ABSTRACT This study explores the relationship between managerial power, overconfidence, and obfuscation in the Chairpersons' statements of Indian banks over the period 2009–2022. We hand collect Chairperson statements of public and private Indian banks and implement linguistic analysis techniques to identify the presence of obfuscation. Further, we employ logit and probit models to test the effect of managerial power, and the moderating role of managerial overconfidence, on the likelihood to obfuscate. We find a positive relationship between managerial power and obfuscation, showing that Chairpersons with more power are more likely to engage in obfuscation. When having greater power, Chairpersons would have more control over the disclosure process, might use complex language and reduce transparency, making it hard for investors and other stakeholders to assess the disclosed content. Interestingly, in the presence of managerial overconfidence the relationship is reversed; board members actively monitor and ensure transparency is maintained in the interest of stakeholders, and powerful Chairpersons respond to this active engagement by providing less obfuscated communication. As a result, managerial overconfidence creates an environment that encourages powerful Chairpersons to enhance transparency and reduce obfuscation. This study contributes to the literature exploring the effects of managerial power and overconfidence, bringing new evidence on their impact on obfuscation. The findings highlight the need to strike a balance between transparency, power, and overconfidence. This is crucial for banks in understanding the interplay between Chairpersons' power and managerial overconfidence, and it is important for stakeholders to enhance awareness of banks' disclosure and its determinants.
ABSTRACT This study investigates the evolving integration of 10 major Asian stock markets with key global and regional financial centres, namely, the U.S., China, the E.U., and a constructed Asia centroid. Incorporating all four statistical moments (mean, variance, skewness, and kurtosis), we compute pairwise Euclidean distances to evaluate the degree of similarity in return distributions between Asian markets and each centroid. Our analysis proceeds in three stages. First, we assess the average cross‐sectional proximity between each market and the centroids using a network graph, revealing that, despite geographic closeness, China exhibits the highest average dissimilarity, while the Asia centroid displays the strongest alignment. Second, we explore time trend regressions of these distances to identify convergence or divergence patterns. The findings show that convergence is primarily associated with the risk‐only measure rather than return‐only, return–risk, or four‐moment measures. Importantly, this trend is especially evident in the growing alignment of South‐East Asian markets with China, even though China initially appears the most dissimilar to Asian stock markets. Finally, the efficient frontier analyses across the four identified sub‐periods, namely the GFC (2007–2009), the post‐GFC recovery (2010–2019), the COVID‐19 shock (2020–2022), and the post‐COVID period (2023 onward), highlight how investment efficiency and diversification benefits vary over time. Our findings provide new insights into regional financial interdependencies and provide practical implications for adaptive portfolio strategies.
ABSTRACT Green finance policies (GFP) play a pivotal role in internalizing environmental externalities and fostering long‐term economic resilience. Leveraging the establishment of the ‘Green Finance Reform and Innovation Pilot Zone’ as a quasi‐natural experiment, this paper adopts a multi‐period difference‐in‐differences (DID) specification to investigate the impact of GFP on corporate low‐carbon innovation (LCI), based on a sample of Chinese A‐share listed firms from 2012 to 2023. Empirical results indicate that GFP exerts a significantly positive effect on overall corporate LCI; the effect is stronger for strategic LCI (ST‐LCI) than for substantive LCI (SU‐LCI). Mechanism testing indicates that GFP promotes LCI primarily by mitigating financing constraints, incentivizing R&D investment and enhancing intellectual property protection. Heterogeneity analyses suggest that the policy effect is more pronounced in firms with higher managerial human capital, those in highly competitive industries and those located in the southeastern coastal regions of China. Furthermore, we identify a positive spatial spillover effect of GFP on corporate LCI. This paper makes marginal contributions by classifying low‐carbon innovation, verifying multi‐channel mechanisms and identifying spatial spillovers, thereby providing empirical evidence and policy insights for advancing corporate low‐carbon transition.
ABSTRACT The deepening financialisation of commodities has intensified the complex macro‐linkages within emerging energy markets. This paper investigates the dynamic connectedness among China's crude oil futures (INE), interest rates and exchange rates from a term‐structure perspective (level, slope and curvature). Employing the Nelson–Siegel model and a time‐varying parameter vector auto‐regression (TVP‐VAR) framework based on daily data from March 2018 to June 2025, we analyse the spillover effects of term structure factors to trace their interconnections across short‐term, medium‐term and long‐term horizons. Empirical results reveal that the exchange rate acts as a primary risk transmitter, whereas the interest rate functions as a shock absorber. Notably, system connectivity intensifies during crises, with interest rates reversing roles to become a net transmitter during the Russia–Ukraine conflict. Additionally, the INE market remains a passive price taker, heavily constrained by macro‐financial shocks. Crucially, geopolitical risk and energy price uncertainty exert significant non‐linear moderating effects on this cross‐market network. These findings provide implications for managing cross‐market risks in emerging derivatives markets.
