Purpose The study examines whether partnerships (strategic alliances and joint ventures) help family firms overcome the willingness-ability paradox by increasing R&D investment and improving innovation outcomes. Design/methodology/approach The study uses 4,069 firm-year observations for 452 US family firms. Partnership activity is obtained from the SDC Joint Ventures/Alliances database and matched with Compustat investment data and USPTO patent outcomes. Innovation outputs are measured using market-based patent values as per Kogan et al. (2017) (KPSS hereafter) and forward-citation metrics. Ordinary least squares, propensity score matching and Heckman two-stage models, instrumenting partnership participation with vertical integration, estimate effects on investment allocation and subsequent innovation. Findings Family firms engaged in partnerships invest more in R&D, increasing R&D spending by about 1.1% of assets and reducing capital expenditures. Two years after partnership formation, partnered firms show significantly higher patent portfolio value and citation impact, with greater benefits evident for highly complex firms in both high-tech and low-tech industries. Innovation-oriented partnerships (cross-technology, R&D, licensing and technology-transfer arrangements) and strategic alliances produce the largest gains. Practical implications Family-firm executives can use strategic partnerships, particularly innovation-oriented collaborations, to share innovation risk, access external capabilities and translate R&D into higher-value and higher-impact patents while protecting socio-emotional wealth. Originality/value The paper links family-firm paradox research to interfirm partnerships through an operational risk management mechanism and evaluates innovation using both input and market- and knowledge-based output measures.
Purpose This paper examines the effect of macro uncertainty (economic policy uncertainty (EPU), equity market volatility and oil price volatility) and financial stress on the readability of the Management Discussion and Analysis reports of Indian firms. Design/methodology/approach Using Indian firm-level panel data this paper examines the effect of Indian EPU, equity market volatility, oil price uncertainty and financial stress on listed firms' financial statement readability. Findings Our study reveals the fact that an increase in macro uncertainty leads to a decrease in financial statement readability. In contrast, an increase in financial stress is associated with an increase in readability. Managers make statements less readable during macro uncertainty to reduce the transmission of unfavourable news to investors (Incomplete revelation hypothesis), while increasing transparency during periods of high financial stress to gain investors' trust (Signalling theory). Furthermore, we find that the readability of financial statements decreases when a firm is under financial distress; however, readability increases due to the presence of foreign institutional investment and increased analyst coverage. Our results are robust to endogeneity concerns. Originality/value The novelty of this article lies in its analysis of various macro uncertainty and financial stress on the financial statement readability of the firms. The study compares the differential effect of uncertainty on firm-level communication, a topic that is scarcely studied.
Purpose The main objective is to examine the association between climate risk, climate policy and the corporate financial performance of Indian listed companies. It focuses on how climate risk and policy scores may enhance financial indicators such as enterprise value and market capitalization. Design/methodology/approach This study is an empirical analysis of 155 Indian listed companies in the Bombay Stock Exchange’s 200 Index. Data from the past four years (2021–2024) are used. The analysis employs balanced panel data and a fixed-effects model to examine the relationships among variables. Findings This study provides strong evidence that the government climate policy score is positively associated with enterprise value and market capitalization. Additionally, the government climate risk score negatively impacts market capitalization and enterprise value. Therefore, the study presents mixed results. Practical implications This study offers valuable insights for policymakers, researchers, business managers and society. Managers should carefully prioritize climate actions and incorporate environmental considerations into their decision-making processes. Policymakers can craft effective policies to promote sustainable practices among companies and encourage researchers to pursue interdisciplinary studies. Social implications This study increases public awareness of sustainability and societal norms. Originality/value This study examines the effects of the government climate risk score and government climate policy score on enterprise value and market capitalization in the Indian context.
