Corporate Finance, Governance, and Social Responsibility

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Economics and Finance".

Deadline for manuscript submissions: closed (31 January 2023) | Viewed by 157967

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Dear Colleagues,

Corporate finance is the fundamental basis for the whole financial decisions of a company. It deals with the operation of the firm, both the sources of funding and the investment decision, the main purpose being shareholder value maximization, while harmonizing risk and profitability. Every corporation makes decisions that trigger financial repercussions and any resolution that entails money is delineated as a corporate financial decision. Nevertheless, the separation of ownership and control may rise potential agency conflicts as managers will pursue their own interest at the expense of stockholders. Corporate governance refers to the structures by which companies are managed and supervised. Good governance implies better oversight and greater transparency, which increase investor trust and lessen directors’ discretion. Well governed corporations are rewarded with enhanced operating performance and higher market valuation attributable to reduced agency costs. Boards are accountable for the prosperity of the company, their essential role being to fulfill the best interests of stakeholders. A diverse boardroom, covering gender, racial, and ethnic balance, stimulates innovation on account of various skills and experiences. Therewith, corporate social responsibility promotes firm’s image and augment its reputation, thus fostering long lasting relations with the customers.

Wide-ranging topics of interest cover, even are not limited to:

  • Exploring the drivers of corporate default risk;
  • Evaluating the connection between economic policy uncertainty and stock price crash risk;
  • Analyzing the relationship among foreign ownership and company performance;
  • Investigating the impact of CEO remuneration on firm risk;
  • Examining the effect of board gender composition on dividend policy;
  • Assessing the impact of pollutant emissions on firm performance;
  • Inspecting the influence of corporate social responsibility on cash flow volatility.

Dr. Ştefan Cristian Gherghina
Guest Editor

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Keywords

  • accounting and stock market performance
  • capital structure decisions
  • firm risk
  • ownership concentration
  • foreign ownership
  • state ownership
  • CEO characteristics
  • executive compensation policy
  • boardroom diversity
  • board independence
  • board size
  • audit, remuneration, and nomination committees
  • corporate social responsibility strategy

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Published Papers (28 papers)

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Editorial

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5 pages, 228 KiB  
Editorial
Corporate Finance, Governance, and Social Responsibility
by Ștefan Cristian Gherghina
J. Risk Financial Manag. 2023, 16(6), 297; https://doi.org/10.3390/jrfm16060297 - 8 Jun 2023
Viewed by 4064
Abstract
Corporate finance is a branch of finance that focuses on how companies handle their cash flow, raise capital, make investments, and implement accounting systems [...] Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)

