This study investigates the impact of real earnings smoothing on labour investment efficiency. Our results show that real earnings smoothing is significantly associated with higher labour investment efficiency, supporting the private information signalling view of earnings smoothing. We also fine information asymmetry as a plausible channel through which real earnings smoothing improves labour investment efficiency. Further analyses find that the positive impact of real earnings smoothing on labour investment efficiency is primarily driven by the informational component rather than the garbling component of earnings smoothness, and is more pronounced for financially constrained firms with equity-based financing incentives and loss-making firms. Our paper advances the understanding of corporate labour investment and the benefits of real earnings smoothing.

The objective of this paper is to examine the relationship between corporate social responsibility (CSR)and earnings management in the context of changing regulatory regimes and the financial crisis. Usinga sample of 18,472 U.S. firm-year observations that represents more than 2,500 individual firms over theperiod of 1993 to 2018, we employ several panel-data regression models and find that firms with higherCSR engagement have higher discretionary accruals before the Sarbanes Oxley Act of 2002 (SOX) andlower thereafter. Moreover, the relationship between CSR and discretionary accruals is moderated by themanagerial equity incentives. Firms practicing CSR with low incentive alignment are more likely to havehigh discretionary accruals and receive more regulatory scrutiny from SOX. In contrast, we find high-CSRfirms engage less in costly real earnings management in both pre- and post-SOX periods. Using the 2008-2009 financial crisis as an external shock via the difference-in-difference method (DiD), our results showthat high-CSR firms engage less in earnings management during the financial crisis. The implications ofour findings suggest that when facing the trade-off between different types of earnings management, high-CSR firms tend to engage in less costly earnings management. Our study contributes to the burgeoningliterature on the influence of CSR on financial reporting practices by examining the relationship undervarious contexts and highlighting the importance of the recent regulatory framework for financial reportingquality. El objetivo de este trabajo es examinar la relación entre la responsabilidad social corporativa (RSC) y lagestión de los beneficios en el contexto de cambios en los regímenes regulatorios y la crisis financiera.Utilizando una muestra de 18.472 observaciones de empresas estadounidenses que representan más de2.500 empresas individuales durante el período de 1993 a 2018, empleamos varios modelos de regresión dedatos de panel y encontramos que las empresas con mayor compromiso de RSC tienen mayores devengosdiscrecionales antes de la Ley Sarbanes Oxley de 2002 (SOX) y menores después. Además, la relación entrela RSC y la acumulación discrecional está moderada por los incentivos de los directivos. Las empresasque practican la RSC con una baja alineación de los incentivos tienen más probabilidades de tener unosdevengos discrecionales elevados y de recibir un mayor escrutinio normativo de la SOX. Por el contrario,encontramos que las empresas con un alto nivel de RSC se involucran menos en la costosa gestión de losbeneficios reales, tanto en los períodos anteriores como posteriores a la SOX. Utilizando la crisis financierade 2008-2009 como un shock externo a través del método de diferencia en diferencia (DiD), nuestrosresultados muestran que las empresas de alta RSC participan menos en la gestión de beneficios durante lacrisis financiera. Las implicaciones de nuestros resultados sugieren que cuando las empresas se enfrentan adiferentes tipos de gestión de beneficios, las que tienen un alto nivel de RSC tienden a realizar una gestiónde beneficios menos costosa. Nuestro estudio contribuye a la floreciente literatura sobre la influencia de laRSC en las prácticas de información financiera, examinando la relación en varios contextos y destacandola importancia del reciente marco normativo para la calidad de la información financiera.

We investigate the impact of employee treatment on labor investment efficiency. We provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. The effect of employee treatment on labor investment efficiency is stronger for firms that are human-capital-intensive, with more skilled labor and knowledge capital, and those that face higher product market competition. Using the 2008–2009 financial crisis as an external shock and applying the difference-in-difference method, we also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investments during the crisis. Our results are robust to placebo tests, selection bias, propensity score matching, alternative explanations, alternative proxies for both employee treatment and labor investment efficiency as well as the adjustment for using residuals as dependent variables, additional control variables, and various approaches in addressing endogeneity issues.

We examine the impact of the UK Bribery Act 2010 on the implied cost of equity. We find a significant reduction in the cost of equity amongst UK firms with high bribery exposure after the passage of the Bribery Act. We further show that the Bribery Act improves internal control systems and increases stock liquidity of firms with high bribery exposure. Our results suggest that more stringent anti‐bribery regulations are not always bad for the firm.

We evaluate machine learning in investment research and find that forecasts of volatility derived from analyst and machine-learning output have similar explanatory power. Both predictions can benefit by incorporating information from the other and both are more accurate in common law than in code law countries. Analysts seem to under-estimate risk for stocks they classify as “buy”, but we find no equivalent biases in machine-learning predictions. Our results confirm a considerable, and possibly disruptive, potential for machine learning in financial analysis, yet analysts still compete. We anticipate rapid developments in machine-learning analysis.

