Strong Institutional Environment Research Articles

Challenges of water environment governance in China: based on a qualitative comparative analysis approach

ABSTRACT As a developing country focused on water pollution control, understanding the mechanisms behind China's water environment governance challenges is crucial. This study uses fuzzy set qualitative comparative analysis (fs/QCA) to develop a localized political-economic-social-technological (PEST) framework tailored to local governance realities, analyzing cases from the second round of Central Environmental Protection Inspection (CEPI). Two critical paths of local water governance challenges (CWEG) are identified: (1) In the 'government capacity constraints” path, stable yet limited official autonomy, combined with weak social supervision, obscures the institutional environment's empowering role and restricts local governance capacity, hindering environmental management effectiveness. (2) In the 'formalism in governance' path, a strong institutional environment, significant fiscal decentralization, robust digital infrastructure, green technology innovation, and low official turnover create a favorable governance environment. However, under the logic of avoiding accountability, formalism may emerge, posing challenges to effective water resource management.

Bank runs and media freedom: What you don’t know won’t hurt you?

This paper examines the influence of media freedom restrictions on retail depositor behavior during banking crises. Non-professional, retail depositors are particularly affected due to insufficient access to vital information about the banking industry's vulnerability and broad macroeconomic conditions amidst the crisis. Using data from 85 countries from 2004 to 2019, we found that during crises, higher media restrictions lead to an increase in the rate of household deposit withdrawals. If media restrictions hinder depositors from accurately assessing the banking sector’s exposure, there is a higher likelihood of panic-based response in uncertain times brought on by the banking crisis, potentially triggering bank runs. Furthermore, our results reveal that lower banking sector risk can mitigate the negative effect of media restrictions on retail deposit growth during a banking crisis, especially in middle-income OECD and non-OECD countries, countries with stronger institutional environments, and countries with higher financial literacy. As a policy suggestion, promoting financial literacy could help reduce information asymmetry and prevent panic withdrawals, even in environments with significant media restrictions.

Does social trust promote corporate social security contributions?: evidence from China

ABSTRACT Using data from Chinese listed companies between 2012 and 2019, this study examines the effect of social trust on corporate social security contributions. From the perspective of informal institutions, social trust increases the level of corporate social security contributions, and it is more significant in non-state-owned enterprises and strong legal and institutional environments. Based on the analysis of motivation for corporate social responsibility, we find that under the influence of egoism motivation, social trust can promote corporate social security contributions by lowering financing constraints, and it can also promote corporate social security contributions by raising corporate agency costs. Under the influence of altruistic motives, social trust can promote corporate social security contributions by reducing corporate violations.

Bank capital and liquidity creation in Sub-Saharan Africa: the role of quality institutions

PurposeThis study investigates the relationship between bank capital and liquidity creation and further examines the effect that institutional quality has on this relationship in Sub-Saharan Africa (SSA).Design/methodology/approachThe data comprise 41 universal banks in nine SSA countries from 2010 to 2022. The study employs the two-step system generalized methods of moments and further uses alternative estimators such as the fixed-effect and two-stage least squares methods.FindingsThe empirical results show that bank capital has a direct positive and significant effect on liquidity creation. In addition, the positive effect of bank capital on liquidity creation is enhanced, particularly in a strong institutional environment. The results imply that nonconstraining capital regulatory policies bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.Practical implicationsThis study has several policy implications. First, it provides empirical evidence on the position of banks in SSA on the financial fragility and risk-absorption hypothesis of bank capital and liquidity creation debates. This study shows that the effect of bank capital on liquidity creation in SSA countries is positive and supports the risk-absorption hypothesis. Second, this study highlights that a country's quality institutions can complement bank capital to increase liquidity creation. In addition, this study highlights that nonconstraining capital regulatory policies will bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.Originality/valueThe novelty of this study is that it introduces the country's quality institutional environment into bank capital and liquidity creation links for the first time in SSA.

Monetary policy, prudential regulations and bank lending behaviour in Africa

ABSTRACT The study examines the effect of monetary policy and prudential regulations on bank lending behaviour in Africa. This study employs the Two-Stage Least Square (2SLS) estimation technique for a panel dataset of 54 African countries over the period, 2004–2021. The study finds that monetary policy and prudential regulations reduce bank lending and the impact is better in countries with a strong institutional environment. It provides evidence to affirm that monetary policy and prudential regulations provide a complementarity effect in yielding a desirable outcome for bank lending.

