This study examines the underexplored relationship between a firm's business strategy and executive compensation. While research has extensively analyzed the standard economic and governance determinants of executive pay, the causal role of an organization's overarching strategic posture remains unclear. Using a sample of 27,084 firm-year observations from 3,072 Chinese listed firms across 2005-2022, we examine how a composite measure of strategic aggressiveness affects executive compensation. Firms adopting aggressive prospector strategies pay executives significantly higher compensation than conservative defender firms do; this pattern is more significant for firms with high strategic differentiation, transparent disclosure, concentrated ownership, and intense industry competition. Enhanced executive human capital and innovative output act as mediating channels, indicating that boards use competitive compensation to align managerial incentives with strategic risks.
This study examines whether U.S. sanctions significantly impact the financing constraints of Chinese listed firms. Using a uniquely constructed dataset of Chinese A-share firms spanning the 2007 to 2021 period that were directly impacted by the U.S. sanctions, we provide strong evidence showing a positive relationship between sanctions and financing constraints. Additional analyses indicate that the positive relationship between sanctions and financing constraints is more (less) pronounced for firms with greater risk exposure (strong market position, strong innovation and research capabilities, and effective government support policies). Sanctions also increase the financing costs for affected firms, shorten their financing duration, and complicate their access to financing. Finally, various endogeneity tests and robustness checks confirm our baseline results. Overall, our study provides important insights into the detrimental effect of U.S. sanctions on Chinese firms' financing constraints.
Recent advances in neuroscience have made neurophysiological methods increasingly accessible, creating a timely opportunity to rethink how accounting and financial decisions are studied. Yet accounting and finance research has been slow to exploit its full potential. This paper argues that neurophysiological methods are not merely novel measurement tools, but theory-enabling instruments that can reveal otherwise unobservable mechanisms underlying judgment, disclosure processing, incentives, ethics, and risk-taking. Drawing on a systematic review of 55 high-quality studies published in leading journals, we show how these methods uncover the roles of attention allocation, cognitive effort, emotional arousal, learning, and moral conflict in shaping accounting and financial decisions. Our analysis demonstrates that existing research remains heavily concentrated on eye-tracking, while EEG and fMRI are still underused despite their greater potential to discriminate between competing theoretical explanations. Building on this evidence, we develop a mechanism-based framework that integrates neuroaccounting and neurofinance and repositions neurophysiological methods from a peripheral methodological novelty to a central analytical resource for international financial management and accounting research. We further derive a prioritized research agenda that identifies where these methods can generate the strongest theoretical leverage, the clearest cross-domain insights, and the most consequential advances for future scholarship.
Do retail investors matter for corporate ESG transparency? We measure retail investors' ESG attention by employing natural language processing to identify ESG-related inquiries on Chinese investor interactive platforms. Using data on Chinese listed firms from 2010 to 2022, we find that retail investors' ESG attention promotes corporate ESG disclosure. This result remains robust to endogeneity analyses, alternative estimation strategies, and alternative explanation exclusions. Mechanism analyses attribute this effect to market exit threats and ESG reputation pressure. Furthermore, the baseline effect is more pronounced for non-state-owned firms, for firms with higher institutional ownership, for inquiries with more negative sentiment, and for cities with greater public ESG awareness. Additional analyses reveal that the baseline effect is primarily driven by disclosure-focused inquiries rather than practice-focused ones. Our findings shed light on the influence of retail investors on corporate ESG transparency in the digital age.
Climate change presents increasing operational risks for firms, yet its influence on financial policy remains underexplored. While prior research has examined climate change's effects on capital structure and investment decisions, the role of trade credit, a vital tool for liquidity management, has received limited attention. Drawing on data from US firms between 2001 and 2021, this study investigates how climate change exposure affects suppliers' provision of trade credit. The empirical findings reveal a statistically significant positive relationship between climate exposure and trade credit provision, particularly among firms with greater financial flexibility, weaker performance, or lower reputational standing. Moreover, shareholders respond favorably to such credit expansions. These results suggest that trade credit functions as a risk-sharing mechanism for climate-exposed firms, offering novel insights into adaptive financial strategies and stakeholder responses to environmental challenges.
