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Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks' willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks, which are more frequently named in RPE, hold larger shares of the loans they syndicate, and their borrowers receive smaller and fewer loans and face higher spreads. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication. [ABSTRACT FROM AUTHOR]

This paper examines how physical climate exposure affects firm performance and global supply chains. We document that heat at supplier locations reduces the operating income of suppliers and their customers. Further, customers respond to perceived changes in suppliers' exposure: when suppliers' realized exposure exceeds ex ante expectations, customers are 7% more likely to terminate supplier relationships. Consistent with experience-based learning, this effect increases with signal strength and repetition and decreases with country-level climate adaptation. Subsequent replacement suppliers show a lower expected and realized but similar projected heat exposure. We find similar results for suppliers' exposure to floods. [ABSTRACT FROM AUTHOR]

The number of short campaigns by hedge funds has dramatically increased over the last two decades. Nearly 80% of campaigns are undertaken by activist hedge funds, particularly those that employ hostile tactics in their long campaigns. Short campaigns are associated with negative abnormal returns of –7%, with aggregate valuation effects similar in magnitude to the gains from long activism campaigns. In contrast to long campaigns, public communication is a critical component of short campaigns. We do not find evidence that such communication is manipulative. Overall, our analysis highlights the importance of short campaigns for understanding the economic impact of activist hedge funds. [ABSTRACT FROM AUTHOR]

I identify the effect of financial constraints on product prices using granular data on home-builder housing developments from the 2006–2009 housing crisis. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. When builders cut prices, they sell homes faster and builders cut prices more in areas in which price cuts produce larger declines in time-to-sale. Financially constrained firms are more likely to cut prices of homes in healthy areas following losses elsewhere. Firms cut prices following losses in other projects only during the crisis, not during the boom. [ABSTRACT FROM AUTHOR]

We model the welfare consequences of mandates that restrict investors to hold firms with net-zero carbon emissions. To qualify for these mandates, value-maximizing firms have to accumulate decarbonization capital. Qualification lowers a firm's required return by its decarbonization investments divided by Tobin's q, that is, the greenium or the dividend yield shareholders forgo to address the global-warming externality. The welfare-maximizing mandate approximates the first-best solution, yielding welfare gains compared to laissez-faire by mitigating the weather disaster risks resulting from carbon emissions. Our model generates optimal transition paths for decarbonization that we use to evaluate proposed net-zero targets. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online [ABSTRACT FROM AUTHOR]

Using Chinese data, we examine whether synchronous remote board meetings, which facilitate status equalization among directors and alleviate their pressure for conformity, affect board monitoring effectiveness. We find that compared to face-to-face meetings, synchronous remote meetings are associated with directors' better meeting attendance behavior, a higher likelihood of director dissent on monitoring-related proposals, higher forced CEO turnover-performance sensitivity, and more effective investments. These results hold when we use remote meetings that include both synchronous and asynchronous remote meetings. Proposal-director level analysis further shows that remote meetings reduce the pressure to conform faced by young first-term directors and socially connected directors. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Growing AI readership (proxied for by machine downloads and ownership by AI-equipped investors) motivates firms to prepare filings friendlier to machine processing and to mitigate linguistic tones that are unfavorably perceived by algorithms. Loughran and McDonald (2011) and BERT available since 2018 serve as event studies supporting attribution of the decrease in the measured negative sentiment to increased machine readership. This relationship is stronger among firms with higher benefits to (e.g., external financing needs) or lower cost (e.g., litigation risk) of sentiment management. This is the first study exploring the feedback effect on corporate disclosure in response to technology. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Going public by merging with a Special Purpose Acquisition Company (SPAC) is much more expensive than conducting a traditional IPO. We rationalize why some companies merge with a SPAC by listing the potential benefits. We analyze the agency problems that certain SPAC features address. SPAC IPO investors and deal sponsors have earned remarkably high annualized average returns, although we warn that recent deals are likely to disappoint. Public investors in the merged companies have earned very low market-adjusted returns on an equally weighted basis, although high redemptions on the worst deals have limited the amount of money that they lost. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We investigate the effect of scrutiny (e.g. credit ratings, analyst reports, or mandatory disclosures) on the security design problem of a privately informed issuer. We show that scrutiny has important implications for both the form of security designed and the amount of inefficient retention of cash flows. The model predicts that issuers will design informationally sensitive securities (i.e. levered equity) when scrutiny is sufficiently intense. Otherwise, issuers opt for a standard debt contract. Scrutiny increases efficiency by decreasing issuers' reliance on retention to signal quality and, perhaps counterintuitively, decrease price informativeness. [ABSTRACT FROM AUTHOR]