Research

Jump to: Editorial

24 pages, 717 KiB  
Article
Equity Investment Decisions of Operating Firms: Evidence from Property and Liability Insurers
by Sunghan Bae, Andre P. Liebenberg and Ivonne A. Liebenberg
J. Risk Financial Manag. 2023, 16(4), 228; https://doi.org/10.3390/jrfm16040228 - 4 Apr 2023
Cited by 1 | Viewed by 1701
Abstract
During the 2007–2009 financial crisis, almost 10% of Property and Liability (P&L) insurers completely liquidated their equity portfolios, and more than half of them never resumed equity market investments. In contrast, those P&L insurers that continued investing in equities after the crisis, increased [...] Read more.
During the 2007–2009 financial crisis, almost 10% of Property and Liability (P&L) insurers completely liquidated their equity portfolios, and more than half of them never resumed equity market investments. In contrast, those P&L insurers that continued investing in equities after the crisis, increased their portfolio allocation substantially. To understand these findings, we develop and estimate models that explain P&L insurers’ dynamic equity investment decisions, in terms of firm, group, and market characteristics over the period 2002–2018. We study three different approaches to equity investments, a pure investment strategy, internal capital market contributions, and an outsourcing option and find that the factors driving the decision to invest in equities differ from those that explain the extent of their equity investments. Moreover, we find that while equity portfolio losses drive the decision to temporarily cease investments in equities, the decision to permanently exit equity markets is driven by both equity market losses and underwriting losses. These findings shed some light on the factors driving the demand for equity investments by operating firms. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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15 pages, 333 KiB  
Article
Capital Budgeting Practices: A Survey of Two Industries
by Jorge Mota and António Carrizo Moreira
J. Risk Financial Manag. 2023, 16(3), 191; https://doi.org/10.3390/jrfm16030191 - 11 Mar 2023
Cited by 3 | Viewed by 7529
Abstract
This research examines the capital budgeting practices used by small and medium-sized firms (SMEs) in two Portuguese industries, footwear and metalworking, aiming at answering the following research questions: How much knowledge do managers have about capital budgeting practices? What are the most used [...] Read more.
This research examines the capital budgeting practices used by small and medium-sized firms (SMEs) in two Portuguese industries, footwear and metalworking, aiming at answering the following research questions: How much knowledge do managers have about capital budgeting practices? What are the most used practices? How much importance do they attribute to applying them? The research was conducted through an online survey with a response rate of 14.9%. The results document that most companies in both industries are familiar with capital budgeting practices, despite differences between the two. The footwear industry recognizes the importance of these indicators but makes little use of them, and many companies prefer using payback period (PBP). The metalworking industry, on the other hand, makes greater use of capital budgeting practices, with net present value being the favored indicator and PBP being used as supplementary. This study contributes to the capital budgeting literature in two ways: first, by focusing on SMEs instead of only large firms, and second, by exploring data from two industries rather than multiple, heterogeneous industries. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
20 pages, 1111 KiB  
Article
CSR, Risk Management Practices, and Performance Outcomes: An Empirical Investigation of Firms in Different Industries
by Nitya Singh and Paul Hong
J. Risk Financial Manag. 2023, 16(2), 69; https://doi.org/10.3390/jrfm16020069 - 25 Jan 2023
Cited by 4 | Viewed by 8458
Abstract
This article presents a research model that defines how external drivers impact financial performance outcomes, and the role played by strategic practices (especially CSR) in reducing the negative impact of such external influences. Applying strategic orientation theory, risk management theory, and CSR theory [...] Read more.
This article presents a research model that defines how external drivers impact financial performance outcomes, and the role played by strategic practices (especially CSR) in reducing the negative impact of such external influences. Applying strategic orientation theory, risk management theory, and CSR theory as the encompassing theoretical rationale, the conceptual framework defines the research idea and the research model provides the empirically testable model that identifies key variables with valid instrument measures. The results indicate that although external supply chain risk drivers do negatively impact a firm’s financial performance, the influence of these risk events can be mitigated if firms adopt focused strategic practices. The results highlight the significant role played by CSR strategic practices in enabling firms to develop resilience from disruption events. In our research model, CSR, as an organizational linkage practice, is positioned in between upfront strategic flow and back-end performance flow. It suggests that CSR success is only possible when CSR is implemented broadly throughout organizational processes. Based on the empirical results, lessons and implications are presented for theoretical and managerial insights and future research. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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22 pages, 1078 KiB  
Article
CSR and Firm Risk: Is Shareholder Activism a Double-Edged Sword?
by Konstantinos Bozos, Timothy King and Dimitrios Koutmos
J. Risk Financial Manag. 2022, 15(11), 543; https://doi.org/10.3390/jrfm15110543 - 21 Nov 2022
Cited by 3 | Viewed by 3182
Abstract
Few can argue with the notion that corporations should at least consider corporate social responsibility (CSR) to better understand the impact of their operations on society. However, recent empirical tests suggest CSR has an ambiguous impact on firm performance. To shed new light [...] Read more.
Few can argue with the notion that corporations should at least consider corporate social responsibility (CSR) to better understand the impact of their operations on society. However, recent empirical tests suggest CSR has an ambiguous impact on firm performance. To shed new light on this debate, we examine the extent to which voting support for nonbinding shareholder-initiated CSR proposals is empirically linked to changes in firms’ underlying systematic risks. Using a rich dataset of proposals in the US from 1998 to 2011, we contribute several novel findings. First, we show that shareholder voting support is nonlinearly linked to changes in systematic risk. Specifically, proposals with low voting support increase risk while those with high support decrease risk. This nonlinearity is particularly pronounced for consumer-sensitive firms that cater primarily to individual consumers rather than for firms in non-consumer-sensitive industries that produce goods or services meant for industrial or governmental use. Second, the 2007–2009 financial crisis exacerbated increases in firms’ systematic risks for proposals with low voting support. Our results, which highlight asymmetry regarding firms’ CSR initiatives, remain robust when controlling for firm-specific factors as well as shifts in investor sentiment. From a risk management perspective, our findings suggest that CSR initiatives need strong shareholder support to realize benefits from the so-called ‘risk-reduction hypothesis’. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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14 pages, 334 KiB  
