State-owned Firms Research Articles

Internationalization speed and firm innovation: the moderating roles of negative attainment discrepancy and state-ownership

PurposeThis paper aims to investigate the moderating roles of negative attainment discrepancy and state ownership in the relationship between internationalization speed and firm innovation.Design/methodology/approachPanel fixed-effects regressions model was applied to test the influence of internationalization speed on firm innovation using data collected from Chinese listed companies between 2003 and 2017.FindingsThe internationalization speed can positively promote firm innovation. Moreover, negative attainment discrepancy enhances the effect of internationalization speed on firm innovation. The effect of negative attainment discrepancy on internationalization speed and firm innovation performance is more positive in state-owned firms than in non-state-owned firms.Research limitations/implicationsA suitable time of internationalization speed to affect firm innovation is obtained.Practical implicationsThis paper suggests that decision-makers should set an appropriate aspiration to internationalize firms and increase firm innovation. Moreover, state-owned enterprises should pay attention to negative attainment discrepancies.Originality/valueThe study revealed the boundary conditions of negative attainment discrepancy and state ownership on the relationship between internationalization speed and firm innovation, contributing to the theoretical advancements in internationalization speed.

Financial leverage and performance of SMEs in Vietnam: Evidence from the post-crisis period

This study examines the link between capital structure and firm performance (measured by ROA and ROE), focusing on a large sample of SMEs in Vietnam during the postcrisis period (2008-2016). Empirical results from various panel data models confirm the nonlinear relationship between debt financing and firm profitability. This relationship takes the form of an inverted-U shape. Firm profitability only increases to a certain level of leverage. When the debt ratio becomes too high, firm performance starts to decrease. These results highlight the role of financial distress costs in debt financing for SMEs. Furthermore, the paper also confirms the heterogeneity between state-owned firms and private ones. Policy implications are also discussed.

Does Privatization Affect Internationalization Strategy?

The International Business literature has well documented the substantial differences between state-owned firms and privately owned firms in their international strategy, particularly in the setting of Chinese enterprises. However, a state-owned firm may transform its ownership and become a privately-owned firm. In this case, we do not know whether the privatized firm makes international strategies like other private firms. To explore the impact of privatization, we study the market entry decisions made by Chinese listed firms from 2000 to 2018. We categorize all firms into three types: the state-owned, the privatized, and the originally private firms. We find that privatized firms are less averse to the political risks of a host country when entering a market than originally private firms. The former firms’ market entry decision is more consistent with that of state-owned firms. This organizational inertia experienced by privatized firms can be partially attributed to their experience in the host country before the privatization. Interestingly, their prior direct connection with the government does not influence their decisions any longer even though this connection mitigates political risks for state-owned firms. We therefore call for more research into the impact of privatization on firms’ international strategy.

The Peer Effect of Targeted Poverty Alleviation Activities of Listed Firms

Targeted poverty alleviation is a major transformation measure for China to overcome poverty. Prior literature on the motivations of listed firms participating in targeted poverty alleviation mainly focuses on firms’ own characteristics, such as financial performance, property right, and managerial heterogeneity. It assumes that firms make their targeted poverty alleviation decisions independently, without considering the mutual impact between different firms. Firms intend to learn and imitate the activity of other firms in the same industry or the same region in the process of decision-making and implementation. This phenomenon is called the peer effect. Firms often consciously pay attention to the practice of competitors, and ultimately produce interactive decisions. Based on the data of Chinese listed firms from 2016 to 2019, this paper empirically tests whether the targeted poverty alleviation activity of listed firms has the peer effect, and further explores its mechanism, influencing factors and economic consequences. The results show a significant positive industrial peer effect of targeted poverty alleviation activities of listed firms. The investment and amount of targeted poverty alleviation in the same industry will significantly positively affect the targeted poverty alleviation decision of other firms. The mechanism test shows that social learning and competitive pressure are the main reasons for the peer effect of targeted poverty alleviation activities of listed firms. Considering the types and quality of targeted poverty alleviation, we find that the peer effect is mainly reflected in the non-industry-development investments instead of industry-development investments. We do not find a significant peer effect in the quality of targeted poverty alleviation of listed firms. Further analyses show that state-owned firms, firms with more financial constraints , and firms with less information transparency tend to imitate peer firms’ targeted poverty alleviation activities. In addition, targeted poverty alleviation activities based on the peer effect have a positive impact on firm value. The contribution of this paper is as follows: First, from the perspective of firm interaction, this paper expands the research on the influencing factors of targeted poverty alleviation, makes up for the deficiency of the existing research on the driving factors of targeted poverty alleviation, which only focuses on the characteristics of firms themselves, and helps to deeply understand the motivation of firms to fulfill their social responsibility. Second, the existing finance literature mainly investigates the peer effect in corporate financial decision-making and corporate governance mechanism, while this paper expands the field of peer effect from the perspective of corporate social responsibility. Third, in terms of practical significance, this paper provides decision-making reference for the regulatory authority to encourage and guide listed firms to participate in the practice of targeted poverty alleviation and give full play to the role of capital market in consolidating the national poverty alleviation achievements.