We investigate macroeconomic stress testing frameworks for corporate bond recovery rate analysis using machine learning techniques. In doing so, we simulate the macroeconomic effect of a broad range of 182 macroeconomic variables extracting key factors with methods such as (sparse) principal component analysis and sparse group least absolute selection and shrinkage operation (LASSO). Using the adverse stress testing scenario from the US Federal Reserve as the benchmark, we demonstrate that our least squares-support vector regression model produces sensible and potentially valuable risk measures such as value-at-risk and conditional value-at-risk for recovery rates during periods of macroeconomic stress. [ABSTRACT FROM AUTHOR]

We examine the impact of corporate financialization on export product quality using data from Chinese A-share listed companies from 2000 to 2015. Our findings indicate that corporate financialization inhibits the upgrading of export product quality through ‘innovation crowding out’ and ‘factor substitution’ effects. Heterogeneity tests reveal that this negative effect is pronounced for firms with strong motivations for market arbitrage, precautionary savings, tunneling, as well as higher managerial overconfidence. Additionally, firms exporting to high-income countries, engaging in general trade in less digitally developed regions, and adopting compensation incentives are more susceptible to the disincentive effects of corporate financialization on export product quality. [ABSTRACT FROM AUTHOR]

AbstractThis article explores Walter Bagehot’s (1826–1877) proposals for improvement of the governance of the Bank of England after the Charter Act (1844). In his book Lombard Street (1873), Bagehot addresses the inherent dilemma faced by the Bank of England since its establishment in 1694. On one hand, it was a joint-stock bank with private shareholders, while on the other, it was entrusted with fundamental responsibilities for the public interest, including lending to the state, restructuring public debt, holding the nation’s gold reserve, and managing liquidity crises. According to Bagehot, if the Bank of England succeeded in solving this dilemma, it was mainly thanks to the implementation of governance principles that he introduced and discussed. The contribution of this article is to highlight Bagehot’s original proposals on central bank governance and their significance in reconciling the interests of the diverse stakeholders of the ‘Old Lady of Threadneedle’. Central bank governance in Bagehot is a topic that has not yet been discussed. [ABSTRACT FROM AUTHOR]

This article examines whether and to what extent private firms learn from the stock market. Using a large panel data set for the UK, I find that private firms' investment responds positively to the valuation of public firms in the same industry. The sensitivity increases with price informativeness. To further pin down the information channel, I construct a price noise measure based on public firms' unrelated minor segments and show that it positively affects the investment of private firms in the major-segment industry. The results are consistent with models featuring learning from noisy signals and are not driven by alternative channels in the absence of learning. My findings suggest that the stock market can have real effects on private firms through an information-spillover channel, even when these firms do not list their shares on the stock exchanges. [ABSTRACT FROM AUTHOR]

Environmental and social (ES) funds in non-ES families must balance incorporating the stakeholders' interests they advertise and maximizing shareholder value favored by their families. We find that these funds support ES proposals that are far from the majority threshold, while opposing them when their vote is more likely to be pivotal. This strategy results in a high average support for ES proposals, seemingly consistent with their fiduciary responsibilities, while opposing contested ES proposals. This greenwashing strategy is driven by ES funds in non-ES families who cater to institutional investors. Indeed, these funds experience lower inflows when providing low average support for ES proposals. This strategic voting is not exhibited in governance proposals, nor by ES funds in ES families or by non-ES funds in non-ES families, reinforcing the notion of strategic voting to accommodate family preferences while appearing to meet the fiduciary responsibilities of the funds. [ABSTRACT FROM AUTHOR]

