United States Firms Research Articles

The importance of green patents for CDS pricing: The role of environmental disclosures

Corporate green innovation to address global climate change has potential spillover effects through positive financial outcomes. This study examines how the credit market takes green innovation, measured by the approval of green patents, into account to determine the credit default swap (CDS) premia. Using a sample of United States (US) firms from 2002 to 2020, this research finds that the CDS market favourably prices green innovation: firms with more green patents have lower CDS spread, suggesting that the CDS market considers firms' green innovation in their investment decision. While greater firm-provided environmental disclosures boost the effect of green innovation, involuntary environmental exposures by external channels such as print and online media offset the favourable effect of green innovation on CDS spread. The green technology pilot program by the US Patent and Trademark Office in 2009 is exploited as a quasi-natural experimental setting to apply a difference-in-differences analysis, confirming the favourable effect of green innovation on CDS spread. The results remain robust to various sensitivity and other endogeneity tests. Managers intending to reconcile green innovation with their stakeholder value maximisation objective may find the findings interesting.

Corporate ESG investments and Firm's value under the real-option framework: Evidence from two world-leading economies

Under the UN sustainable development goals (SDGs), the United States (US) and China have ambitious environmental, social, and governance (ESG) investment plans. However, dichotomy is found in the literature about how rising ESG practices affect firm value (FV). This study examines the linear and nonlinear effect of ESG practices on FV and how growth-option value (GV) moderates this connection in the real-option framework. We use data on 5220 listed US and Chinese firms from 2018 to 2022 with a generalized method of moments model. The empirical results confirm that ESG practices nonlinearly affect FV, implying that ESG practices turn FV trajectory from positive to negative, and the degree of this effect varies across the sample but is more pronounced at Chinese firms than US firms. We also find that GV negatively moderates the nexus between ESG practices and FV across the sample. Our endogeneity-adjusted results pass robustness tests and have important policy implications.

Ex-ante litigation risk and firm-level climate-change exposure

We examine the impact of liberal judge ideology, as an exogenous proxy for ex-ante litigation risk, on firm-level climate-change exposure (CCE). Consistent with the idea that liberal courts provide an external agency-mitigating influence, we find that United States (U.S.) firms headquartered in states covered by judicial circuits that are more likely to be dominated by liberal judges have lower CCE. We also show that the negative association between liberal court and CCE is more pronounced for firms with lower corporate-social-responsibility (CSR) performance, higher short-term [myopic] institutional ownership, powerful chief executive officers (CEOs), or weaker governance. Our findings are robust to considerations of alternative measures of our main variables and several tests for endogeneity concerns.

Opioid abuse and labor investment efficiency

Opioid abuse is considered a public health emergency in the United States (US) and has incurred huge economic costs. Our study provides initial evidence about the relationship between opioid abuse and corporate labor investments. Through analyzing a sample of US firms (from 2002 to 2019), we find that opioid abuse is negatively associated with an efficient investment in labor. We present suggestive evidence that opioid abuse affects labor investment efficiency through workplace accidents and injuries, and labor productivity. Additional analyses reveal that the negative impact of opioid abuse on labor investment efficiency is more pronounced for firms in which employees earn a low income, and for firms in the states where fewer treatment facilities offer opioid treatment programs. Given the importance and impact of opioid abuse in the US, our findings should be of great interest to investors, directors, managers, and public policymakers.

Does tax avoidance impair accounting comparability?

PurposeThis paper examines the relationship between tax avoidance and accounting comparability. The authors argue that aggressive tax behavior impairs the comparability of financial statements by altering the accounting function, which maps economic events into accounting data.Design/methodology/approachThe empirical analysis is based on a large sample of United States (US) firms. The authors use raw and industry-adjusted effective tax rates (ETRs) to proxy tax avoidance. The authors use the measure of accounting comparability developed by De Franco et al. (2011), which aims to capture the similarity of the accounting function.FindingsThe authors find that firms with more aggressive tax avoidance strategies have substantially lower accounting comparability. The evidence also shows that the negative effect of tax avoidance on accounting comparability is driven by firms with aggressive tax planning strategies beyond the industry norm. Furthermore, using an alternative measure of accounting comparability as a function of pre-tax income, the authors continue to find evidence of the negative effect of tax avoidance behavior. Importantly, this provides evidence that the effect of aggressive tax planning is not limited to the reported tax expense, but affects the comparability of the overall financial reporting system.Originality/valueThe authors identify a new potential cost of tax aggressive activities, being the loss of accounting comparability as driven by tax aggressive activities. The results contribute to the literature on the costs of tax avoidance and on the determinants of accounting comparability.

