Purpose This study examines the extent to which business intelligence (BI) and corporate governance (CG) influence corporate reporting quality (CRQ) through a sequential process involving financial analytics, managerial decision-making and transparency. Design/methodology/approach The study uses a balanced panel of 200 non-financial firms listed on the Indonesia Stock Exchange over 2020–2024, yielding 1,000 firm-year observations. Data are derived from structured content analysis of corporate disclosures, with construct scores calculated as arithmetic means of multiple item ratings. Pooled ordinary least squares (OLS) is used for the primary estimates, supported by fixed effects robustness checks and Sobel tests. Findings The findings reveal strong positive relationships among business intelligence, financial analytics, corporate governance, decision making, transparency and corporate reporting quality. Business intelligence strengthens financial analytics and decision making, while corporate governance and financial analytics enhance decision making. Corporate governance and decision making positively influence transparency, whereas financial analytics and decision making significantly improve reporting quality. In contrast, transparency shows a negative and marginally significant association with reporting quality (ß = −0.0501, p = 0.0989). Robustness and mediation tests confirm the stability of the principal relationships. Research limitations/implications The study is limited to firms in a single emerging economy and uses observational disclosure data. Reverse causality, simultaneity and omitted variable bias cannot be ruled out, so the estimates should be interpreted as associations rather than causal effects. Future research should test the model across different institutional environments. Practical implications The findings of this study highlight that BI and governance investments should be understood as long-term strategic enablers. Managers should focus on strengthening analytics capability, decision quality and transparency as interconnected drivers of reporting integrity. Policymakers are encouraged to evaluate governance reforms based on improvements in informational discipline and trust rather than short-term financial performance outcomes, particularly in emerging market contexts. Social implications Our study suggests that improvements in business intelligence and corporate governance contribute to higher transparency and reporting quality, which strengthen stakeholder trust and accountability in capital markets. Over time, this can enhance public confidence in firms, support more informed investment decisions and promote more stable and credible market systems in emerging economies. Originality/value This study develops a process-oriented framework that explains how business intelligence and corporate governance relate to corporate reporting quality through financial analytics, decision making and transparency. It also provides supplementary evidence from fixed effects robustness checks and formal mediation tests.
Purpose This paper aims to examine the effects of credit constraints on firms' energy performance, with particular emphasis on two dimensions of energy performance, energy efficiency adoption and renewable energy use of unlisted firms in developing economies. Design/methodology/approach The study employs firm-level data from the World Bank Enterprise Survey covering unlisted firms in 23 developing countries in Eastern Europe and Central Asia. Given that unlisted firms constitute the majority of businesses in developing economies and typically face greater financing challenges than listed firms, they provide a suitable context for analysing the role of credit constraints. A Recursive Probit model is applied to examine firms' adoption of energy efficiency measures and renewable energy use, while accounting for potential endogeneity. Findings The results indicate that credit constraints significantly undermine firms' energy-related investment decisions. Specifically, firms facing credit constraints are less likely to adopt energy efficiency measures and utilise renewable energy technologies. Credit constraints reduce the probability of renewable energy adoption by approximately 4.14 percentage points. After controlling for endogeneity, the probability of achieving energy efficiency decreases by about 1.48 percentage points for credit-constrained firms. In addition, the findings demonstrate that informal finance does not mitigate the adverse effects of credit constraints; instead, reliance on informal finance exacerbates the negative impact of credit constraints on firms' energy performance. Practical implications The findings highlight the importance of access to formal finance in shaping firms' investment decisions related to energy efficiency. Managers and financial institutions should recognise that financing challenges can discourage productivity-enhancing and efficiency-oriented investments, particularly among unlisted firms in developing economies. Social implications Given that credit-constrained firms are significantly less likely to adopt energy-efficient measures and renewable energy technologies, the results suggest that financial challenges may hinder broader efforts to improve energy efficiency and promote sustainable development in developing countries. Originality/value This study contributes to the managerial and corporate finance literature by providing firm-level evidence on how credit constraints influence energy-related investment decisions among unlisted firms. By focusing on unlisted firms in developing economies and examining the role of informal finance, the paper extends existing research on financing constraints beyond traditional investment outcomes and offers new insights into the financial determinants of firms' energy performance.
