US Firms Research Articles

ANALYSING THE IMPACT OF TECHNOLOGY ADOPTION ON EFFICIENCY IN US WHOLESALE AND DISTRIBUTION: A COMPREHENSIVE REVIEW OF ANALYTICAL STRATEGIES

The adoption of Artificial Intelligence (AI) and its integration with other digital technologies is reshaping the operational landscape of US firms, with significant implications for the wholesale and distribution sectors. Drawing on insights from the Advanced Business Survey (ABS) technology module, this study evaluates the impact of Artificial Intelligence (AI) on the efficiency and innovation within the U.S. wholesale and distribution sectors. Analysing data from over 30 peer-reviewed articles, it investigates AI's pervasiveness and correlation with various business outcomes. Findings indicate a marked increase in AI adoption, contradicting prior forecasts of widespread unemployment and suggesting a complex interplay with job creation and skill evolution. This study highlights the synergistic potential when AI is integrated with other technologies, affirming theories of technological complementarities. It also addresses the role of policy in fostering an environment conducive to the growth of an AI-augmented workforce. The implications of this research extend to the formulation of strategies that ensure businesses capitalise on AI's benefits, and it paves the way for future inquiries into the longitudinal consequences of AI within the economic fabric. The study's conclusions advocate for ongoing adaptation and investment in human capital as essential components of thriving in the rapidly advancing technological era.

Does religiosity influence corporate greenwashing behavior?

We analyze the influence of religious social norms on corporate greenwashing behavior. Specifically, we focus on a specific form of greenwashing: selective disclosure. Using a large sample of US firms between 2005 and 2019, we show that firms located in counties where religious adherence is high are less likely to engage in greenwashing. We also find that a stronger religious adherence within the county in which a company is located reduces the magnitude of greenwashing, when observed. We further analyze the mechanism underlying this relationship and show that religious adherence impacts greenwashing behaviors through the channel of risk aversion. A comprehensive set of robustness tests aimed at addressing potential endogeneity concerns confirms that religion is a relevant driver of corporate greenwashing behavior.

CEO stock options and corporate climate change: the behavioral agency model and the moderating effect of social capital

Examining the impact of CEO options compensation on corporate adverse impacts on climate change from the perspective of CEO loss aversion and risk-taking, this study argues that higher current (prospective) wealth leads to higher loss aversion (risk-taking) against (toward) corporate climate change. Integrating social capital theory into the behavioral agency model (BAM), the study argues that social capital is negatively related to corporate climate change risk-taking behavior and social capital is moderating the relationship between CEO options compensation and corporate climate change. Using a sample of 1,397 US firms from 2005 to 2019 and various measures of corporate climate change and social capital and estimation methods, it finds evidence to support these hypotheses. This study extends the BAM to explain CEO risk-taking behavior toward climate change and integrates the social capital theory. It offers practical implications to design CEO compensation to reduce the adverse impact of corporations on climate change.

Economic policy uncertainty and cost rigidity: the moderating effects of government contracts and political connections

PurposeThis study examines the relationship between economic policy uncertainty (EPU) and managers' ex ante strategic choice on firms’ fixed and variable costs structure, i.e. cost rigidity and the moderating effect of government contracts and political connections.Design/methodology/approachUsing a sample of 4,162 US firms during 2003–2019 and EPU measure from Baker et al. (2016), the authors examine the association between EPU and cost rigidity using multivariate regression analysis. The authors also examine the moderating effects of government customers and political connections using the subsampling method.FindingsThis study finds that increases in EPU leads to higher cost rigidity, suggesting that managers tend to look ahead and make an ex ante commitment to invest more in fixed costs to avoid congestion costs in anticipation of future product demand during EPU. The study also finds that the presence of government customers and political connections moderates the need for adopting greater cost rigidity.Research limitations/implicationsThis study measures firms' cost rigidity based on archival data. Future studies could utilize managers' cost structure choices using firms' internal management cost structure forecasts data to measure cost rigidity to examine the relationship between cost rigidity and EPU.Practical implicationsThis study demonstrates that managers tend to make a proactive commitment to invest in fixed inputs when facing demand uncertainty from EPU to avoid congestion costs. This study also highlights the value of having government contracts and political connections by demonstrating that managers are less concerned about the congestion costs, hence weakening the impact of EPU on cost rigidity when they have government as major customers and/or political connections.Originality/valueThis study extends the management accounting literature by documenting that cost rigidity is related to EPU and that the relationship between cost rigidity and EPU also depends on whether the firm has government as major customers and/or political connections or not.

Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction

Economists and policymakers have used the increase in the concentration of return on invested capital (ROIC) in publicly traded US firms over the last decades as evidence for the decline of competitiveness in the broader economy. Principle support for this claim is a graph presented by the Council of Economic Advisors (CEA, 2016) that reproduces data from the McKinsey and Company’s book on Corporate Valuation. We demonstrate that the key findings associated with the evolution of the ROIC cannot be broadly reproduced using Compustat data and established accounting measures and calculations. Further, we find the recommended data filtering strategies can result in discarding more than 75% of the available data. We show that using the full information dataset can lead to significant changes in economic conclusions. We advocate for transparency in calculations and rationalization of data pre-processing.

Global outsourcing and voluntary disclosure

AbstractReliance on global outsourcing has become an economic imperative for many major corporations worldwide, but at the same time, it has brought substantial risks and complexities to these firms. This study employs novel international supply chain data to examine whether global outsourcing of goods or services shapes US corporate disclosure policies. Our main results suggest a negative impact of global outsourcing exposure on voluntary disclosure, and several identification tests further support this baseline evidence. We find that the adverse effect on disclosure is more pronounced when institutional differences are more significant between the United States and foreign suppliers' countries and when US firms face higher litigation risks. However, the effect weakens when investors and stakeholders demand more information. Collectively, our study provides new insights into the economic implications of outsourcing globally from an information disclosure perspective.

How do credit ratings affect corporate investment efficiency?

AbstractThis study examines the impact of credit ratings on the efficiency of firms' investments. Using a large sample of US firms, we find a positive relationship between the existence of credit ratings and investment efficiency. The cross‐sectional analyses show the positive relationship is more pronounced for firms with greater information asymmetry and weaker corporate governance. Our results are robust to different methods to address potential endogeneity concerns, alternative measures of key variables, and the inclusion of additional control variables. Overall, the findings support the notion that credit rating agencies enhance information transparency and external monitoring, thereby allowing rated firms to promote investment efficiency. The findings contribute to our understanding of the significant role played by credit rating agencies in shaping firms' investment behaviour and efficiency.

Power resources of labor and the state politics of downsizing

Abstract Utilizing the geographical polarization of American politics, we examine how state politics shape the implementation of downsizing. Combining power resources theory and the political-embeddedness approach in organizational studies, we propose that labor power resources at the state level, namely Democratic control of state government and state-level union membership, limit firms’ ability to implement drastic job cuts within the state. Based on data on the 697 largest, publicly traded US firms between 1981 and 2005, combined with their establishment-level employment data from EEO-1 reports, our analysis shows that post-downsizing reductions in employment were less severe in states with a worker-friendly political environment. But the limited effectiveness of labor’s power resources in right-to-work states and the American South suggests that there is considerable regional variation. Our findings provide strong evidence of the political embeddedness of firms, by demonstrating the growing salience of political considerations in corporate decision-making.

Does economic liberalization foster corporate investment? Theory and evidence from US and Canadian firms

Prior studies have largely debated and demonstrated the positive effect of economic liberalization on economic growth, but they have not clarified how and to which extent economic liberalization affects corporate investment, the main driver of a country's economic growth. This paper investigates the relationship between economic liberalization and corporate investment by modelling the microeconomic channels through which economic liberalization affects corporate investment. Our theoretical framework extends the standard neoclassical model of firm value maximization to incorporate the effect of economic liberalization on corporate investment via several microeconomic channels. We test the theoretical predictions of our model by using a large and heterogeneous sample of non-financial US firms for the period 2000–2019. The empirical results support our hypotheses that economic liberalization positively affects corporate investment both directly and indirectly through different channels. These effects hold, although with different intensity, for all dimensions of economic liberalization.