Effect of cash flow risk on corporate failures, and the moderating role of earnings management and abnormal compensation

In this study, we find that United States firms' average cash flow risk (CFR) shows a significantly increasing trend over the past four decades or so. This does not portend well considering the significance of cash flows in maintaining a firm's financial health and going concern status. The CFR also increases dramatically for firms approaching financial distress or bankruptcy, suggesting its important role in predicting a firm's failure. Empirically, we find that CFR has a strong positive effect on a firm's financial distress likelihood. We also find that the association between CFR and financial distress is negatively moderated in firms with high earnings management and abnormal compensation. The results suggest that managers in firms with high CFR are more likely to use heuristics in form of earnings management. Thus, supporting the upper echelons theory related to managers under performance pressure. Meanwhile, consistent with the notion in the agency theory that financial incentives serve as effective monitoring mechanisms, compensation packages can incentivize better risk management practices and decrease the likelihood of a firm's failure. Our findings are also robust to alternative definitions of a firm's failure: financial constraints, presumed debt covenant violation and legal bankruptcy filings.

How does the financial performance of sugar-using firms compare to other agribusinesses? An accounting and economic profit rates analysis

PurposeThe United States (US) sugar program protects domestic sugar farmers from unrestricted imports of heavily-subsidized global sugar. Sugar-using firms (SUFs) criticize that program for causing US sugar prices to be higher than world sugar prices. This study examines the financial performance of publicly traded SUFs to determine if they are performing at an economic disadvantage in terms of accounting profitability, risk and economic profitability compared to other industries.Design/methodology/approachFirm-level financial accounting and market data from 2010 to 2019 were utilized to construct financial metrics for publicly traded SUFs, agribusinesses and general US firms. These financial metrics were analyzed to determine how SUFs compare to their agribusiness peer group and general US companies. The comprehensive financial analysis in this study covers: (1) accounting profit rates, (2) drivers of profitability, (3) economic profit rates, (4) trend analysis and (5) peer comparisons. Quantile regression analysis and Wilcoxon–Mann–Whitney statistics are employed for statistical comparisons.FindingsRegarding various profitability and risk measures, SUFs outperform their agribusiness peers and the general benchmark of all US firms in terms of accounting profit rates, risk levels and economic profit rates. Furthermore, compared to other US industries using the 17 French and Fama classifications, SUFs have the highest return on investment and economic profit rate―measured by the Economic Value Added® margin―and the second-lowest opportunity cost of capital, measured by the weighted average cost of capital.Originality/valueThis study finds nothing to suggest that the US sugar program hinders the financial success of SUFs, contrary to recent claims by sugar-using firms. Notably in this analysis is the evaluation of economic profit rates and a series of robustness techniques.

Does Earnings Quality Influence Corporate Social Responsibility Performance? Empirical Evidence of the Causal Link

The study examines the causal links between earnings quality and corporate social responsibility (CSR) performance using a large sample of United States (US) firms from 1992 to 2013. We first find that the association between earnings quality and CSR performance is positive and significant. We then test the flow of causality using Granger's (1969) lead–lag analysis to determine whether changes in earnings quality cause changes in CSR performance or vice versa. Our findings show that changes in earnings quality cause changes in a firm's CSR performance but not vice versa. Further analysis shows that earnings quality reduces the cost of equity capital for firms with higher CSR performance. These findings suggest that one plausible means by which firms with higher earnings quality can maintain better CSR performance is to reduce their cost of equity capital.

