chinese non-financial listed companies from 2010 to 2015, this study finds that social trust has a significant positive impact on corporate green innovation, and this effect remains after a series of robustness checks. Heterogeneity analysis shows that this promotion effect is more pronounced in non-state owned enterprises, small enterprise facing severe financing constraints, and enterprises belonging to non-high-tech and non-heavily polluting industries. This positive impact is also more prominent in areas with high economic uncertainty, a strong Confucian cultural atmosphere, and non-environmentally friendly cities. Based on the theoretical framework of the trust triangle, the exploration of potential mechanisms reveals that the promotion effects of social trust on green innovation is achieved by increasing the external environmental pressure faced by enterprises, enhancing their reputation motivation and their environmental awareness. We further observe that social trust has a substitution effect on the formal institution. These results indicate that social trust plays a key role in affecting the green development of enterprises and can be used as a means of external governance.

Review article: Snow and ice avalanches in high mountain Asia – scientific, local and indigenous knowledge

Abstract. The cryosphere in high mountain Asia (HMA) not only sustains the livelihoods of people residing downstream through its capacity to store water but also holds the potential for hazards. One of these hazards, avalanches, so far remains inadequately studied, as the complex relationship between climate and potential triggers is poorly understood due to lack of long-term observations, inaccessibility, severe weather conditions, and financial and logistical constraints. In this study, the available literature was reviewed covering the period from the late 20th century to June 2022 to identify research and societal gaps and propose future directions of research and mitigation strategies. Beyond scientific literature, technical reports, newspapers, social media and other local sources were consulted to compile a comprehensive, open-access and version-controlled database of avalanche events and their associated impacts. Over 681 avalanches with more than 3131 human fatalities were identified in eight countries of the region. Afghanistan has the highest recorded avalanche fatalities (1057), followed by India (952) and Nepal (508). Additionally, 564 people lost their lives while climbing peaks above 4500 m a.s.l., one-third of which were staff employed as guides or porters. This makes it a less deadly hazard than in the less populated European Alps, for example, but with a considerably larger number of people affected who did not voluntarily expose themselves to avalanche risk. Although fatalities are significant, and local long-term impacts of avalanches may be considerable, so far, limited holistic adaptation or mitigation measures exist in the region. These measures generally rely on local and indigenous knowledge adapted to modern technologies. Considering the high impact avalanches have in the region, we suggest to further develop adaptation measures including hazard zonation maps based on datasets of historic events and modelling efforts. This should, however, happen acknowledging the already existing knowledge in the region and in close coordination with communities, local government and civil society stakeholders. More research studies should also be attempted to understand the trends and drivers of avalanches in the region.

Monetary policy uncertainty and corporate cash holdings: Evidence from China

This paper empirically explores the effect of monetary policy uncertainty on corporate cash holdings in China. We find robust evidence that monetary policy uncertainty is positively related to corporate cash holdings. The firms’ precautionary behavior in cash holdings is chiefly attributed to the increase in financial frictions rather than the reduction in corporate investments. The promoting effect of monetary policy uncertainty on cash holdings is more pronounced among firms with more severe financial constraints, firms with higher dependence on external finance, firms with worse access to bank financing, and non-SOEs, and during the period of monetary policy tightening. Our study suggests that firms hold more cash to cushion potential liquidity shortfalls induced by the increase in monetary policy uncertainty.

Configuring lean manufacturing and supply chain risk management: a cluster analysis

Among many fallouts of the global pandemic, firms’ supply chains have been severely impacted at the global scale. Such global impact can be mainly attributed to companies’ current heavy focus on lean manufacturing, resulting in a lack of preparedness and flexibility, and therefore weakening their supply chain links. At the same time, firms face severe financial distress and constraints if their investments in future risks turn out to be of no value. Facing such dilemmas, many firms are unsure of how to appropriately configure lean and risk management at their operational and supply chain levels. This study aims to understand the various configurations of lean manufacturing and supply chain risk management. Also, this study pays attention to buffer capacity associated with lean and risk management. In a dataset collected from 198 US companies, cluster analyses discover the manufacturers’ configurations of the varying emphases on lean management and supply chain management. Our results indicate that firms achieve the highest levels of buffer capacity and firm performance if they implement lean practices and risk management at a higher level than others.