Article
Sustainability Initiatives and Failure Risk of a Firm: How Are They Linked?
by Kertu Lääts and Oliver Lukason
J. Risk Financial Manag. 2022, 15(11), 502; https://doi.org/10.3390/jrfm15110502 - 28 Oct 2022
Cited by 2 | Viewed by 1799
Abstract
This paper studies the link between corporate sustainability and failure risk. The two competing hypotheses rely on the controversies in the theoretical and empirical literature linking sustainability and financial performance. Analysis of a sample of Estonian non-listed companies of all sizes indicates that [...] Read more.
This paper studies the link between corporate sustainability and failure risk. The two competing hypotheses rely on the controversies in the theoretical and empirical literature linking sustainability and financial performance. Analysis of a sample of Estonian non-listed companies of all sizes indicates that firms engaged in more sustainability initiatives exhibit a higher risk of failure in the short run. The results remain robust for different sustainability initiatives and periods, while being exclusively determined by firms active locally, not on foreign markets. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
19 pages, 657 KiB  
Article
Board Characteristics and the Insolvency Risk of Non-Financial Firms
by Florian Maier and B. Burcin Yurtoglu
J. Risk Financial Manag. 2022, 15(7), 303; https://doi.org/10.3390/jrfm15070303 - 11 Jul 2022
Cited by 8 | Viewed by 3201
Abstract
How do board characteristics influence the risk of bankruptcy? We study this question by estimating classic Z-Score models using panel data comprising 2519 listed non-financial firms from 29 European countries over the 2012–2020 period. We found that board independence is associated with lower [...] Read more.
How do board characteristics influence the risk of bankruptcy? We study this question by estimating classic Z-Score models using panel data comprising 2519 listed non-financial firms from 29 European countries over the 2012–2020 period. We found that board independence is associated with lower risk of bankruptcy. In contrast, employee representatives have an adverse effect on board monitoring capacity and are predicted to increase bankruptcy risk. The presence of female directors and foreign directors on board—two indicators of board diversity—reduce bankruptcy risk. While board independence and diversity decrease bankruptcy risk in financially non-distressed firms, they have the opposite effect in financially distressed firms. These findings are statistically and economically significant and hold, at least in part, under alternative specifications. Our findings demonstrate the need for governance regulators, credit rating agencies, financial institutions, firms and investors to lend more weight to board composition, especially under the conditions of impending financial distress. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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17 pages, 309 KiB  
Article
The Effects of CSR Report Mandatory Policy on Analyst Forecasts: Evidence from Taiwan
by Tzu-Yun Tseng and Nien-Su Shih
J. Risk Financial Manag. 2022, 15(6), 256; https://doi.org/10.3390/jrfm15060256 - 7 Jun 2022
Cited by 3 | Viewed by 2531
Abstract
The Taiwanese government altered its corporate social responsibility (CSR) report management policy from voluntary disclosure and assurance of CSR reports to partial mandatory disclosure and partial mandatory assurance. This paper examines this policy’s effects on analyst forecast. The empirical results showed that the [...] Read more.
The Taiwanese government altered its corporate social responsibility (CSR) report management policy from voluntary disclosure and assurance of CSR reports to partial mandatory disclosure and partial mandatory assurance. This paper examines this policy’s effects on analyst forecast. The empirical results showed that the mandatory disclosure policy on CSR reports significantly increased analyst forecast accuracy and reduced analyst forecast dispersion. Furthermore, the study found that analyst forecast accuracy was further increased when CSR reports were forced to undergo accountant assurance than those without mandatory accountant assurance which means that the mandatory assurance policy on CSR reports significantly further increased analyst forecast accuracy. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
30 pages, 3513 KiB  
Article
An Investigation of the Link between Major Shareholders’ Behavior and Corporate Governance Performance before and after the COVID-19 Pandemic: A Case Study of the Companies Listed on the Iranian Stock Market
by Rezvan Pourmansouri, Amir Mehdiabadi, Vahid Shahabi, Cristi Spulbar and Ramona Birau
J. Risk Financial Manag. 2022, 15(5), 208; https://doi.org/10.3390/jrfm15050208 - 30 Apr 2022
Cited by 24 | Viewed by 5273
Abstract
One of the basic functions of establishing corporate governance (CG) in companies is improving performance and increasing value for shareholders. Expanding the company’s value will ultimately increase the shareholders’ wealth. Therefore, it is natural for shareholders to seek to improve their performance and [...] Read more.
One of the basic functions of establishing corporate governance (CG) in companies is improving performance and increasing value for shareholders. Expanding the company’s value will ultimately increase the shareholders’ wealth. Therefore, it is natural for shareholders to seek to improve their performance and increase the company’s value. If CG mechanisms cannot perform this function in companies, they do not have the necessary efficiency and effectiveness and, therefore, cannot improve the efficiency of companies. This article investigated the connection between the power of major shareholders and the modality of CG of companies listed on the Iranian capital market before and after the COVID-19 pandemic. The statistical sample of the research included 120 companies listed on the Tehran Stock Exchange for the selected period from 2011 to 2021. The results showed that the concentration of ownership is harmful to adopting corporate governance (GCG) practices. In particular, the high level of voter ownership concentration weakens the corporate governance system (CGS). The results of this study, which was conducted using panel analysis, revealed that the concentration of ownership impairs the quality of CGS, and major shareholders cannot challenge the power of the main shareholder; it alsonegatively affected the quality of business boards, both during and before the COVID-19 pandemic. The competitiveness and voting rights of the major shareholders negatively affected the quality of board composition before and after the COVID-19 pandemic. The concentration of voter ownership also negatively affected the quality of CGS, both during and before COVID-19, and the competitiveness and voting rights of major shareholders before COVID-19. This concentration positively affected the quality of CGS after the COVID-19 pandemic. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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16 pages, 886 KiB  
