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19 pages, 308 KiB

Open AccessArticle

Does Profitability Moderate the Relationship Between the Leverage and Dividend Policy of Manufacturing Firms in Nigeria and South Africa?

by Ovbe Simon Akpadaka, Musa Adeiza Farouk, Dagwom Yohanna Dang and Musa Inuwa Fodio

J. Risk Financial Manag. 2024, 17(12), 563; https://doi.org/10.3390/jrfm17120563 - 16 Dec 2024

Viewed by 541

Abstract

This study examines the moderating role of profitability in the relationship between leverage and dividend policy in listed manufacturing firms in Nigeria and South Africa. Using a sample of 915 firm-year observations from 2013 to 2022, the analysis employs panel Tobit regression to [...] Read more.

This study examines the moderating role of profitability in the relationship between leverage and dividend policy in listed manufacturing firms in Nigeria and South Africa. Using a sample of 915 firm-year observations from 2013 to 2022, the analysis employs panel Tobit regression to manage the censored nature of dividend data, with logistic regression applied as a robustness check. The findings reveal a negative association between leverage and dividend payout ratio for Nigerian firms, while this association is less pronounced and statistically insignificant in South Africa, reflecting a more flexible financial environment. Profitability strengthens the leverage–dividend policy relationship in Nigeria, enabling firms to maintain dividends despite high leverage; however, this moderating effect is weaker in South Africa. These results underscore the importance of context-specific financial strategies, recommending that Nigerian policymakers improve access to affordable credit, while South African policymakers focus on sustaining market stability. This study advances the understanding of dividend policy in emerging markets by clarifying how leverage and profitability interact to shape dividend practices. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

15 pages, 270 KiB

Open AccessArticle

The Impact of CEO Characteristics on Investment Efficiency in Jordan: The Moderating Role of Political Connections

by Loona Shaheen, Zakarya Alatyat, Qasem Aldabbas, Ruba Nimer Abu Shihab and Murad Abuaddous

J. Risk Financial Manag. 2024, 17(12), 540; https://doi.org/10.3390/jrfm17120540 - 29 Nov 2024

Viewed by 454

Abstract

This study investigates the impact of CEO characteristics—specifically CEO age, founder status, and family membership—on investment efficiency in Jordanian non-financial companies, with a focus on the moderating role of political connections. Drawing on the existing literature, we identify conflicting views regarding how these [...] Read more.

This study investigates the impact of CEO characteristics—specifically CEO age, founder status, and family membership—on investment efficiency in Jordanian non-financial companies, with a focus on the moderating role of political connections. Drawing on the existing literature, we identify conflicting views regarding how these characteristics influence investment decisions. Some studies suggest that younger CEOs may adopt more aggressive investment strategies, while older CEOs tend to be conservative, leading to balanced resource allocation. Similarly, CEOs with founder status and family membership are thought to have an emotional attachment to the company, theoretically resulting in cautious investment behavior. However, empirical evidence remains mixed. By using data from 62 non-financial firms listed on the Amman Stock Exchange (ASE) from 2019 to 2023, this study employs regression analysis to explore these relationships. The findings reveal that CEO age contributes to investment efficiency by mitigating both over- and under-investment. Contrary to expectations, CEO founder status shows no significant effect on investment efficiency. Additionally, family-member CEOs exhibit a tendency toward under-investment, driven by a desire to preserve family wealth. Political connections further complicate these dynamics, encouraging riskier investment strategies while diluting the positive effects of CEO characteristics. These results provide new insights into the intricate interplay between CEO traits and political networks, contributing to the discourse on corporate governance in emerging markets. The study concludes with practical implications for policymakers and company boards, emphasizing the need for balanced leadership selection strategies to optimize investment efficiency. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

29 pages, 366 KiB

Open AccessArticle

Pension Risk and the Sustainable Cost of Capital

by Paul John Marcel Klumpes

J. Risk Financial Manag. 2024, 17(12), 536; https://doi.org/10.3390/jrfm17120536 - 25 Nov 2024

Viewed by 463

Abstract

Prior research empirically finds that the systematic equity risk for US firms as measured by beta reflects the risk of their defined benefit pension plans, despite opaque and complicated pension accounting rules. This paper re-examines this question in the context of subsequent clarification [...] Read more.

