Corporate Social Responsibility in China: The Influence of Dynamic Capability and the Implications on Financial Performance and Investment

The thesis explores the determinants of corporate social responsibility (CSR) adoption and its implications on company financial performance (CFP) and investment in China. In doing so, we aim to answer two primary research questions: (1) how a company’s dynamic capabilities—its ability to respond to the changing environment—can influence the company at incorporating CSR into its operations; and (2) how corporate social performance (CSP) is associated with a company’s financial accounting and investment performance. The study is divided into three empirical research papers as outlined below. The purpose of paper one is to investigate the determinants that influence a company to incorporate CSR into its operations, which is to adopt strategic CSR (SCSR). The paper primarily examines how a company’s dynamic capability can affect the adoption of SCSR. This study draws on the stakeholder, dynamic capability, and neo-institutional theories. Data were collected from 134 Chinese companies listed on the Shenzhen stock exchange (SZSE) and Shanghai stock exchange (SHSE) over the period 2017 to 2019 to examine the role of dynamic capability on SCSR adoption. The findings suggest that a higher level of dynamic capability than the average industrial level negatively affects SCSR adoption. The findings also reveal that dynamic capability, stakeholder pressures, and regional culture are important predictors of the adoption of SCSR. The empirical findings provide valuable insights into how CSR can affect company performance if used strategically. The use of dynamic capability theory in the study explains SCSR adoption from the perspectives of dynamic capabilities. The study partially supports DCT by focusing on the impacts of dynamic capability on SCSR adoption within companies operating in a developing country, China. Paper two aims to investigate how CSP relates to CFP across the company life cycle (CLC) stages, including the introduction, growth, maturity, and decline/shake-out stages. This paper also examines how the focus of CSP, in terms of stakeholder dimensions, shifts across the CLC stages. To examine the two research objectives, we used quantitative data collected from 1,628 large, listed Chinese pharmaceutical companies from 2010 to 2018. Drawing on the resource-based view (RBV), stakeholder theory and CLC theory, the study finds supporting evidence that CFP is improved with better CSP across the CLC stages. It also finds, on the basis of different stakeholder groups and across the CLC stages, that the effects of CSP are different. Investors, employees, suppliers, and the government are the most influential stakeholder groups influencing CFP. The study results suggest that CFP is directly linked to CSP and CLC and that the link is associated with stakeholder dimensions of CSR. Overall, the findings highlight the important role of CLC and CSP, which are often cited as important factors for enhancing CFP. This study provides valuable insights into the influence of CLC on CSP, which in turn may shed light on management practices to allocate resources and improve CFP. Paper three explores the association between CSP and company performance through capital market effects and the role of cash flow volatility (CFV). This paper uses investment–cash flow sensitivity (ICFS) to capture the capital market effects. Drawing on the RBV and stakeholder theory, the association between CSP and ICFS was tested in this paper. To investigate the research objective, this paper used quantitative data collected from 4,082 companies listed on the SZSE and SHSE in China over the period 2010 to 2020. The study finds that companies with better CSP tend to have a greater and significant ICFS in a developing economy such as China. It also finds that the positive association between CSR and ICFS is weaker for companies with a more volatile current CFV and stronger for companies with a more volatile expected CFV. This demonstrates that CFV partially mediates or moderates the relationship between CSP and ICFS. The role of CFV on the association between CSP and ICFS highlights the need for regular management attention and evaluation on the investments and performance in non-financial engagements. This management attention should also be paid when making decisions relating to resource allocation and investment policies. In addition, managers should consider the company's cash flow stability and uncertainty sides in the competitive market environment. These findings suggest that the emphasis on the role of CFV is important in evaluating the performance effect of CSR through the capital market’s response. This study contributes to the CSR, financial accounting and investment literature by responding to the call for research in ICFS in the context of developing countries in general and research on the role of CFV on CSP–ICFS association in particular