Purpose This study looks at the relationship between corporate green innovation, digital finance, and artificial intelligence (AI) in Indian listed companies. It also looks at whether digital finance makes the relationship between AI intensity and green innovation stronger. Design/methodology/approach Pooled ordinary least squares and two-way fixed-effects models are used to account for firm- and year-specific heterogeneity in an unbalanced panel of 5,740 firm-year data for Indian listed enterprises between 2012 and 2024. Robustness analyses evaluate how stable the results are. Findings Across model specifications, corporate green innovation is positively and significantly correlated with AI intensity. A one-standard-deviation rise in AI intensity is linked to a roughly 1.1% increase in green innovation in the favored two-way fixed-effects model, suggesting a small but significant economic impact. By facilitating better access to financial resources for sustainable initiatives, digital finance reinforces this beneficial correlation. The findings should be taken as associations rather than causal effects because of the observational research approach. Practical implications Encouraging responsible AI use in conjunction with digital financial infrastructure may improve businesses' ability for green innovation and reduce funding barriers for sustainable investments. Originality/value The paper advances knowledge of the joint relationship between AI, digital finance, and corporate green innovation in an emerging country by presenting firm-level evidence from India and combining technological and financial viewpoints.
Purpose This paper investigates whether financial technology (FinTech) development enhances the risk-taking capacity of small and medium-sized enterprises (SMEs) and clarifies the underlying mechanism. In particular, it examines whether FinTech affects firms' risk decisions by alleviating financing constraints and whether this effect varies across ownership structures, industries, and regions. Design/methodology/approach The study develops a risk-adjusted decision-making model by extending the CAPM framework to incorporate SME financing costs, formally deriving the link between FinTech, financing constraints, and optimal risk-taking. Using panel data on Chinese listed SMEs from 2011 to 2022, the paper employs two-way fixed-effects regressions. Mediation analysis tests the financing-constraint channel, while instrumental-variable estimation and multiple robustness checks address endogeneity. Findings The results show that FinTech development significantly increases SMEs' risk-taking levels. Financing constraints play a key mediating role: FinTech reduces financing costs, improves risk-adjusted returns and incentivizes firms to undertake riskier investments. The effect is robust across alternative measures and identification strategies. Heterogeneity analyses reveal that the positive impact is concentrated among non-state-owned firms, manufacturing SMEs, and enterprises in economically developed regions. Originality/value This study contributes by offering a micro-founded theoretical framework linking FinTech to SME risk-taking through financing constraints. It extends asset pricing theory to firm-level risk decisions under credit frictions and constructs a novel, multidimensional FinTech index using web-based data. The findings provide new evidence on the real effects of FinTech and inform policies aimed at improving SME financing and growth.
PurposeThe role of directors in CEO succession events has evolved in recent decades with the emergence of a newly created CEO labor market. In this context, can directors potentially assist companies to identify prospective CEOs in the interests of investors or use their expanded role to serve their own and management’s interests? Design/methodology/approachEngaging several theoretical frameworks including those of asymmetric information and managerialism and considering the moderating role of CEO labor market transparency, we explore the impact of board-CEO ties in 1,136 outsider CEO successions over the past three decades, spanning a range of institutional environments in developed and developing markets and across a range of market- and accounting-based financial indicators. FindingsThis paper provides novel global evidence of the effect of board-CEO ties in outsider CEO successions on company performance. It finds that these relationships can serve both investors and management’s interests subject to the specific approach taken to corporate governance in the United States/Commonwealth, European and Asian national institutional environments. Originality/valueThis paper contributes to and extends the literature on board-CEO ties through addressing their effects on company performance in outsider CEO successions. The paper’s global, comparative analysis highlights boundary conditions to information asymmetry that are imposed by institutional differences across international jurisdictions. It demonstrates that any realized value of hiring new outsider CEOs through board referrals is conditional on the latent degree of information asymmetry that exists in specific CEO labor markets. As such, the paper also extends the economic and institutional transparency literature’s understanding of the role of macro-institutional settings in affecting the functioning of the CEO labor market.