Determinants of the successful signing of public–private partnership contracts for water and sanitation infrastructure financing in Zimbabwe

Abstract The private sector remains hesitant to invest in water and sanitation infrastructure in Zimbabwe. For policymakers and investors, it is pertinent to understand the factors that determine the signing of water and sanitation public–private partnership (PPP) contracts, in order to leverage expertise and resources to achieve the Sustainable Development Goal targets. This study applied count econometrics on data collected for the 25 years from 1996 ending in 2021, with the aim of investigating the determinants of the number of PPP contracts signed in Zimbabwe. Poisson regression estimations identified positive macroeconomic prospects, financial market development, and strong institutional governance environment as important determinants for PPP contracting in Zimbabwe. The number of PPP contracts is further confirmed to be dependent on the availability of inward foreign direct investment flows. The influence of institutional governance quality on the number of water and sanitation PPP contracts was tested using a composite index constructed using the principal components analysis technique. It is advised that the government of Zimbabwe should strengthen their governance institutions and further develop their capital and bank credit markets, so as to attract investors to take up the water and sanitation infrastructure PPP contract opportunities available in the country.

Institutional dynamics and corporate innovation: A pathway to sustainable development

AbstractModern corporate success is primarily reliant on a perfect balance of institutional effectiveness, innovation, and sustainability. Therefore, the primary goal of this research is to evaluate the impact of institutional frameworks on corporate innovation in developing countries. To achieve the said objective, we use firm and country data from multiple sources, and the final dataset consists of 24,166 observations from 41 developing countries during 2014–2018. For the analysis, we employ ordered probit and instrumental variable ordered probit regression models. According to the results, the success of corporate innovation in developing countries hinges on the strength of legal, financial, administrative, political, and religious institutions. Moreover, such associations stand out more clearly in nations with strong and stable institutional frameworks. The regression results show that innovative enterprises are more prevalent in strong institutional environments compared to those in poor institutional environments. These results also indicate that a strong rule of law, protection of property rights, easy access to financing, developed financial markets, an ethical environment, control of corruption, a stable political system, a democratic government, religious diversity, and freedom all contribute to corporate innovation. Moreover, institutional efficiency and corporate viability fuel the engine of corporate innovation, encouraging enterprises to create game‐changing products and services. These results contribute to the field of innovation management by considering institutional settings for sustainable development. The results have practical applications for building robust institutions and a creative culture.

Digitalization & Covid-19: An institutional-contingency theoretic analysis of supply chain digitalization

Black Swan external contingencies like the COVID-19 pandemic or Suez Canal blockage have a significant impact on the technology adoption decisions in firms. At a firm level, supply chains are the segments that are most prone to disruption due to these shocks. Hence the need to study the role of these contingencies in enabling digitalization in supply chains. Modern supply chains operate in a strong institutional environment that influences various aspects like technology adoption and digitalization. In this study, we bring these two aspects together by applying an institutional and contingency theory perspective. We investigate the institutional forces and the effect of environmental contingencies on the digitalization of supply chains. We propose a generalizable model to investigate digitalization readiness independent of the technological artefact being implemented. To achieve the same, we identify the forces of digitalization in the supply chains from the review of the extant literature. We then model the forces of digitalization into a Bayesian Belief Network (BBN). The study finds that organizational readiness and people readiness are critical elements of digitalization readiness. Our study reports the importance of top management's involvement and employees' training as the critical forces aiding digitalization.

Earnings Management and Investor Protection During a Banking Crisis: The Role of the “Spare Tire” Effect

This article analyzes the association between earnings management and investor protection during banking crises. Using a sample of firms from 16 European countries for the period 2006–2018, we show that, as banking conditions worsen, firms are more likely to manage earnings upward in countries with a stronger institutional environment, where alternative sources of financing are better available and more accessible. Moreover, we show that this strategy is successful because these firms are able to raise relatively more equity financing. JEL Classification M41, G14

Achieving risk resilience in an environment of mistrust: supply chain piracy of physical goods