Prior research empirically finds that the systematic equity risk for US firms as measured by beta reflects the risk of their defined benefit pension plans, despite opaque and complicated pension accounting rules. This paper re-examines this question in the context of subsequent clarification of these rules, and the growing importance of non-defined benefit pension funds. This issue is examined by comparing standard equity-based models with a broader pre-existing shareholder model of the reporting entity to re-examine the relationship between firm equity risk and pension plan risk. The empirical tests are conducted on a sample of S&P 500 firms during the first three years of the introduction of the revised pension accounting rules (2006–2008), based on panel data regression relating firm risk to pension risk and controlling for other variables. In contrast to the prior findings of JMB, the estimated cost of capital is additionally sensitive to the following: (a) alternative explicit versus implicit definitions of pension liability; (b) the nature and scope of long-term deferred compensation arrangements; and (c) the scope and nature of investment-related risks through investment in sponsoring company stock that are associated with these pension arrangements. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

25 pages, 1667 KiB

Open AccessArticle

Insider Trading and CEO Pay-Gap Induced Turnover

by Viet Le, Ann-Ngoc Nguyen, Andros Gregoriou and William Forbes

J. Risk Financial Manag. 2024, 17(11), 483; https://doi.org/10.3390/jrfm17110483 - 27 Oct 2024

Viewed by 847

Abstract

We explore how insider trading returns, disparities in executive pay, and CEO turnover are interrelated. Our findings reveal both independent and interactive effects for insider trading returns, the CEO pay gap, and the likelihood of CEO turnover. First, an increase in abnormal returns [...] Read more.

We explore how insider trading returns, disparities in executive pay, and CEO turnover are interrelated. Our findings reveal both independent and interactive effects for insider trading returns, the CEO pay gap, and the likelihood of CEO turnover. First, an increase in abnormal returns from insider purchases lowers the probability of a CEO’s turnover, while an increase in abnormal returns from insider sales increases the likelihood of a CEO’s dismissal. Second, the CEO pay gap negatively affects the probability of CEO turnover for insider purchases, but it does not have a similar effect on insider sales. Third, the interaction between insider abnormal returns and any CEO pay disparity influences the impact of these returns on CEO turnover. Specifically, this interaction diminishes the positive effect of insider selling on the probability of a CEO’s dismissal, offsets the negative effect of insider purchasing on CEO dismissal, and, finally, amplifies the negative impact of CEO pay disparity on the probability of a CEO’s dismissal during periods witnessing insider purchases. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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36 pages, 3806 KiB

Open AccessArticle

Insider Trading before Earnings News: The Role of Executive Pay Disparity

by Ann-Ngoc Nguyen, Viet Le, Andros Gregoriou and David Kernohan

J. Risk Financial Manag. 2024, 17(10), 453; https://doi.org/10.3390/jrfm17100453 - 6 Oct 2024

Viewed by 1005

Abstract

We investigate how executive pay disparity affects insider profits around earnings news. Our findings reveal that high pay disparity is linked to higher abnormal returns from insider purchases before positive news, suggesting insiders exploit good news for greater gains. Conversely, it is associated [...] Read more.

We investigate how executive pay disparity affects insider profits around earnings news. Our findings reveal that high pay disparity is linked to higher abnormal returns from insider purchases before positive news, suggesting insiders exploit good news for greater gains. Conversely, it is associated with lower abnormal returns from insider sales before negative news, indicating less benefit from such sales. These insights highlight the influence of pay disparity on insider trading and underscore the importance of understanding this dynamic to improve decision-making and reduce misuse of insider information. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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21 pages, 301 KiB

Open AccessArticle

Clarity in Crisis: How UK Firms Communicated Risks during COVID-19

by Ahmed Saber Moussa and Mahmoud Elmarzouky

J. Risk Financial Manag. 2024, 17(10), 449; https://doi.org/10.3390/jrfm17100449 - 4 Oct 2024

Viewed by 678

Abstract

This study explores the influence of risk disclosure levels and types on the readability of annual reports of non-financial firms in the UK during the COVID-19 outbreak. It further investigates how the disclosure of COVID-19-related information moderates the relationship between risk disclosure and [...] Read more.