Three essays in corporate investment decisions

In this dissertation, I use data from publicly listed companies to explore factors that affect corporate investment decisions. In Chapter 1, I investigate the sensitive of investment to cash flow. I argue that the sensitivity is partly driven by agency-conflict within stockholders, namely, controlling shareholders extracting firms’ resources at the expenses of minority shareholders. To test this finding, I use the mandatory Split-Share Structure Reform in China, which exogenously converted all non-tradable shares to tradable, and reduced the incentives of controlling shareholders’ expropriation by better aligning the interests of all shareholders. By employing a theoretical model and conducting empirical analysis, I find a significant reduction in the sensitivity for firms with higher levels of pre-reform expropriation, and the effect is more pronounced for private firms. Moreover, I find that manager’s over-investment, financial constraints, and measurement errors in investment opportunities do not drive the reduction in sensitivity. Overall, my findings support the view that controlling shareholders’ expropriation leads to investment-cash flow sensitivity. Given that controlling shareholders’ expropriation is widely prevalent, my findings have broad relevance for explaining investment and financing decisions.Chapter 2 examines whether investment-cash flow sensitivity is a good measure of financial constraints in emerging markets. We exploit a staggered industrial regulation in China as a natural experiment to identify the impact of increasing financial constraints on the sensitivity. We find that the investment-cash flow sensitivity becomes significantly larger by 7.6% after the enactment of regulation policy in treated industries using a difference-in-differences methodology. Consistent with political favoritism explanations, we show that such a positive association is stronger for state-owned enterprises and more bank-dependent firms, but is smaller under credit easing. The findings empirically suggest that investment-cash flow sensitivity indeed measures financial constraint.In Chapter 3, I investigate the causality between government intervention and investment efficiency. I use the staggered industrial regulation in Chapter 2 as a policy instrument to changes in government intervention. With a difference-in-differences methodology, I find that investment efficiency becomes significantly larger after the enactment in treated industries. Moreover, I show that the association between higher investment efficiency, measured as increasing investment-Tobin’s Q sensitivity, and decreasing government intervention is stronger for state-owned enterprises. In addition, I argue that for private firms, such association is significantly stronger for those with political connections. My findings empirically suggest that government intervention distorts the efficiency of corporate investment

Unconventional gas: potential energy market impacts in the European Union

In the interest of effective policymaking, this report seeks to clarify certain controversies and identify key gaps in the evidence-base relating to unconventional gas. The scope of this report is restricted to the economic impact of unconventional gas on energy markets. As such, it principally addresses such issues as the energy mix, energy prices, supplies, consumption, and trade flows. Whilst this study touches on coal bed methane and tight gas, its predominant focus is on shale gas, which the evidence at this time suggests will be the form of unconventional gas with the most growth potential in the short- to medium-term. This report considers the prospects for the indigenous production of shale gas within the EU-27 Member States. It evaluates the available evidence on resource size, extractive technology, resource access and market access. This report also considers the implications for the EU of large-scale unconventional gas production in other parts of the world. This acknowledges the fact that many changes in the dynamics of energy supply can only be understood in the broader global context. It also acknowledges that the EU is a major importer of energy, and that it is therefore heavily affected by developments in global energy markets that are largely out of its control.JRC.F.3-Energy securit

The Investor Compensation Fund

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation. The interest in compensation, however, should be advanced by better means than are currently in place. The present system relies on securities class action lawsuits to compensate victims, but these suits not only undercompensate victims, but also underdeter fraud. To improve compensation and better deter fraud, this Article explores the creation of an investor compensation fund. Under this proposal, when a share of stock is sold in the secondary market, a fee, payable by the selling shareholder, will be placed into a fund for fraud victim restitution. The size of the fee will vary by the fraud risk rating assigned to the firm whose stock is sold and, naturally, will affect that stock’s trading price. Therefore, firms will have incentives to institute corporate governance practices that minimize the likelihood of fraud

The Investor Compensation Fund

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation. The interest in compensation, however, should be advanced by better means than are currently in place. The present system relies on securities class action lawsuits to compensate victims, but these suits not only undercompensate victims, but also underdeter fraud. To improve compensation and better deter fraud, this Article explores the creation of an investor compensation fund. Under this proposal, when a share of stock is sold in the secondary market, a fee, payable by the selling shareholder, will be placed into a fund for fraud victim restitution. The size of the fee will vary by the fraud risk rating assigned to the firm whose stock is sold and, naturally, will affect that stock\u27s trading price. Therefore, firms will have incentives to institute corporate governance practices that minimize the likelihood offraud

The Investor Compensation Fund

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation. The interest in compensation, however, should be advanced by better means than are currently in place. The present system relies on securities class action lawsuits to compensate victims, but these suits not only undercompensate victims, but also underdeter fraud. To improve compensation and better deter fraud, this Article explores the creation of an investor compensation fund. Under this proposal, when a share of stock is sold in the secondary market, a fee, payable by the selling shareholder, will be placed into a fund for fraud victim restitution. The size of the fee will vary by the fraud risk rating assigned to the firm whose stock is sold and, naturally, will affect that stock’s trading price. Therefore, firms will have incentives to institute corporate governance practices that minimize the likelihood of fraud

An Analysis of the Technical and Economic Potential for Mid-Scale Distributed Wind