Comparative analysis of environmental, social, and governance disclosures

We examine the level of environmental, social, and governance (ESG) sustainability disclosure by firms between two regimes where disclosure is mandatory versus voluntary. We use the regulatory environment between the United States (US) and European Union (EU) to compare ESG disclosures. Firms in the US are currently under a voluntary disclosure regime. In contrast, EU members are under a mandatory disclosure regulatory regime that began in 2017. We find that EU firms outperform US firms under voluntary disclosure requirements (2007–2016), and the ESG disclosure of EU firms further improves relative to US firms after the implementation of the mandatory disclosure in Europe in 2017. Our results suggest that the 2017 adoption of disclosure guidelines in the EU is associated with improvements in EU firms' ESG disclosure. Our results regarding the value-relevance of ESG disclosure support a move toward mandatory ESG disclosures. Results support current initiatives that have been taken by global regulators and stock exchanges in recommending and requiring globally listed companies to disclose their ESG sustainability information to portray accurate and comprehensive corporate reporting. The results further our understanding of how firms from different institutional environment settings may have disclosed their ESG practices, thus providing opportunities for future research.

Corporate governance and its effect on ethical lapses

There is much research that examines the connection between different elements of corporate governance to specific firm outcomes (Brahmana et al., 2021; Fakhfakh & Jarboui, 2022), including ethical outcomes (Veldman et al., 2023). However, little is written about how to prevent ethical lapses from ever happening. Using the framework of agency theory, this study examined the effect of the board of directors’ power and the chief executive officer’s (CEO’s) power on the firm’s ethical behaviors. We sought to find out if strong governance, whether CEO or Board, could play a role in stopping ethical lapses before they happen. To evaluate this relationship, two indices were used. The board power index included board size, non-duality, lead director, board composition, and ownership. The CEO power index included tenure, ownership, and board member nominations. The sample consisted of 102 large, public United States (U.S.) firms. Logistic regression was utilized to determine if board power or CEO power could influence ethical firm behaviors. The findings indicated that strong boards were associated with more ethical firms. CEO power did not seem to have the same relationship. These findings are important to help firms structure boards to increase vigilance and reduce the likelihood of ethical lapses.

Reputation, return and risk: A new approach

Corporate reputation has deserved attention in recent years from firms and researchers given its impact on creating a competitive advantage and on keeping a sustained superior performance. However, the impact of corporate reputation on risk, in addition to being less studied, still presents controversial results. Thus, the purpose of this study is to, simultaneously, analyze the effect of corporate reputation on stock return and risk. A model based on firms' financial market data was assessed through a panel data analysis which included 84,745 firm-year observations, which occurred between January 6th, 2009, and December 31th, 2019, from a full sample of 156 United States firms listed in the New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ), 82 of which were listed in Reputation Quotient (RQ).The results show that there are no significant differences between listed and not listed firms in Reputation Quotient concerning firms' abnormal returns and firms' systematic risk. This can be justified because stock prices adjusted instantly to the corporate reputation, which supports the market efficiency hypothesis.This study may provide important insights into the literature: firstly, although the impact of reputation on performance has gained attention in recent years, the firsts studies essentially analyze the reverse impact; secondly, this work aims to, simultaneously, study the effect of corporate reputation on return and risk, being the impact on the risk an area still little explored and with controversial results; thirdly, this study distinguishes itself by using a set of firms listed in a reputation ranking and a set of firms not listed, but with similar characteristics in terms of market capitalization, highlighting the impact of reputation communication through media rankings.

Influenza and labour investment efficiency

ABSTRACTThis study investigates the relationship between the spread of influenza and labour investment efficiency using a sample of United States (US) firms from 2004–2019. The spread of influenza is found to be positively associated with an inefficient investment in labour. Further analyses show that the impact of the spread of influenza on labour investment inefficiency is less pronounced for firms in states mandating paid sick leave, for firms operating in the industries where a higher share of jobs can be done at home, and for firms in the industries where there is a lower level of interpersonal contact. Given the raising awareness of public health and firm outcomes, our findings should be of great interest to investors, directors, managers, and public policymakers.