This paper examines whether firms' informal beginnings leave a persistent imprint on financial transparency after formalisation. Drawing on imprinting theory, we argue that the opacity norms, accounting capability deficits, and regulatory avoidance strategies developed during firms' informal beginnings persist following formalisation, systematically reducing the likelihood that informally founded firms adopt transparent financial reporting practices. Using World Bank Enterprise Surveys data from more than 200,000 formal firms in over 160 countries, we find that firms that began operations informally are 6.7 percentage points less likely to have externally audited financial statements, representing a 13% reduction relative to the sample mean. This result is robust to alternative model specifications, exclusion of influential countries, instrumental variable estimation, and sensitivity analyses based on unobservable selection bounds. Heterogeneity analysis further reveals that the effect is concentrated among firms in low- and middle-income economies and manufacturing sectors, and attenuates with firm age, consistent with gradual organisational learning. In contrast, firm size and foreign ownership do not significantly mitigate the imprinting effect. Our findings suggest that policies aimed at promoting financial transparency cannot rely on formalisation alone. Instead, early-stage incentives for formal registration, coupled with investments in improving institutional quality, are needed to prevent opacity norms from becoming embedded in firms' organisational structures.
We examine whether and how foreign investor governance influences overlapping membership on board committees. Using manually collected data on Chinese listed banks from 2007 to 2024, we find that foreign investor governance is positively associated with overlapping membership on board committees in Chinese banks. The results are robust to lagging the independent variables by 1 year, two-stage least squares, Heckman two-stage analysis, and a battery of sensitivity tests. This positive effect is more pronounced in banks with poorer information environments, less capital, and more foreign investors from civil law countries. Furthermore, foreign investor governance improves bank asset quality by promoting overlapping membership on board committees. Finally, the role of foreign investor governance in promoting overlapping membership on board committees is more evident when the bank assigns stronger monitors to multiple board committees, assigns members to multiple board monitoring committees, is a joint-stock commercial bank, or has higher foreign bank governance. Our findings highlight the role of foreign investors in shaping board committee membership arrangements, providing banks with the opportunity to better arrange board committee members in line with foreign investors' monitoring expectations.
Using an extended international sample of domestic and cross-border mergers and acquisitions (M&A), this paper provides the first comprehensive examination of the role of ESG-linked executive compensation in the market for corporate control. The findings show that linking executive pay to ESG objectives is associated with significantly stronger post-acquisition Environmental, Social, and Governance performance. In addition, ESG-incentivized acquirers are more likely to finance transactions through green bond issuance, highlighting an important channel through which sustainability considerations shape corporate investment and financing decisions. Improved ESG ratings are, in turn, associated with economically meaningful increases in firm value following deal completion, with Environmental and Governance dimensions emerging as key drivers of value creation. However, these value gains are not immediately reflected in stock market reactions at the time of deal announcement, indicating that investors do not fully incorporate the long-term benefits of ESG-linked incentives contemporaneously. The findings are robust to multiple approaches addressing selection bias and endogeneity. The paper contributes to the literature on executive compensation, M&A, and sustainability.
In light of the expanding body of literature examining the interplay between corporate environmental behaviour and technological innovation, this study explores the relationship between corporate environmental commitment (CECO) and fintech innovation (FINO), focusing on the moderating role of CEO social capital (CEO-COM). Using a sample of 1049 A-share listed firms in China over the period of 2014-2022, this study addresses endogeneity concerns and ensures robustness. The findings show that firms with stronger CECO are more likely to adopt fintech solutions to improve transparency, fulfill regulatory responsibilities, and address shareholder expectations. The results also show that CEO-COM significantly moderates this relationship by enabling access to resources and aligning organisational goals and objectives. Disaggregated results by ownership type indicate that the impact of CECO on FINO is more pronounced in state-owned firms, likely due to their alignment with government policies. These findings offer valuable insights for managers and policymakers to promote sustainability-driven innovation through technology.
While research on the real effective exchange rate (REER) has traditionally emphasised trade and policy channels, evidence on how disaggregated capital inflows and foreign exchange reserves shape REER dynamics remains mixed. Using panel data for 70 economies over 2001-2024, this study estimates two-step system GMM models to examine how capital inflow composition affects the REER and then applies a dynamic panel threshold model to test whether the reserve buffer mechanism depends on financial development. The results show clear composition effects across inflow categories. Foreign direct investment is positively associated with REER appreciation mainly in developing economies, consistent with spending-pressure and Dutch-disease mechanisms. Foreign portfolio investment also exerts appreciation pressures across all samples, with larger effects in developing economies. By contrast, other investment is negatively associated with the REER in advanced economies and in the pooled sample but statistically weak in developing economies. The reserve results reveal a nonlinear, state-dependent relationship, with reserves acting as a more effective buffer only above estimated financial-development thresholds. Policy implications include managing capital inflow composition and calibrating reserve strategies to the level of financial development to safeguard external stability.
