This study examines the impact of the compliance policy on investment efficiency by using the quasi-natural experiment of the Compliance Management Guidelines of Central State-Owned Enterprises issued in November 2018. The results show that the compliance policy significantly improves the investment efficiency of central state-owned enterprises (SOEs). The impact is more pronounced in the samples with lower degree of digitalisation, weaker overseas experience of executives and more serious industry monopoly. The compliance policy can improve the investment efficiency of central SOEs by reducing agency cost, optimising internal organisational environment and reshaping the risk perception of management. Further, the compliance policy significantly improves both over-investment and under-investment in central SOEs. It also contributes to enhanced Economic Value Added (EVA). These findings provide empirical evidence for compliance policy effectiveness and policy reference for promoting compliance management across Chinese enterprises.
Hometown employment is a significant informal institution that affects executives’ behaviour. This study investigates the impact of hometown executives on corporate cash holdings. The findings reveal that hometown executives reduce corporate cash holdings. This reduction arises from the resource and governance effects attributed to the selflessness of hometown executives, which alleviate corporate financing constraints and agency costs. Heterogeneity analysis shows that these effects are more pronounced in firms with older executives, lower information transparency, and stronger regional vernacular cultures. Additionally, hometown employment effectively supplements the formal corporate governance system. Hometown executives optimise financial resource allocation, reducing cash holdings without increasing operational risks. They direct corporate cash towards social donation initiatives. This study reveals the altruistic motivations of hometown executives in corporate governance, providing insights for managerial selection and the role of informal institutions in economic development.
This study examines the impact of government procurement on corporate cash holdings of Chinese listed firms. We find that government contracts are significantly negatively associated with corporate cash reserves, primarily through reduced earnings uncertainty and improved access to credit. This association is more pronounced among firms with lower asset pledgeability, tighter financial constraints, non-state ownership, and repeated government contract awards. Furthermore, we observe a remarkable decline in the cash holdings of suppliers after the implementation of stricter regulations on unpaid government accounts in 2018. Our findings also suggest that government procurement promotes higher spending on capital investments, research and development (R&D), and the recruitment of R&D-related employees, while concurrently decreasing the marginal value of cash holdings. These results highlight the stabilising role of government procurement in emerging markets, indicating its potential to mitigate firms’ precautionary incentives for holding cash.
Under China’s dual-system corporate governance, independent directors (hereafter, IDs) undertake diverse governance duties. This paper examines how IDs’ cross-regional experience covering birth, education and work shapes corporate innovation via their advising and decision-making functions. We find such experience significantly boosts firms’ innovation input and output by reflecting IDs’ risk attitudes and upgrading their abilities and resource access. Cross-regionally educated or working IDs born in Beijing, Shanghai or Guangdong better foster innovation, while the effect weakens for IDs holding undergraduate degrees from 985 universities with inherent advantages. This research extends literature on executives’ personal traits and provides implications for listed firms’ internal governance and innovation strategies.
Industrial robots have become a crucial driver of advanced manufacturing. Using a sample of Chinese listed manufacturing firms, we examine whether and how industrial robot adoption affects firm environmental governance behaviours. The findings show that industrial robot adoption significantly improves firms’ environmental performance. This effect is more pronounced for firms with greater environmental governance motivation such as those with managers who have stronger environmental awareness, more green-oriented investors, better ESG performance, operating in heavily polluting industries, and located in regions with more effective environmental law enforcement. It is also stronger for firms with greater technological transformation capability, reflected in possessing higher green innovation capability, greater digital transformation, more advanced labor structures, and higher managerial efficiency. These findings provide new evidence on the heterogeneous environmental governance effects of robot adoption and offer policy implications for promoting green transformation and high-quality development.
We examine whether firms strategically adjust their capital structure to enhance their bargaining power with their alliance partners. We find that firms increase their financial leverage after forming strategic alliances. The effect of strategic alliances on firms’ capital structure is weaker for firms with high market value, state-owned firms, and firms with high earnings volatility, whereas stronger for firms in more competitive industries and firms with better corporate governance. Compared to non-equity (contractual) strategic alliances, the effect is weaker in equity strategic alliances. Furthermore, we find that high leverage helps alliance firms reduce their costs and enhance firm value.
Multi-modal information is more accessible than ever before. Current research focuses mainly on numerical and textual data, but neglects to an extent data in other modes (i.e. visual, audio, and video) as well as their interactions with each other. The availability of artificial intelligence and multimodal data provides accounting researchers with both opportunities and challenges in collecting, analysing and interpreting the multi-modal financial information. In this paper, we survey the current state of accounting research on non-numerical information and its interaction with numerical information. Based on theoretical and technical foundation, we propose an agenda to explore the three main roles of multi-modal information fusion in accounting research: information completeness, verification and effectiveness.