Managing the “Downside” of Downsizing: Firms' Impression Offsetting around Downsizing Announcements

AbstractPast studies indicate that investors perceive workforce downsizing negatively, as evidenced by negative short‐term stock returns around downsizing announcements. Impression management theory suggests that downsizing firms thus attempt to offset investors’ negative impressions by issuing positive news around downsizing announcements, and that firms’ impression offsetting can attenuate investors’ negative response. In this study, we test these theoretical predictions but also unpack why and how impression offsetting positively biases investor perceptions. Prior work theorized that impression offsetting is effective because it dilutes investors’ attention and compels them to average positive and negative news items in their minds but did not clarify whether both causal mechanisms are operative, and which one is more powerful. We posit that impression offsetting influences investor response primarily by forcing them to mentally average positive and negative news. Further, our study provides a more nuanced understanding of investors’ mental averaging process. While prior work assumed that all types of positive news are received equally by investors, we argue that positive financial news offsets investors’ negative impressions more effectively than positive operational or social news. The empirical analysis of nearly 1500 downsizing announcements by the largest, public US firms between 2001 and 2020 mainly supports our theoretical reasoning.

Ripple effects: How collaboration reduces social movement contention

AbstractResearch SummaryResearch suggests firms can reduce stakeholder contention (e.g., lawsuits, protests) by collaborating with threatening stakeholders. We propose that by tapping into stakeholder networks and identities, collaborations also produce ripple effects beyond the firm's partner to attenuate contention from a broader set of stakeholders. Using variation in firms' and stakeholders' willingness to collaborate exogenous to contention to account for selection, our examination of contentious and collaborative interactions between 136 environmental movement organizations and 600 US firms corroborates our arguments. Firms face less contention when they collaborate with a better‐connected stakeholder motivated to share affirming information about the firm, or with a more contentious and authentic stakeholder. Our findings generalize to stakeholder criticism beyond movement organizations, suggesting collaborations are powerful tools for fashioning less contentious environments.Managerial SummaryCompanies can reduce conflict from hostile stakeholders like social activists by collaborating with their friends. We find social movement organizations mount fewer protests, boycotts, lawsuits, and other conflict against a company that collaborates with an organization that is either well connected in the movement or known for mobilizing movement's grassroots. This suggests that cross‐sector collaborations quell conflict through passing affirming information about a company through interorganizational networks or through the broadcast of an affirming signal to the broader stakeholder environment. We find that criticism from a wide range of stakeholders (e.g., media) also abates, suggesting that collaborations are powerful tools for fashioning less contentious environments.

The real implications of mimicking peer firms' cash holdings

PurposeThis study empirically examines the nonlinear effects of mimicking peer firms' cash holdings on shareholder value, with consideration of macroeconomic conditions.Design/methodology/approachAn instrumental variable approach for nonlinear models is estimated for a large sample of US firms over the period 1991–2019. This approach addresses the reflection problem in examining peer effects, whereby it is impossible to separate the individual's effects on the group, or vice versa, if both are simultaneously determined.FindingsThe authors find an inverted U-shaped association between shareholder value and mimicking intensity of peer firms' cash holdings. This result suggests that mimicking peer firms' cash holdings is subject to diminishing returns. It is more beneficial at lower levels of mimicking intensity but less so or suboptimal at higher levels. Further evidence indicates that this inverted U-shaped shareholder value-mimicking intensity nexus is asymmetric. Specifically, it is salient for decreases relative to increases in cash holdings and, more importantly, in good relative to bad macroeconomic states. The findings are robust to several concerns and have important implications for liquidity management policies.Originality/valueThe authors provide new empirical evidence of the nonlinear effects of mimicking peer firms' cash holdings on shareholder value, which varies with macroeconomic conditions.