This study investigates the impact of corporate employee treatment policies on labor investment efficiency. Using a sample of 20,583 US firm-year observations that represents more than 3,000 individual firms over the period of 1995 to 2015, we provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. We also find results that inefficient labor investments lead to significant deterioration in firms’ labor productivity and profitability. To address endogeneity issue, we find that other elements of corporate social responsibility (CSR), beyond employee treatment, are not associated with labor investment efficiency and are not reliably associated with performance. This placebo test leaves employee treatment as the best indicator of labor investment efficiency, productivity and profitability and facilitates to minimize the omitted correlated variable concern. The instrumental variables under 2SLS estimation and propensity score matching also further confirm our results. Our results are robust to a battery of sensitivity tests and are economically as well as statistically significant.

This paper examines listing location as a managerial decision by using a sample of IPOs of Chinese entrepreneurial firms in mainland China, the United States and Hong Kong. We find that Chinese entrepreneurial firms managed by CEOs with international experience are more likely to undertake foreign IPOs, especially those returned from countries with more advanced legal institutions and those operating in high-tech industries. The credibility crisis for Chinese firms in 2010 switched the focus of foreign IPOs from the US to Hong Kong. These results are consistent across returnee CFOs and other senior executives with international experience.

In accounting models of value, dividends typically appear to have a strong positive relationship with value despite theoretical reasons to expect dividend displacement. We show that this result is driven by the relationship between dividends and both core earnings and other information derived from the valuation error in the prior year. Where core earnings can be effectively modelled in a specification including other information, dividend displacement is no longer rejected. Under these circumstances dividends exhibit weak incremental predictive power for earnings and earnings expectations and hence have little impact on value. We show that valuation models are sensitive to model specification and should be used with caution when testing the value impact of firm characteristics or accounting numbers.

We examine the association with analyst forecast quality of both CO2 emission disclosure and corporate social reporting for a sample of large US firms. Using a matched sample we find, for a one, two and three-year horizons, a significant reduction in error, bias and forecast dispersion and a significant improvement of the analysts’ information environment for those firms that disclose CO2 emissions. However, we confirm a significant negative association between corporate social responsibility reporting and forecast error only for a one-year horizon and bias for a one and two-year horizon. Previous work had demonstrated a significant negative association between forecast error and CSR disclosure for an international sample but not for the US. Our results suggest nonfinancial disclosure is relevant even in a liberal market economy with transparent financial reporting.

This paper draws on knowledge-based, resource dependence and institutional theories to examine the impact of returnee CEOs on IPOs and post-IPO performance of Chinese entrepreneurial firms. Using a sample of 355 IPOs from the newly launched ChiNext board, we show that returnee CEOs tend to list on US or HK markets and we find that returnee CEOs outperform local CEOs in terms of IPO valuation and post-IPO performance after controlling for selection bias with propensity-score matching and instrumental variable approaches. The results are more pronounced where entrepreneurial firms are backed by venture capital.

Manuscript TypeEmpiricalResearch Question/IssueWe investigate the impact of family equity holdings on three indicators of corporate social responsibility: environmental, social, and governance (ESG) rankings. We further evaluate how firm governance mediates the effect of family ownership on environmental and social improvements and how national governance systems influence the response of family holdings to ESG.Research Findings/InsightsBased on a sample of 23,902 firm‐year observations drawn from 2002 to 2012 covering 46 countries and 3,893 firms, our findings show that both closely held equity and family ownership are negatively associated with ESG performance. When we control for governance, closely held equity is no longer associated with environmental and social rankings, but family ownership retains a significant negative association. These results are strong and consistent across liberal market economies (LME), whereas coordinated market economies (CME) exhibit generally weaker results and considerable diversity. Japan stands out as different from the other countries examined in depth.Theoretical/Academic ImplicationsOur results are consistent with agency relationships driving decisions concerning ESG commitment in LMEs. They also emphasize the role of institutional differences given the weak and variable association between ownership and ESG in CMEs. We show that families may be able to influence decisions, possibly through participation in management, despite normally effective governance constraints. As the impact of ownership and governance varies across economies and ownership type, this implies that both agency and governance should be evaluated in the context of the economic environment.Practitioner/Policy ImplicationsOur results offer insights to regulators and policy makers who intend to improve ESG performance. The results suggest that encouraging diversified ownership is particularly important in LMEs, that improvements in governance may benefit social and environmental performance where equity is closely held by institutions, but that governance may be less effective in the presence of family ownership.