Purpose We develop a firm-level measure of corporate political power and examine whether gains and losses in firm political power systematically affect future subsidy receipt. Design/methodology/approach We construct novel measures of corporate political power by aggregating the personal political power of US legislators to whom firms gain access through PAC contributions. We decompose firm-level political power into local and national components based on where firms operate. We examine how political power affects subsequent subsidy receipt. Findings Firms with greater political power receive larger government subsidies across federal, state and local levels. Subsidy receipt increases when firms gain political power and vice versa. Both local and national political connections matter. Changes in political power have causal effects on future subsidy outcomes. Practical implications Our findings highlight how political connections shape subsidy allocation, which is useful to policymakers concerned with transparency and fairness in government support. Regulators can use these measures to detect potential favoritism. Firms can gain insight into how political strategy influences access to public resources. Social implications Political power can redirect public resources toward well-connected firms, widening inequality and distorting market competition. This raises concerns about fairness, democratic accountability and public trust in government. Originality/value We introduce a novel, firm-level measure of corporate political power that links firms' political access to the quantified power of individual legislators. Our approach integrates multiple dimensions of legislative influence and distinguishes between local and national political power.
Purpose Over time, Real Estate Investment Trusts (REITs) have exhibited a relatively weak correlation with the broader stock market and are often considered a hedge against market volatility. However, empirical evidence does not fully support the classification of REITs as a safety asset. This study seeks to explain this discrepancy by exploring the non-linear relationship between REITs and the overall U.S. equity market.Design/methodology/approach This paper extends the conventional Capital Asset Pricing Model (CAPM) and the Fama-French Three Factor Model by introducing a realized volatility factor, proxied by the square of the market risk premium.Findings The regression analysis reveals that REITs exhibit a negative association with US equity market volatility, implying a concave relationship with respect to market return. As volatility increases, REIT returns tend to experience greater negative correction due to the exposure to this volatility-related risk factor. Including a volatility factor in the CAPM and Fama-French models also yields a statistically significant intercept, which captures excess returns, analogous to Jensen's alpha. Further results suggest REITs differ from other market sectors both in their concave sensitivity to market movements and in their ability to generate persistent excess returns. These findings are robust, as confirmed by dynamic estimation using a Kalman Filter.Originality/value This study contributes to the literature by providing empirical evidence of a concave association of REITs and overall market returns, as well as demonstrating consistent excess returns of REITs. In addition, it highlights that REITs exhibit unique statistical return characteristics distinct from other market sectors.
Purpose The Initial Public offerings (IPOs) of Small and Medium Enterprises (SMEs) often draw high investor speculation due to their perceived growth potential. They exhibit high gains on the listing day, but on subsequent days, their prices tend to be volatile leading to substantial losses to the investors. This paper explores whether implementing price limit policies with a high upper limit on listing day can facilitate a smooth price discovery process and help build investor confidence in the SME IPO segment. Design/methodology/approach We examine the performance of SME IPOs before and after the implementation of the price limit policy using an event study approach, calculating the cumulative abnormal returns (CARs) for both periods. Since the regulation is an exogenous shock by NSE and it is applied uniformly to all the IPOs post-regulation, it creates a quasi-natural experimental setting, and we employed the propensity score matching (PSM) approach to conduct robustness checks on the results. Findings We found that implementing a high upper price limit policy allowed highly underpriced IPOs to reach fair value on the first day of trading, while others achieved it in the following days. In contrast, before the policy implementation, IPOs with high initial returns exhibited negative returns on the second day. Further, we found that the SME IPOs listed after the policy implementation have less short-term volatility compared to those that listed before the regulation. Originality/value This paper examines the impact of a recently introduced price limit policy in the Indian SME IPO market. To the best of our knowledge, this is the first study to assess the effectiveness of this specific regulation. Unlike previous research, which focused on narrow price bands that often lead to increased speculation and volatility in the days following an IPO, our study investigates a high upper price limit. This policy helps highly underpriced IPOs to reach fair value while reducing speculative activity in other stocks. The policy thus promotes more efficient price discovery and enhances investor confidence in the SME segment.