Asset redeployability and dividend payout policy

This research examines the effects of real asset redeployability on dividend payout policy, showing that firms with higher real asset redeployability tend to pay more dividends. Our results hold after controlling for cash holdings, current assets, and other firm characteristics. We hypothesize that asset redeployability increases dividend payout through the financial constraint channel, the signaling channel and the agency problem channel. Our empirical results suggest that all three channels are at play and that the positive effect is more pronounced for firms with more severe financial constraints, stronger signaling incentives, and for firms that have more severe free cash flow problems. Overall, our findings imply that asset redeployability is an important determinant of corporate dividend payout policy.

Ghana

Large external shocks have exacerbated pre-existing fiscal and debt vulnerabilities, resulting in a loss of international market access, increasingly constrained domestic financing, and reliance on monetary financing of the government. Decreasing international reserves, Cedi depreciation, rising inflation and plummeting domestic investor confidence eventually triggered an acute crisis. The authorities have taken steps to tackle these deep challenges, including by accelerating fiscal adjustment. The government has also launched a comprehensive debt restructuring to address severe financing constraints and the unsustainable public debt.

A CASE SERIES ON POST-TRAUMATIC CASE OF INFECTED NONUNION OF DISTAL FEMUR TREATED WITH KNEE ARTHRODESIS WITH ILIZAROV RING FIXATOR AND LIMB LENGTHENING SURGERY

Osteomyelitis is an inflammatory condition accompanied by the destruction of bone and caused by an infecting microorganism. Open contaminated fractures can lead to the development of osteomyelitis of the fractured bone in 3-25% of cases, depending on fracture type, degree of soft-tissue injury, degree of microbial contamination, and whether systemic and/or local antimicrobial therapies have been administered. Untreated, infection will ultimately lead to non-union, chronic osteomyelitis, or amputation.We report a case series of 10 patients that presented with post-operative infected non-union of the distal femur with or without prior surgery. The cases were performed at Padmashree Dr. D. Y. Patil Hospital, Nerul, Navi Mumbai, India. All the patients’ consents were taken for the study which was carried out in accordance with the Helsinki Declaration. The methodology involved patients undergoing a two-stage procedure in case of no prior implant or a three-stage procedure in case of a previous implant. Firstly, debridement and implant removal were done. The second was a definitive procedure in form of knee arthrodesis with ring fixator and finally followed by limb lengthening surgery.Arthrodesis was planned in view of infection, non-union, severe arthritic, subluxated knee, stiff knee, non-salvage knee joint, and financial constraints. After all the patients demonstrated wound healing in 3 months along with good radiographic osteogenesis at the knee arthrodesis site, limb lengthening surgeries by tibial osteotomy were done to overcome the limb length discrepancy. Distraction was started and followed up for 5 months. All 10 patients showed results with sound knee arthrodesis and good osteogenesis at the osteotomy site followed by achieving the limb length just 1-inch short from the normal side to achieve ground clearance while walking. Our case series is unique and distinctive as it shows that when patients with infected nonunion of distal femur come with the stiff and non-salvage knee with severe arthritic changes and financial constraints, we should consider knee arthrodesis with Ilizarov ring fixator followed by limb lengthening surgery.

Higher Education in Balochistan: Status and Way Forward

Education plays a dominant and vital role in an individual's personal and professional growth. The growth and progress of a society without education is only wishful thinking. Globally, the education system has been divided into three phases that include primary, secondary, and post-secondary, also called tertiary or higher education (HE). HE is considered the last and highest stage of formal education. HE is a significant game-changer that enhances gainful employment opportunities and improves the country's value system, civic sense, and socio-economic uplift. The HE of Balochistan is still lagging and is not capable of bringing forth a way forward for the socio-economic development of the people of Balochistan. This study aims to address the problems and current status of HE in Balochistan and provide policy recommendations to sort out those issues. The methodology for conducting this study was based on a detailed survey of the universities. A questionnaire was circulated among the vice-chancellors of the universities and the former vice-chancellor of the University of Balochistan, as well as the former Chancellor and Governor of Balochistan, across the province. The study concluded that the universities are facing severe financial constraints in revenue generation; they may not fulfil the demands of the university.

Fleeing entrepreneurs: Foreign residency right and corporate risk-taking

We use a unique sample of Chinese firms to investigate the impact of the foreign residency right (FRR) of a firm’s controlling person on corporate risk-taking. Our findings suggest that the controlling person’s FRR is negatively associated with corporate risk-taking, and the effect of FRR on risk-taking is significantly reduced by Operation Fox Hunt (a program for actively pursuing fled criminals) or when the foreign country has an extradition treaty with China. Our results are robust to tests for endogeneity, alternative metrics of FRR, and risk-taking. We also find that severe financial constraints and a decline in R&D activities are the channels through which FRR reduces corporate risk-taking. Additional analyses show that the effect of FRR on corporate risk-taking is more pronounced when (a) controlling persons hold foreign nationality, (b) controlling persons are powerful or older, or (c) the investors of the firm face greater information asymmetry.