The study investigates systemic financial risk in global markets, attributing it to geopolitical instability, climate risks, and economic uncertainties. Utilising a state-of-the-art machine learning heterogeneous panel regression framework capable of capturing cross-sectional dependencies and nonlinear patterns, we examine financial stress across multiple economies, including China, the U.S., the U.K., and 10 EU nations. Through extensive out-of-sample rolling window analysis, we show that while geopolitical uncertainty enhances short-term predictions, long-term risk forecasting is better achieved using financial and economic data. The study underscores the limitations of conventional regression models in capturing financial risk dynamics and suggests that machine learning-based panel regressions provide a more nuanced and accurate forecasting tool. The findings bear significant policy implications, highlighting the necessity for regulatory bodies to reassess risk frameworks and the role of climate-related disclosures in financial markets.
This study examines the impact of the Green Finance Reform and Innovation Pilot Zones policy (GFP) on corporate green innovation (CGI). The results show that GFP significantly promotes CGI, including both substantive and strategic green innovation, with a larger effect on strategic green innovation. This effect is more pronounced in large firms, firms with environmentally conscious managers, non-heavily polluting firms, and high-tech firms. Mechanism analyzes show that green investment, agency costs, and green agency costs are important channels through which GFP promotes CGI. In addition, external market attention serves as an informal governance mechanism, significantly enhancing the policy impact, particularly for substantive green innovation. The findings provide useful policy implications for improving GFP and fostering CGI.
ABSTRACT The current study addresses the question of how co‐opted directors affect corporate social responsibility decoupling. Using a US sample, we document that the co‐opted directors, those hired after the incumbent CEO, significantly and positively impact CSR decoupling, reflecting their weak monitoring. The cross‐sectional tests reveal that the relationship persists in firms with weaker internal monitoring, such as low board compensation, poor board oversight, high CEO entrenchment, lower board gender diversity, absence of a CSR committee, and few multiple directorships. However, the presence of strong external monitoring, including analyst coverage, competition intensity, the firm's hostile takeover susceptibility, and audit quality, mitigates this effect. Moreover, the interaction between co‐opted directors and CSR decoupling reduces firm value, indicating that weak governance carries real economic costs and ultimately lowers shareholder value. The findings are robust to alternative variable definitions and endogeneity issues. This study contributes to the growing literature on corporate governance's role in CSR decoupling and offers key policy implications for promoting ethical practices.
This study examines the causal association between trade policy uncertainty (TPU) and corporate export (Exp) and how government subsidies and state ownership moderate this relationship. Utilising annual data from the Chinese listed firms between 2003 and 2023, the findings reveal a significant adverse influence of TPU on corporate exports. This adverse effect is weaker for firms receiving government subsidies and state-owned firms. Additional analyses indicate that the negative influence of TPU on exports is less pronounced for large-sized firms during the post-Belt and Road Initiative (BRI) and pre-COVID-19 periods. The findings highlight the diverse responses of firms to TPU and underscore the pivotal role of government subsidies and state ownership in sustaining export performance. These findings offer significant implications for emerging market economies aiming to formulate more resilient international trade strategies and policies.
This paper examines whether the prevalence of political connections is influenced by the quality of institutional environments. Using data from 90 countries in 2019, this study found that the institutional environment is significantly associated with political connections globally. Specifically, political connections are less prevalent in countries with strong institutional environments. The result is robust across various sub-samples of non-US firms, as well as developed and developing nations, and countries with heavy military influence.
In this study we develop a novel, unique ESG rating model that exploits the logic of the Z-score by Altman (1968) to discriminate between ESG performing and non-ESG performing firms using indicators of ESG performance for each of the three pillars (Environmental, Social, Governance) in place of financial ratios. We name our model the Z-ESG rating model. Based on a sample of 325 European listed firms, we build a multiple discriminant analysis model to estimate the Z-ESG score for each firm and confirm these results by employing a logistic regression to determine respective probabilities of being ESG performing. Z-ESG scores are then converted into agency-equivalent rating classes through a Z-ESG rating matrix. Multiple implications can be envisaged for researchers and practitioners: asset managers may use the Z-ESG rating model to identify new investment opportunities and build appropriate ESG-performing portfolios; risk managers may exploit the Z-ESG metrics to assess the current ESG positioning of a firm and monitor its evolving path; credit risk managers can link the Z-ESG score of a firm to its Z-score to measure the impact of its ESG performance on its probability of default; bank managers may better price green (or ordinary) loans based on the Z-ESG score of the borrowers; chief sustainability officers of companies can self-assess the degree of their ESG performance and design a sustainability strategy that targets a desired Z-ESG rating; corporate boards may include the Z-ESG metrics as an additional element of their executive compensation policy.