This study explores the influence of risk disclosure levels and types on the readability of annual reports of non-financial firms in the UK during the COVID-19 outbreak. It further investigates how the disclosure of COVID-19-related information moderates the relationship between risk disclosure and readability. The study uses a content analysis approach and CFIE software to measure the level of risk disclosure and readability in the annual reports of non-financial firms listed on the FTSE all-share from 2019 to 2021. The results show a positive and significant effect of risk disclosure level on readability, which is stronger for firms that disclosed COVID-19 information. Different types of risk disclosure have varying effects on readability, with COVID-19 risk, credit risk, and strategic risk positively affecting readability, while operational risk negatively affects it. The study contributes to the literature on information asymmetry and institutional theory by demonstrating how risk disclosure and readability are influenced by external factors like the COVID-19 outbreak and internal factors such as firm characteristics and types of risks. It introduces a new risk definition and category specific to the COVID-19 pandemic and develops new measurements for risk disclosure, including credit, liquidity, market, operational, business, strategic, and COVID-19 risks. The study provides valuable insights for managers, investors, regulators, and standard setters on the relationship between risk disclosure and readability in annual reports. It highlights the importance of disclosing COVID-19-related information to enhance the readability and understandability of financial communication. The paper contributes to the literature and practice on risk disclosure, readability, and financial communication during crises. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

21 pages, 4533 KiB

Open AccessArticle

Forecasting Financial Investment Firms’ Insolvencies Empowered with Enhanced Predictive Modeling

by Ahmed Amer Abdul-Kareem, Zaki T. Fayed, Sherine Rady, Salsabil Amin El-Regaily and Bashar M. Nema

J. Risk Financial Manag. 2024, 17(9), 424; https://doi.org/10.3390/jrfm17090424 - 22 Sep 2024

Viewed by 849

Abstract

In the realm of financial decision-making, it is crucial to consider multiple factors, among which lies the pivotal concern of a firm’s potential insolvency. Numerous insolvency prediction models utilize machine learning techniques try to solve this critical aspect. This paper aims to assess [...] Read more.

In the realm of financial decision-making, it is crucial to consider multiple factors, among which lies the pivotal concern of a firm’s potential insolvency. Numerous insolvency prediction models utilize machine learning techniques try to solve this critical aspect. This paper aims to assess the financial performance of financial investment firms listed on the Iraq Stock Exchange (ISX) from 2012 to 2022. A Multi-Layer Perceptron predicting model with a parameter optimizer is proposed integrating an additional feature selection process. For this latter process, three methods are proposed and compared: Principal Component Analysis, correlation coefficient, and Particle Swarm Optimization. Through the fusion of financial ratios with machine learning, our model exhibits improved forecast accuracy and timeliness in predicting firms’ insolvency. The highest accuracy model is the integrated MLP + PCA model, at 98.7%. The other models, MLP + PSO and MLP + CC, also exhibit strong performance, with 0.3% and 1.1% less accuracy, respectively, compared to the first model, indicating that the first model serves as a powerful predictive approach. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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18 pages, 337 KiB

Open AccessArticle

Twin Agency Problems and Debt Management around the World

by Tatiana Salikhova, Svetlana V. Orlova and Li Sun

J. Risk Financial Manag. 2024, 17(9), 394; https://doi.org/10.3390/jrfm17090394 - 4 Sep 2024

Viewed by 1188

Abstract

This study examines the impact of twin agency problems (political corruption and minority shareholders’ expropriation) on corporate debt management policies across a large number of countries. Our results show that in more corrupt countries, managers are more likely to shield liquid assets from [...] Read more.