Using the financial licence and IPO application data from 2004 to 2020, we investigate the impact of bank branch expansion on regional IPO application. We find that bank branch expansion promotes IPO application. Heterogeneity tests show that the promotional effect of bank branch expansion on IPO application is stronger in cities with better business environment and more commercial banks. The mechanism tests show that bank branch expansion reduces the financing cost and improves firms’ financial performance. It also curbs the pre-IPO earnings management and improves the earnings quality of IPO firms. Further analysis show that bank branch expansion helps to reduce IPO underpricing and improve the long-term stock market performance of IPO firm. We provide empirical evidence of the positive effect of credit market development on regional capital market, and find a new path for the credit market to promote the development of the real economy.
This study investigates how brokerage firms’ involvement in share pledge transactions affects their competitiveness in underwriting seasoned equity offerings (SEOs). We find that brokerage firms acting as pledgees are more likely to serve as underwriters for issuers whose blockholders have established share pledge relationships with them. Consistent with the information advantage mechanism, we show that pledgee brokers’ underwriting advantage is more pronounced when they obtain richer issuer-specific information through share pledges, internal information flows face fewer frictions, such advantages are more valuable, and issuers are subject to higher information uncertainty. Moreover, compared with SEOs underwritten by non-pledgee brokers, those underwritten by pledgee brokers exhibit lower offer discounts and better post-issuance stock performance, suggesting that information advantages derived from share pledges help reduce equity financing cost. Overall, our findings indicate that pledgee brokers gain a competitive edge in SEO underwriting by leveraging information from share pledge transactions.
We adopt a difference-in-differences approach to examine the effect of stock market liberalisation on accrual-based and real earnings management using the staggered adoption of the Shanghai – Hong KongStock Connect in 2014 and Shenzhen – Hong Kong Stock Connect in 2016 in China. We find that the connect programmes increase real earnings management and reduce accrual-based earnings management. We also show evidence that the trade-off is more pronounced for firms with stronger incentives to manage earnings, weaker corporate governance, and weaker internal control. Finally, we document that liberalisation firms that shift to real earnings management experience temporary financial benefits and profitability. Taken together, our research offers important evidence of corporate strategic responses to national capital market reforms.
Using a sample of SMEs listed on China’s NEEQ, this paper examines how an increase in disclosure frequency affects corporate R&D decisions. Since 2016, the NEEQ has classified listed firms into an Innovation Tier and a Basic Tier; during 2018-2019, firms in the Innovation Tier were required to disclose quarterly reports, whereas firms in the Basic Tier were only required to disclose annual and semi-annual reports. Using a regression discontinuity (RD) design based on the tiering criteria, we find that the mandatory disclosure of quarterly reports increased R&D investment among Innovation Tier firms. Mechanism tests show that quarterly report disclosure increased the availability of equity financing and lowered the cost of equity capital for Innovation Tier firms, while also strengthening external monitoring by stakeholders, both of which encouraged these firms to undertake more R&D activities.
Despite the importance of integrity and the social cost of being dishonest, limited evidence exists regarding the economic consequences of dishonesty. Our study illuminates this issue by investigating how dishonesty affects audit fees. The results indicate that dishonest firms are charged with higher audit fees. We identify possible mechanisms through which dishonesty affects audit fees, i.e. increased operational risk and higher public pressure. Further, dishonesty would result in more modified audit opinions and frequent auditor switches. The negative consequences of dishonesty revealed in this paper indicate that auditors consider their clients’ dishonesty a source of risk and that they exert greater effort in response.
Controlling shareholders’ share pledges have attracted growing attention for their corporate consequences. This paper examines whether such pledges generate spillover effects on the accounting information quality of unpledged firms within the same business group. We find that unpledged firms exhibit significantly higher accounting information quality when controlling shareholders pledge shares in other firms. The effect operates through reduced tunnelling from unpledged firms and strengthened financial risk containment, and is stronger when control-cash flow rights divergence is greater or group internal ties are tighter, institutional ownership of pledged group firms is lower, pledged and unpledged firms operate in the same industry, pledged firms are in regions with higher marketization, the business group is non-state-owned or relatively smaller. By situating the analysis within the business group context, our study expands the boundary of spillover consequences of share pledges, deepens understanding of their real economic effects, and sheds new light for future research.
In an era of dispersed ownership, shareholder coordination has become increasingly important. Using a sample of A-share listed firms on the Shanghai and Shenzhen stock exchanges from 2007 to 2022, we empirically investigate the impact of shareholder coordination on labour investment efficiency from the perspective of the geographic concentration of institutional shareholders. We find that the geographic concentration of institutional shareholders enhances corporate labour investment efficiency by mitigating agency problems and improving accounting information quality. Cross-sectional analyses reveal that this effect is significantly attenuated in firms with strong external monitoring, limited institutional shareholder governance capabilities, and higher labour adjustment costs. Specifically, the geographic concentration of institutional shareholders significantly reduces both labour over-investment and under-investment, particularly by alleviating over-hiring and over-firing. Moreover, these improvements in labour investment efficiency enhance future firm performance. Our findings provide important insights into the significance of shareholder coordination and the role of institutional shareholders in improving resource allocation efficiency.