Rare and Valuable: Female Board Directorship in the Middle East and North Africa

Amassing unique hand-collected data for 1197 publicly-listed MENA firms from 2016, we explore the predictors of female board assignments at the firm, industry, and country level and also examine the impact of female directors on firm performance. We rely on the institutional logic and legitimacy concerns to explain the predictors of female board directorship and find that foreign ownership, firms in industries with larger female employment bases, and gender parity promote female board directorship. We find, though, partial empirical support that smaller firms as well as family- and state-owned firms assign more board seats to female directors. Supporting the upper echelons view of board gender diversity, we find that female directors have a positive impact on firm accounting performance. However, reflecting a market bias against female representation in corporate hierarchy, we find a negative impact on firm performance in terms of market measures.

Does Financialization of Non-Financial Corporations Promote or Prohibit Corporate Risk-Taking?

ABSTRACT We investigate how the financialization of nonfinancial corporations (NFCs) affects corporate risk-taking. We find that NFCs’ financialization has an adverse effect on corporate risk-taking, supporting the “crowding-out” effect. Short-term financial investments undermine firms’ incentives to chase risky but profitable investment projects. The negative association between NFCs’ financialization and corporate risk-taking is more pronounced in state-owned enterprises and firms with lower institutional ownership, showing that financialization leads managers to become more myopic and reduce long-term investments. Further, the sensitivity of financialization and corporate risk-taking varies with financial asset classification. We address both selection and endogeneity concerns.

Environmental regulation and technological innovation: evidence from China.

We analyze the real effects of the environmental regulation on technological innovation using an air pollution reduction governance policy promulgated in China under the 12th Plan in 2012. We treat the Air Pollution Prevention Policy as a quasi-natural experiment that is plausibly exogenous to the firms' innovation policy and thus use the difference in difference (DID) as an identification strategy in our analysis. We provide evidence that environmental regulation substantially promotes innovation productivity. Our findings reveal that this impact is more pronounced for state-owned firms, pollution-intensive industries, and high-tech-intensive industries. We uncover three possible underlying economic mechanisms through which the air pollution reduction policy impacts innovation. We show that government financing, external governance from the capital market, and R&D intensity are three underlying economic channels through which environmental regulation promotes technological innovation. Collectively this study's policy implication is that industrial policies that promote greener environments can enhance economic performance.

CEO Military Background and Investment Efficiency

ABSTRACT We identify an unexplored attribute of the CEO associated with corporate investment efficiency – military experience. We hypothesize that military experienced CEOs tend to reduce agency conflicts, are less likely to be self-interested, and have a higher tendency to take value-enhancing projects which lead to higher investment efficiency. We test our core hypotheses using a sample of Pakistani firms from 2009 to 2017 and find that CEOs’ with military experience have a positive influence on investment efficiency. This positive effect is more pronounced in reducing underinvestment problems, in the presence of strong competition, and when CEO has higher incentives, but weaker for state-owned firms. These conclusions remain valid to alternative measures, after addressing endogeneity issues, and additional analyses. Overall, our research advances the literature by providing new evidence that CEO military experience can have a significant influence on corporate decisions.