Purpose This article aims to investigate the impact of blockchain technology on corporate Environmental, Social and Governance (ESG) performance.Design/methodology/approach This study employs a feasible generalized least squares (FGLS) regression method to estimate the econometric model to explore the impact of blockchain technology on corporate (ESG) performance in international A-share listed companies from 2010 to 2023. To ensure the robustness of the results, an alternative measure for the dependent and independent variables and sector effect was utilized. Moreover, an additional analysis was conducted using Sys-GMM to validate the endogeneity.Findings The main findings of the study indicate that the adoption of blockchain technology has a significant impact on corporate ESG performance. Moreover, the observed relationship is significantly more pronounced for financial and technology companies than for other sectors. This finding is consistent with the two-stage Sys-GMM.Practical implications The originality of our study lies in its focus on the financial repercussions of integrating blockchain technology, with particular emphasis on its impact on ESG performance. We propose innovative perspectives that significantly contribute to improving ESG performance by drawing on theories such as the resource-based view theory, institutional theory and asymmetric information theory and their economic implications of integrating blockchain technology to enhance ESG performance.Originality/value It advocates that regulators and service providers should promote augmenting their ESG performance, underscoring the significance of allocating resources to technological advancement and cultivating competencies. Notably, the study contributes to the extant literature by offering one of the first empirical research investigations of the direct relationship between the adoption of blockchain technology and the corporate ESG performance in an international context.
Purpose Investors' risk perception outlines their return expectations, which in turn shape the cost of equity that borrowers must bear. As sustainability factors are increasingly incorporated into banks' risk-assessment frameworks, this study investigates how banks' ESG performance impact their cost of equity, as well as the impact at different levels of cost. Additionally, it examines whether stock return volatility moderates this relationship. Design/methodology/approach The dataset constitutes a balanced panel of 163 banks from G20 economies spanning a period from 2011 to 2023. The study employs fixed effects regression and Method of Moments Quantile regression (MM-QR) methodologies. Findings ESG performance effectively reduces banks' cost of equity capital. This impact becomes even more pronounced when the baseline cost of equity is low. Furthermore, the study provides evidence that ESG improvements produce an additional reduction in the cost of equity for banks with high stock return volatility. ESG performance also significantly lowers the cost of equity in advanced economies; however, no additional benefit is observed during periods of economic upturn or the COVID 19 pandemic. Practical implications The study is relevant to bank executives who can leverage actionable inputs to drive ESG strategies, especially those experiencing heightened stock return fluctuations. Credit analysts and risk professionals may also embed ESG factors into their credit assessment and valuation models. Moreover, regulators gain insights for integrating ESG dimensions into macro- and micro-prudential frameworks. Originality/value This is the first study to examine the impact of ESG performance across varying levels of cost of equity. Furthermore, the research confirms the moderating role of stock return volatility in the relationship between ESG performance and cost of equity. The analysis also differentiates between macroeconomic environments, specifically upturn and downturn periods.
Purpose This study examines within-firm associations between factoring use and firms' financial ratios, with the aim of understanding its accounting implications for corporate financial statements.Design/methodology/approach Using a unique, large panel dataset of Portuguese firms (2009-2022) comprising 926,593 firm-year observations, we estimate fixed-effects models to document how the use of factoring is associated with changes in liquidity, solvency, and profitability indicators. Firm-level controls and year fixed effects are included to account for observable and unobservable heterogeneity.Findings The results suggest that factoring use is consistently associated with higher liquidity and solvency ratios, alongside lower net profitability (ROA and ROE), but higher operating return on sales. These patterns point to a systematic tension between improvements in balance-sheet indicators and costs reflected in the income statement. This tension helps explain the continued use of factoring despite its adverse association with net profitability.Research limitations/implications The analysis is descriptive and does not identify causal effects, as firms self-select into factoring. The relatively low share of firms using factoring may also limit generalizability. Future research could explore identification strategies and sectoral heterogeneity.Practical implications The findings suggest that factoring is associated with improvements in financial statement presentation, particularly in liquidity and solvency, but also involves costs that affect profitability. This trade-off is relevant for managers evaluating short-term financing strategies. Policymakers may also consider promoting factoring as a viable financing channel for SMEs facing credit constraints.Originality/value This study contributes by providing large-scale evidence on the accounting consequences of factoring, documenting and interpreting the trade-off between balance-sheet improvements and income-statement costs rather than identifying causal effects.