Politics, integration of ESG in CEO compensation, and firm credit ratings: evidence from the USA

PurposeThis paper aims to investigate how a US firm’s political landscape affects the integration of environmental, social and governance (hereafter ESG) measures in CEO compensation contracts, thereby affecting the firm’s ESG performance and credit rating.Design/methodology/approachBased on the results of state senatorial and presidential elections and the location of a US firm’s headquarters, the authors categorize whether a firm has a political environment that is predominantly Democratic (blue) or Republican (red). The empirical analyses are based on a sample of US firms in the period 2014–2021.FindingsThe authors find that firms in blue states are more likely to link CEO compensation to ESG performance measures. Further, the results show that firms in blue states with ESG-linked compensation contracts have better ESG performance. Lastly, the authors find evidence that a firm’s ESG performance has a positive impact on its credit rating, but the impact is weakened if firms in red states link ESG performance to executive compensation.Originality/valueTo the best of the authors’ knowledge, this is the first research that explores how a firm’s political environment affects the use of ESG performance measures in CEO compensation contracts. Furthermore, the authors contribute to the literature by showing evidence that the political environment interacts with the impact of ESG-linked compensation incentives on the firm’s ESG performance and, thus, its credit rating.

The impact of corporate culture on stock price crash risk: a firm-level analysis

PurposeThis paper aims to investigate the impact of corporate culture on stock price crash risk and explore the underlying mechanisms.Design/methodology/approachThis paper uses a novel firm-level culture measure of Li et al. (2020), which evaluates corporate culture from the perspectives of integrity, teamwork, innovation, respect and quality. Using a sample of 4,017 US firms from 2001 to 2018, this paper uses panel data regressions to explore the impact of corporate culture on stock price crash risk.FindingsThis paper finds that among five cultural dimensions, integrity reduces crash risk and quality increases crash risk. The mitigating effect of integrity culture on crash risk is concentrated among firms with a strong incentive or ability to hoard bad news. The exacerbating effect of quality culture on crash risk is concentrated among firms with low managerial flexibility.Social implicationsThis paper helps investors and regulators to understand the determinants of stock price crash risk, which facilitates investors’ wealth management and stabilizes social welfare.Originality/valueTo the best of the authors’ knowledge, this is the first study that uses time-varying firm-level measure of corporate culture to investigate its impact on stock price crash risk, contributing to the literature on the determinants of crash risk. Besides, this is the first study that explores the possible mechanism of managerial flexibility in influencing stock price crash risk.

Capital market liability of foreignness and country-of-origin stereotype: An empirical investigation

Foreign firms face a liability of foreignness (LOF) in capital markets outside their home countries. Focusing on discrimination hazards as an antecedent to capital market liability of foreignness (CMLOF), we extend the concept of country-of-origin stereotypes to capture discrimination hazards in capital markets. We employ data from foreign firms listed on the three major stock exchanges in the United States from 2002 to 2016 to demonstrate that, compared with domestic US firms, foreign firms are discounted on major stock exchanges in the US and that foreign firms from countries stereotyped as high-warmth and high-competence are not discounted. Our results reveal that discrimination hazards do impact CMLOFs, suggesting that firms venturing into foreign capital markets should invest in perceptions of warmth to mitigate CMLOFs.

Firm climate change risk and financial flexibility: Drivers of ESG performance and firm value

This study investigates how a firm's climate change risk (FCCR) and financial flexibility (FIFL) affect its value and environmental, social, and governance (ESG) performance. We use data from publicly listed US firms for 2012–2021. We employed four estimation methods: bootstrap quantile regression, feasible generalised least squares, a generalised method of moments, and fixed effects with Driscoll-Kraay standard errors. Our main findings indicate that climate change risk has a negative effect on firm value and a positive effect on ESG performance and that financial flexibility moderates these effects by reducing risk and enhancing value. These results are robust against alternative measures and estimation techniques. Our study provides novel insights into the influence of climate risk and financial flexibility on firm value and ESG performance. We also discuss the implications of our results for academics, practitioners, and policymakers.