Article
The Impact of Board Diversity, CEO Characteristics, and Board Committees on Financial Performance in the Case of Romanian Companies
by Bogdan Aurelian Mihail, Dalina Dumitrescu, Carmen Daniela Micu and Adriana Lobda
J. Risk Financial Manag. 2022, 15(1), 7; https://doi.org/10.3390/jrfm15010007 - 30 Dec 2021
Cited by 10 | Viewed by 3596
Abstract
This paper examines the impact of board diversity, CEO characteristics, and board committees on the financial performance of the companies listed on the Bucharest Stock Exchange (BSE). In order to test the influence of these characteristics, detailed data on more than 70 firms [...] Read more.
This paper examines the impact of board diversity, CEO characteristics, and board committees on the financial performance of the companies listed on the Bucharest Stock Exchange (BSE). In order to test the influence of these characteristics, detailed data on more than 70 firms are collected by hand, for the 2016–2020 period, and comprehensive regression models are estimated. The findings show that there are positive effects of board diversity especially with regard to the independent board members. In terms of the board committees, the audit committee is found to have a favourable influence. The regression coefficients imply that a 10% increase in the share of independent board members would be associated with a 0.93% increase in ROE. Based on these findings, it can be argued that improving the corporate governance practices of the companies listed on the BSE would increase the performance and the value of these firms. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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13 pages, 626 KiB  
Article
Corporate Governance from a Cross-Country Perspective and a Comparison with Romania
by Bogdan Aurelian Mihail and Dalina Dumitrescu
J. Risk Financial Manag. 2021, 14(12), 600; https://doi.org/10.3390/jrfm14120600 - 13 Dec 2021
Cited by 4 | Viewed by 3920
Abstract
This paper investigates corporate governance from a cross-country perspective and makes a comparison with Romania. There are studies that examine the corporate governance issues related to Romanian companies, but these studies provide only qualitative and descriptive accounts of the research topic, with limited [...] Read more.
This paper investigates corporate governance from a cross-country perspective and makes a comparison with Romania. There are studies that examine the corporate governance issues related to Romanian companies, but these studies provide only qualitative and descriptive accounts of the research topic, with limited cross-country analysis. The present paper complements the literature by producing a quantitative analysis of cross-country corporate governance and makes a comparison with Romania. For this purpose, a set of corporate governance indicators from a large sample of 39 advanced and developing countries was collected for the 2006–2020 period. In terms of corporate governance dimensions, it was found that Romania underperforms other developing countries in the dimensions of director liability and ownership and control, while it outperforms them in the dimensions of corporate transparency, disclosure, and shareholder rights. The results indicate that the stagnant corporate governance scores and the low development level of stock markets stand out as important business challenges for the country. The correlation and regression analyses show that stock market development is closely associated with corporate governance dimensions and, overall, corporate governance scores matter greatly for the economic growth of countries, such as Romania, which can benefit greatly from the improvement of corporate governance codes and practices in the private sector. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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18 pages, 363 KiB  
Article
The Relationship between LGBT Executives and Firms’ Value and Financial Performance
by Isabel Costa Lourenço, Donatella Di Marco, Manuel Castelo Branco, Ana Isabel Lopes, Raquel Wille Sarquis and Mark T. Soliman
J. Risk Financial Manag. 2021, 14(12), 596; https://doi.org/10.3390/jrfm14120596 - 10 Dec 2021
Cited by 10 | Viewed by 4220
Abstract
Drawing on resource-based theory, we analyze the relationship between having LGBT executives in a firm’s leadership positions and its value and financial performance. The existence of LGBT executives is considered to be associated with employee and customer goodwill towards LGBT-friendly policies and practices [...] Read more.
Drawing on resource-based theory, we analyze the relationship between having LGBT executives in a firm’s leadership positions and its value and financial performance. The existence of LGBT executives is considered to be associated with employee and customer goodwill towards LGBT-friendly policies and practices and to lead to human capital and reputational benefits. Our findings suggest that there is a positive effect of the presence of LBGT executives on a firm’s value, both directly and indirectly, through its effect on the firm’s financial performance. We interpret this as suggesting that besides the direct effect of the existence of LGBT executives on a firm’s value, an indirect effect also exists, mediated through financial performance, presumably through the effect that this has on employee and customer goodwill towards LGBT-friendly policies and practices. As far as we are aware, our study is the first to examine the impacts of the presence of LGBT executives, as well as distinguish between its direct and indirect effects on firm value. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
20 pages, 1318 KiB  
Article
Performance, Risk, and Cost of Capital: Trends and Opportunities for Future CSR Research
by Asif Saeed and Robert Sroufe
J. Risk Financial Manag. 2021, 14(12), 586; https://doi.org/10.3390/jrfm14120586 - 6 Dec 2021
Cited by 8 | Viewed by 6053
Abstract
The information within this study reviews the financial management literature focusing on proponents and opponents of corporate social responsibility (CSR). We review how CSR affects different areas of corporate finance. This study’s core objective is to explore the last 20 years (2000–2019) of [...] Read more.