Purpose This research examines an unintended consequence of the global trend to increase shareholder power through tools such as say-on-pay and proxy access. Specifically, it examines whether giving shareholders greater power leads to fewer creditors willing to finance the firm.Design/methodology/approach The study uses a difference-in-differences (DID) approach, exploiting the introduction of mandatory say-on-pay (SoP) laws across 32 countries as a quasi-natural experiment. It analyzes a panel dataset of around 38,000 firm-year observations from 2000 to 2020. DID approach addresses potential biases from treatment timing using the Callaway and Sant'Anna (2021) estimator, checks for parallel trends over an extended five-year pre-treatment period.Findings The results show that increasing shareholder power through say-on-pay laws reduces the number of creditors of affected firms by about 8.5%. This reduction translates to approximately 0.7 fewer lenders and an estimated $12.4 million in lost debt capacity for the average firm. The impact primarily affects unsecured creditors (12.3% decrease), non-relationship lenders (14.1% decrease), and institutional lenders (11.1% decrease), as these groups are most at risk of losing wealth due to shareholder actions.Research limitations/implications Governance reforms that empower shareholders result in high unintended costs. This raises perceived agency risks for creditors, which leads to less debt financing and a more concentrated, fragile capital structure. These findings create an important trade-off for policymakers and firms. Improving shareholder democracy must be balanced against the risk of losing debt providers. Strong creditor protections provide a path for coexistence, suggesting that effective governance frameworks must consider the interests of both types of capital providers.Originality/value This research provides new evidence that empowering shareholders alters not only the price and terms of debt but also the fundamental structure of corporate lending. By highlighting the broad range of creditor reactions - choosing to exit rather than reprice - and identifying the behavioral factors behind this effect, the study reveals an important yet previously overlooked trade-off in corporate governance.
Purpose This paper examines whether CEO political orientation is associated with firms’ climate-related pledging behavior, with particular emphasis on the quality, scope and potential for greenwashing in greenhouse gas emissions reduction commitments. Design/methodology/approach Incorporating CEO’s individual political contributions, corporate climate pledges and their characteristics, and both CEO- and firm-level controls, our sample includes 4,636 firm-quarter observations over the period 2015 to 2023. We utilize logistic, ordinary least squares (OLS), and ordered probit regression models to examine the association between CEO political orientation and the quality of corporate climate commitments. Findings Consistent with upper echelons theory, we find that climate pledges made by Republican-leaning CEOs are, on average, less ambitious and less transparent than those made by firms led by Democrat-leaning CEOs. At the same time, CEO political orientation is not associated with the likelihood that a firm makes any climate pledge, consistent with greenwashing behavior affecting the quality of pledges rather than the overall rate of pledging. Practical implications Our study’s insights regarding the credibility of climate pledges can aid investors when integrating Environmental, Social and Governance information into their decisions. Social implications In a time of political polarization, views of climate change are extreme and opposing. Yet, the scientific consensus is that it poses a critical threat to business, to society and to the planet. With business playing a major role in greenhouse gas emissions, CEOs will be pivotal in addressing climate change as demonstrated by the results of our research. Originality/value This study is the first to investigate voluntary climate-related pledges by firms and the effect of CEO politics on pledging behavior.
PurposeThis study examines whether investor-management interactions during corporate site visits in China help reduce ESG rating divergence. Building on prior research that identifies information asymmetry as a key driver of ESG rating divergence, we investigate whether voluntary disclosure in an interactive setting improves the subsequent consistency of ESG assessments. In particular, we focus on whether ESG-related attention during corporate site visits influences ESG rating divergence and through what mechanisms.Design/methodology/approachUsing a sample of A-share firms listed on the Shenzhen Stock Exchange, we match corporate site visits from 2012 to 2021 with ESG rating divergence in the following year from 2013 to 2022. ESG attention is measured through textual analysis of Q&A transcripts using a Latent Dirichlet Allocation (LDA) topic model. ESG rating divergence is measured as the standard deviation of standardized ESG ratings issued by six major rating agencies. To test our hypotheses, we estimate OLS regressions with firm and year fixed effects.FindingsWe find that greater ESG attention during corporate site visits significantly reduces subsequent ESG rating divergence. This effect operates through two channels: improved information disclosure quality and increased media coverage. In addition, the mitigating effect is more pronounced when management responses are more positive, when firms use more euphemistic language, and when firms operate in environmentally sensitive industries.Originality/valueOur findings identify private investor-management interactions during corporate site visits as an important factor shaping ESG rating divergence. This study contributes to the literature on ESG ratings and voluntary disclosure by showing that corporate site visits can reduce information asymmetry and improve the consistency of ESG evaluations. The findings also offer practical implications for managers, investors, and regulators.