Cash Holdings and Marginal Value of Cash across Different Age Groups of U.S. Firms

Using a sample of 11,365 unique US firms over the period 1966 to 2021, this study examines the relationship between the age of a firm and its cash holdings. We categorize firms as young, mature, or old based on their age or years of operation. Our results show that firm age is one of the important determinants of cash holdings and that managers adjust cash holdings in response to changing financial needs and risks as firms age. We find that young firms tend to hold higher levels of cash than more established firms and that the marginal value of cash holdings is higher for younger firms. This is consistent with the notion that young firms are more focused on growth and investment and may have limited access to external financial resources. In contrast, mature and old firms tend to hold lower cash levels, possibly due to greater financial stability, increased creditworthiness, and a lower need to manage financial risks. Controlling for significant variables, we confirm our findings with the robustness tests. Taking care of the endogeneity issue, we still can confirm that firm age is negatively significant to the level and the marginal value of cash holdings.

Tax planning and financial default: role of corporate life cycle

PurposeDrawing on the resource-based view (RBV), this study investigates how tax planning affects the likelihood of financial default in different stages of the corporate life cycle.Design/methodology/approachCollecting a large sample of US firms between 1989 and 2016, hypotheses are tested using a hazard model. Several robustness and endogeneity checks corroborate the main findings.FindingsThe results show that tax-planning firms are less likely to default in the introduction and decline stages, while they are more likely to default in the growth and maturity stages. The findings suggest that introductory and declining firms use cash resources obtained from tax planning efficiently to meet their needs and acquire other useful resources. In growing and mature firms, tax aggressiveness generates unnecessary slack resources, weakens managerial discipline and increases reputational risks.Practical implicationsThe results shed light on the benefits and costs associated with tax planning throughout firms' life cycle, holding great significance for managers, investors, lenders and other stakeholders.Originality/valueThis study contributes to the literature that examines resource management at different life cycle stages by showing that cash resources from tax planning are managed in distinctive ways in each life cycle stage, having a varied impact on the likelihood of default. The authors shed light on underexplored cash resources. Furthermore, this study shows the potential linkages between the agency theory and RBV.

The impact of economic policy uncertainty and inflation risk on corporate cash holdings

This paper analyses the joint effects of Economic Policy Uncertainty (EPU) and inflation risk on the Corporate Cash Holdings (CCH) of US firms from 2011 to 2021. The baseline results suggest that EPU and inflation risk positively impact CCH. Moreover, we find the same results between inflation risk and CCH. However, EPU and CCH are negatively associated. Additionally, construction (finance) firms hold higher (lower) cash at the time of EPU and inflationary risk. We also find that firms hold higher (lower) cash during Democrat (Republican) presidential terms. The two-step system Generalized Method of Moments approach used to control the potential endogeneity issues indicates the same results and supports the baseline findings.

The bullwhip effect, demand uncertainty, and cost structure

AbstractThe firm‐level bullwhip effect is the amplification of demand uncertainty along a supply chain—that is, fluctuations in production (for manufacturing firms) or purchases from suppliers (for retailers or wholesalers) in a firm tend to be greater than its demand fluctuations. We predict that the bullwhip ratio (a proxy for the bullwhip effect) amplifies the relation between demand uncertainty and cost structure. We expect this amplifying effect because the bullwhip ratio determines the extent to which demand uncertainty translates into uncertainty in production or purchases, which, in turn, affects cost structure. Using data from public US firms over the 1990–2020 period, we find results consistent with our prediction. Specifically, we find that both the negative relation between demand uncertainty and cost elasticity in the manufacturing sector and the positive relation between the two in the retail/wholesale sectors are stronger for firms with higher bullwhip ratios. We contribute to the literature on cost structure by highlighting the important role of the bullwhip effect in cost structure decisions.