Green innovation and cross-border M&As: evidence from China

Using a sample of cross-border mergers and acquisitions (CBMAs) attempted by Chinese listed firms between 2007 and 2021, we explore how green innovation affects emerging market economy (EME) bidders’ internationalization via CBMAs. We document that green innovative bidders are more likely to complete CBMA deals successfully, realize higher announcement abnormal returns in the short-run, and achieve better post-merger operating performance in the long term. This better performance is achieved due to lower growth rate of carbon emission, superior environmental performance, reduced environmental compliance costs, and larger government subsidies after CBMA deal completion. Moreover, the positive effect of green innovation on deal completion probability and post-merger operating performance is more pronounced when host economies have greater physical climate risk, while weakened when host economies incur higher economic policy uncertainty. Brought together, these findings suggest that green innovative EME bidders positively respond to stakeholders’ concerns about climate change-related risks and environmental issues, thus contributing to the attainment of legitimacy and facilitating their internationalization via CBMAs

The banking and financial crisis in the UK: what is real and what is behavioural?

Purpose – The purpose of this paper is to reflect on the recent banking and financial crisis in the UK. It discusses the triggers of the crisis from a UK perspective and then examines the immediate reactions in the form of short-term policies and concludes with a discussion on longer-term policies. Design/methodology/approach – This is a conceptual paper that argues that some of the triggers of the crisis are real and some are behavioural. Findings – The crisis has its roots in the sub-prime crisis of the USA with spillover effects for the UK due to its well-developed and international financial sector. The systemic environment of high leverage in the financial, corporate and household sectors, the international nature of finance, and the opacity in banks' balance sheets are real triggers. In contrast, the underestimation of risks by almost all agents in the economy is behavioural. Practical implications – The paper argues that some of the conditions that led to the crisis will not change and should now be incorporated in new banking regulations. This is particularly true in the case of behavioural factors. Optimism, greed, herding and underestimation of low-probability high-impact events, are all parts of human nature. Human nature will not change. Thus, it need better regulations. Social implications – Less privileged groups, such as the poor, the uneducated, and the elderly, need better regulation to make them less vulnerable not only to others' biases but also to their own biases. Originality/value – The paper is original in discussing behavioural side of the crisis along with the real side of it.Banking, Behavioural economics, Economic conditions, United Kingdom

Estimating analyst's forecast accuracy using behavioural measures (Herding) in the United Kingdom

Purpose – The purpose of this paper is to identify herding behaviour on financial markets and measure the herding behaviour impact on the accuracy of analysts' earnings forecasts. Design/methodology/approach – Two alternative measures of herding behaviour, on analysts' earnings forecasts are proposed. The first measure identifies herding as the tendency of analysts to forecast near the consensus. The second measure identifies herding as the tendency of analysts to follow the most accurate forecaster. This paper employs the method of The Generalised Method of Moments in order to relax any possible biases. Findings – In both measures employed, a positive and significant relation is found between the accuracy of analysts' earnings forecasts and herding behaviour. According to the first measure analysts exhibit herding behaviour by forecasting close to the consensus estimates. According the second herding measure, it is found that analysts tend to herd towards the best forecaster at the time. Finally, it is concluded that the accuracy of analysts' forecasts increases as herding increases. Research limitations/implications – The present study triggers concerns for further research in the modelling of analysts' forecasting behaviour. Originality/value – This paper proposes that a measure based on human biases is the best way to estimate and predict the analysts' earnings forecast future accuracy.

Strategic Risk Taking, Executive Compensation and Financial Performance

In this paper, we show that the relation between CEO compensation, CEO risk taking and firm performance is not unilateral. Low-risk firms benefit from higher CEO compensation, whereas high-risk firms are affected adversely. Especially in high-risk firms, increased executive compensation can result in inferior performance due to greater risk-taking. Our findings have important implications for agency theory. We show that measures to structure executive compensation for low (high) risk firms align (misalign) the interests of executives and owners and incentivize CEOs to undertake strategic risks that enhance (deteriorate) firm performance. Our policy implications are in terms of discouraging short-termism and excessive risk-taking so as to protect the shareholders and society from possible harm. Compensation incentive schemes should be geared towards the attainment of prudent long-term assessment of risk and related revenue generation

What can behavioural finance teach us about finance?

Purpose – The paper draws on the key themes raised at a Round Table discussion on behavioural finance attended by academics and practitioners. The paper provides a background to the key aims of behavioural finance research and the development of the discipline over time. The purpose of this paper is to indicate some future research issues on behavioural finance that emanate from the financial crisis and highlight areas of mutual benefit to both behavioural finance academics and the finance industry so as to encourage a creative cross-fertilisation. Design/methodology/approach – The paper draws on a Round Table discussion on behavioural finance that was organized by the Behavioural Finance Working Group, the Centre for the Study of Financial Innovation and Financial Services Knowledge Transfer Network. Findings – The paper highlights numerous benefits that behavioural finance research can contribute to the financial industry, but at the same time there is an evident discrepancy between the academic and the professional world when it comes to utilising behavioural finance research. Practical implications – The paper highlights several areas where behavioural finance can contribute significant benefits to a wide array of aspects of the finance industry. Social implications – The paper seeks to inform behavioural finance issues so as to encourage collaboration between the academic world and finance practitioners. In so doing, the paper aims to encourage a greater awareness of individual decision-making frames and heuristics and how industry can apply these concepts to improve the allocation of finance products to society. Originality/value – The paper brings together a wide array of finance professionals and academics to encourage greater collaboration and mutual respect of each others interest in and uses for behavioural finance.Behavioural economics, Finance