Manuscript Type Empirical Research Question/Issue This study investigates the impact of a responsible investment index on environmental management practices. Firms that were included in the FTSE4Good index but failed to meet enhanced requirements were subject to both engagement by FTSE and the threat of expulsion from the index. We examine the combined effect of these actions, estimate the contribution of both elements separately, and the influence of concentrated equity ownership, corporate governance, and the institutional environment. We also evaluate whether the effect is persistent or transitory. Research Findings/Insights For a sample of 1,029 firms from 21 countries, our findings demonstrate that engagement combined with the threat of expulsion from the FTSE4Good index doubles the probability that a firm failing to meet the environmental management criteria in 2002 would comply by 2005. The higher compliance rate for the firms receiving engagement persists until the end of our study in 2010. We also find that compliance is positively associated with low levels of concentrated ownership and with firms based in coordinated rather than liberal market economies. Theoretical/Academic Implications Our results contribute to the understanding of the complexities of governance, where decision makers are constrained or influenced by equity holders, the firm's governance system, institutional arrangements, and collective engagement by institutional equity holders. Our findings are consistent with both institutional and agency issues impacting on decision making. Practitioner/Policy Implications Our study suggests that engagement via a responsible investment index reinforced by the threat of public expulsion from the index provides an effective route for large‐scale collaborative investor engagement on corporate social responsibility issues targeting large and internationally diverse firms. It also demonstrates why regulators may wish to encourage engagement of this type to achieve social benefits.

In accounting models of value, dividends typically appear to have a strong positive relationship with value despite theoretical reasons to expect dividend displacement. We show that this result is driven by the relationship between dividends and both core earnings and other information derived from the valuation error in the prior year. Where core earnings can be effectively modelled in a specification including other information, dividend displacement is no longer rejected. Under these circumstances dividends exhibit weak incremental predictive power for earnings and earnings expectations and hence have little impact on value. We show that valuation models are sensitive to model specification and should be used with caution when testing the value impact of firm characteristics or accounting numbers.

Using a large sample of 3541 companies drawn from 30 countries during the period from 2002 to 2010, we analysed the impact of strategic shareholdings on different elements of corporate social responsibility (CSR). We find that total strategic or closely held equity holdings adversely affect the environmental, social and governance scores provided by ASSET4. However, this effect is largely driven by entrenched and undiversified holdings such as family and corporate cross-holdings, whereas diversified institutional investments typically have an insignificant impact. The influence of undiversified holdings includes particularly strong negative impacts on measures that include climate change, environmental management, business ethics and human rights. Thus the impact of ownership on CSR performance differs depending on both the type of owner and the type of CSR.

This paper provides results consistent with the proposition that engagement by and threat of deletion from a responsible investment index motivated persistent improvements to corporate environmental management practices, especially for firms where the threat of exclusion from the index was likely to be costly. We use the natural experiment provided by the FTSE4Good upgrade of their environmental management criteria in 2002 when they engaged with index member firms that would not meet the new requirements but did not engage with non-member firms that would similarly fail. By 2005 49% of the 388 large and internationally diverse firms that had received engagement and been threatened with exclusion from the FTSE4Good index had complied, as opposed to 23% of the 658 firms which were not subject to engagement or potential exclusion. This result is statistically significant even after controlling for environmental risk, industry, country, governance and financial performance. Further results indicate that the effect of FTSE engagement produces a difference in compliance which persists for at least five years.

Journal of Business Finance & AccountingVolume 36, Issue 3-4 p. 373-383 Discussion of Economic Determinants of Conditional Conservatism William Rees, Corresponding Author William Rees The author is from the University of Edinburgh Business School. He would like to thank Igor Goncharov and Joachim Gassen for their comments on an earlier draft of this discussion. He would also like to express his thanks to Juan Manuel García Lara, Beatriz García Osma and Fernando Penalva for making their data set available. This has made the present author's task more interesting and is a tribute to their openness and commitment to academic debate. * Address for correspondence: William Rees, Professor of Financial Analysis, University of Edinburgh Business School, 50 George Square, Edinburgh EH8 9JY, UK.e-mail: [email protected]Search for more papers by this author William Rees, Corresponding Author William Rees The author is from the University of Edinburgh Business School. He would like to thank Igor Goncharov and Joachim Gassen for their comments on an earlier draft of this discussion. He would also like to express his thanks to Juan Manuel García Lara, Beatriz García Osma and Fernando Penalva for making their data set available. This has made the present author's task more interesting and is a tribute to their openness and commitment to academic debate. * Address for correspondence: William Rees, Professor of Financial Analysis, University of Edinburgh Business School, 50 George Square, Edinburgh EH8 9JY, UK.e-mail: [email protected]Search for more papers by this author First published: 06 May 2009 https://doi.org/10.1111/j.1468-5957.2009.02145.xCitations: 1Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume36, Issue3-4April/May 2009Pages 373-383 RelatedInformation