This study examines the impact of twin agency problems (political corruption and minority shareholders’ expropriation) on corporate debt management policies across a large number of countries. Our results show that in more corrupt countries, managers are more likely to shield liquid assets from potential political extraction by maintaining a higher level of leverage. This effect is magnified by the protection of shareholders’ rights. We further show that twin agency problems influence not only the level of debt in capital structures but also other aspects of debt management, including debt maturity, deviation from optimal leverage, capital structure stability, and the leverage speed of adjustments. The findings are robust due to their inclusion of different measures of corruption and a wide range of firm-level and country-level characteristics. Our study has implications for policymakers, as we show that the improvement of the country-level institutional environment and, particularly, addressing corruption can lead to more effective debt management by firms, ultimately resulting in higher firm values. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

28 pages, 405 KiB

Open AccessArticle

ESG Performance and Systemic Risk Nexus: Role of Firm-Specific Factors in Indian Companies

by Mithilesh Gidage, Shilpa Bhide, Rajesh Pahurkar and Ashutosh Kolte

J. Risk Financial Manag. 2024, 17(9), 381; https://doi.org/10.3390/jrfm17090381 - 25 Aug 2024

Cited by 2 | Viewed by 1495

Abstract

This study investigates the ESG performance–systemic risk (SR) nexus among Indian companies. Using the beta coefficient from the Capital Asset Pricing Model (CAPM) and statistical analysis, it explores how ESG performance affects SR. The findings reveal that firms with higher ESG scores have [...] Read more.

This study investigates the ESG performance–systemic risk (SR) nexus among Indian companies. Using the beta coefficient from the Capital Asset Pricing Model (CAPM) and statistical analysis, it explores how ESG performance affects SR. The findings reveal that firms with higher ESG scores have lower SR sensitivity. Notably, there is a significant difference in risk sensitivity between high- and low-ESG-rated companies, with ESG effects being less pronounced in high-cap firms compared to low-cap firms. Conversely, large firms, older firms, and those with lower borrowing costs show a diminished effect of ESG ratings on their SR sensitivity. These results underscore the importance of firm-specific characteristics in determining the efficacy of ESG strategies in risk mitigation. This study reveals that ESG performance reduces SR, with market valuation affecting this relationship. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

15 pages, 356 KiB

Open AccessArticle

Does Corporate Governance and Earning Quality Mitigate Idiosyncratic Risk? Evidence from an Emerging Economy

by Habib Ur Rahman, Asif Ali, Adam Arian and John Sands

J. Risk Financial Manag. 2024, 17(8), 362; https://doi.org/10.3390/jrfm17080362 - 15 Aug 2024

Cited by 1 | Viewed by 1323

Abstract

This study investigates evolving corporate governance mechanisms within the context of an emerging economy. Addressing a literature gap, this study analyses the influence of corporate governance and earnings quality on idiosyncratic risk in an emerging economy. In particular, this research explores the impact [...] Read more.

This study investigates evolving corporate governance mechanisms within the context of an emerging economy. Addressing a literature gap, this study analyses the influence of corporate governance and earnings quality on idiosyncratic risk in an emerging economy. In particular, this research explores the impact of corporate governance practices and earnings quality on idiosyncratic risk. For this purpose, this research utilises a sample of 75 non-financial firms listed on the Pakistani equity market over nine years from 2010 to 2018. Employing the generalised method of moments, the findings of our empirical analysis reveal that firms with robust governance mechanisms and higher earnings quality experience minimal idiosyncratic risk. These outcomes provide valuable insights for standard setters, regulatory authorities, policymakers, and other stakeholders, emphasising the importance of governance mechanisms and earnings management in mitigating idiosyncratic return volatility. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

19 pages, 1271 KiB

Open AccessArticle

Liquidity Risk Mediation in the Dynamics of Capital Structure and Financial Performance: Evidence from Jordanian Banks

by Munther Al-Nimer, Omar Arabiat and Rana Taha

J. Risk Financial Manag. 2024, 17(8), 360; https://doi.org/10.3390/jrfm17080360 - 14 Aug 2024

Viewed by 1695

Abstract

Maximising financial performance while maintaining adequate liquidity is a crucial and ongoing challenge for bank management, particularly in emerging markets. This study focuses on the relationship between capital structure and financial performance in Jordanian banks, with the mediating role of liquidity risk. Using [...] Read more.