Purpose - This study develops an integrated framework to reframe the foundations of finance theory and apply them to reform governance logic and rationalize an operational blueprint for institutionalizing the creation of long-term value that benefits society and the environment through enforceable governance and regulatory mechanisms. Design/methodology/approach - An interdisciplinary conceptual synthesis to reconcile evidence from Earth system sciences and social complexities with the theoretical foundations of finance. Findings - Our analysis shows that institutionalizing sustainable long-term value creation necessitates reframing the foundations of finance theory. The prevailing neoclassical paradigm, which assumes atomistic market actors and treats social and environmental factors as exogenous, is structurally incapable of pricing risks arising from breaches of planetary boundaries and social thresholds. We propose an embedded conceptualization of the firm within interconnected biophysical and social systems. The reframe conceptual framework leads to reforming corporate governance and the regulatory architecture to internalize systemic externalities through enforceable mechanisms that align capital allocation for a resilient and just transition. Originality/value - This paper contributes to sustainable finance and corporate governance in three ways: by reframing the neoclassical model of the firm as embedded within biophysical and social systems; by integrating planetary boundary research with firm-level valuation and governance, clarifying how ecological risks affect long-term firm value and financial stability and by operationalizing sustainable value creation through an integrated framework and governance architecture that internalize systemic risks and enable scalable, long-term value.
PurposeOver the past decade, financial crises have intensified, largely due to globalization and the integration of financial systems. The 2007-08 Global Financial Crisis revealed the crucial role of "too-big-to-fail" institutions in exacerbating systemic risks, leading regulators to identify Systemically Important Financial Institutions (SIFIs). However, the "too-big-to-fail" approach has limitations, as it overlooks the complexities of financial interconnections, such as common exposures and indirect relationships between institutions. Using India's 2018-19 NBFC crisis as a case, this article examines: (1) whether firm-level traits such as size, leverage and funding capture systemic importance and (2) whether network centrality measures (PageRank, Betweenness, Eigenvector, Closeness) better predict institutional vulnerability during crises.Design/methodology/approachThis article explores three risk theories - "too-big-to-fail," "too-connected-to-fail" and "too-central-to-fail" - in assessing systemic risk within financial networks. A complex network approach, focusing on PageRank and other centrality measures like eigenvector centrality, eccentricity centrality, closeness centrality and betweenness centrality, is used to analyze and compare the predictive power of these theories in identifying vulnerable institutions, with the predictive power of firm-level characteristics.FindingsBy analyzing various centrality scores such as PageRank, Betweenness, Eigenvector and Closeness, the study finds that institutions most central in the financial network suffered the greatest losses during the NBFC crisis. However, eccentricity scores did not significantly predict systemic risk. Contrary to traditional assumptions, asset size alone was not a significant predictor of systemic risk, while short-term funding reliance and non-interest income emerged as key factors. The study supports the argument that smaller institutions, like NBFCs, may face greater vulnerabilities during financial crises, challenging the notion that size alone dictates systemic importance.Originality/valueThis study extends systemic risk research by integrating the "too-big-to-fail," "too-interconnected-to-fail" and "too-central-to-fail" perspectives in the Indian context, demonstrating that size alone is a weak predictor of systemic vulnerability compared to network-based centrality measures. By applying complex network analytics to the NBFC crisis, the article provides regulators with dynamic, early-warning tools that capture contagion channels beyond firm size, making systemic risk monitoring more precise and policy-relevant.