Purpose Signalling theory predicts that costly corporate actions convey credible private information to investors under conditions of information asymmetry. Consequently, within business groups, where affiliated firms share ownership, reputation and financial linkages, such signals may extend beyond the announcing firm and influence the valuation of other group members. However, the existence and direction of these spillovers remain unclear, as reputational contagion and internal resource constraints can produce opposing effects. This study investigates whether share repurchase announcements by business group-affiliated firms in India generate spillover effects on the stock prices of other firms within the same group.Design/methodology/approach Using 472 repurchase announcements between 2008 and 2024 by Indian business group-affiliated firms, we construct equal-weighted portfolios of non-announcing affiliated firms and examine market reactions using the event study methodology. Placebo and Lewbel's (2012) tests are employed to validate robustness.Findings Repurchase announcements generate significant positive abnormal returns for non-announcing affiliates. Spillovers are stronger when the announcing firm offers a higher repurchase premium, exhibits greater prior undervaluation and is less financially constrained. Higher promoter ownership dampens spillovers, while illiquid non-event firms benefit more due to greater reliance on external signals.Research limitations/implications The findings demonstrate that signalling theory operates beyond the firm level in concentrated ownership settings, enabling repurchase announcements to function as group-level revaluation mechanisms.Originality/value This study provides novel evidence that share repurchases function as group-level signals within business groups, extending signalling theory to a collective organisational setting and contributing to the literature on intra-group dynamics.
PurposeThis study investigates the relationship between directors' busyness, measured as multiple board appointments and corporate environmental performance, specifically carbon emissions. It explores whether busy directors hinder or facilitate firms' ability to reduce greenhouse gas (GHG) emissions and examines how internal (board characteristics) and external (country development level) governance mechanisms moderate this relationship. Design/methodology/approachThe study employs a comprehensive global dataset comprising 41 countries, and 2982 firms across diverse regions and industries, enabling a broader analysis of corporate governance practices and their environmental impact. The dataset includes firm-level carbon emission metrics, board composition details and country-level governance indicators. This study examines the hypothesized relationship by employing OLS framework with relevant industry, year and country fixed effects. FindingsThe analysis reveals a nonlinear relationship between directors' busyness and corporate environmental performance, specifically a U-shaped relation. While serving on multiple boards can initially enhance resource sharing and strategic insights, directors holding more than two board positions exhibit diminished monitoring effectiveness, resulting in higher carbon emissions. Furthermore, board-level mechanisms such as gender diversity, CEO duality and board independence mitigate the adverse effects of directors' busyness. The development stage of a country further moderate this relationship, with firms in developed countries showing less positive impacts. Practical implicationsThe findings have significant implications for policymakers, regulators and corporate boards. Our results highlight the need to balance the advantages of directors' external networks against potential governance inefficiencies from excessive board appointments. Regulators may consider refining limits on multi-directorships, while firms should strengthen board governance features to counteract possible drawbacks. Originality/valueThis study differentiates from prior research by introducing a nonlinear perspective on directors' busyness, challenging the assumption of a uniformly negative or positive effect on carbon performance. It also uniquely integrates internal governance factors and external contextual variables to explain the variability in environmental outcomes. Unlike prior studies focused on limited geographies, this study's global scope enhances its generalizability.
Purpose This paper examines whether digital inclusive finance alleviates SMEs' financing constraints and identifies the underlying mechanisms. It further explores whether these effects vary by ownership structure, industry type, and regulatory environment, and whether easing financing constraints improves firm performance. Design/methodology/approach This study develops a four-sector theoretical model to analyse how digital inclusive finance influences SME financing constraints through cost and information channels. A composite financing-constraint index is constructed using liquidity, profitability, and robustness indicators. Using panel data on Chinese GEM-listed SMEs from 2015-2022, the analysis employs year- and city-level fixed effects, instrumental-variables estimation, mechanism tests, and heterogeneity analyses. Findings Digital inclusive finance significantly reduces SMEs' financing constraints, with the effects persisting over time. Cost reduction and improved information transparency are the main transmission channels. Easing financing constraints enhances firm performance. The effects are stronger for non-state-owned firms, high-tech enterprises, and firms located in regions with lower regulatory intensity. Originality/value This study integrates theoretical modelling, mechanism analysis, and economic consequences into a unified framework. It proposes a novel composite measure of financing constraints and distinguishes SME risk types within a four-sector model. The findings provide new evidence on the heterogeneous and performance-enhancing effects of digital inclusive finance on SMEs.