Maximising financial performance while maintaining adequate liquidity is a crucial and ongoing challenge for bank management, particularly in emerging markets. This study focuses on the relationship between capital structure and financial performance in Jordanian banks, with the mediating role of liquidity risk. Using panel data from 13 central Jordanian banks over the 2015–2022 period, we employ structural equation modelling (SEM) to analyse how capital structure ratios (equity-to-asset, debt-to-loan, and deposit-to-asset) influence financial performance metrics (return on assets and net income-to-expenditure ratio). Our findings reveal a significant positive association between capital structure and financial performance. However, liquidity risk fully mediates this effect. Capital structure primarily impacts performance by influencing a bank’s liquidity risk profile. Furthermore, the strength of this mediating effect is noteworthy—capital structure exhibits a statistically more robust association with liquidity risk than its direct impact on performance. This highlights the crucial role of managing liquidity risk within the complex dynamics of bank operations. This research makes a significant contribution to the existing literature by demonstrating the positive impact of capital structure on performance using the underlying mechanism through which this effect occurs. The insights of this research provide several implications for practice in the context of banking industries. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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20 pages, 431 KiB

Open AccessArticle

The Impact of Board Gender Diversity on European Firms’ Performance: The Moderating Role of Liquidity

by Robert Gharios, Antoine B. Awad, Bashar Abu Khalaf and Lena A. Seissian

J. Risk Financial Manag. 2024, 17(8), 359; https://doi.org/10.3390/jrfm17080359 - 14 Aug 2024

Viewed by 1637

Abstract

This study examines how board gender diversity affects listed non-financial European companies’ financial performance. Data from the Refinitiv Eikon Platform—LSEG and World Bank databases was used to complete the analysis. The total sample included 4257 companies for the period 2011–2023. This study examined [...] Read more.

This study examines how board gender diversity affects listed non-financial European companies’ financial performance. Data from the Refinitiv Eikon Platform—LSEG and World Bank databases was used to complete the analysis. The total sample included 4257 companies for the period 2011–2023. This study examined board gender diversity and its interaction with liquidity while controlling for board characteristics such as board size, independence, and board meetings. Controlling for firm characteristics (firm size and leverage) and macroeconomic variables like inflation and GDP. This study estimated the connection using panel regression. Due to Hausman test significance, fixed effect estimation was used. The findings demonstrated a notable and favorable influence of board features, such as gender diversity, board independence, and board size, on European nonfinancial companies. Additionally, liquidity positively affects firm performance. Furthermore, the findings indicated that leverage had a significant negative impact on profitability. Finally, both the size and GDP have a significant beneficial impact on profitability. Our findings indicate that an increased representation of women on the board of directors is associated with greater independence among board members and a higher number of board members being hired. This, in turn, has a positive impact on profitability due to the extensive experience shared among board members. Additionally, this leads to improved governance, enabling better control over decisions and a greater focus on the long-term investment strategy of the company. Our results are robust, as are similar results reported by the GMM regression. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

19 pages, 345 KiB

Open AccessArticle

Effects of Risk Committee on Agency Costs and Financial Performance

by Abdulateif A. Almulhim, Abdullah A. Aljughaiman, Abdulaziz S. Al Naim and Abdulmohsen K. Alosaimi

J. Risk Financial Manag. 2024, 17(8), 328; https://doi.org/10.3390/jrfm17080328 - 1 Aug 2024

Viewed by 1530

Abstract

This study aimed to explore the influence of risk committee characteristics on agency costs and financial performance as well as investigate whether the attributes of a risk committee moderate the association between the agency costs and financial performance of financial firms listed in [...] Read more.

This study aimed to explore the influence of risk committee characteristics on agency costs and financial performance as well as investigate whether the attributes of a risk committee moderate the association between the agency costs and financial performance of financial firms listed in the Saudi Stock Market (TASI). We primarily concentrate on six attributes of risk committees (risk committee existence, size, independence, meetings, financial expertise, and busyness) and their impact on agency costs and financial performance. This study employed the ordinary least squares (OLS) and generalized methods of moments (GMM) models to explore these relationships. Using a sample of 455 observations representing the financial corporations listed on the TASI for the period from 2010 to 2022, we found that risk committees’ existence, risk committee independence, and financial expertise have negative and significant associations with agency costs, but a positive influence on financial performance. However, risk committee size and busyness are positively related to agency costs and adversely associated with firms’ financial performance. Furthermore, we showed that agency costs influence banks’ financial performance negatively, yet risk committees oversee this risk and enhance banks’ financial performance. The findings of this study have implications for financial firms, policymakers, and regulators. Beyond making empirical contributions by investigating a relatively unexplored topic in a developing Middle Eastern economy, this analysis provides valuable insights into optimizing risk committee characteristics and structures to improve financial monitoring within the framework of Saudi Arabia. This area of research has been relatively limited compared to studies conducted in developed countries. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