Depoliticization and corporate cash holdings: Evidence from the mandated resignation of directors in China

The 2013 depoliticization regulation (Rule 18) in China mandates government officials to resign from board positions in public firms, terminating firms' political connections established through these directors. Exploiting this regulation as a quasi-experiment, we document that politically connected firms increase their cash holdings 12.7% more than non-connected firms because of these resignations. This pattern is more pronounced among firms that rely more heavily on the government for external resources. Among state-owned firms, the pattern is more evident in firms that are more deeply privatized. In addition, firms that lose political ties experience a significant decline in obtaining bank loans and government subsidies, and they are also slower to adjust their cash holdings toward the optimal level. These findings underscore the role of corporate political linkages in facilitating firms' access to resources that “soften” firms' budget constraints.

Imposing versus Enacting Commitments for the Long‐Term Energy Transition: Perspectives from the Firm

Imposing versus Enacting Commitments for the Long‐Term Energy Transition: Perspectives from the Firm

Managerial ability, internal control and investment efficiency

This paper discusses the relationship between managerial ability]and inefficient investment, as well as the impacts of internal control on them by using information asymmetry and agency theory based on data of Shanghai and Shenzhen A-share listed companies over 2012–2016. (i) Managerial ability alleviates the under-investment caused by information asymmetry but aggravates the over-investment caused by agency problem; (ii) Internal control restrains the relationship between managerial ability and over-investment but promotes the relationship between managerial ability and under-investment. (iii) There is a significant positive correlation between managerial ability and over-investment and internal control has a significant suppressed effect for state-owned firms. (iv) There is a significant negative correlation between managerial ability and under-investment and internal control has a significant promote effect for private-owned firms. (v) Where the firm’s chairman and the general manager are the same person, internal control has little effect on the relationship of managerial ability and over-investment. This study contributes to establish comprehensive analysis framework of inefficient investment and has some implications for corporate investment decision-making behavior.

Going Too Far Is as Bad as Not Going Far Enough: An Inverted U-Shaped Relationship between Internal Controls and Operational Efficiency

ABSTRACTIn this study, we explore the inverted U-shaped association between internal control quality and firm operational efficiency. Although effective internal controls can facilitate and improve operational efficiency, excessive internal controls can negatively affect operational efficiency by (1) influencing management energy, attention, risk-taking, and innovation motivations, (2) hindering employees' creativity, enthusiasm, and trust. Our findings support the inverted U-shaped association. We further explore and prove the two channels through which internal controls affect firm operational efficiency: the “information channel” (the quality of internal management reports), and the “application channel” (the enforcement of internal controls). Additionally, we show that the inverted U-shaped association only exists in non-state-owned firms. We do not find significant association between internal control quality and operational efficiency in state-owned firms. Overall, this study suggests that firms should not only establish an optimal level of internal controls, but also enforce the internal controls effectively to achieve their intended goals.

Corporate Governance, Agency Costs, and Corporate Sustainable Development: A Mediating Effect Analysis

The economy is an essential factor in constructing a resilient city, and listed companies play a vital role in the local economy. From the microbehavior of corporate governance, we examine the relationship among corporate governance, agency costs, and corporate sustainable development for a panel sample of 690 state-owned firms in China during 2015–2019. We found that agency costs mediate the relationship between board size, management compensation, debt ratio, dividend policy, and corporate sustainable development. Specifically, decreasing the board size can reduce agency costs and enhance the company’s sustainable development capabilities. The existing compensation system is to the disadvantage of the sustainable development of the company. Increasing the salaries of managers will increase agency costs and reduce the company’s ability to develop sustainably. Although increasing liabilities can reduce agency costs, increasing liabilities will increase financial risks. The bankruptcy costs caused by increasing liabilities are more significant than agency costs, which leads to a decline in the company’s ability to develop sustainably. The implementation of cash dividend policies will help reduce agency costs, thereby increasing their sustainable development capabilities. This also provides new ideas for the Modigliani–Miller (MM) theory and agency cost theory.