Purpose This study examines the association between options trading and the tax avoidance practices of firms whose shares underlie these contracts. We develop the argument that options trading is related to tax avoidance through differences in firms' information environments and financial constraints, and we present evidence consistent with these channels.Design/methodology/approach Using 52,478 US observations from 1996-2022, we measure options trading using annual dollar options volume and capture tax avoidance through GAAP, cash, and current effective tax rates. We estimate panel regressions and assess robustness through alternative measures, instrumental-variable estimation, entropy balancing approach, and two quasi-natural experiments - the penny pilot program and the introduction of weekly options. Structural equation modeling is used to test information asymmetry and financial constraints as mediating channels, and additional cross-sectional tests examine the moderating roles of analyst coverage and audit quality.Findings We document that greater options trading is associated with lower levels of corporate tax avoidance. The results remain consistent when employing alternative measures of both options activity and tax avoidance, as well as when applying the instrumental variable approach, the entropy balancing approach, and two quasi-natural identification strategies. Mediator analysis provides evidence consistent with information asymmetry and financial constraints as potential channels underlying the negative association between options trading and tax avoidance behavior. In addition, cross-sectional evidence reveals that the negative association between options trading and tax avoidance is stronger among firms with lower analyst coverage and weaker audit quality.Originality/value This study is the first to examine the association between external options trading and corporate tax avoidance and to provide evidence consistent with transmission through information asymmetry and financial constraints.
Purpose This study investigates the relationship between firms' ESG performance, its three pillars as well as ESG disclosure and stock price efficiency in the Chinese stock market. It examines whether ESG engagement and ESG disclosure primarily reduce misvaluation through improved information environments or instead amplify valuation distortions through investor sentiment and belief reinforcement. Design/methodology/approach Using Chinese A-share firms from 2009 to 2020, stock misvaluation is measured as the deviation between market value and estimated intrinsic value under the Rhodes-Kropf-style misvaluation framework. ESG data are sourced from Huazheng, with Wind data used for robustness, alongside endogeneity checks using 2SLS and dynamic GMM models. Findings Aggregate ESG performance exhibits only a weak association with stock misvaluation. In contrast, governance performance consistently improves price efficiency by reducing both overvaluation and undervaluation, while environmental and social dimensions exhibit weaker and less consistent effects. Although ESG disclosure is associated with lower information asymmetry, disclosure also strengthens the valuation effect of ESG performance. Practical implications The results suggest that strengthening corporate governance and ESG disclosure can enhance market efficiency in China. The findings are consistent with the view that greater ESG transparency may contribute to improved information environments. Investors should focus on governance quality rather than aggregate ESG scores, while firms should prioritize substantive governance improvements over symbolic ESG actions. Originality/value The study provides new evidence from an emerging market with voluntary ESG disclosure and a retail-investor-dominated structure. It highlights heterogeneous effects across ESG pillars, identifying governance as the primary driver of pricing efficiency. The findings suggest that ESG-related pricing effects in China reflect a combination of information, behaviour and signalling mechanisms.
PurposeThis study examines whether China's Climate Investment and Financing Policy (CIF) promotes firms' climate adaptation innovation and explores the underlying mechanisms and boundary conditions. Design/methodology/approachUsing Chinese A-share listed firms and the CIF pilots as a quasi-natural experiment, we implement a difference-in-differences design with firm and year fixed effects. Climate adaptation innovation is measured by firms' Y02A patent applications. We conduct event-study and placebo tests and a battery of robustness checks, including entropy balancing, PPML, Logit models and controlling for concurrent green policies. FindingsCIF significantly increases firms' climate adaptation innovation. The effect is robust across alternative specifications. Mechanism evidence shows that CIF expands new loan financing and institutional ownership and increases firms' R&D intensity and the share of R&D personnel. Cross-sectional tests indicate stronger effects in regions with higher climate policy uncertainty and among firms with more extensive carbon disclosure. Additional analyses show that CIF improves environmental performance and reduces firms' climate risk. Originality/valueThis study provides causal evidence that a comprehensive climate investment-and-financing policy package can foster adaptation-oriented innovation, complementing prior green-finance research that predominantly emphasizes mitigation innovation.