While prior research has examined how tax policy affects corporate innovation, the impact of tax enforcement in a digital governance setting remains unclear. This study analyzes how tax enforcement shapes firm innovation by exploiting the rollout of the tax administration information system reform as a quasi-natural experiment and applying a staggered difference-in-differences design to Chinese A-share listed firms from 2007 to 2022. The results show that intensified tax enforcement is associated with a significant increase in corporate R&D investment, especially for firms subject to stronger governmental tax pressure, weaker external information environments, lower market competition, and stronger tax avoidance incentives. Mechanism analyses show that improved information transparency, which relaxes financing constraints and mitigates managerial career concerns, is the primary channel, rather than R&D manipulation. Overall, the findings enrich the literature on the economic consequences of tax enforcement, advance understanding of the institutional drivers of innovation, and highlight the role of information technology in modern tax administration and innovation-oriented tax design.
This study examines the impact of financial statement comparability on asymmetric cost behavior, commonly known as cost stickiness. Using a comprehensive U.S. sample (1999–2020), we document a positive association between greater comparability and increased cost stickiness. The relationship is markedly stronger for firms facing high uncertainty and for firms whose analyst forecasts are less accurate or more dispersed. We also find that higher comparability notably raises the likelihood of subsequent sales growth and increases the future value derived from incurred costs. Overall, more comparable accounting enables managers to convert slack resources into profits and design strategies to bolster future sales.
The paper studies how firms can leverage AI to enhance risk-taking. Using a sample of 30,725 firm-year observations from Chinese listed companies (2011-2021), this study shows that AI adoption significantly increases risk-taking. Regarding the mechanism, AI strengthens dynamic capabilities by improving absorptive, adaptive, and innovative capabilities, which in turn promote greater risk-taking. Heterogeneity analysis shows that the positive effect of AI on risk-taking is more pronounced among firms with low ESG performance, firms in low-technology industries, and firms located in less marketised regions. Furthermore, AI adoption contributes to improved new-quality productivity partly through enhanced risk-taking. These findings extend theoretical understanding of how AI influences firm-level strategic behavior and provide practical insights for firms seeking to optimize risk decision-making and enhance competitiveness.
The current research investigates whether corporate internationalization influences green innovation and how it does so. Although many previous studies have focused on the factors that drive green innovation, corporate internationalization as a potential driver and the mechanisms through which it affects green innovation remain underexamined. Using a dataset comprising 26,216 observations at the firm-year level on listed enterprises in China from 2007 to 2018, we demonstrate that corporate internationalization enhances firms' green innovation, with media attention acting as a key transmission channel. This positive effect appears stronger among government-controlled enterprises, large companies, and those characterized by more robust corporate governance practices. Further cross-sectional test reveals that the positive effect remains consistent across host countries with different levels of development, suggesting that internationalization plays a consistently supportive role in firms' green innovation efforts, regardless of the host country's development status. Moreover, the upgrading effect of corporate internationalization on green innovation significantly enhances corporate value.
We explore the link between the board chair's hometown identity and corporate Environmental, Social, and Governance (ESG) performance. We also investigate how top management team (TMT) diversity may mitigate this relationship. While existing literature has shed light on the predictable variations of executives with different characteristics in determining corporate ESG practice, the role of executives' hometown identity—defined as the sentimental bond linking executives to their hometown—in corporate ESG performance remains unclear. Using a sample of 6,020 firm-year observations of Chinese A-share listed firms from 2009 to 2021, we find that the board chair's hometown identity significantly enhances corporate ESG performance, and the TMT diversity significantly weakens the positive relationship. Further tests show that the main effect is achieved by reducing managerial myopia and alleviating financing constraints. Both relationship-related and task-related diversity have significant mitigating effects on the main conclusion, and enhanced ESG performance improves corporate reputation. When the firm is state-owned and its board chair hails from an area with a strong clan culture and balanced demographics, the hometown identity effect tends to be more pronounced. By integrating social identity theory with upper echelons theory, this study offers novel insights into how individual backgrounds shape organizational strategies.