The information within this study reviews the financial management literature focusing on proponents and opponents of corporate social responsibility (CSR). We review how CSR affects different areas of corporate finance. This study’s core objective is to explore the last 20 years (2000–2019) of CSR top-tier literature to develop and theoretically support CSR and environmental management. Twenty years of publications provide a considerable amount of evidence on CSR’s impacts on firm financial characteristics and some paradoxical findings. The majority of our insights support the argument that doing good is good for business. This study also highlights existing gaps in the literature. Based on our findings, we highlight three areas to further explore in the context of CSR and corporate finance: (1) Does CSR improve specific information contents in stock prices? (2) Does CSR mitigate financial distress risk? and (3) Is CSR good for firm trade credit? Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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13 pages, 312 KiB  
Article
Efficiency and Determinants of Capital Structure in the Greek Pharmaceutical, Cosmetic and Detergent Industries
by Ioannis E. Tsolas
J. Risk Financial Manag. 2021, 14(12), 579; https://doi.org/10.3390/jrfm14120579 - 2 Dec 2021
Cited by 4 | Viewed by 3262
Abstract
The purpose of this paper is to investigate the relationship between a firm’s capital structure (i.e., leverage) and its operating environment, taking into account firm (i.e., efficiency, asset structure, profitability, size, age and risk) and industry effects. For a sample of Greek pharmaceutical, [...] Read more.
The purpose of this paper is to investigate the relationship between a firm’s capital structure (i.e., leverage) and its operating environment, taking into account firm (i.e., efficiency, asset structure, profitability, size, age and risk) and industry effects. For a sample of Greek pharmaceutical, cosmetic and detergent (PCD) enterprises, firm efficiency was estimated using bootstrapped data envelopment analysis (DEA), and a leverage model was produced using ordinary least squares (OLS) regression. The findings confirm the significance of firm efficiency (i.e., the franchise-value hypothesis over the efficiency-risk hypothesis) and asset structure on leverage. Efficiency and overall and short-term leverage have a significant negative relationship, indicating that more efficient firms tend to choose a relatively low debt ratio. Pharma firms are more affected since they are less efficient than cosmetics and detergents firms. Furthermore, asset structure and short- and long- term leverage have a significant negative and positive relationship, respectively, indicating that the firms with more tangible assets have less short-term debt and more long-term debt in their capital structure. Cosmetic and detergent firms, which have slightly more tangible assets than pharma firms, appear to be able to substitute high-cost, short-term debt with the low-cost, long-term debt by using such assets as collateral. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
12 pages, 545 KiB  
Article
The Role of Investor Relations and Good Corporate Governance on Firm Performance in the Case of the Companies Listed on the Bucharest Stock Exchange
by Bogdan Aurelian Mihail, Dalina Dumitrescu, Daniela Serban, Carmen Daniela Micu and Adriana Lobda
J. Risk Financial Manag. 2021, 14(12), 569; https://doi.org/10.3390/jrfm14120569 - 24 Nov 2021
Cited by 6 | Viewed by 3792
Abstract
The objective of this paper is to investigate the role of Investor Relations (IR) in the performance of companies listed on the Bucharest Stock Exchange. The study is motivated by the findings in the literature that investor relations may boost information disclosure, analyst [...] Read more.
The objective of this paper is to investigate the role of Investor Relations (IR) in the performance of companies listed on the Bucharest Stock Exchange. The study is motivated by the findings in the literature that investor relations may boost information disclosure, analyst following, institutional investor share, liquidity, and business valuation. The current article contributes to the relevant literature by making use of the recently released unique database of VEKTOR scores on company investor relations for 2019 and 2020. The main finding based on regression methodology shows that IR scores have a strong positive relationship with firm performance. Specifically, a one standard deviation rise in the IR score corresponds to a 2.6% rise in company ROA. Companies may be advised to strengthen their investor relations based on these findings about the beneficial role of investor relations. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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16 pages, 469 KiB  
Article
Contingent Effect of Board Gender Diversity on Performance in Emerging Markets: Evidence from the Egyptian Revolution
by Melsa Ararat, Moataz El-Helaly, Alan Lowe and Nermeen Shehata
J. Risk Financial Manag. 2021, 14(11), 538; https://doi.org/10.3390/jrfm14110538 - 9 Nov 2021
Cited by 6 | Viewed by 2540
Abstract
The 2011 Egyptian revolution was associated with significant political and social upheaval, followed by societal changes and attempts by policymakers to reduce the marginalisation of women and promote their inclusion in the economy. Drawing on this background, the authors compare the effect of [...] Read more.
The 2011 Egyptian revolution was associated with significant political and social upheaval, followed by societal changes and attempts by policymakers to reduce the marginalisation of women and promote their inclusion in the economy. Drawing on this background, the authors compare the effect of board gender diversity before and after the revolution. Results indicate that gender diversity in corporate boards is coupled with improvements in firm performance in the immediate post revolution phase. This evidence provides insights into the contextual factors related to diversity and performance relationship and supporting arguments for regulatory changes to further encourage women’s representation on boards. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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14 pages, 752 KiB  
Article
The Influence of the Independent Non-Executive Board Members on the Financial Performance of the Companies Listed in the Bucharest Stock Exchange
by Bogdan Aurelian Mihail and Carmen Daniela Micu
J. Risk Financial Manag. 2021, 14(10), 462; https://doi.org/10.3390/jrfm14100462 - 1 Oct 2021
Cited by 4 | Viewed by 2744
Abstract
This paper studies the impact of independent board members on the financial performance of companies listed on the Bucharest Stock Exchange during the period 2016–2020. Different characteristics of the board of directors have been examined extensively in the literature and board independence was [...] Read more.