38 pages, 515 KiB

Open AccessArticle

Navigating the Storm: How Economic Uncertainty Shapes Audit Quality in BRICS Nations Amid CEO Power Dynamics

by Antonios Persakis and Ioannis Tsakalos

J. Risk Financial Manag. 2024, 17(7), 307; https://doi.org/10.3390/jrfm17070307 - 18 Jul 2024

Viewed by 1181

Abstract

This study investigates the association between economic uncertainty and audit quality in the BRICS nations, examining both input-based (e.g., audit fees, auditor tenure) and output-based (e.g., restatements, total accruals) measures of audit quality. Utilizing a dataset of 83,511 firm-year observations from 1995–2022, it [...] Read more.

This study investigates the association between economic uncertainty and audit quality in the BRICS nations, examining both input-based (e.g., audit fees, auditor tenure) and output-based (e.g., restatements, total accruals) measures of audit quality. Utilizing a dataset of 83,511 firm-year observations from 1995–2022, it reveals a significant negative impact of economic uncertainty on audit quality. Additionally, the research explores the moderating role of CEO power, employing principal component analysis to merge various indicators of CEO influence. Findings indicate that powerful CEOs can mitigate the adverse effects of economic uncertainty on audit quality, suggesting a U-shaped relationship between CEO power and audit quality. Methodologically robust, employing techniques like two-stage least squares (2SLS) and two-stage system generalized method of moments (system GMM) to address endogeneity, the study offers a comprehensive analysis of audit quality in the context of economic fluctuations and corporate governance, contributing significantly to the understanding of these dynamics in emerging economies, particularly in the diverse and influential BRICS nations. This study’s findings have significant implications for stakeholders and policymakers, providing insights that can inform policy decisions and enhance corporate governance frameworks. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

18 pages, 4866 KiB

Open AccessArticle

Financial Risk, Debt, and Efficiency in Indonesia’s Construction Industry: A Comparative Study of SOEs and Private Companies

by Febrianto Arif Wibowo, Arif Satria, Sahala Lumban Gaol and Dikky Indrawan

J. Risk Financial Manag. 2024, 17(7), 303; https://doi.org/10.3390/jrfm17070303 - 14 Jul 2024

Cited by 1 | Viewed by 1708

Abstract

This study aims to evaluate the financial risk, debt, and efficiency of state-owned enterprises (SOEs) in Indonesia’s construction industry and compare these aspects with those of private companies through financial ratio analysis and efficiency analysis approaches. Four SOEs from the construction sector were [...] Read more.

This study aims to evaluate the financial risk, debt, and efficiency of state-owned enterprises (SOEs) in Indonesia’s construction industry and compare these aspects with those of private companies through financial ratio analysis and efficiency analysis approaches. Four SOEs from the construction sector were evaluated and compared to five private companies with financial data ranging from 2015 to 2022. Financial ratio analysis was applied to assess debt and financial risk, while efficiency analysis utilized data envelopment analysis (DEA) and paired t-tests to validate differences between the two groups of companies. This study reveals that the financial ratio performance of state-owned companies is relatively poor, with low profitability, critical liquidity, and a high debt ratio. Debt, as a source of capital in financing construction projects, causes companies to face a greater debt risk. This study also validates that SOEs have lower efficiency compared to private companies. In response to current challenges, SOEs should prioritize enhancing liquidity through faster receivable collections, debt restructuring, capital infusions, and divestment, reducing non-essential investments, focusing on asset recycling, and improving project efficiency. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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20 pages, 524 KiB