PurposeGreen credit has emerged as a crucial economic tool for achieving a green and low-carbon transition. However, the relationship between green credit and bank credit risk, particularly in China, remains underexplored. In this regard, this study investigates how green credit balance (GCB) exacerbates the non-performing loan ratio (NPLR) in Chinese commercial banks.Design/methodology/approachBased on the data of 30 listed commercial banks (6 state-owned large commercial banks, 11 joint-stock commercial banks, 10 urban commercial banks and 3 rural commercial banks) in China from 2012 to 2022, this study constructs two-way fixed regression model, threshold effect model, and moderating effect model to investigate the non-linear correlation between green credit and commercial bank credit risk and its influence mechanism.FindingsThe study finds: (1) There is a substantial inverted U-shaped relationship between GCB and NPLR, and China is currently in the rising stage of NPLR. (2) The leverage ratio of the bank (LEV) plays a significant double-threshold effect. As the LEV escalates, the amplifying impact of GCB on NPLR exhibits a dynamic progression, characterized by an initial surge in potency, culminating in a gradual attenuation over time. (3) The M2 growth ratio (M2R) plays an important moderating effect. When M2R increases, the inverted U-shaped effect of GCB on NPLR is weakened, and the volatility of NPLR is reduced. (4) Banks with larger assets and higher profitability are more effective in managing the credit risk of green loans.Practical implicationsWe make the following policy recommendations: (1) Commercial banks should continue to smoothly expand the scale of green credit, actively optimize their asset-liability structure, and strengthen industry cooperation. (2) The central bank should play the role of macro-control and make timely adjustments to the money supply. (3) Financial regulators should play a supervisory function to ensure that banks operate in compliance and avoid systemic risks.Originality/valueThe marginal contributions of this study mainly include: (1) This study collected and collated the data of 30 listed commercial banks in China and updated the research time to 2022, which solved the limitations of previous studies such as older sample years, unupdated data and insufficient consideration of bank stock types. (2) This study breaks through the traditional research on the linear impact of green credit, innovatively constructs a bidirectional fixed model with quadratic terms, and finds that there is a significant inverted U-shaped relationship between green credit and credit risk. This exploration has greatly changed the risk management strategy of banks. (3) This study is not limited to elaborating on the development of green credit from a theoretical perspective, but further explores the influence mechanism between the two using econometric models to provide a reference for other relevant empirical evidence on green finance.
PurposeThis study examines the relationship between corporate governance mechanisms and firms' sensitivity to exchange rate fluctuations. The primary purpose is to identify how specific board attributes and ownership structures can mitigate or exacerbate this key macro-financial risk for internationally active firms.Design/methodology/approachUsing a comprehensive panel dataset of publicly listed and over-the-counter (OTC) companies in Taiwan from 2006 to 2024, we employ Feasible Generalized Least Squares regression models to capture the longitudinal relationship between governance variables (including board size, board ownership, and controlling shareholder ownership) and foreign exchange exposure. To address potential endogeneity concerns, we implement an Instrumental Variable approach using leave-one-out industry-year averages. Furthermore, we utilize one-year lagged governance variables to confirm the robustness of our baseline estimations.FindingsWe find that firms with larger boards are more exposed to currency risk, consistent with the hypothesis that coordination inefficiencies can impede timely risk-management decisions. In contrast, greater ownership concentration by board members and controlling shareholders significantly reduces exchange rate exposure, suggesting that enhanced managerial accountability improves risk oversight.Originality/valueThis paper contributes to the literature by providing a long-panel analysis of the governance-risk nexus in an emerging market context. The findings offer valuable insights for executives and board members, highlighting the strategic value of tailoring governance structures to a firm's international business scope and sectoral characteristics. The study underscores the critical role of governance design in navigating external macro-financial risks and mitigating corporate vulnerability to exchange rate volatility.
PurposeThis paper addresses issues related to the coverage of capital budgeting techniques in textbooks. We propose revisions to better reflect real-world situations.Design/methodology/approachWe examine the capital budgeting techniques presented in financial management textbooks published by major U.S. publishers, focusing on the types of cash flows and discount rates. Based on this review, we propose improvements to traditional capital budgeting techniques.FindingsTextbooks typically evaluate a project's net cash flows using the firm's weighted average cost of capital (WACC). This method is valid only when the project's net cash flows have the same systematic risk as the firm's net cash flows. However, this assumption often does not hold. We propose using dual discount rates for the project's operating cash flows and expected future investment outlays. Specifically, the project's operating cash flows should be discounted at the firm's WACC or at a rate that reflects the systematic risk associated with those cash flows. The future investment outlays should be discounted at the risk-free rate, considering their systematic risk, which is likely to be zero.Originality/valueThis paper contributes to the field of capital budgeting techniques by providing a theoretical foundation and a practical case for using dual discount rates in cash flow evaluation.