Fiscal shocks and non-profit employment

ABSTRACT This paper uses novel data from the Quarterly Census of Employment and Wages (QCEW) to identify the impact of countercyclical fiscal policy on non-profit wages, employment, and entry in the non-profit sector. The paper extends an existing empirical literature that uses the ‘Great Recession’ (2007–2009) as a shock to identify the responsiveness of non-profit labour markets to aggressive fiscal policy. The paper adopts an identification strategy which exploits variation in the Federal Medical Assistance Percentage (FMAP) reimbursement rates across states in the context of the American Recovery and Reinvestment Act (ARRA) of 2009. An instrument is applied in the place of ARRA expenditures to avoid estimation bias. I find that non-profit employment and wages are less responsive to fiscal stimulus, relative to previous point estimates for all United States firms. Point estimates indicate estimated cost of $104,000 per non-profit job saved. However, there is wide variation across non-profit sub-sectors.

Settlements in corporate bribery cases: an illusion of choice?

Despite prosecutors’ difficulties in proving corporate bribery, nearly all enforcement actions end with a settlement at the pretrial stage. Compared to court proceedings, settlement-based enforcement provide prosecutors with flexibility to reward offenders’ self-reporting and cooperation, and reach quicker conclusions to complex cases. In this article, we explain, such enforcement needs regulation to minimize potentially harmful side-effects. When the difference between a court and settlement sanction exceeds a certain size, the alleged offender accepts a settlement regardless of actual responsibility of misconduct. For the prosecutor, the option of offering a lenient settlement means weaker incentives to ascertain the material facts of the case. Society receives less information about the blameworthy act, little opportunity to evaluate the sanction, and less reason to expect sanctions to deter bribery. We show why such consequences result in under-deterrence of bribery and weaker rule of law. The use of settlement may have a self-escalating effect because the enforcement mode can reduce the predictability of the law, while a defendant’s inclination to accept a settlement offer depends on the predictability of the law. Our results suggest that United Kingdom’s current escalation of enforcement of corporate bribery laws will lead to a mixture of settlements and court decisions, while in the United States firms will continue to negotiate settlements as if there were no opportunity to have their cases tested in court.

Does female participation in strategic decision‐making roles matter for corporate social responsibility performance?

AbstractWe examine the association between female participation in strategic decision‐making roles and corporate social responsibility (CSR) performance using a sample of United States firms from 2001 to 2018. Female participation in strategic decision‐making roles is measured using: (i) the female presence in different positions on the board of directors, such as female board member, independent board member, chairperson and audit committee member; and (ii) the female presence in top management roles, such as chief executive officer (CEO) and chief financial officer (CFO). We find that female participation in strategic decision‐making roles is positively associated with CSR performance. In investigating the ‘tokenism’ aspect of female participation on the board, our results contradict the ‘tokenism’ argument for appointing females to boards, instead supporting their real influence on CSR performance. These findings are important to regulators, policy makers, company management and other stakeholders with an interest in how increased female participation in strategic decision‐making roles influences CSR performance.

The impact of foreign competition on domestic firms' product quality: Evidence from a quasi‐natural experiment in the United States

AbstractResearchers have investigated various factors that explain the variation in product quality across firms, but little is known about how competition from companies located in other countries may affect domestic firms' product quality. Although such foreign competition has received much attention from news media and the public, especially during the recent United States (US)–China trade war, its impact on product quality is still unclear. Our research answers this important question by conducting a quasi‐natural experiment in the US, in which significant reductions in import tariff rates represent an exogenous increase in foreign competition for US firms. Performing a difference‐in‐differences estimation of the difference in product quality changes between treatment and control firms, our research shows that increased foreign competition has a negative impact on the product quality of the US firms concerned. However, such a negative impact is less significant for firms with high levels of operational slack and R&D intensity. Firms pursuing product differentiation rather than cost leadership strategies are also less affected by foreign competition. Overall, our research demonstrates foreign competition's negative impact on product quality and highlights the crucial role that firms' operational resources and strategies play in mitigating the negative impact.