PurposeExisting research shows that executive tone influences market expectations, corporate information quality and investor decisions but lacks systematic analysis of executive tone divergence, fails to quantify divergence from a team decision-making perspective and does not clarify its underlying mechanisms affecting stock price crash risk. Design/methodology/approachWe use a sample of China A-share listed companies from 2005 to 2022 and examine the impact of executive tone divergence on stock price crash risk in earnings communication conferences and its mechanism. FindingsEmpirical results show executive tone divergence is significantly negatively linked to stock price crash risk. Mechanism analysis reveals this negative effect is stronger under conditions like high net positive tone, high question and answer (Q&A) text similarity, low Q&A content richness, good information disclosure quality or strong financial regulation. Cross-sectional analysis on executive characteristics indicates that without equity incentives, with financial backgrounds, holding vertical positions in shareholder units or purchasing directors' and officers' insurance, executive tone divergence more effectively reduces crash risk. Research limitations/implicationsOur study only statically studies the impact of executive tone divergence, without dynamically examining its long-term effects and interaction with corporate strategy adjustments. Practical implicationsOur study helps investors evaluate the risk of stock price crash and investment value through executive tone divergence in earnings communication conferences. Originality/valueOur findings extend the theoretical framework on executive communication by incorporating the dimension of team-level tone divergence and its impact on crash risk and investor decision-making.
PurposeThis paper examines the impact of economic policy uncertainty (EPU) on corporate investment decisions using an international sample of firms. It aims to assess whether increased policy uncertainty discourages investment and to explore the moderating role of institutional environments. Design/methodology/approachThe study relies on a panel dataset of firms across multiple countries over the period 2000–2017. Using panel regression models, the analysis controls for firm-specific characteristics and macroeconomic factors. Several robustness checks and alternative specifications are performed to ensure the validity of the results. FindingsThe results show that higher levels of EPU significantly reduce corporate investment. This negative effect is stronger in countries characterized by weaker institutional quality, suggesting that institutional frameworks play a key role in mitigating the adverse effects of uncertainty. The findings remain robust across different model specifications and measures of uncertainty. Practical implicationsThe results highlight that policy credibility and predictability are essential for efficient investment, as institutional strength alone may be insufficient under high uncertainty. Originality/valueThis study contributes to the literature by providing cross-country evidence on the relationship between policy uncertainty and investment, extending prior research that primarily focuses on single-country analyses. It highlights the importance of institutional quality in shaping firm responses to uncertainty and offers useful insights for policymakers seeking to foster stable investment environments.
Purpose We investigate greenwashing in the context of mergers and acquisitions (M&As). Specifically, we explore whether acquirers with a history of greenwashing strategically acquire targets with relatively higher Environmental, Social and Governance (ESG) ratings to further cloak their poor ESG credentials or embark on a legitimate green transformation ("go green"). The paper also examines the market's reaction to M&A deals.Design/methodology/approach We use an innovative ESG statistic to capture activities that deviate from a firm's stated ESG practices to study 489 M&A deals between 2006 and 2020. We examine market responses and analyze changes in acquirers' greenwashing behavior around the deal using regression models to test our hypotheses and identify a suitable instrumental variable to address potential endogeneity concerns. We further examine competing explanations for our results such as deal overvaluation and integration risks.Findings Our findings reveal that acquirers with higher levels of greenwashing acquire targets with higher ESG ratings. While the market initially reacts negatively to deals reflecting skepticism of the transaction, acquirers significantly reduce their greenwashing levels by one year after the deal, suggesting a legitimate green transformation.Originality/value We provide novel insights to both M&A and ESG literature by providing empirical evidence on how firms can leverage M&As to transform their ESG practices. It also highlights the market's perception of M&A deals and the potential for acquirers to improve their sustainability practices.
