Purpose This study aims to investigate whether the capitalization of development costs among Chinese listed firms reflects genuine research and development (R&D) progress or opportunistic earnings management by distinguishing between normal and opportunistic R&D capitalization. It further explores how different R&D accounting choices influence firm performance and shape investor perceptions. Design/methodology/approach We utilize detailed disclosures of capitalized and expensed R&D costs at the individual project level, as mandated by Chinese financial reporting standards, using data from the period 2007 to 2019. Findings Firms engaging in opportunistic capitalization exhibit significantly lower profitability compared to normal capitalizers. After excluding opportunistic capitalizers, we find that, compared with firms that expense all R&D costs, the normal capitalizers have more patent applications and grants, higher selling, general and administrative costs, lower operating revenue and lower accounting profitability. Moreover, cumulative abnormal stock returns are significantly higher for the capitalization firms than for expense-all firms, while no significant difference is observed between normal and opportunistic capitalizers. Value relevance tests further suggest that only normal capitalizers enhance the value relevance of earnings. Originality/value The findings reveal the importance of distinguishing the motives behind R&D capitalization and underscore the challenges investors face in discerning managerial intent. Moreover, this study contributes to the literature by offering new insights into the application and interpretation of R&D accounting choice in an emerging market setting.

We hypothesize that institutional investor cliques synchronize their investees’ financial reporting practices. Using a sample of Chinese firm pairs, we find an increase in financial statement comparability among firm pairs whose largest institutional owners are from the same clique, yielding a 1.6% lower difference in total accruals. This effect arises mainly from conformity in discretionary reporting choices, revealing a distinct “clique style” of reporting. Cross-sectional analyses show that the impact is stronger in low-competition industries, non-state-owned enterprises, and firms with higher agency costs, and is more pronounced when cliques are composed of local or active institutional investors. However, this harmonization entails costs because cliques reduce accrual differences even among economically unrelated firms, which suggests excessive standardization. Moreover, clique-connected firms experience limited improvement in their information environments and diverge in reporting practices from unaffiliated industry peers. Collectively, our findings suggest that in an emerging market, institutional cliques may foster a form of comparability that offers limited usefulness to financial statement users.

CEO succession is a critical strategic decision in family firms because it redistributes authority and shapes firms’ capacity to reconfigure committed resources in response to environmental changes. Drawing on institutional logics theory, we argue that the appointment of a family or non-family successor reflects competing logics of family control and market orientation and has important consequences for organizational adaptive capacity. Using panel data on listed family firms in China from 2009 to 2021, we examine cost stickiness as an observable manifestation of firms’ ability to adjust resources when demand changes. We find that firms led by non-family CEOs exhibit significantly lower cost stickiness than those led by second-generation family CEOs, indicating greater symmetry in resource adjustment. This association, however, is contingent on credible delegation by the owning family. It is stronger when successor selection is externally oriented and compensation is market based, but weaker when families retain dominant control positions. By linking succession origin to asymmetric resource adjustment, our study advances theoretical understanding of how institutional logics are translated into strategic leadership and enacted through the joint design of leadership succession and governance control over resource commitments. Our findings suggest that governance professionalization can enable more adaptive cost structures, but only to the extent that it is accompanied by credible delegation of authority. For family owners and boards, the results imply that governance professionalization enhances adaptive capacity only when accompanied by credible delegation of authority.

In this study, we investigate whether returnee directors (Chinese nationals with foreign experience serving as directors) mitigate opportunistic related party transactions (RPTs), a relatively under-investigated area of research. Using a large dataset of Chinese listed firms, we find that firms with returnee directors are significantly less likely to engage in RPTs (especially abnormal RPTs); this is because returnee directors' international experience and relative independence enable them to serve as effective monitors. This effect is more pronounced in non-state-owned firms and those with weak internal governance. Notably, we find that RPTs in firms with returnee directors are associated with improved firm performance. This suggests that returnee directors, while curbing opportunistic RPTs, may facilitate efficient RPTs that enhance firm value. Furthermore, our analysis reveals that independent returnee directors exert a more significant influence in constraining RPTs compared to executive returnee directors. Our findings remain consistent after a battery of robustness tests.

This study investigates whether and how global major customers affect corporate carbon disclosure. Leveraging the unique quasi-natural experiment of Apple’s supply chain from 2008 to 2023 in China, we employ a difference-in-differences design and examine the impact of major customers on suppliers’ carbon-disclosure quality. Baseline results indicate that the carbon-disclosure quality increases by approximately 6.76% following a firm’s entry into the supply chain. Mechanism analysis indicates Apple plays a disciplining role through direct governance and indirect exposure effects. Cross-sectional analyses reveal that the impact is more pronounced among suppliers with stronger financial capacity and lower agency costs. Real effects, measured by carbon emission intensity and green innovation, demonstrate that the influence of global major customers extends beyond symbolic disclosure to substantive environmental action. These findings underscore the influential role of major customers in promoting environmental transparency along global supply chains.