Does sustainability matter for Fintech firms? Evidence from United States firms

PurposeThis study aims to look at how financial technology (FinTech) companies adhere to sustainable standards in contrast to their counterparts. Following the validation of its new sustainability index, this study looks into the impact of sustainability on the stock performance of FinTech companies.Design/methodology/approachTo efficiently test the hypotheses, sample has been collected from the Bloomberg of all FinTech and non-FinTech companies from the USA. The final sample comprises 1,712 company-year observations over the investigation period 2010–2019. The methodology entails ordinary least squares regressions and generalized panel methods of moments (GMM).FindingsThe results suggest that the developed sustainability index is a valid proxy for sustainability measures and directly relates to stock performance. Besides, the evidence indicates that non-FinTech companies display superior sustainability and stock performance compared to FinTech companies. The present results corroborate with stakeholder theory, which implies that quality sustainability performance will alleviate the agency issue and safeguard the shareholders’ interest.Research limitations/implicationsDespite the fact that it presents the limitation of not considering other dimensions of financial performance, this research is important as it highlights the sustainability practices by the FinTech and non-FinTech companies, offering insights to researchers, policymakers, regulators, financial reports users, investors, environmental union, employees, clients and society.Originality/valueThis paper is novel because it is unique in evaluating the sustainability practices in FinTech and non-FinTech firms.

The role of project’s initiatives focused on the reduction of environmental footprints during COVID-19: evidence from the United States firms

In this paper, we examine whether the projects of the United States (U.S.) corporations have implemented initiatives to reduce the environmental footprint of their supply chains during coronavirus (COVID-19). Environmental footprint reductions could be achieved by reducing waste, reducing resource use, and reducing ecological emissions by introducing environmental management systems in the supply chains. For this aim, the project’s initiatives play a crucial role. This study has the primary purpose of examining the impact of ecological footprints on financial performance achieved by US corporations’ initiatives implemented through projects during the COVID-19 period. The final sample comprises 9997 company-year observations over the investigation period between 2010 and 2020. The results suggest that firms implementing the initiatives to reduce environmental footprint have shown a significant positive financial performance during the COVID-19 period. The results are robust to alternative specifications of informativeness and sensitivity tests controlling for time-invariant firm characteristics and alternative firms' performance measures. Our results corroborate with stakeholder theory, which implies implementing green policies will alleviate the agency issue and safeguard the shareholders' interest. Moreover, it clearly demonstrates the positive impact of environmental projects-focused organizations on the financial and environmental performance even while challenging and disrupting situations such as this unprecedented pandemic.

Customer Bargaining Power and Accrual-Based Earnings Management

The present study provides a comprehensive analysis of the relationship between customer bargaining power and accrual-based earnings management using a sample of United States (U.S.) firms, with 16,084 firm-year observations, over the period 2000-2016. The absolute value of residuals from the modified-Jones model as described in Dechow et al. (1995) and the Kothari et al. (2005) models, respectively, were used as the proxy variable for the quality of accruals of a company. Results from the multivariate analysis, after controlling for firm-specific and market-specific variables, indicated that firms with high customer bargaining seem to engage more in opportunistic accrual management activities.

Earnings management to avoid earnings decreases and losses

This study evaluates the prevalence of earnings management to avoid losses and earnings decreases across the World. This practice was first documented by Burgstahler and Dichev (1997) for United States firms from 1976 to 1987. We replicate their study for a more recent and global sample. Firms that do not seem to manage earnings do avoid reporting earnings decreases, but we found persistent evidence of earnings management to avoid reporting losses. The results are consistent across different geographical regions, countries, and before and after International Financial Reporting Standards (IFRS) adoption. Unlike Burgstahler and Dichev (1997), however, we were not able to find evidence on which components of earnings (cash flow from operations, changes in working capital, or other accruals) firms mainly manage to increase earnings, concluding they likely use a bundle of all these components. Our results are important mainly to financial analysts and general investors, who should be careful in giving good prospects to firms who presented small profits since they are likely small losses artificially managed to look better, a practice widely spread across time and geographical regions among IFRS adopters and non-adopters.