PurposeThis paper investigates how companies become resilient to supply chain (SC) piracy through using transactional and relational governance mechanisms to develop strategies effective in environments characterized by weak regulative institutions and mistrust.Design/methodology/approachThis study developed case studies of nine large manufacturers with operations in Brazil.FindingsThe companies employed transactional and relational governance mechanisms to learn from past incidents, anticipate, and respond to the threat of SC piracy, becoming more resilient over time. Transactional governance mechanisms reduced risk triggers through technology, while relational governance mechanisms enhanced trust between SC and non-SC members, allowing the members to build social capital.Practical implicationsThe authors provide practical guidance for managers and policymakers in developing risk management strategies based on technology and collaboration to reduce SC piracy in environments characterized by mistrust.Social implicationsSC piracy is a serious problem for global operations and SCs in many low-cost manufacturing locations. Besides the cost and service level consequences, the authors also highlight worker safety consequences, including the potential for kidnapping, psychological trauma, injuries, and death.Originality/valueThis study focuses on the little-researched topic of SC piracy. The authors examine the negative effects of a weak institutional environment, while most prior research focuses on the positive effects of a strong institutional environment. The authors position transactional and relational governance mechanisms as essential elements of SC risk resilience.

The nested and spillover effects of institutional environment on reporting standard convergence: a multilevel approach and an agglomeration economy perspective

PurposeThe objective of this study is to examine how the heterogeneity of the institutional environments within a single country influences International Financial Reporting Standards (IFRS) convergence and earnings quality based on a meso- and multi-level approach.Design/methodology/approachUsing hierarchical linear modeling (HLM) to capture the between-group heteroskedasticity and within-cluster interdependence, this study investigates the simultaneous effect by incorporating institutional factors residing at different hierarchical levels and the interaction effects of factors within the same level on IFRS convergence and earnings quality in the largest IFRS adopter, China.FindingsThe results show that after IFRS convergence (i.e. 2007–2015), earnings quality decreases in terms of conservatism. However, the further analysis indicates that the strong institutional environment could mitigate the negative impact of IFRS on conservatism.Originality/valueConsistent with the emphasis of heterogeneity within a country by Terracciano et al. (Science, 2005, 310 (5745)), this study indicates that the heterogeneity in the institutional environments and the simultaneous effect of the multilevel institutional environments within a single country cannot be ignored. This study also indicates that, equally important, research methodology plays a substantial role in investigating the outcomes of IFRS convergence. Finally, this study, based on an integrated theory, adopts a meso-paradigm linking macro- and micro-level institutions to provide comprehensive insights into IFRS convergence and conservatism.

Female directors, the institutional environment and dividend policy: evidence from ASEAN-5 commercial banks

PurposeThis paper aims to investigate the impact of female directors on the dividend policies of 96 ASEAN-5 listed commercial banks between 2015 and 2020.Design/methodology/approachThis paper developed an econometric model to assess the impact of female directors on the banks’ dividend policies. This paper regressed the payout variable on the female director, legal (institutional environment) variables and several control variables. This paper also considered the interaction between the female and legal variables to assess the moderating impact of the institutional environment.FindingsThis paper found that female directors positively affected dividend policy and that banks with female directors tended to pay dividends to balance stakeholders’ interests, especially for the minority. This paper also found that the influence of female directors was weaker in countries with strong institutional environments because greater legal protection for shareholders reinforced or replaced corporate governance mechanisms.Originality/valueTo the best of the authors’ knowledge, this is the first study to investigate gender diversity and its impact on dividend policy using data from ASEAN-5 countries.

Oil rents, trade environment and financial development: An international evidence

Given the important role that the trade environment and natural resource endowment play in the economy, this study aims to examine the interrelationship between trade environment and oil rents and how both interact to influence financial development. We test our argument on a sample of 189 economies over the 2004–2020 period, using a two-step System Generalized Method of Moments, with collapsed instruments and Windmeijer robust standard errors. We find that FDI and ease of doing business tend to increase oil rents based on the resource blessing hypothesis. However, our findings suggest that, trade openness in oil producing countries is not a possible avenue to reduce the resource curse, as it dampens oil rents. Again, we find that, oil rents reduce financial development. Our results show that trade environment (foreign direct investment, trade openness and global ease of doing business index) tend to have a resource blessing for financial development. We find that oil rents and trade environment have a substitutability effect rather than a complementarity effect on financial development. We find evidence to support that oil rents further reduce financial sector development when the levels of trade indicators increase. Based on the marginal effect, we conclude that at an increasing level of trade, the negative impacts of oil rents on financial development is further reduced in countries with strong institutional environment compared to those in weak institutional environment.