This paper delves into the influence of bank debt in shaping the relationship between environmental, social, and governance (ESG) performance and a firm's value. As a result of the superior informational and monitoring functions of bank borrowers in their lending relationships, we argue that a firm's degree of bank debt might signal the genuineness of its ESG performance. We empirically test this signaling role on a sample of U.S. publicly traded companies over 2010-2018. Our results provide evidence that bank debt improves the value effect of ESG performance. We find that the signaling effect of bank debt is stronger in companies with lower tangible collateral, where the need for banks to screen and monitor them is higher. Our findings are robust to controlling for contextual factors that may affect the signaling relevance of bank debt, such as the visibility and informational asymmetries as provided by analysts' activity, or the difference between green and brown industries, as well as a series of alternative econometric specifications, including alternative ESG performance measures, endogeneity tests, and propensity score matching.
Does corporate sustainability performance (CSP) affect stock liquidity? While prior studies provide some single-country evidence of this correlation, they fail to establish a causal relationship. In this paper, using data covering 28 countries from 2002 to 2016, we study the impact of CSP on stock liquidity and how this impact is influenced by country-level institutions and firm-level ESG disclosure. We provide robust and causal evidence that CSP has a significantly positive impact on stock liquidity. Furthermore, this positive effect is strengthened for firms operating in countries with high religiosity but weakened for those that disclose more of their ESG information. Finally, our channel tests show that information transparency and financial distress risk are the mechanisms through which CSP affects stock liquidity.JEL Classification: G15, G32, G41
Climate change impacts future stock returns, though prior literature offers mixed evidence. In this study, we explore how carbon neutrality uncertainty (CNU) affects the cross-section of stock returns in the Chinese market. Our data set includes 3489 stocks from January 2011 to December 2022. Utilizing keywords generated by ChatGPT, we construct a CNU index and estimate the stocks' sensitivity to this uncertainty. Portfolio-level analyzes and cross-sectional regressions indicate a negative cross-sectional relationship between sensitivity to CNU and future stock returns. This relationship remains robust across alternative rolling windows and various measures of the CNU index, and other uncertainty indices cannot account for it. From the perspective of market impediments, arbitrage asymmetry appears to explain this negative relationship. Overall, our results highlight the important role of CNU in determining stock prices.
The industry information environment is crucial for the resource allocation efficiency of the real economy. We examine the impact of industry-specific information disclosure (ISID) on firms' merger and acquisition (M&A) performance. Considering the staggered implementation of mandatory ISID guidelines across industries by Chinese Stock Exchanges since 2015 as a quasi-natural experiment, we employ a staggered difference-in-differences (DID) design to examine its effect on the performance of firms' M&A. Our empirical results show that ISID has a significant positive effect on M&A performance. Channel analysis shows that ISID enhances M&A performance by reducing the information costs and agency costs of acquirers. The heterogeneity analysis indicates that the positive effect of ISID on M&A performance is more pronounced in industries with higher information sensitivity, industries with greater market attention, and in cases where both acquirer and target firms operate within the same industry. The effect is also stronger among firms with weaker corporate governance and in state-owned firms. Overall, our study demonstrates the impact of mandatory ISID on the efficiency of resource allocation in China from the perspective of corporate M&As. This study provides implications for regulatory authorities to refine information disclosure systems, thereby improving resource allocation efficiency.
This paper investigates the influence of corporate social responsibility (CSR) report tone on stock price reactions surrounding the announcement of corporate crises. Although prior research highlights the importance of CSR tone in shaping investor responses, its role during crisis events remains ambiguous. Drawing on a sample of Chinese-listed firms penalized for violations between 2016 and 2022, we find that a more positive CSR tone is associated with lower abnormal returns following the disclosure of such violations. This indicates that a disconnect between a firm's socially responsible image-projected through optimistic CSR disclosures-and its actual misconduct undermines investor trust, resulting in adverse stock price movements. Our findings are robust across alternative variable measurements, empirical models, and controls for endogeneity. Moreover, the impact of CSR tone on stock price responses varies with the firm's information environment and stock liquidity. Specifically, CSR tone exerts a stronger influence in firms with weaker information environments and higher stock liquidity, and a weaker influence in firms with stronger information environments and lower liquidity. These results suggest that both information transparency and market liquidity amplify the effect of CSR tone on investor reactions to crisis announcements. Overall, our study provides empirical support for the impression management hypothesis.