This paper examines whether and how corporate online interactions with investors shape trust in annual reports. We focus on annual report comment letters, through which regulators publicly question the credibility of firms' disclosures, providing a suitable setting to observe investor trust. We find that sustained high-quality interactions significantly mitigate the negative market reaction to comment letters, suggesting that such interactions strengthen investor trust. These results are robust to instrumental variable estimation, the Heckman two-stage model and additional sensitivity analyses. Mechanism analyses indicate that high-quality interactions enhance trust primarily by conveying credible signals of lower agency costs. Consistent with a signalling mechanism, high-quality responses to negative inquiries have stronger effects on investor trust, while short-term interactions play a limited role. The trust effect is concentrated among firms whose investors rely more on such signals. Further analysis shows that investor trust rapidly collapses when subsequent response letters reveal underlying problems and is reinforced when such problems are absent. Finally, high-quality interactions are associated with more favourable regulatory recognition. Overall, the findings highlight the importance of high-quality online communication in strengthening investor trust and offer implications for capital market participants.
Global value chains are increasingly exposed to geopolitical tensions, policy uncertainty, and institutional weaknesses, making supply-chain trade more fragile. Existing studies largely view supply chain finance (SCF) as a tool for easing liquidity constraints, while its role under political and institutional risk remains underexplored. This study examines how SCF-proxied by factoring activity in source countries-affects participation in supply-chain trade, measured by domestic value added embodied in gross exports. Using a gravity framework combined with a Rajan-Zingales identification strategy and a dataset of about 1.76 million country-pair-industry observations across 75 countries from 1995 to 2020, we find that SCF significantly promotes supply-chain trade, especially in industries with higher technological dependence on external liquidity. Crucially, the effect is stronger when destination countries face greater political risk, investment risk, or economic uncertainty. This pattern suggests that factoring not only eases cash-flow constraints but also enables exporters to transfer payment and country risk to financial intermediaries. Even during systemic financial crises, SCF plays a stabilizing role. Overall, the findings highlight SCF as a key mechanism for enhancing resilience in global value chains, rather than merely a source of working capital.
This study evaluated the correlation between Climate-Related Extreme Events (CREE), firm value, and stock price crash risk, examining whether CREE affects firm value and crash risk. We analysed 142 companies listed on the Tehran Stock Exchange over 11 years (2012-2022) using the Generalized Least Squares (GLS) method with fixed effects. The findings show a significant negative correlation between CREE and firm value in the year following CREE, and a significant positive relationship between CREE and stock price crash risk. This research addresses an underexplored dimension in the literature by focusing on the direct, quantifiable impacts of climate-induced natural disasters (floods, droughts, earthquakes) on stock market behaviour in a sanctions-affected, climate-vulnerable emerging economy (Iran). Unlike most prior studies emphasizing ESG performance or carbon emissions, this paper provides contextualized empirical evidence from a unique institutional setting characterized by state-led economic structures, limited access to international financial markets, and high exposure to extreme weather events. The findings offer insights for similar contexts, particularly other emerging economies facing climate vulnerability and sanctions (e.g., Russia, Venezuela), while cautioning against direct generalization to developed or institutionally dissimilar emerging markets. The geographical focus on a Middle Eastern emerging market with distinct structural characteristics (sanctions, state ownership concentration, limited climate disclosure mandates) contributes novel contextual evidence to the climate-finance literature, complementing prior research on developed Western economies. However, given Iran's unique institutional features, our findings should be interpreted as contextualized evidence rather than universally generalizable conclusions. The results suggest that CREE can decrease firm value and increase stock price crash risk, an important finding given that investors reward companies addressing environmental concerns with higher stock prices.
This paper examines how household digitalization affects financial asset allocation in the digital economy era. Using data from the 2017 and 2019 China Household Finance Survey (CHFS), we construct a household digitalization index based on digital access and usage. Employing a fixed effects model, we find that digitalization significantly increases both the share and variety of risky financial assets while reducing the share of risk-free assets in household portfolios. These results suggest that digitalization leads to greater portfolio diversification, particularly toward riskier investments. Mechanism analysis indicates that digitalization operates through improved financial literacy, relaxed liquidity constraints, and expanded income sources. Our findings provide micro-level evidence that the development of the digital economy can enhance the efficiency of household financial asset allocation.