Issuers’ Ownership Nature, Payment Modes and Bond Rating Quality: Evidence from CBRC in China’s Bond Market

This paper studies how the ownership nature affects the rating quality differences between investor-paid credit rating agencies （CRAs） and issuer-paid CRAs in China’s bond market. CRAs are important information intermediaries in the bond market. Their main task is to convey bond issuers’ credit risk information and alleviate the information asymmetry between issuers and investors. However, domestic CRAs have long been questioned about their low rating quality. These criticisms are mainly based on their optimism because a large portion of their ratings are either AA level or AA+ level. The issuer-paid mode adopted by most domestic CRAs is considered to be one of the most important factors causing their low efficiency. Under the issuer-paid mode, CRAs facing conflicts of interest may easily succumb to issuers’ demand for higher ratings.China Bond Credit Rating Co., Ltd. （CBRC）, the first investor-paid CRA in China, was established under policy in September 2010. Like foreign investor-paid CRAs, CBRC is independent but lacks access to private information. Its rating quality may not be better than issuer-paid CRAs. Issuers’ ownership nature might have an influence on CRAs’ behavior. Private firms and state-owned firms are faced with different financing environment. Private firms without implicit government guarantees rely heavily on credit ratings to reduce financing costs, while state-owned firms with implicit guarantees are less motivated to collude with CRAs. Private information is crucial to credit rating in private firms while it has a limited impact on credit ratings in state-owned firms. To conclude, issuers’ ownership nature affects both comparative advantages and disadvantages of investor-paid CRAs, so it has a comprehensive impact on rating quality.Taking CBRC as an example, the empirical findings are as follows: （1） Compared with the case that the issuer is a state-owned firm, when the issuer is a private firm, the information content of CBRC ratings is less, but the timeliness is stronger. （2） The more the conflicts of interest and the more the public information, the more the information content of CBRC ratings; and this phenomenon is more pronounced among private-owned issuers. These results show that CBRC ratings have independence advantages and information disadvantages at the same time. Overall, they provide incremental information based on issuer-paid ratings, especially when the issuer is a private-owned firm.The main contribution of this paper is that: Firstly, it focuses on how the ownership nature affects the rating quality differences between investor-paid CRAs and issuer-paid CRAs. Secondly, it compares the rating timeliness of investor-paid CRAs and issuer-paid CRAs, and supplements the literature on China’s credit rating research. Finally, it is of great significance to investors and regulators. Encouraging CRAs with multiple payment modes is conducive to improving the efficiency of resource allocation in China’s bond market.

COVID-19 impact on firm investment—Evidence from Chinese publicly listed firms

The COVID-19 outbreak had a significant impact on business cash flows and investment activities. This paper examined the COVID-19 impact on Chinese business investment in 3326 A-share listed quarterly financial reports, from which it was found that the negative relationship was more pronounced in the large, eastern Chinese state-owned firms. Using a propensity score matching method and difference-in-differences estimation, corporate financial flexibility was also examined, with the results indicating that high cash flexibility provided a buffer that allowed firms to better deal with adverse external shocks as the firms that had high cash flexibility were able to significantly increase their investments after the COVID-19 outbreak. Various robustness tests were conducted, all of which verified the robustness of the results. Overall, the empirical results provided evidence that the COVID-19 pandemic in China had a negative impact on Chinese listed firms, and verified the vital role of flexible financial reserves for firm survival and development during crises.

Environmental Performance of Firms and Access to Bank Loans

This study examines whether better environmental performance of a firm facilitates its access to bank loans in China and how state ownership and regional environmental pollution moderate this relationship. Using a sample of Chinese firms listed on the Shanghai or Shenzhen stock exchanges from 2007 to 2015, we find that better environmental performance is associated with greater access to bank loans, which is consistent with the predictions of risk-management theory. Furthermore, we find that the relationship between environmental performance and access to bank loans is weakened for state-owned firms and strengthened for firms operating in the regions with higher environmental pollution, suggesting that institutional factors play an important role when banks make lending decisions. Our results have implications for managers, policymakers, and banks in the transition to a green economy.