We examine the impact of hedge fund activism (HFA) on the investment efficiency of target firms. We find that target firms' investment efficiency improves after the active involvement of hedge funds. This improvement is mainly evident for HFA campaigns with investment strategy-related reforms as one of the main stated objectives. Among investment strategy-related HFA campaigns, the changes in investment efficiency are more pronounced when hedge funds obtain board representation or privately settle with target firms. HFA improves the investment efficiency of target firms by mitigating overinvestment rather than underinvestment problems. Additional tests reveal that target firms with no resistance to HFA and higher free cash flow accommodate this improvement in investment efficiency following HFA. Overall, our findings highlight the role of HFA as a governance mechanism in improving investment efficiency and influencing managers to reduce overinvestment. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to conduct a review and analysis of the literature on Shariah audit compliance by examining the difference between internal and external auditors, the scope of internal Shariah audits and the qualification of Shariah auditors. Design/methodology/approach: The current study used content analysis and the descriptive approach to achieve the main objective of the study. To ensure that Islamic Financial Institutions' (IFIs) practices preserve Shariah principles and values when providing Shariah-compliant products and services, this audit will be used to supervise and monitor the operations of IFIs. The main goal of Shariah compliance auditing is to protect the interests of IFIs stakeholders, including account holders, shareholders, creditors, management and employees, as well as the general public while ensuring that the mechanisms of checks and balances in place are appropriate and tailored to the goals and missions of its establishment following the Maqasid Al-Shariah. Findings: The findings of this study attempt to contribute to the body of knowledge surrounding Shariah audit compliance by advising IFIs on the value of Shariah compliance auditing in addressing the needs of its stakeholders. As a result, the benefits of Shariah compliance audits will be maximized, and future legislative changes will be implemented to reduce or completely remove the risk of Shariah's failure to comply. Practical implications: This research advises IFIs on the usefulness of Shariah compliance auditing in addressing the demands of its stakeholders to add to the body of knowledge on Shariah audit compliance. Moreover, all parties involved to take action to reduce the gap that will significantly affect stakeholders' confidence, particularly concerning the Shariah compliance of the IFIs' products and services on their operations and activities. Originality/value: The advantages of Shariah compliance audits will thus be maximized, and future regulatory improvements will be made to lessen or eliminate the danger of Shariah noncompliance. [ABSTRACT FROM AUTHOR]

We develop a theory of blockchain governance. In our model, the proof-of-work system , the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. We show that the proof-of-work system may lead to a situation in which some large firms in the blockchain industrial ecosystem— blockchain conglomerates —capture the governance of the blockchain. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We estimate unsmoothed private equity net asset values (NAVs) at weekly frequency for individual funds. Using simulations and large samples of buyout and venture funds, we show that our method yields superior estimates of NAVs relative to simple approaches based on extrapolation of reported NAVs. The market beta of an average buyout (venture) fund is around 1.0 (1.4), and the total risk is 33 |$\%$| (40 |$\%$|⁠) per year. The risk-return profile of the funds varies significantly over time and across funds. Risk-taking and reporting quality appear to persist by manager. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

This paper examines how the level of development of digital finance affects corporate cash holdings. By utilising the Digital Finance Inclusive Finance Index compiled by the Internet Finance Research Center of Peking University and data from China's listed companies, this paper finds that the development level of digital finance where a company is located is negatively correlated with corporate cash holdings. Furthermore, the negative effect of digital finance is more pronounced for non-state-owned enterprises and companies in the early stages of their life cycles. Additional tests show that digital finance can reduce a corporation's financial constraints and debt costs, and the coverage breadth and usage depth of digital finance have also significantly reduced the level of cash holdings for enterprises. Our findings provide insights for understanding the role of digital finance in firm behaviour in emerging economies. [ABSTRACT FROM AUTHOR]

Purpose: Given the serious question raised by the subprime of the 2008 global financial crisis over the rising practices of excessive rewarding of executives in the USA and European firms, the executive pay-performance nexus has emerged as a popular topic of debate in the contemporary corporate finance research. Conducted mostly on the Anglo-Saxon contexts, research outcomes have been inconclusive and dichotomous. Considering this backdrop, this study aims to investigate the endogenous relationship between executive compensation and risk taking in the context of the USA. Design/methodology/approach: Using a large sample of non-financial firms from 2010 to 2020 based on panel data and two-stage least square regression. In this study, the riskier corporate decision is measured as book leverage and ratio of R&D expense to total assets. Chief executive officers' (CEO) experience and age are used as instrumental variables, and these are expected to influence compensation incentives and, hence, affect firm riskiness indirectly. Firm size, return on assets and CEO turnover are reported to affect compensation and corporate decisions, therefore, included as control variables. Given that higher executive compensation is related to riskier corporate decision in firms, this study incorporates total wealth (i.e. accumulated equity related compensation) as an additional proxy of compensation, and this selection is justifiable by the perfect contracting notion of the agency theory. Findings: The results of this study show a significant positive and increasing nexus among compensation and riskier corporate decisions. Besides, the compensation level proxied through the percentage of each form of compensation in total compensation is very important as greater equity and greater salary diminishes risk taking. Practical implications: The outcomes of this study have useful implications for firm stakeholders and policymakers. Originality/value: The level of pay measured by the percentage of each type of compensation in total compensation is of utmost importance as it can increase or decrease risk taking in corporate decisions. [ABSTRACT FROM AUTHOR]