Relative corporate social performance and cost of equity capital: International evidence

AbstractThis research examines the relationship between firms' corporate social performance (CSP) and the implied cost of equity capital using a sample of 25,938 firm‐year observation from 49 countries during the period from 2002 to 2021. Using estimates of the firms' ex ante cost of equity capital, we examine its relationship with industry‐relative measures of the firms' CSP, its environmental and social pillars and sub‐pillars. We find that increased overall CSP reduces a firm's cost of equity capital up until a point, beyond which the marginal benefits of further CSP investment decrease. We find that the social pillar is the main driver of the reductions in cost of capital, in particular, a firm's performance in relation to its workforce, and that higher performance is increasingly rewarded with a lower cost of capital. Finally, we find that this relationship differs depending on the institutional context, with greater reductions in the cost of capital evident in countries with stronger institutional environments.

Controlling shareholder share pledging and tunneling: Evidence from an emerging market

ABSTRACT This study investigates the impact of controlling shareholder share pledging (henceforth, share pledging) on tunneling in an emerging market. Using a large sample of Chinese-listed firms from 2004 to 2019, we find that the presence of share pledging results in a 9.7% increase in tunneling, and higher controlling shareholders’ pledging ratio is associated with more severe tunneling. The positive relationship between share pledging and tunneling is significantly stronger in non-SOEs than in SOEs. We also find that strong monitoring of multiple large shareholders, high analysts’ coverage, and strong institutional environment help mitigate the tunneling induced by share pledging. We further find that the cumulative abnormal returns around the interim announcements of share pledging are significantly negative. Overall, the findings in this study suggest an exacerbating effect of share pledging on tunneling in an emerging market when external monitoring and investor protection is relative weak.

A multi-Factor Analysis for Corporation’s CSR and Creativity: Evidence From Chinese Listed Companies

This study applies the data of 2018-2022 Chinese listed companies in the Shanghai and Shenzhen stock market to examine the relationship between corporate social responsibility (CSR), female executives and directors, institutional environment, ownership, and company innovation. The results show that companies prioritizing CSR also emphasize innovation. Additionally, a higher proportion of female executives leads to increased focus on innovation investment, while the findings for female directors are opposite. A strong institutional environment promotes corporate innovation but weakens CSR contribution. The ownership also has a certain influence on both CSR contribution and innovation. However, it is important to note that the pathways of impact are not singular and multiple factors affect both CSR fulfillment and innovative behavior. Overall, this study arises attention that organizations need a comprehensive understanding of the complex relationship between CSR and innovative pursuits to foster sustainable progress and societal well-being.

Can CSR mechanisms spur GRI adoption and restore its lost value relevance?

PurposeThis paper focuses exclusively on the drivers and consequences of Global Reporting Initiative (GRI) adoption in sustainability reports with a particular focus on corporate social responsibility (CSR) mechanisms.Design/methodology/approachThe sample includes 63 countries with 4,625 unique firms in these countries and 29,054 firm-year observations between 2002 and 2019. The empirical methodology is logistic and linear regression analyses with country and year fixed effects.FindingsThe findings show that CSR committees and executive CSR compensation stimulate firms' GRI adoption. Furthermore, while GRI adoption enhanced firm value in the earlier period of 2002–2010, it weakened firm value in the later period between 2011 and 2019 implying a loss of value relevance. However, the moderating effect of CSR committees and executive CSR compensation on GRI adoption has led to higher firm value in recent times. A more in-depth investigation of polluting versus non-polluting sectors and weak and strong institutional environments reveals both convergence and divergence respectively among these sub-samples. The results are robust to alternative samplings, alternative methodology and endogeneity concerns.Research limitations/implicationsThe main limitations of the study are the binary nature of key variables, such as CSR committee, executive CSR compensation and GRI adoption, due to the availability of binary data but not continuous data.Practical implicationsFirms allocate substantial funds for SR and following GRI guidelines; hence, the findings guide them on how to ensure the return on this investment.Social implicationsShareholders who particularly pursue socially responsible investment can shape their investment portfolios in firms that engage with sustainability reporting (SR) and GRI adoption practices.Originality/valueIt is not clear in the literature if CSR committees will adopt the GRI for SR because of any incentive. Thus, we examine if the CSR committee and executive CSR compensation can play a direct role in GRI adoption and play a moderating role between GRI adoption and firm value. Moreover, whether GRI adoption and its value relevance might change across periods, sectors (polluting versus non-polluting) and varying institutional environments (investor protection) are addressed in this study.