This paper studies the impact of independent board members on the financial performance of companies listed on the Bucharest Stock Exchange during the period 2016–2020. Different characteristics of the board of directors have been examined extensively in the literature and board independence was identified as one of the most effective corporate governance tools. In this context, the present study contributes to the relevant literature by examining recent data for Romania and investigating alternative performance indicators such as return on assets (ROA), return on equity (ROE) and Tobin’s Q. The correlation analysis, scatter plots, and regression results document that a higher share of the independent board members was associated with higher returns on equity ratio. Specifically, a 10% rise in the share of independent members was associated with an approximately 0.9%-point increase in ROE. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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15 pages, 323 KiB  
Article
Does a Board Characteristic Moderate the Relationship between CSR Practices and Financial Performance? Evidence from European ESG Firms
by Matteo Rossi, Jamel Chouaibi, Salim Chouaibi, Wafa Jilani and Yamina Chouaibi
J. Risk Financial Manag. 2021, 14(8), 354; https://doi.org/10.3390/jrfm14080354 - 4 Aug 2021
Cited by 65 | Viewed by 12752
Abstract
This study aims to examine the potential effect that corporate social responsibility practices (CSR) have on financial performance in ESG firms, using the moderating role of board characteristics. To test the moderating effect of the board characteristics in the relationship between CSR practices [...] Read more.
This study aims to examine the potential effect that corporate social responsibility practices (CSR) have on financial performance in ESG firms, using the moderating role of board characteristics. To test the moderating effect of the board characteristics in the relationship between CSR practices and financial performance, we applied linear regressions with panel data using the Thomson Reuters ASSET4 database from European countries in analyzing data of 225 listed companies between 2015 and 2019. The results show that board characteristics partially moderate the relationship between CSR practices and financial performance in European ESG firms. In addition, this study indicates that CSR practices affect the firm’s financial performance positively. The study findings appended a new dimension to governance research that could provide policymakers and regulators with a valuable source of information to strengthen governance mechanisms for better financial performance. Previous studies mostly investigate the direct effect of corporate governance on financial performance. A few studies examine the moderating effect of CSR practice. This paper contributes by investigating the moderating effect of governance mechanisms in the ESG context. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
29 pages, 4137 KiB  
Article
COVID-19 Pandemic and Romanian Stock Market Volatility: A GARCH Approach
by Ștefan Cristian Gherghina, Daniel Ștefan Armeanu and Camelia Cătălina Joldeș
J. Risk Financial Manag. 2021, 14(8), 341; https://doi.org/10.3390/jrfm14080341 - 22 Jul 2021
Cited by 22 | Viewed by 6251
Abstract
This paper investigates the volatility of daily returns on the Romanian stock market between January 2020 and April 2021. Volatility is analyzed by means of the representative index for Bucharest Stock Exchange (BSE), namely, the Bucharest Exchange Trading (BET) index, along with twelve [...] Read more.
This paper investigates the volatility of daily returns on the Romanian stock market between January 2020 and April 2021. Volatility is analyzed by means of the representative index for Bucharest Stock Exchange (BSE), namely, the Bucharest Exchange Trading (BET) index, along with twelve companies traded on BSE. The quantitative investigation was performed using GARCH approach. In the survey, the GARCH model (1,1) was applied to explore the volatility of the BET and BSE traded shares. Conditional volatility for the daily return series showed noticeable evidence of volatility that shifts over the explored period. In the first quarter of 2020, the Romanian equity market volatility increased to a level very close to that recorded during the global financial crisis of 2007–2009. Over the next two quarters, volatility had a downward trend. Besides, after VAR estimation, no causal connection was found among the COVID-19 variables and the BET index. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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19 pages, 1264 KiB  
Article
Performance Management for Growth: A Framework Based on EVA
by Mihaela Brindusa Tudose, Valentina Diana Rusu and Silvia Avasilcai
J. Risk Financial Manag. 2021, 14(3), 102; https://doi.org/10.3390/jrfm14030102 - 4 Mar 2021
Cited by 9 | Viewed by 7133
Abstract
Some of the constructs in the field of performance management are intuitive or not empirically validated. This study provides a data-driven framework for measuring and improving the performance through synchronized strategies. The ultimate goal was to provide support for increasing business performance. Empirical [...] Read more.
Some of the constructs in the field of performance management are intuitive or not empirically validated. This study provides a data-driven framework for measuring and improving the performance through synchronized strategies. The ultimate goal was to provide support for increasing business performance. Empirical research materializes in an exploratory case study and a statistical analysis with econometric models. The case study revealed that a company can improve its performance, even in periods of growth, being characterized by consistent investments. The statistical analysis, performed on a restricted sample of companies, confirmed the results that were provided by the case study. The measurement of performance was made by capitalizing on financial and non-financial data precisely to intensify the interest for corporate sustainability. The obtained results, contrary to previous research that showed that economic value added (EVA) is negatively influenced by the increase in invested capital, open up new research perspectives to find out whether, at the industry level, performance appraisal that is based on EVA stimulates the development of a business’s economic capital. The research has a double utility: scientific (by providing an overview of the state of the art in the field of performance management) and practical (by providing a reference model for measuring and monitoring performance). Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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22 pages, 336 KiB  
Article
Use of Derivative and Firm Performance: Evidence from the Chinese Shenzhen Stock Exchange
by Yantao Wen, Yuanfei Kang, Yafeng Qin and Jeffrey C. Kennedy
J. Risk Financial Manag. 2021, 14(2), 83; https://doi.org/10.3390/jrfm14020083 - 18 Feb 2021
Cited by 3 | Viewed by 4736
Abstract
Financial derivatives have been increasingly used by firms to hedge against financial risks. However, it is still not clear what factors at the firm level lead to firms’ derivative use and whether derivative use can generate performance improvement, especially in the context of [...] Read more.