This article documents the existence of an intensive margin of the gender gap in innovative entrepreneurship. Not only there are fewer women than men who become entrepreneurs, but female entrepreneurs also hold smaller equity stakes, make less substantial investments, and are less frequently appointed as firm executives compared to their male counterparts. Leveraging the context of emergency contraception deregulation in Italy and varying abortion service accessibility, I find that mitigating maternity risk narrows these gaps. Consequently, female-led firms become riskier and more attractive to venture capital investors during their early stages. [ABSTRACT FROM AUTHOR]

This article introduces a new measure of a firm's negative impact on biodiversity, the corporate biodiversity footprint (CBF), and studies whether it is priced in an international sample of stocks. On average, the CBF does not explain the cross-section of returns between 2019 and 2022. However, a biodiversity footprint premium (higher returns for firms with larger footprints) began emerging in October 2021 after the Kunming Declaration, which capped the first part of the UN Biodiversity Conference (COP15). Consistent with this finding, stocks with large footprints lost value in the days after the Kunming Declaration. The launch of the Taskforce on Nature-related Financial Disclosures (TNFD) in June 2021 had a similar effect. These results indicate that investors have started to require a risk premium upon the prospect of, and uncertainty about, future regulation or litigation to preserve biodiversity. [ABSTRACT FROM AUTHOR]

Purpose: This study investigates the impact of economic policy uncertainty (EPU) on corporate sustainability [environmental, social and governance (ESG)] performance and aims to explore whether uncertainty-induced sustainability performance is influenced by the firm's life cycle (LC). Design/methodology/approach: The study uses data from European non-financial firms listed during the period from 2002 to 2022 to extend the nascent literature regarding EPU and sustainability performance while applying a dynamic panel data regression analysis (Generalized Method of Moments - GMM System) on 11,462 firm-year observations of 1,869 European firms. Findings: The authors find overwhelming evidence that policy uncertainty affects the sustainability performance of European firms. The firms restrict their environmental and governance-related activities and address immediate issues to survive during periods of high EPU. Conversely, the firms increase their social engagements to decrease uncertainty-induced information asymmetry. The authors' results show that the intensity and type of sustainability performance are also influenced by the firm's LC. The results imply that board gender diversity (BGD) increases while power concentration with the chief executive officer (CEO) decreases sustainability performance. Practical implications: These findings have important implications for policymakers, potential investors, firm management and other stakeholders given the firms' access to resources and preferences to encounter uncertainty vary across different LC stages. Originality/value: To the best of the authors' knowledge, this is the first study that investigates the role of the firm's LC in the relationship between policy uncertainty and sustainability performance in the European context. [ABSTRACT FROM AUTHOR]

Purpose: This study empirically examines the nonlinear effects of mimicking peer firms' cash holdings on shareholder value, with consideration of macroeconomic conditions. Design/methodology/approach: An 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. Findings: The 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/value: The authors provide new empirical evidence of the nonlinear effects of mimicking peer firms' cash holdings on shareholder value, which varies with macroeconomic conditions. [ABSTRACT FROM AUTHOR]

Purpose: This study examines the impact of the US government customer concentration and product innovation in supplier firms. The US government customer concentration is defined as the proportion of sales made by a supplier firm to the US government as a major customer. To measure product innovation, the author uses two key metrics: the number of patents and the novelty of the patents. The results indicate that a supplier firm's relationship with the US government, as measured by the tenure of the relationship, has a significant impact on product innovation. Furthermore, the author shows that changes in the composition of the US government, Senate can also affect the level of innovation in supplier firms. Design/methodology/approach: This study employs the Compustat's Segment Customer database and the National Bureau of Economic Research (NBER) Patent Citation database to gather information regarding patents granted by the United States Patent and Trademark Office (USPTO). The author also incorporates data from US Congressional committees from the 96th to 115th Congresses to assess the effect of changes in seniority of US senators on influential committees on the firm's innovation. For a robustness test, the author utilizes a propensity score matched analysis. Findings: The author demonstrates that a firm's dependence on the US government as a customer channel for an extended period negatively impacts the firm's innovation efficiency, as measured by the number of patents, citations and novelty of the patents. In addition, the author provides evidence that changes in the seniority of US senators on influential committees have a significant impact on firms located in the same state as the new senior senators. These firms decrease innovative efforts due to the political connections, resulting in lower levels of innovation. These findings are robust after controlling the endogeneity issues. In conclusion, this study contributes to the existing literature by offering insight into the relationship between customer concentration and firm innovation. The findings highlight the importance of considering the relationship between firms and their customer base in determining innovation outcomes. Originality/value: This study demonstrates that a heavy reliance on the US government as a customer channel has a detrimental impact on a firm's innovation efficiency. Furthermore, the author analyzes the exogenous shock of changes in the seniority of US senators on the relationship between customer dependence and innovation. By utilizing a propensity matched sample, the author addresses endogeneity concerns and provides robust evidence for empirical findings. In conclusion, this study sheds light on the complex relationship between customer dependence and firm innovation, particularly in the context of the US government as a sales channel. [ABSTRACT FROM AUTHOR]