Heterogeneous Shareholders’ Participation, COVID-19 Impact, and Innovation Decisions of State-Owned Firms: Evidence from China

Innovation ability has become an important factor affecting the global competitiveness and sustainable development of state-owned enterprises (SOEs) in China, particularly during the COVID-19 period. This study examined the association between heterogeneous shareholders and SOE innovation, in addition to the moderating impact of corporate governance characteristics and the COVID-19 pandemic on this association. Using data from Chinese A-share listed mixed ownership enterprises (MOEs), we found that the mixed ownership reform of SOEs positively affected firm innovation compared to other MOEs by reducing agency costs, indicating that the manager view channel was proven. We also found that heterogeneous shareholders resulted in more innovation output in state-owned holding mixed ownership enterprises (SHMOEs) with affiliated managers, in those audited by lower reputation accounting firms or that had a lower external marketization, or during the COVID-19 period. The implications of this study are of importance for improving heterogeneous shareholders’ active participation in the mixed ownership reform of SOEs.

Short selling constraints and politically motivated negative information suppression

This study examines the effect of short selling constraints on politically motivated suppression of negative information. We use a unique setting in China, in which there are multiple exogenous changes in short selling constraints and firms have strong incentives to suppress negative information during politically sensitive periods. Results from Difference-in-Differences analyses and a regression discontinuity design show that removing short selling constraints can reduce politically motivated bad news suppression. Short selling can reduce negative information suppression through the channels of improved financial reporting quality, more voluntary disclosure from management, and more timely release of information by media. In addition, the effect of short selling on reducing bad news hoarding is more pronounced for more politically sensitive meetings and for state-owned firms located in regions with weaker market and institutional development.

Los efectos de la deuda y la restricción financiera en el comportamiento de la inversión de las empresas brasileñas no financieras cotizadas en B3

Este estudio investigó el impacto de las restricciones financieras sobre la relación entre el comportamiento de inversión y las decisiones de endeudamiento de las empresas brasileñas cotizadas B3. Se utilizó una regresión lineal con datos de panel en una muestra de 536 empresas que cotizaron en el período de 2010 a 2017. El tamaño de la empresa, la deuda a largo y corto plazo y la estructura de la propiedad se consideraron como variables de restricción financiera. Se encontró que, en Brasil las grandes empresas y privadas, poseen mayor proporción de activos, tienen menores restricciones para endeudarse, y aun así, deciden sobre sus inversiones basándose en la oportunidad de crecimiento y en sus capacidades de generar flujo de caja. Mientras tanto, las empresas pequeñas, con una pequeña deuda bancaria a largo plazo y las estatales encuentran más restricciones financieras, en consecuencia, sólo invierten a partir de flujos de caja generados.

Institutional complexity, management practices, and firm productivity

• State-owned firms in China’s transition economy face greater institutional complexity. • China’s state-owned firms have developed structured management practices. • Management and productivity are positively related in China’s state-owned firms. • There is no relationship between management and productivity for private firms. • Institutional complexity may affect formalization of management practices. Formal structure is often considered important for the growth and survival of firms. Within the literature focused on the institutional antecedents of formalization, less attention has been paid to the drivers of formal management practices. To help fill this gap, we study how state and market institutional logics affect the adoption and utility of formal management practices in manufacturing firms. We theorize how institutional complexity, resulting from coexistent, conflicting state and market institutional logics, may exert differential pressure on state-owned and private firms’ decisions to adopt these practices, diverging from prior studies that focus primarily on the role of market logics in their adoption. We then test these propositions in a representative sample of 390 manufacturing firms in China with uniquely detailed data on structured management practices using regression analysis. Variation in ownership differentiates the relative influence of state and market institutional logics on firms in China’s transition economy. We find that measures of structured management practices are higher for state-owned firms, while scores are significantly lower for domestic private firms. We further show that, on average, a firm’s overall management practice score is positively and significantly related to total factor productivity (TFP) in state-owned firms, but the correlation is no different from zero in both domestic and foreign private firms. Our findings support a role for structured management practices as a response to institutional complexity, by enabling firms to satisfy multiple imperatives from distinct audiences.