Purpose This paper examines how media-linked independent directors affect firms' mergers and acquisitions (M&A) activity. Design/methodology/approach Using 18,966 firm-year observations covering 1,966 unique US firms and 2,603 deals from 2000 to 2017, we employ OLS regressions to examine the relationship between M&A activity - measured as the natural logarithm of the number and value of completed deals in t+1 - and an indicator for the presence of media-linked independent directors in year t. The models control for firm characteristics, as well as industry and year fixed effects. Robustness tests include propensity score matching, instrumental variable estimation, and the inclusion of additional board-level controls. Findings Firms with media-linked independent directors complete fewer and smaller M&A deals. Cross-sectional analyses show that the negative relationship is concentrated among firms with low R&D intensity, larger firms, and firms with CEO duality - settings characterized by greater agency problems and weaker internal governance. These firms are also less likely to engage in conglomerate deals motivated by empire building. The results are consistent with a monitoring role for media-linked independent directors. Originality/value This study provides novel evidence that interlocking directorships with media firms serve as an external governance mechanism influencing M&A activity. While prior research (Hossain and Javakhadze, 2020) finds that managerial social ties with media increase acquisitiveness, we show that independent directors' structural social capital via media interlocks strengthens monitoring, leading to fewer and smaller deals. The study highlights how the media's governance role depends on the form of connection between firms and the media industry.
PurposeThis study examines the impact of the aggregate trade counterparty premium on the excess value of diversified firms, i.e. the value of diversified firms relative to imputed single-segment benchmarks. Design/methodology/approachOur study employs a panel dataset of US diversified firms from 2001 to 2023 to investigate the excess value implications of the aggregate trade counterparty premium. To address potential endogeneity, we estimate a range of alternative models, including fixed-effects regressions, Oster's coefficient stability test, impact threshold for a confounding variable benchmarks and a system-generalized method of moments framework. We further verify robustness by using an alternative measure of the excess value of diversification and excluding the crisis episodes. FindingsA higher aggregate trade counterparty premium, reflecting elevated equity investor concern over customer turnover risk, is associated with higher excess value for diversified firms. These positive excess value implications are concentrated among firms without a deep diversification discount, suggesting that investors reward those firms that are capable of managing customer turnover risk through diversified operations. Cross-sectional analyses reveal that this positive association holds regardless of firm size, number of business segments or research & development intensity. Further evidence suggests that an elevated aggregate trade counterparty premium is associated with conservative internal capital allocations and higher earnings generation in diversified firms. Originality/valueOur study highlights the macro-financial role of trade credit conditions in shaping investor perception of diversified firms and their value.
Purpose This study aims to examine the impact of board busyness on corporate cash holdings using the 2014 busy board mandate, which limits the multiple directorships a director can hold. Design/methodology/approach We utilize a comprehensive panel dataset of all firms listed on the National Stock Exchange (NSE) from 2006 to 2023. To assess the causal impact of board busyness on corporate cash holdings, this study employs a Difference-in-Difference (DiD) analysis. Additionally, we incorporate propensity score matching techniques, conduct falsification tests and use alternative measures of cash holdings and firm fixed effects for robustness tests.Findings Using a quasi-natural experiment, we find that restricting multiple directorships results in a significant reduction in corporate cash holdings, as it mitigates the oversight gap and enhances the board's capacity for active monitoring. This improved oversight restricts managerial discretion and limits the accumulation of excess financial slack. This result is more evident for firms with low institutional ownership, non-family firms, less financially constrained firms, and fewer investment opportunities. Additionally, firms are more likely to allocate excess cash toward dividend payouts rather than investing in capital projects or R&D activities, signalling a shift from passive to active oversight. Practical implications The findings suggest that the busy board mandate improves governance by reducing the information processing delay resulting from director overcommitment. This supports SEBI's reforms, which focus on strengthening governance quality and addressing agency issues in Indian companies. However, the mandate's uneven effects indicate that although it mitigates managerial opportunism, additional mechanisms may be required to address specific agency conflicts in family-controlled firms. Originality/value This study is the first to use the implementation of the busy board mandate introduced by the Securities and Exchange Board of India (SEBI) in 2014 as an exogenous shock to investigate the relationship between busy board and corporate cash holdings. This research offers a novel explanation of how regulatory limits catalyze a shift from passive to active monitoring by reducing director overcommitment.