Financial derivatives have been increasingly used by firms to hedge against financial risks. However, it is still not clear what factors at the firm level lead to firms’ derivative use and whether derivative use can generate performance improvement, especially in the context of firms operating in emerging economies. Using the unbalanced panel data consisting of 2529 listed firms from China covering an 11-year period from 2005 to 2015, this study examines these two questions regarding firms’ use of financial derivatives. Based on results from the empirical analysis, this study identified operational cash flow, tax shield, R&D investment, and the possibility of bankruptcy, as the firm-level factors that enable firms’ decision to invest in financial derivatives. More importantly, empirical findings from this study suggest that a firm’s derivative use tends to negatively affect firm performance, rather than improve firm performance. The negative effect of derivative use on firm performance is not consistent between the two groups of the better performer and poorer performer firms. While the poorly performed firms are more likely to use financial derivatives for the purpose of performance improvement, their derivative use tends to further damage, rather than improve, performance. These research findings have theoretical and practical implications. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
19 pages, 293 KiB  
Article
Executive Compensation and Firm Performance in New Zealand: The Role of Employee Stock Option Plans
by David K. Ding and Ya Eem Chea
J. Risk Financial Manag. 2021, 14(1), 31; https://doi.org/10.3390/jrfm14010031 - 11 Jan 2021
Cited by 6 | Viewed by 4612
Abstract
We examine the role of employee stock option plans (ESOPs) in mitigating agency problems in New Zealand firms. We find that ESOPs have a significant and positive effect on firm performance relative to their non-ESOP counterparts. This relation appears within a year from [...] Read more.
We examine the role of employee stock option plans (ESOPs) in mitigating agency problems in New Zealand firms. We find that ESOPs have a significant and positive effect on firm performance relative to their non-ESOP counterparts. This relation appears within a year from the first ESOP announcement, and for two to four years after the announcement. Our results show that ESOPs improve corporate performance by 10 times the cost of the ESOPs’ adoption in the first year of issue. The improvement persists for four years after the first issuance. These findings confirm the effectiveness of employee stock option plans for companies issuing ESOPs compared with companies that do not issue ESOPs, and show how much the value creation of ESOPs contributes to these firms. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
14 pages, 555 KiB  
Article
The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms
by Sorin Gabriel Anton and Anca Elena Afloarei Nucu
J. Risk Financial Manag. 2021, 14(1), 9; https://doi.org/10.3390/jrfm14010009 - 25 Dec 2020
Cited by 48 | Viewed by 22179
Abstract
The purpose of this study is to investigate the relationship between working capital and firm profitability for a sample of 719 Polish listed firms over the period of 2007–2016. The scarcity of empirical evidence for emerging economies and the importance of working capital [...] Read more.
The purpose of this study is to investigate the relationship between working capital and firm profitability for a sample of 719 Polish listed firms over the period of 2007–2016. The scarcity of empirical evidence for emerging economies and the importance of working capital efficiency motivate the research on the working capital–financial performance relationship. The paper adopts a quantitative approach using different panel data techniques (ordinary least squares, fixed effects, and panel-corrected standard errors models). The empirical results report an inverted U-shape relationship between working capital level and firm profitability, meaning that working capital has a positive effect on the profitability of Polish firms to a break-even point (optimum level). After the break-even point, working capital starts to negatively affect firm profitability. The study brings theoretical and practical contributions. It extends and complements the literature on the field by highlighting new evidence on the non-linear interrelation between working capital management (WCM) and corporate performance in Poland. From the practitioners’ perspective, the results highlight the importance of WCM for firm profitability. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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25 pages, 405 KiB  
Article
Zero-Debt Policy under Asymmetric Information, Flexibility and Free Cash Flow Considerations
by Anton Miglo
J. Risk Financial Manag. 2020, 13(12), 296; https://doi.org/10.3390/jrfm13120296 - 28 Nov 2020
Cited by 10 | Viewed by 4053
Abstract
We build a model of debt for firms with investment projects, for which flexibility and free cash flow problems are important issues. We focus on the factors that lead the firm to select the zero-debt policy. Our model provides an explanation of the [...] Read more.
We build a model of debt for firms with investment projects, for which flexibility and free cash flow problems are important issues. We focus on the factors that lead the firm to select the zero-debt policy. Our model provides an explanation of the so-called “zero-leverage puzzle”. It also helps to explain why zero-debt firms often pay higher dividends when compared to other firms. In addition, the model generates new empirical predictions that have not yet been tested. For example, it predicts that firms with zero-debt policy should be influenced by free cash flow considerations more than by bankruptcy cost considerations. Additionally, the choice of zero-debt policy can be used by high-quality firms to signal their quality. This is in contrast to most traditional signalling literature where debt serves as a signal of quality. The model can explain why the probability of selecting the zero-debt policy is positively correlated with profitability and investment size and negatively correlated with the tax rate. It also predicts that firms that are farther away from their target capital structures are less likely to select the zero-debt policy when compared to firms that are close to their target levels. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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18 pages, 270 KiB  
Article
Corporate Governance and Earnings Management in a Nordic Perspective: Evidence from the Oslo Stock Exchange
by Frode Kjærland, Ane Tolnes Haugdal, Anna Søndergaard and Anne Vågslid
J. Risk Financial Manag. 2020, 13(11), 256; https://doi.org/10.3390/jrfm13110256 - 29 Oct 2020
Cited by 25 | Viewed by 4725
Abstract
The purpose of the study is to examine the relation between Nordic corporate governance practices and earnings management. We find that the presence of employee representation on the board and the presence of an audit committee are both practices that reduce the occurrence [...] Read more.