International evidence on the relationship between corporate ethics and dividend policy

PurposeThis paper aims is to document the relationship between corporate ethics prevailing in the country and the dividend policies adopted by firms.Design/methodology/approachThe paper uses the data of non-financial firms from 61 countries to test the arguments presented in this paper. The data cover the period between 2010 and 2017.FindingsThis paper shows that dividend policies adopted by firms are sensitive to corporate ethics prevailing in the country. The firms headquartered in countries with relatively strong corporate ethics are less likely to pay dividends than firms headquartered in countries with relatively weak corporate ethics. These findings are robust across various proxies of dividend policy and across various estimation procedures. The paper, however, also shows that the relationship between corporate ethics and dividend policies is confined only to countries with strong institutional environment. This relationship breaks down in countries with weak institutional environment. Lastly, the paper shows that the value of dividend policy is more pronounced in countries with relatively weak corporate ethics.Originality/valueUnlike the attempts to relate firm-level ethics and dividend policy, this paper focuses on the relationship between country-level indicator of corporate ethics and dividend policies. The benefit of using the country-level indicator of corporate ethics is that it highlights the general attitude of corporations with respect to ethics.

One Health Approach Prevents Future Pandemics

The impact that one health (OH) concept can have on the worldwide response to the COVID-19 pandemic is significant. We highlight four areas where the use of OH has the potential to greatly improve infectious disease governance in general, and COVID-19 governance in particular. For starters, a better-integrated surveillance infrastructure and monitoring of the occurrence of infectious diseases in humans and animals can make it easier to discover emerging infectious agents with comparable genotypes across species and track their spatiotemporal spread. This information can help public and animal health officials plan effective responses. Second, using the OH approach can help stakeholders representing seemingly conflicting domains coordinate and collaborate more effectively. Third, the OH approach emphasizes the importance of a strong institutional environment that allows for sufficient regulation of hotspots for infectious disease transmission between people and animals, such as live animal marketplaces. Finally, OH thinking emphasizes the need for equitable solutions to infectious disease challenges, implying that policy response mechanisms and interventions should take into account illness burdens faced disproportionately by vulnerable and marginalized people, as well as those helping sick people with health treatment and other important services. Within the “One World – One Health” strategy, four major components can be identified as crucial elements: the geographical component, the ecological component, human activities, and food agriculture activities. We go over what we know about infections that emerge, the hosts they come from, and the circumstances that cause them to develop. We explore the obstacles to their control as well as innovative tactics for predicting pandemics, focusing surveillance on the most critical interfaces, and developing prevention strategies.

The effects of opportunity motivation and environmental contingencies on market growth strategies of African early-stage entrepreneurs

PurposeThe purpose of this paper is to examine how early-stage entrepreneurs' opportunity motivation impacts their choice of market growth strategies as well as the contingent roles of institutional environments and product market conditions in Africa.Design/methodology/approachThe study employs hierarchical linear modeling to test multilevel models with nested data empirically.FindingsThe findings show that African early-stage entrepreneurs who are opportunity-driven and from countries with strong institutional environments have a higher tendency to adopt market exploration strategies. African early-stage entrepreneurs from countries with strong product market conditions have a higher tendency to adopt market penetration strategies. Further interaction tests show that both contingency conditions, namely institutional environments and product market conditions, moderate the effects of opportunity motivation on market growth strategies of African early-stage entrepreneurs.Practical implicationsThe study shows that policymakers in Africa need to develop flexible, supportive market-related policies based on entrepreneurs' growth paths, institutional environments and product market conditions.Originality/valueThe study is the first to explore multilevel influences on early-stage entrepreneurs' market growth strategies in Africa. It sheds new insights on the entrepreneurial marketing process of early-stage entrepreneurs in Africa.