This study examines the association between chief executive officer (CEO) ability and the gap between internal and external corporate social responsibility (CSR) disclosure. We find that a firm’s CSR disclosure gap decreases when its CEO's ability increases. We also find that this negative association is strengthened when a CEO has political connections and when a CEO is internally promoted (inside CEO). Our results are robust after controlling for firm fixed effect and addressing endogeneity concerns. Overall our findings are consistent with our argument that more able CEOs significantly reduce the CSR disclosure gap and maintain the positive relationship between internal and external stakeholders. These results carry substantial implications for both theory and practice. From a practical standpoint, our findings emphasize the pivotal role of capable CEOs in orchestrating consistent CSR narratives that resonate internally and externally. This study offers valuable insights for corporate leaders striving to enhance their firms' CSR transparency and maintain favourable stakeholder relationships. Este estudio examina la relación entre la capacidad del consejero delegado y la brecha entre la divulgación interna y externa de la responsabilidad social corporativa (RSC). Se observa que la brecha de divulgación de la RSE de una empresa disminuye cuando aumenta la capacidad de su consejero delegado. También observamos que esta asociación negativa se refuerza cuando el CEO tiene conexiones políticas y cuando es promovido internamente (inside CEO). Nuestros resultados son robustos tras controlar el efecto fijo de la empresa y abordar los problemas de endogeneidad. En general, nuestros resultados son coherentes con nuestro argumento de que los CEO más capaces reducen significativamente la brecha de divulgación de la RSC y mantienen la relación positiva entre las partes interesadas internas y externas. Estos resultados tienen importantes implicaciones teóricas y prácticas. Desde un punto de vista práctico, nuestras conclusiones subrayan el papel fundamental que desempeñan los directores generales capaces de orquestar narrativas de RSC coherentes que resuenen interna y externamente. Este estudio ofrece valiosas ideas a los directivos de empresas que se esfuerzan por mejorar la transparencia de la RSE de sus empresas y mantener relaciones favorables con las partes interesadas.

We investigate how managerial ability is related to R&D spending stickiness, where stickiness is the degree to which downward elasticity is less than upward elasticity of R&D spending in relation to changes in sales. In the case of R&D, sales represent cash flows that may support R&D spending as opposed to a direct driver of R&D spending. High ability managers may calibrate R&D spending to sales to achieve more stable earnings in the short run, reducing R&D spending stickiness, or they may continue to spend on promising R&D projects when sales decline, increasing R&D spending stickiness. For a sample of Chinese firms from 2010 to 2019, we find that R&D stickiness decreases with managerial ability, suggesting that higher ability managers prefer more stable earnings in the short term. We test whether innovation output increases or decreases with managerial ability and find that it decreases with managerial ability. In contrast, we find that innovation output increases with R&D stickiness.

We identify a positive correlation between CEOs' famine experiences and labour cost stickiness, driven by moral-emotional altruism, which is imprinted from their famine experiences. This effect is significant in state-owned enterprises and intensifies with higher CEO power, education levels, and fewer external employment opportunities. The stickiness stems primarily from famine CEOs' lower likelihood of implementing layoffs, rather than a reduced likelihood of decreasing average employee wages when sales decrease, particularly reflecting greater unwillingness to lay off lesseducated employees. This study highlights the role of moral-emotional factors in labour cost decisions, filling a gap in understanding beyond efficiency or agency-based explanations.

Previous research finds that state-owned enterprises (SOEs) that are subject to agency problems associated with political control operate less efficiently than other companies. Other research suggests that internal governance can mitigate agency problems. We combine these lines of research and examine whether the degree of cost stickiness in Chinese SOEs increases or decreases with implementation of party-building reform. Party-building reform elevates the status of the Party Decision Committee (PDC), an internal group of managers and staff representatives empowered to represent party interests. A more influential PDC may enhance political control while, at the same time, a stronger PDC may serve an internal governance role that mitigates agency-related problems. Our results provide evidence that cost stickiness is significantly lower in SOEs after implementation of party-building reform, supporting an internal governance effect as opposed to a political control effect of the PDC on management decision-making. Our evidence indicates that the reduction in cost stickiness occurs when the PDC is more independent from managers and more actively engaged in governance. Further analysis shows that the effect of PDC internal governance is more pronounced in firms where agency problems are apparently greater, traditional governance mechanisms are weaker and political influence is lower, supporting our main results.

In this paper, we examine how firms' participation in government-initiated corporate social responsibility (CSR) activity affects their research and development (R&D) cost behaviour. Exploiting the targeted poverty alleviation (TPA) campaign in China, we find that government-initiated CSR participation enhances R&D expenditure stickiness through the funding effect and technology-supporting effect. These findings are robust across various tests. Further analysis shows a stronger impact among non-politically connected firms and companies with lower political uncertainty. This paper sheds new light on the outcome of corporate participation in government-initiated CSR and furnishes novel insights into the effect of CSR on firm innovation.