Mandatory information disclosure and innovation: Evidence from the disclosure of operational information

We use a quasi-natural experiment wherein the Shanghai Stock Exchange requires listed companies in certain industries to disclose operational information and a staggered difference-in-differences model to examine the impact of mandatory information disclosure on corporate innovation. We find that companies subject to mandatory operational information disclosure show significantly increased innovation. This effect is pronounced for companies classified as non-state-owned enterprises, facing severe financing constraints and a high degree of shareholder tunneling behavior and in competitive and high-tech industries. Although mandatory operational information disclosure reduces their competitive advantage, companies appear to compensate by increasing innovation. Our study highlights the positive impact of mandatory operational information disclosure, indicating that it contributes to the high-quality development of both capital markets and companies.

Rent-seeking in bank credit and firm R&D innovation: The role of industrial agglomeration

Employing World Bank's survey data on the Chinese business environment, we empirically investigate the role of industrial agglomeration in moderating the effect of rent-seeking in bank credit on firm R&D innovation. The results show that rent-seeking in bank credit impedes firm R&D innovation, while industrial agglomeration corrects this impeding effect, which is also robust when considering endogenous problems. Furthermore, the results show that the moderating role of industrial agglomeration in correcting the negative effect of rent-seeking in bank credit on firm R&D innovation is more prominent for SMEs, non-state firms, and firms with more severe financial constraints. These findings suggest that the spatial agglomeration of industries can effectively alleviate the suppression effect of rent-seeking in credit corruption on firm R&D innovation, highlighting ways to promote firm R&D innovation in China's financially repressive environment.

RISK-BASED APPROACH TO DAM SAFETY

The feasibility of measures to ensure the safety of dams must be justified in the face of severe financial constraints and social factors. A risk-based approach to the operation of dams requires a reassessment of ideas about the prevailing, as a rule, spontaneous, ratio of the costs of preventive measures to reduce the risks of accidents and to mitigate their consequences. A key component of the risk management process is understanding the probability of failure under given loading conditions — hydrological, seismic, filtration, etc. (for example, the probability of failure at peak ground acceleration, the probability of failure at a certain filtration rate, etc.). Building an accident scenario by analyzing the tree of events and failures allows you to imagine the process of transition from one event to another, specify the causes and consequences (detail the process) and identify the links between them. Event and fault trees are tools used to inform decisions regarding dam safety. Like all other tools, they are imperfect and their potential value depends on the skill of the user.

Testing Pecking Order Prediction of Financing Choices in NEPSE Listed Non-Financial Companies of Nepal

In a financial market with information, agency and contract enforcement problem, partially informed firms have difficulty to access in capital markets and they face some restrictions to get adequate external capital at similar cost of their internal funds. Hence, these firms display the preferential order of financing choices, for example; first they invest internal funds, second debt capital and equity as last resort. However, such preferences of financing order commonly known as Pecking Order are not similar in all cases due to the nature of firms, their financial health, borrowing capacity, and functioning of capital markets. Under this backdrop, this study attempted to test this Pecking Order Hypothesis (POH) in financing decisions of Nepalese firms. Moreover, it tried to examine the effect of firm's borrowing capacity, informational efficiency, financial risk, operating growth, taxes and internal profitability on pecking order financing preferences of firms. It used quantitative approach of analysis to examine the financing behavior of 16 non-financial NEPSE listed companies. Descriptive and inferential statistics i.e. Pooled Ordinary Least Square (OLS) regression approach was used to test the hypothesis and data comprised unbalanced panel (n=262 observations) obtained from annual financial reports of sampled companies. The study results revealed that firm specific financial risk including borrowing capacity, operating growth, internal profitability and information efficiency have significant impact in firms' financing polices. Firms have preferences to use debts instead of equity when they face financing deficiency and these preferences are prominent when firms plummet in severe financing constraints. Hence, this study concluded that a firm's capacity to trade off its financial risk with some firm specific attributes outlined the most of the financing policies of Nepalese enterprises. These financial risks absorption capacity of the firms could be considerably improved if firms improved their profitability, sales growth, information efficiency and spare borrowing capacity; hence, these factors are imperative to design the optimal capital structure of firms and maximize their values.

