Interplay between stakeholder relationship, accounting choices and labor investment

This thesis examines the interplay between corporate social responsibility (CSR), financial reporting and corporate labor investment. In the first study, I examine the relationship between CSR and earnings quality in the context of changing regulatory regimes. For accrual-based earnings management, I find firms with higher CSR engagement are more likely to conduct aggressive accrual-based earnings management prior to the passage of Sarbanes Oxley Act of 2002 (SOX) whereas this aggressiveness of accrual-based earnings management has been significantly lowered by the passage of SOX. I further find the relationship between CSR and accrual-based earnings management is moderated by the manager-shareholder incentive alignment. Firms practicing CSR with low alignment are more likely to engage in accrual-based earnings management and therefore receive more constraining effect by regulatory scrutiny imposed by the passage of SOX. In terms of real earnings management, I consistently find that firms with higher CSR engagement are less likely to engage in costly real earnings management strategy in both pre- and post-SOX period. The results indicate that when facing the trade-off between accrual-based earnings management and real earnings management, firms with higher CSR engagement are more likely to engage in the earnings management that is less costly. Overall, the results suggest socially responsible firms present more transparent financial reporting practices in the post-SOX period. In the second study, I investigate the impact of employee treatment on labor investment efficiency and its implications for firm performance. Using a large sample of U.S. firms over the period of 1995 to 2015, I 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. I find employee-friendly treatment reduces both overinvestment and underinvestment, primarily via effective hiring. Moreover, labor investment efficiency is associated with improved labor productivity, return on assets and production efficiency, and employee-friendly policies contribute to both return on assets and production efficiency. Using the 2008-2009 financial crisis as an external shock and applying difference-in-difference method, I also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investment during the crisis. The results are robust to placebo tests, alternative proxies for both employee treatment and labor investment efficiency, when I control for additional control variables, and when I address endogeneity issues. The third study investigates the impact of real earnings management and real earnings smoothing on corporate employment decisions. Using a large sample of U.S. firms from 1995 to 2016, I find that real earnings management is significantly associated with lower labor investment efficiency (i.e., higher deviations of labor investment from the level justified by economic fundamentals) whereas real earnings smoothing significantly improves labor investment efficiency. The findings are consistent with the notion that real earnings smoothing alleviates market frictions stemming from information asymmetry between managers and outside capital suppliers while real earnings management has the opposite effect. Consistently, I also find that the positive impact of real earnings smoothing on labor investment efficiency is mainly driven by the informational component rather than the garbling component of real earnings smoothing. In addition, I find that financially constrained firms with equity-based financing incentives are more likely to engage real earnings smoothing to lower the information asymmetry to obtain financing benefits whereas debt-focused constrained firms potentially adopt real earnings smoothing as an earnings manipulation tool. Overall, the sign reversal between real earnings management and real earnings smoothing for labor investment efficiency indicates distinctive implications of these two real earnings adjustments to capital market participants. These studies shed light on the understanding regarding the implications of stakeholder relationship for financial reporting practices and how stakeholder relationship, as well as financial reporting practices, can interact in the decision-making of corporate labor investment. The findings as to the relationship between CSR and financial reporting quality, the influence of employee-friendly policies and real earnings adjustments on labor investment efficiency contribute to the literature over the role of CSR and accounting information in capital market and also speak to the relevant literature on stakeholder relation, accounting quality, corporate governance and relevant legislation

Corporate Social Responsibility and Earnings Quality in the Context of Changing Regulatory Regimes and the Financial Crisis

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

Climate change uncertainty and supply chain financing

We examine the impact of climate change uncertainty on supply chain financing. We find that firms significantly curtail trade credit provision during periods of high climate change uncertainty. The cross-sectional variations of this effect with firm-specific factors such as vulnerability to climate change, asset redeployability, and pollution severity suggest that it is primarily driven by managerial anticipation of physical damage cost rather than regulatory cost that the uncertainty could incur. The moderation of this effect by exogenous regulatory interventions such as state-level staggered adoption of the Climate Change Adaptation Plans and the Interstate Banking and Branching Efficiency Act suggests that managerial concerns of such cost can be alleviated through the improvement of climate change preparation and external financing respectively. Overall, our study reveals that climate change undermines the financial resilience of the supply chain and provides timely policy implications for tackling climate change against the backdrop of the global supply chain crisis