This article examines the relationship between firm age and acquisition activity and how family and non-family firms differ in the number of acquisitions they undertake. Inspired by previous research requiring firm age as a focal aspect and literature studying the antecedents of acquisitions, we draw on the SEW perspective to test our hypotheses based on the analysis of the acquisition activity of Asia-Pacific public firms. Our empirical findings support a U-shaped relationship between firm age and acquisition activity. Moreover, the findings reveal that family firms engage in fewer acquisitions than non-family firms irrespective of the age of the firm. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between the family governance evolutionary stages and the rate of return required by family businesses' shareholders (ke), building on an institutional and relational governance lens. We make the distinction between the informal stage, the family council stage and the family constitution stage. Findings from a sample of Spanish private family firms reveal that family firms in the family constitution stage have a lower ke than family firms in the family council stage and the informal stage. Surprisingly, family firms in the family council stage seem to have a higher ke than family firms that are in the informal stage, which points to ceremonial adoption effects and a mismatch between governance needs and practices in the family council stage. We also find that the effect of different family governance stages on ke is conditional on the number of family shareholders. [ABSTRACT FROM AUTHOR]

The resource-based view, signaling, and behavioral perspectives focus on different theoretical mechanisms through which human capital and the behavioral characteristics of nascent entrepreneurs, in combination with insider and outsider financing, may influence the emergence of new ventures. This work tests the relative explanatory power of these different theoretical perspectives. We estimate a mediation model to disentangle the direct effect of nascent entrepreneur personal characteristics on new firm creation from their indirect effects, mediated by the amount of insider financing committed to new ventures and access to greater outsider financing. Our empirical results are based on data from the Panel Study of Entrepreneurial Dynamics (PSED II) and improve our understanding of the drivers of new firm creation and their underlying mechanisms. Our findings support the resource-based view and the behavioral perspective in our sample of nascent entrepreneurs, but do not provide evidence of the signaling perspective. [ABSTRACT FROM AUTHOR]

Environmental, Social, and Governance (ESG), a key concept in sustainable development, plays a critical role in shaping corporate green economic activities. This study investigated the effect of ESG information disclosure on corporate green innovation using data from Chinese A-share listed companies from 2013 to 2022. The findings revealed that ESG information disclosure significantly fosters corporate green innovation and the results remain robust across various robustness checks and endogeneity tests. The heterogeneity analysis indicated that the positive effect of ESG information disclosure on corporate green innovation is more pronounced among state-owned enterprises, firms located in the eastern region, and companies operating in non-heavily polluting industries. Furthermore, mechanism analysis suggested that ESG information disclosure influences corporate green innovation through two primary channels: easing financing constraints and attracting the attention of analysts. However, this study acknowledged the limitations of the mechanism analysis. Future research should aim to integrate insights from related disciplines to further explore the mechanisms by which ESG information disclosure affects corporate green innovation from a more comprehensive perspective.

This study investigates the relationship between institutional investors and the inventory performance of companies engaged in mergers and acquisitions (M&As). Specifically, we examine the role of institutional ownership in the selection of target firms and their post-M&A performance. Additionally, we analyze how the effects of institutional investors vary based on their investment horizons and strategies. Our regression analysis reveals that acquiring firms with a large proportion of short-term institutional investors are more inclined to target firms with low inventory levels. This tendency stems from the preference of short-term institutional investors for better current operational performance, which drives decision-makers to merge with leaner firms. In contrast, acquiring firms with long-term institutional investors are more focused on performance improvement, even if the target firms have large inventories at the time of the M&A.