This study investigates whether auditors' famine experience influences audit quality. While imprinting theory is well documented in other fields, its applicability to auditors' behavior remains understudied. Employing the imprinting theory as a theoretical framework, we explore the role of early-life traumatic experiences in shaping audit quality. Using 14,292 client-year observations in China's A-share market from 2003 to 2016, we find that auditors with famine experience tend to provide higher-quality audits. Moreover, this positive relationship is predominantly evident among auditors who experienced famine during their childhood and adolescence. Additional analyses document further evidence on famine severity as an augmenting factor and confirm that risk prevention and ethics concern are two channels through which auditors' famine experience is related to audit quality. These findings align with the imprinting theory, suggesting that early-life experiences can shape auditors' behaviors and decision-making processes, ultimately influencing audit quality.
Emerging literature shows that returnee directors have a positive effect on firm outcomes. However, this positive outcome is likely to come at a cost to the firm in the form of increased audit fees. Therefore, in this paper, we examine the relationship between returnee directors and audit fees. We use a large sample of 42,406 firm-year observations of Chinese firms between 2006 and 2022. We find that the presence of returnee directors on corporate boards is related to higher audit fees. The effect is more pronounced in non-state-owned firms than in state-owned firms and when the returnee directors are nonexecutives. The results imply that there is an unintended price to be paid by firms for appointing returnee directors. The results are not sensitive to different firm characteristics and potential endogeneity problems.
This study investigates the relationship between the Internal capital market (ICM) and firm-level total factor productivity (TFP), addressing a gap in the literature regarding the ICM's role in labor value creation, technological innovation, and capital allocation. Using hand-collected ICM data on Chinese-listed firms from 2007 to 2018, we find that the ICM significantly enhances firm-level TFP. Further analysis reveals that financial constraints and innovation serve as the primary channels through which the ICM influences TFP. Heterogeneity analysis indicates that the strength of this effect varies with monetary policies, factor market maturity, and the firm's labor capital intensity. These findings highlight the ICM's potential to improve economic efficiency and offer policy implications for fostering sustainable development.
We use a sample of banking institutions across 57 countries to investigate the relationship between country-level perceptions of corporate ethical behavior and the cost of bank equity. We find evidence that banks operate with lower costs of equity in countries with higher corporate ethical behavior ratings. This finding is robust to the inclusion of several bank-level and country-level control variables in the regressions, the use of alternative calculations for the cost of bank equity and endogeneity concerns, and the use of alternative regression techniques. Further analysis reveals that ethical behavior decreases the cost of equity more in countries with weak investor protection. This finding suggests that ethical behavior becomes more important in environments where investors are weakly protected against managerial opportunism through formal institutions.Clinical trial registration: Our research does not involve clinical trial registration. This is not applicable to our case
Facing regulatory pressure while balancing the demand for market guidance, analysts must weigh the risk of noncompliance to fulfill stakeholders' interests. Literature suggests that analysts strategically adjust the presentation of information in their research reports to meet competing demands. This study analyzes a sample of 76,922 Chinese analysts' research reports from 2018 to 2021 and examines how the 2020 Standards and Norms in China influenced analysts' earnings forecast revisions and textual tones. The findings exhibit a significant reduction in the magnitude of earnings forecast revisions postpolicy, particularly among analysts who rely heavily on private information, as well as increased optimism in textual tone. Policy details and penalties enhance compliance, whereas reputation incentives (e.g., star analyst titles) strengthen regulatory effects. However, manipulative incentives (e.g., shared provincial ties, high institutional ownership, or "walk-down" forecast patterns) weaken these effects. This study enhances the understanding of analysts' forecast behaviors and their interrelationships while contributing new insights into the limitations of current regulatory effectiveness.