Analyzing the mechanism among rural financing constraint mitigation, agricultural development, and carbon emissions in China: A sustainable development paradigm

Agricultural development in developing countries generally faces increasingly severe financing constraints, and China's practice provides a model for other countries. This article investigates the impact of the policy to alleviate rural financing constraints on agricultural carbon emissions in developing countries by using a quasi-natural experiment, the “Incremental Incentives for Agricultural Loans from County Financial Institutions,” implemented in China, with data from 2005 to 2018, and with a DID approach. It is found that under the influence of this policy, the alleviation of agricultural financing constraints will significantly generate an increase in the intensity of agricultural carbon emissions, which is triggered by the fact that the alleviation of financing constraints increases the production factors invested per unit area in the agricultural production process, while the increase in the mechanization and scale of agriculture will assist to reduce the contribution of the alleviation of financing constraints to carbon emissions. The impact of financing constraint alleviation on agricultural carbon emissions may differ among places with different economic and social development and agricultural bases. Additionally, the alleviation of rural financing constraints can promote agricultural development and increase farmers' income, enabling other developing countries to adjust their policy orientation when adopting such policies, thus promoting agricultural development while controlling agricultural carbon emissions and contributing to the global emission reduction cause.

How do firms learn? Evidence from corporate cash holdings during the COVID‐19 pandemic

AbstractWe examine the impact of COVID‐19 on US corporate cash holdings. Our findings suggest that greater pandemic exposure is associated with higher corporate cash holdings and that firms learn from prior experiences as they manage their cash policies. More specifically, the level of cash holdings in firms that experienced severe financial constraints during the 2008 credit crisis and firms with prior severe acute respiratory syndrome (SARS) and H1N1 exposure is significantly lower than that of firms with no prior epidemic or financial constraints experience. Overall, our findings support the learning behaviour of cash and contribute to corporate cash holdings literature by providing insights on the extent to which firms learn from prior experiences to manage their liquidity.

Does Fintech affect the psychological traits of managers? Based on the perspective of manager overconfidence.

Overconfidence has undertaken an indispensable role in the psychology of managers and places important significance on managers' behavior and decision-making. This study investigates the effect of Fintech on the psychological traits of managers from the perspective of overconfidence based on the panel data of Chinese A-share non-financial listed firms and the digital inclusive finance index of Chinese prefecture-level cities between 2011 and 2020. The empirical results show that (1) Fintech exerts a negative effect on manager overconfidence; (2) the main channels of the negative effect of Fintech on manager overconfidence include Fintech coverage breadth and Fintech usage depth; (3) for firms with severe financing constraints and lower power concentration, the negative effect of Fintech on manager overconfidence is more prominent; and (4) our benchmark results still hold after a series of robust tests, including IV regression, altering the measurement of Fintech and manager overconfidence, and employing logit model re-estimation. Based on the above findings, this study provides some insights into the cause for managers' psychological traits, maintaining managers' mental health, and empowering the firms' sustainable development by adopting Fintech.

CEOs' psychological trait and firms' adoption of blockchain technology: The role of hometown identity.

The impact of CEOs' psychological traits on firms' decision-making has been explored by many psychological researchers. What's more, the CEO hometown identity, as one of the most fundamental psychological traits, has drawn increasing attention from the psychological literature. Firms' adoption of blockchain technology plays an innovative and efficient role in firms' strategic transformation. Thus, it is necessary to investigate the relationship between CEOs' psychological traits and firms' adoptions of blockchain technology from the perspective of hometown identity. To examine the impact of the CEO hometown identity on firms' adoption of blockchain technology, this paper manually collects information about the CEO hometown identity and constructs the index of firms' adoption of blockchain technology based on the textual analysis of firms' annual reports. Based on the theory about the psychology of identity, this paper constructs the theoretical hypothesis about the relationship between CEO hometown identity and firms' adoption of blockchain technology. Then, this paper uses a two-way fixed effect regression model to estimate the impact of the CEO hometown identity on firms' adoption of blockchain technology based on the panel data of Chinese A-share non-financial listed firms during 2008-2019. The research results show that: (1) the CEO hometown identity has a positive effect on firms' adoption of blockchain technology. (2) For firms with severe financing constraints and State-owned enterprises (SOEs), the positive effect of the CEO hometown identity on firms' adoption of blockchain technology is more prominent. (3) Our benchmark results still hold after a series of robustness checks, including altering the measurement of the CEO hometown identity, altering the sample, adding CEO-specific control variables, and altering the logit regression model. Based on the above-mentioned findings, this paper not only sheds new light on the power of CEOs' psychological trait but also deepens the understanding about theories of the psychology of identity.