La responsabilidad social de las empresas y la calidad de los beneficios en el contexto de cambios en los regímenes normativos y crisis financiera

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. Using a sample of 18,472 U.S. firm-year observations that represents more than 2,500 individual firms over the period of 1993 to 2018, we employ several panel-data regression models and find that firms with higher CSR engagement have higher discretionary accruals before the Sarbanes Oxley Act of 2002 (SOX) and lower thereafter. Moreover, the relationship between CSR and discretionary accruals is moderated by the managerial equity incentives. Firms practicing CSR with low incentive alignment are more likely to have high discretionary accruals and receive more regulatory scrutiny from SOX. In contrast, we find high-CSR firms 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 show that high-CSR firms engage less in earnings management during the financial crisis. The implications of our 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 burgeoning literature on the influence of CSR on financial reporting practices by examining the relationship under various contexts and highlighting the importance of the recent regulatory framework for financial reporting quality.El objetivo de este trabajo es examinar la relación entre la responsabilidad social corporativa (RSC) y la gestión 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 de 2.500 empresas individuales durante el período de 1993 a 2018, empleamos varios modelos de regresión de datos de panel y encontramos que las empresas con mayor compromiso de RSC tienen mayores devengos discrecionales antes de la Ley Sarbanes Oxley de 2002 (SOX) y menores después. Además, la relación entre la RSC y la acumulación discrecional está moderada por los incentivos de los directivos. Las empresas que practican la RSC con una baja alineación de los incentivos tienen más probabilidades de tener unos devengos 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 los beneficios reales, tanto en los períodos anteriores como posteriores a la SOX. Utilizando la crisis financiera de 2008-2009 como un shock externo a través del método de diferencia en diferencia (DiD), nuestros resultados muestran que las empresas de alta RSC participan menos en la gestión de beneficios durante la crisis financiera. Las implicaciones de nuestros resultados sugieren que cuando las empresas se enfrentan a diferentes tipos de gestión de beneficios, las que tienen un alto nivel de RSC tienden a realizar una gestión de beneficios menos costosa. Nuestro estudio contribuye a la floreciente literatura sobre la influencia de la RSC en las prácticas de información financiera, examinando la relación en varios contextos y destacando la importancia del reciente marco normativo para la calidad de la información financiera

The effect of real earnings smoothing on corporate labour investment

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

Do corporate site visits affect the informational role of independent directors?

This study examines the influence of corporate site visits on information acquisition and dissemination by independent directors (IDs). Employing two unique sources of data from Chinese listed firms based on the mandatory disclosure of IDs’ (i) site visit activities and (ii) opinions about corporate decisions, we find that the acquisition of firm-specific information and the dissemination of such information to the market is greater among IDs who conduct visits than their counterparts without such visits. Moreover, this effect is more pronounced in firms with complex information environments, lower proprietary costs, and among IDs with greater internal information asymmetry, superior external information, and stronger incentives and abilities to perform their duties. Furthermore, the firm-specific information disseminated by IDs leads to stronger market reactions and improves stock price efficiency. Our study shows that site visits contribute to the informational role of IDs, and our evidence offers important corporate governance and regulatory implications

Do non-financial factors influence corporate dividend policies? Evidence from business strategy

In this paper, we examine the influence of business strategy on dividend policy. We find that firms following an innovation-oriented strategy (prospectors) pay significantly lower dividends than those following an efficiency-oriented strategy (defenders). Our cross-sectional analyses show that such association is more pronounced among firms with greater investment opportunities and superior performance. Further analysis reveals that prospectors make significantly more capital investment, consistent with prospectors paying fewer dividends to finance their investment activities. Moreover, we address potential endogeneity concerns by implementing (i) a triple-difference analysis (DiDiD) that exploits an exogenous shock that hinders innovation through curbing the supply of highly skilled employees and (ii) an instrumental variable approach. Our results are robust to a propensity-score-matched (PSM) analysis, the inclusion of individual business strategy components, and the use of alternative measures of the dependent variables. Overall, our findings highlight business strategy as an inherent and non-financial determinant of dividend policies