To promote the convergence of Chinese Accounting Standards with international accounting standards, the Ministry of Finance promulgated the new lease standard in 2018. This paper finds that the implementation of the new lease standard significantly increases firms’ audit fees. Mechanism tests indicate that the new lease standard raises audit fees by expanding firms’ earnings management discretion and tightening financing constraints, prompting auditors to devote more audit work and charge higher risk premiums. Further analyses reveal that the positive effect of the new lease standard on audit fees is more pronounced in less market-oriented regions, industries more affected by the standard, and firms with poorer internal control quality. In addition, extended analyses show that the new lease standard reduces accounting information comparability. This paper enriches the literature on the economic consequences of the new lease standard and audit fees, and offers practical implications for listed firms, audit intermediaries, standard setters, and securities market regulators.
A central challenge in studying the relationship between private enforcement and falsified statements lies in identifying an exogenous shock that affects the intensity of private enforcement for specific firms in isolation. Document No. 185 [2020] issued by the Supreme People’s Court of China provides such a shock, as it abolished the procedural prerequisite for civil litigation against falsified statements by bond-issuing firms, thereby intensifying private enforcement. Exploiting this quasi-natural experiment, we identify two key findings. First, the removal of this procedural prerequisite significantly reduced the incidence of falsified statements among bond-issuing firms, a result that remains robust across a series of robustness checks. Second, this effect is primarily driven by heightened litigation risk faced by firms and improved regulatory efficiency. Overall, our study sheds light on the interplay between private and public enforcement and elucidates how China’s abolition of the procedural prerequisite (APP) for civil litigation curbs corporate falsified statements.
China has continued to promote registration-based reform in the bond market, and financial investment has become prevalent among non-financial firms. Using corporate bonds issued from May 2015 to October 2022, this study manually collects textual data from review feedback letters to examine how issuers’ financial investment behavior affects corporate bond offering and listing review. The results show that financial investment behavior significantly increases both the likelihood of receiving review feedback letters and review intensity. Channel analyses suggest that such investment heightens financial distress risk and weakens information disclosure quality, leading to more stringent review. Heterogeneity analyses indicate that the positive effects are weaker for bonds with put options, issued by listed firms, or underwritten by reputable underwriters. Further analysis shows that investment property drives the positive effects, whereas short-term financial investment has the opposite effect. This study offers practical implications for non-financial firms’ financing decisions under the registration-based system.
Engagement quality review is a core component of audit firms’ quality management systems and is essential for audit quality. We investigate how assigning the signing auditors and the engagement quality reviewer from the same branch office affects review effectiveness and audit quality from an integrated quality management perspectitive. We find that review effectiveness and audit quality are significantly impaired when the reviewer and signing auditors are from the same branch office. These adverse effects are stronger when the client is more important, audit market competition is greater, the reviewer is full-time, and the reviewer is busier. Further analysis shows that audit reports disclose fewer key audit matters and that the KAM descriptions exhibit greater boilerplate similarity when the reviewer and signing auditors are from the same branch office. This study identifies institutional deficiencies in current engagement quality review practices and provides insights for audit firms to improve reviewer assignment mechanisms.
This paper examines how serving as independent directors at other listed firms affects auditors’ audit quality for their clients. We find that serving as independent directors at other firms can significantly increase auditors’ audit quality. This finding remains robust across a series of endogeneity tests. The mechanism tests show that the effect is more pronounced when auditors serve as independent directors at firms located in the same region as the client or when the firms at which they serve issue financial restatements in the current period. These results suggest that service as an independent director improves audit quality through information and reputation spillover effects. Overall, this study advances our understanding of how auditors’ outside directorships generate spillover effects on auditor behaviour.
We examine whether investors price firms’ selection for random inspections by the China Securities Regulatory Commission (CSRC), even though inspection targets are randomly drawn rather than chosen because of suspected misconduct. Using a staggered difference-in-differences design, we find that the implied cost of equity increases after random inspection. The increase is larger for firms subsequently sanctioned and weaker among firms with stronger internal governance or external monitoring. Inspection is also followed by more negative investor-forum discussion, wider bid-ask spreads, and greater downward accrual-based earnings management, consistent with heightened perceived risk and reporting responses. The effect dissipates after events that reduce uncertainty or restore credibility, while inspected firms experience lower longer-horizon buy-and-hold abnormal returns. These findings show that investors price selection for regulatory scrutiny even under random assignment and identify an unintended financing cost of random supervision.