Purpose We study how credit ratings shape firms' choice of capital providers (public vs private; debt vs equity), rather than only debt-equity proportions. Using 629 US non-financial firms (1999-2021) and mixed/nested logit models that relax IIA, we show that realised rating actions are more informative than anticipated +/- signals.Design/methodology/approach Our study uses 13605 years observations on 629 firms and constructs quantitative limited dependent variables to represent managerial financing choices and analyse them using the Mixed Logit and Nested Logit models.Findings After an upgrade, firms shift toward internal/private equity (private debt -3.84 pp; private equity +3.82 pp). After a downgrade, firms shift toward public markets (public debt +2.57 pp; public equity +2.94 pp; private debt -4.03 pp). Results are robust to distress controls, rating boundaries (Investment grade and speculative grade), financial distress and leverage/liquidity-based specifications. Overall, ratings act as a screening and eligibility mechanism that influences firms' choice of capital providers, particularly following realised upgrades and downgrades.Originality/value Our results are unique to previous studies and highlight that credit ratings as discrete variables have discrete implications on managers' choices. Furthermore, we relax IID and IIA assumptions when estimating coefficients and ensure cross-elasticities are observed in probability estimation. To the best of our knowledge, we are first to combine all four main types of capital providers and design choice models to test the relationship.
Purpose During periods of heightened economic uncertainty, firms tend to accumulate more cash due to a precautionary motive. Firms belonging to different ownership groups may vary in their access to sources of finance. Consequently, their response to economic uncertainty could differ. We contribute to the literature by studying the differential impact of economic uncertainty, both global and domestic, on the cash holdings of firms across ownership groups. Design/methodology/approach We create a matched sample of 1,566 firms from the Indian manufacturing sector using Coarsened Exact Matching (CEM). The time period of the study is 2000–2022. We use fixed effects panel regression for the analysis. Findings We find that the increase in cash holdings of foreign firms is higher than that of other firms when there is greater global economic policy uncertainty. In contrast, for domestic economic policy uncertainty, firms affiliated with business groups increase cash holdings at a higher rate than other firms. Similar finding for firms that are financially constrained suggests that the increase in cash holdings may arise from precautionary motives. Practical implications This study enhances our understanding of firm decision-making during times of economic uncertainty. Policy response to economic shocks can be tailored to suit the nature of the uncertainty and the ownership group that requires support. Originality/value Our study examines the response of firms belonging to different ownership groups to global and domestic economic uncertainty. Additionally, we analyse financial constraints as a channel for the cash holding behaviour of firms.
PurposeThis study investigates how the quality of internal information within a firm impacts its external stakeholders, focusing on the investment behaviors of suppliers. It aims to determine whether higher-quality demand information from a customer reduces uncertainty to increase investment in working capital (real options view) or reduces working capital levels to increase efficiency (operations view).Design/methodology/approachThe study uses revenue guidance and financial restatements as a proxy for information quality shared with customers. I estimate the impact of information quality on investments in working capital for the customer, including inventory and accounts receivable. I also examine how customer information quality affects sensitivity to general uncertainty.FindingsThe study finds that suppliers invest more in working capital and exhibit reduced sensitivity to uncertainty when their customers provide high-quality demand information (real options view). Customer revenue forecasts are associated with lower expected volatility and higher levels of supplier investment. The results suggest that high-quality internal information facilitates better decision-making within the firm and extends to external stakeholders, such as suppliers.Originality/valueThis research empirically demonstrates the positive effects of internal information quality on external stakeholders, highlighting the role of high-quality demand information in reducing investment uncertainty for suppliers. It contributes to the literature on investment under uncertainty and supply chain information dynamics, providing evidence that publicly disclosed forecasts are a valid proxy for internal information quality.