Purpose The objective of this study is to analyze the effects of working capital requirement (WCR) financing strategies on SMEs' financial risk. Our main research question is: does a greater use of short-term debt to finance WCR increase financial risk-taking? Design/methodology/approach We use two variables previously used in the literature – FWCR, to measure WC financing strategy, and SD_ROE, to measure financial risk-taking- and conduct econometric analyses using fixed effects and two-way clustering methods to control for heterogeneity. We also control for other factors that may affect financial risk, as per the literature. Findings The results of this study indicate a linear relationship between the proportion of WCR financed with short-term debt and financial risk since more aggressive financing strategies, that is with a higher proportion of short-term debt, imply higher financial risk. The main hypothesis is confirmed for the entire sample and individually for the vast majority of industries. In addition, it has been verified that the instability of cash generation impacts the choice of WCR funding strategy, as these factors may lead to greater financial risk-taking. Practical implications Once the economic structure has been defined and the need for financial resources to finance WCR arises, managers must consider their financial structure and choose the strategy that fits their risk-taking tolerance. Using short-term financing without considering the firm's risk profile could destroy value, especially when sales fluctuations affect the firm's economic structure and add uncertainty and instability to cash generation. Moreover, creditors can analyze a firm's financing WCR strategy to discuss debt terms such as length, rates or potential covenants depending on the strategy, since firms with more aggressive strategies have more financial risk, which leads to solvency problems. Originality/value This work contributes to the literature on WCR management in several ways. On the one hand, it explores a topic that has not received enough attention in the literature on working capital: the relationship between WCR financing and its risk. To the best of our knowledge, this is the first article to highlight the effects of WCR financing strategy on SME financial risk in the financial literature. As it focuses on SMEs, which are the backbone of the economy, the issue addressed is particularly important.
PurposeThis study explores the effect of environmental, social and governance (ESG) performance on firms' capital structure decisions under sustainability uncertainty in the Asian market. This study aims to explore whether firms with stronger ESG profiles are better equipped to maintain financial stability, particularly in managing debt when faced with climate-related and policy-driven sustainability risks.Design/methodology/approachThis research utilizes panel data regression models, incorporating interaction terms and multiple robustness tests. The analysis uses data from listed firms in Asia between 2014 and 2023, combining ESG scores, the ESG Uncertainty Index and climate risk indicators (physical and transition risk). Fixed-effect estimations and one-step first-difference GMM are employed to control for potential endogeneity and firm-specific heterogeneity in capital structure dynamics.FindingsResults show that firms with high ESG scores prefer to maintain lower leverage structures under uncertainty. Findings further confirm the stronger negative relationship between sustainability uncertainty and leverage for high ESG firms, highlighting the moderating role of ESG performance in this relationship.Originality/valueThis paper takes a modestly novel approach by integrating a country-level ESG uncertainty index into a firm-level capital structure analysis for Asian markets.
PurposeThis study has two key objectives: (1) to investigate stock anomalies in the Moroccan stock market and identify risk factors explaining return variations, and (2) to compare factor combinations to propose an optimal multifactor model. Design/methodology/approachUsing data from all firms listed on the Casablanca Stock Exchange (2001–2020), we employ Fama and MacBeth (1973) methodology to investigate stock anomalies related to fundamental firm characteristics and the momentum anomaly. We test single-factor and multi-factor models. Subsequently, we conduct factor spanning tests and compare models using multiple approaches to identify the most parsimonious and statistically robust specification. FindingsThe Fama and MacBeth (1973) regressions reveal disparities in factor explanatory power. Market capitalization and price-to-cash flow ratio exhibit the weakest effects, while book-to-market and debt-to-equity ratios show moderate influence. The price-to-earnings and price-to-sales ratios demonstrate stronger explanatory power, with momentum emerging as the most robust factor. A parsimonious three-factor model, comprising the market factor, price-to-sales, and momentum, outperforms competing models, including Fama and French model (2018). Originality/valueGiven Morocco's prominent position as a leading financial hub in Africa, the study underscores the relevance and growing interest in its stock market. It contributes to limited asset pricing literature on Morocco by proposing a superior alternative to traditional multifactor models. Our findings highlight the most significant anomalies whose variables exhibit greater explanatory power than those in standard models, offering a robust framework applicable to other emerging markets where conventional models often underperform.