This report examines the status, restrainers, drivers, and estimated development potential of mid-scale (10 kW to 5000 kW) distributed wind projects. This segment of the wind market has not enjoyed the same growth that central-station wind has experienced. The purpose of this report is to analyze why, and to assess the market potential for this technology under current market and policy conditions. As discussed in section 2, one of the most significant barriers to the development of distributed wind is a general scarcity of turbine choices and turbine inventory available for purchase. Most turbine manufacturers have scaled back their involvement in the mid-scale market segments in favor of larger turbines suitable for large, central-station wind farms. Those distributed-scale turbines that are available are often relatively expensive (on a $/kW basis), hard to order in single units or small lots, and suffer from long delivery delays. Section 3 discusses various other factors—both positive and negative—that affect the viability of distributed wind. In addition to the product scarcity described in section 2, distributed wind is challenged by relatively poor productivity (compared with more modern large turbines), siting issues, burdensome interconnection rules, aesthetic concerns, and fragmented state rules regarding net metering. Several other factors favor distributed wind: areas of high and rising retail electricity prices, increasingly favorable public policies, and greater community interest in the environmental and economic benefits of renewable energy. As examined in section 4, the study evaluated the economic potential for distributed wind in the contiguous United States, excluding Alaska and Hawaii. The analysis began with a GIS screening process to eliminate areas that are technically impractical for distributed wind. Sites were eliminated in areas where: • Elevation was too high; • Slope was too steep; • Population density was too great; • Wind Power Class was less than 2; and • Areas legally excluded from wind-power development, such as national parks. After screening out ineligible sites, more than 3.6 million surviving sites were evaluated to determine whether distributed wind would be financially feasible. Certain customer types were excluded from the study, such as agricultural, construction companies, and military facilities, because they lacked data necessary for the analysis. The financial model considered: • Wind resources; • Wholesale and retail power prices; • Renewable Energy Credit (REC) prices; • Customer type (community wind, commercial, industrial, or public facility); • Project size; • Turbine technical and financial characteristics; • Onsite and offsite energy use; and • Incentives. The results varied significantly by customer class. Overall, the study showed that 67,100 out of the 3,611,655 sites/areas that were analyzed for economic viability yielded a positive net present value under current market conditions and policies and including all applicable state and federal incentives. To assess the potential of new technology, two virtual wind turbines—the NREL 250 and NREL 500—were included in the analysis. These virtual turbines were compared to existing 250 kW and 500 kW turbines. Overall, the study showed that 204,677 sites analyzed had positive net present values with the virtual turbines compared with 10,407 economically successful projects with existing 250 kW and 500 kW turbines. These numbers do not include the application of capped state and federal incentives. The following crucial changes could expand distributed wind development into the future. • Improvements in technology; • Reductions in cost; • Greater productivity at lower wind speeds; and • Greater policy support

An Analysis of the Technical and Economic Potential for Mid-Scale Distributed Wind

This report examines the status, restrainers, drivers, and estimated development potential of mid-scale (10 kW to 5000 kW) distributed wind projects. This segment of the wind market has not enjoyed the same growth that central-station wind has experienced. The purpose of this report is to analyze why, and to assess the market potential for this technology under current market and policy conditions. As discussed in section 2, one of the most significant barriers to the development of distributed wind is a general scarcity of turbine choices and turbine inventory available for purchase. Most turbine manufacturers have scaled back their involvement in the mid-scale market segments in favor of larger turbines suitable for large, central-station wind farms. Those distributed-scale turbines that are available are often relatively expensive (on a $/kW basis), hard to order in single units or small lots, and suffer from long delivery delays. Section 3 discusses various other factors—both positive and negative—that affect the viability of distributed wind. In addition to the product scarcity described in section 2, distributed wind is challenged by relatively poor productivity (compared with more modern large turbines), siting issues, burdensome interconnection rules, aesthetic concerns, and fragmented state rules regarding net metering. Several other factors favor distributed wind: areas of high and rising retail electricity prices, increasingly favorable public policies, and greater community interest in the environmental and economic benefits of renewable energy. As examined in section 4, the study evaluated the economic potential for distributed wind in the contiguous United States, excluding Alaska and Hawaii. The analysis began with a GIS screening process to eliminate areas that are technically impractical for distributed wind. Sites were eliminated in areas where: • Elevation was too high; • Slope was too steep; • Population density was too great; • Wind Power Class was less than 2; and • Areas legally excluded from wind-power development, such as national parks. After screening out ineligible sites, more than 3.6 million surviving sites were evaluated to determine whether distributed wind would be financially feasible. Certain customer types were excluded from the study, such as agricultural, construction companies, and military facilities, because they lacked data necessary for the analysis. The financial model considered: • Wind resources; • Wholesale and retail power prices; • Renewable Energy Credit (REC) prices; • Customer type (community wind, commercial, industrial, or public facility); • Project size; • Turbine technical and financial characteristics; • Onsite and offsite energy use; and • Incentives. The results varied significantly by customer class. Overall, the study showed that 67,100 out of the 3,611,655 sites/areas that were analyzed for economic viability yielded a positive net present value under current market conditions and policies and including all applicable state and federal incentives. To assess the potential of new technology, two virtual wind turbines—the NREL 250 and NREL 500—were included in the analysis. These virtual turbines were compared to existing 250 kW and 500 kW turbines. Overall, the study showed that 204,677 sites analyzed had positive net present values with the virtual turbines compared with 10,407 economically successful projects with existing 250 kW and 500 kW turbines. These numbers do not include the application of capped state and federal incentives. The following crucial changes could expand distributed wind development into the future. • Improvements in technology; • Reductions in cost; • Greater productivity at lower wind speeds; and • Greater policy support