We examine how companies in China manage labour resources through sales upturns and downturns. We argue that managers make implicit commitments to retain some employees through downturns based on the nature of activities the employees engage in. We predict higher commitment in contracting (more stickiness) for employees who accumulate intangible asset value and engage in other long horizon activities. We associate employees with three primary business activities: sales and marketing (S&M), accounting and financial management (A&F) and production and operations (P&O). Employees in S&M acquire product knowledge and build relations with customers that benefit the firm over time. Employees in A&F combine professional skills with knowledge of the firm to support current operations and plan for future demand. Employees in P&O apply general and firm-specific skills to service current production and sales. We discriminate between state-owned enterprises (SOEs) and non-SOEs in our analysis. For SOEs, there is stickiness in labour adjustment across all activities, consistent with political employment objectives of SOEs. For non-SOEs, firms add more employees for S&M and A&F when sales increase than they remove when sales decrease but adjustments to labour for P&O activities are symmetric with respect to increases and decreases in sales.

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Cybersecurity risk has attracted the attention of legislators in various countries. This paper takes cybersecurity law (CSL) rollout in China as an exogenous event to study the impact of cybersecurity legislation on firm cost behavior. We find that cost stickiness decreases after the implementation of CSL. Our results also reveal that CSL reduces cost stickiness by mechanism of enhancing internal control, mitigating agency problem, and lowering managerial optimistic expectations. CSL's effect on cost stickiness exists in non-state-owned enterprises (non-SOEs) and firms in regions with low privacy sensitivity. CSL reduces stickiness of cost of goods manufactured (COGM), not R&D. CSL's effect on reducing cost stickiness can ultimately enhance firm value. Our research sheds light on the effect of cybersecurity mandates and advances literature on the impact of digital regulations on cost behavior.

Green funds play pivotal roles in driving corporate sustainable development. Utilizing data from Chinese publicly listed companies from 2010 to 2021, we examine the impact of green funds on corporate environmental, social, and governance (ESG) performance and the underlying mechanisms. The research findings claim that green funds positively affect corporate ESG performance. Mechanism analysis systematically demonstrates that green funds contribute to elevated corporate ESG performance by alleviating financial constraints, enhancing managerial efficiency, and fostering green innovation. Heterogeneity analysis further underscores that the effect of green funds is particularly potent in companies with high external attention. Furthermore, green funds also play significant roles in production capabilities and economic value. This research enriches the micro-level evidence on the development of green funds and furnishes substantial implications for sustainable development.

This paper shows that the existence of disclosure-related costs and benefits explains the influence of R&D intensity on supply chain transparency. We find that R&D-active firms are more likely to redact supply chain identities but disclose supply chain distribution as a substitution. The effect of withholding (disclosing) the specific identities (distribution) of supply chain is more (less) pronounced when firms are in higher competitive industries or non-state-owned enterprises. Our study provides evidence of disclosure substitution behavior in a unified voluntary setting of supply chain transparency and shows that partial disclosure of nonproprietary information may be optimal.

Cost stickiness, which is also termed cost asymmetry, describes the asymmetric relationship between revenue and cost. In this study, we examine whether high-speed railway (HSR) connection affects the cost stickiness of tourism firms. Employing a sample of 324 Chinese tourism firms from 2003 to 2018 and applying a difference-in-difference (DID) method, we find that the cost stickiness of tourism firms increases after HSR connection. Our results also reveal that the relationship between HSR connection and cost stickiness is more pronounced in firms with higher free cash flow (FCF), higher labor costs, and in state-owned enterprises (SOEs). Our research advances an in-depth understanding of the cost behavior in tourism firms and sheds light on the policy effect of HSR connection.

ABSTRACT: An increasing number of Chinese companies are strengthening their commitment to corporate social responsibility (CSR) by reporting their carbon emission reductions. Research suggests that such voluntary environmental disclosures can reduce information asymmetry, decrease the cost of capital, and thus enhance firm value. However, a significant research gap exists because this evidence mainly derives from developed countries, with limited consideration given to emerging countries, where the capital market often lacks robust informational content. To fill this research gap, we endeavor to explore the firm-value effects of the disclosures and the magnitude of carbon reduction in China, the largest emerging market. By manually collecting data on carbon emission reductions from the CSR reports of Chinese listed companies from 2008 to 2013, we employ the balance sheet valuation model and ordinary least squares regression to investigate the firm-value effects of the disclosures and the magnitude of carbon emission reductions. The empirical results show that firm value is positively associated with not only voluntary carbon emission reduction disclosures, but also the magnitude of carbon emission reductions. In our sample, for every additional ton of carbon emission reduction, firm value increases by approximately 340 yuan (equivalent to 44 euros or 52 US dollars). We also find that the firm-value effects of carbon emission reductions are more pronounced in high-pollution industries than those in low-pollution industries. Further channel tests reveal that on average, agency problems, as measured by selling, general, and administrative expenses, are lower in firms that disclose carbon emission reduction information than those that do not. In addition, firms with carbon emission reduction disclosures can obtain more green subsidies than those without such disclosures. To mitigate climate risk, firms should proactively engage in carbon emission reductions, which can potentially receive a positive recognition from the capital market. Our study also provides valuable insights for regulators in terms of establishing and enhancing carbon accounting standards to encourage corporate involvement in carbon reductions.