The purpose of the study is to examine the relation between Nordic corporate governance practices and earnings management. We find that the presence of employee representation on the board and the presence of an audit committee are both practices that reduce the occurrence of earnings management. Moreover, we find that both board independence and share ownership by directors positively affect earnings management, while board activity and directors as majority shareholders show an insignificant relation to earnings management. We contribute to the existing literature on corporate governance and earnings management by providing valuable insight into the Nordic corporate governance approach and its potential in mitigating earnings management. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
21 pages, 385 KiB  
Article
Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board
by Maria Aluchna and Tomasz Kuszewski
J. Risk Financial Manag. 2020, 13(10), 242; https://doi.org/10.3390/jrfm13100242 - 15 Oct 2020
Cited by 10 | Viewed by 5870
Abstract
Drawing upon agency theory, we address the limitations of best practice code in the context of emerging governance, emphasizing the role of concentrated ownership. While the code provisions were formulated in developed countries, the transfer of one-size-fits-all guidelines may not address the characteristics [...] Read more.
Drawing upon agency theory, we address the limitations of best practice code in the context of emerging governance, emphasizing the role of concentrated ownership. While the code provisions were formulated in developed countries, the transfer of one-size-fits-all guidelines may not address the characteristics and challenges of emerging and post-transition economies. Specifically, we emphasize that provisions of corporate governance codes are aimed at solving the principal–agent conflict between shareholders and managers. These guidelines may remain limited in addressing principal–principal conflicts between majority and minority shareholders and have either a lesser effect on valuation or none at all. Using a unique sample of 155 companies listed on the Warsaw Stock Exchange during the period 2006–2015, with hand-collected data from declarations of conformity, we tested the hypotheses on the link between corporate governance compliance (with board) practice and company value. The period of 2006–2015 was chosen deliberately, due to the relative stability of corporate governance code recommendations over this time. The results of our panel model reveal a negative and statistically significant relation between corporate governance compliance and company value. We contribute to the existing literature providing new evidence on compliance practice in the context of concentrated ownership, and the limited effect of code provisions in addressing structural challenges of corporate governance in emerging post-transition economies and hierarchy-based control systems. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
19 pages, 445 KiB  
Article
Corporate Governance Characteristics of Private SMEs’ Annual Report Submission Violations
by Oliver Lukason and María-del-Mar Camacho-Miñano
J. Risk Financial Manag. 2020, 13(10), 230; https://doi.org/10.3390/jrfm13100230 - 28 Sep 2020
Cited by 9 | Viewed by 3489
Abstract
Managers are, by law, responsible for the timely disclosure of financial information through annual reports, but despite that, it is usual that they are engaged in the unethical behaviour of not meeting the submission deadlines set in law. This paper sheds light on [...] Read more.
Managers are, by law, responsible for the timely disclosure of financial information through annual reports, but despite that, it is usual that they are engaged in the unethical behaviour of not meeting the submission deadlines set in law. This paper sheds light on the afore-given issue by aiming to find out how corporate governance characteristics are associated with annual report deadline violations in private micro-, small- and medium-sized enterprises (SMEs). We use the population of SMEs from Estonia, in total 77,212 unique firms, in logistic regression analysis with the delay of presenting an annual report over the legal deadline as the dependent and relevant corporate governance characteristics as the independent variables. Our results indicate that the presence of woman on the board, higher manager’s age, longer tenure and a larger proportion of stock owned by board members lead to less likely violation of the annual report submission deadline, but in turn, the presence of more business ties and existence of a majority owner behave in the opposite way. The likelihood of violation does not depend on board size. We also check the robustness of the obtained results with respect to the severity of delay, firm age and size, which all indicate a varying importance of the explanatory corporate governance characteristics. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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20 pages, 302 KiB  
Article
Capital Structure Choices in Technology Firms: Empirical Results from Polish Listed Companies
by Marcin Kedzior, Barbara Grabinska, Konrad Grabinski and Dorota Kedzior
J. Risk Financial Manag. 2020, 13(9), 221; https://doi.org/10.3390/jrfm13090221 - 22 Sep 2020
Cited by 19 | Viewed by 9076
Abstract
The main aim of the paper is the identification of capital structure determinants, with a special emphasis on investments in the innovativeness of Polish New Technology-Based Firms (NTBFs). Poland is a unique country in that it is an emerging market that was also [...] Read more.
The main aim of the paper is the identification of capital structure determinants, with a special emphasis on investments in the innovativeness of Polish New Technology-Based Firms (NTBFs). Poland is a unique country in that it is an emerging market that was also promoted in 2018 to the status of a developed country. The study sample consisted of 31 companies listed in the Warsaw Stock Exchange that are classified as high-tech firms and covers the period 2014–2018. The following factors influencing the capital structure were analyzed: internal and external innovativeness and the firm’s size, liquidity, intangibility, age, profitability, and growth opportunities. The results of the research provide empirical evidence that liquidity, age, and investments in innovativeness determine capital structure, which provides an additional argument supporting the trade-off theory and the modified version of the pecking order theory. More specifically, the results suggest that companies whose process of investment in innovativeness is based on the external acquisition of technology are able to attract external financing, while the process based on internally generated innovativeness (R&D activity) deters external capital. The results are interesting for policymakers in emerging markets. Full article
(This article belongs to the Special Issue Corporate Finance, Governance, and Social Responsibility)
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