Open AccessArticle

Diverging Paths: CEO Regulatory Focus, Corporate Social Responsibility, and the Enigma of Firm Performance

by Tianmin Cheng, Wen Hua Sharpe and Abdel K. Halabi

J. Risk Financial Manag. 2024, 17(7), 258; https://doi.org/10.3390/jrfm17070258 - 22 Jun 2024

Viewed by 1067

Abstract

Regulatory focus theory theorizes that there are two distinct dispositional foci of self-regulation (promotion focus and prevention focus) that impact individuals’ motivational tendencies to achieve their decision-making processes. This study integrates regulatory focus theory with upper echelons theory to investigate how CEO regulatory [...] Read more.

Regulatory focus theory theorizes that there are two distinct dispositional foci of self-regulation (promotion focus and prevention focus) that impact individuals’ motivational tendencies to achieve their decision-making processes. This study integrates regulatory focus theory with upper echelons theory to investigate how CEO regulatory focus (i.e., higher degrees of promotion focus relative to prevention focus) influences corporate strategic outcomes, particularly regarding the pursuit of corporate social responsibility (CSR) performance and firm performance. This study uses data collected from the annual reports of S&P 1500 firms in the US from 2000 to 2018. Results show a negative association between CEOs who are predominantly promotion-focused and CSR performance. This negative association is diminished in firms with better corporate governance (i.e., higher CEO equity compensation and greater institutional ownership). The results also show that CSR plays a mediating role in the relationship between CEO regulatory focus and firm performance. These findings not only contribute to the existing literature by highlighting the role of CEO regulatory focus in shaping CSR initiatives but also shed light on its implications for firm performance. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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18 pages, 254 KiB

Open AccessArticle

Do CEOs Identified as Value Investors Outperform Those Who Are Not?

by George Athanassakos

J. Risk Financial Manag. 2024, 17(6), 227; https://doi.org/10.3390/jrfm17060227 - 29 May 2024

Viewed by 1282

Abstract

The aim of this study is to examine whether good asset allocation by a CEO leads to superior stock returns and, if so, how one might be able to identify CEOs that are good asset allocators. Employing US data from May 2001 to [...] Read more.

The aim of this study is to examine whether good asset allocation by a CEO leads to superior stock returns and, if so, how one might be able to identify CEOs that are good asset allocators. Employing US data from May 2001 to April 2019, we find that CEOs that invest the company’s cash flows according to a value-investing style seem to outperform companies that do not. We find that high goodwill to assets and high operating margin (good asset allocator) companies outperform companies with high or low goodwill to assets and low operating margin (poor asset allocator) companies. The findings are corroborated with out-of-sample (May 2019–April 2023) robustness tests. When buying other businesses, value investor CEOs ensure that their consolidated operating margins remain high, as opposed to other firms managed by poor asset allocator CEOs who buy businesses that bring down operating margins, either because they overpay or due to an inability to materialize expected synergies. Using both summary statistics and regression analysis, the findings of this study help us identify companies that allocate assets like value investors and enable us to anticipate future stock performance. For example, if a company, on average, has a goodwill/assets ratio of 41.03%, and an operating margin of 21.38%, it is likely this firm would be at the top quartile in terms of stock return performance over at least the next three years. At the same time, if a firm has a low average goodwill/assets ratio (i.e., 1.95%), its operating margins, on average, should be 24.46%, if it wants to achieve a similar performance as that of firms with high goodwill/assets. Moreover, the future stock return predictability of high (low) goodwill/assets and high (low) operating margin firms, found in this study, can help an investor develop trading strategies that can lead to superior stock price performance by effectively taking long positions in (shorting) firms that are (not) managed by value investor CEOs. Finally, the paper’s findings can also help investors in another way. For example, investors tend to be skeptical about companies with high goodwill/assets. The rule of thumb is to beware of companies carrying goodwill on their balance sheets that is more than 25% of assets. Based on our findings, this should not be a problem as long as the company’s operating margin has remained high and is rising. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

11 pages, 231 KiB

Open AccessArticle

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

by Dmitriy Chulkov

J. Risk Financial Manag. 2024, 17(5), 195; https://doi.org/10.3390/jrfm17050195 - 10 May 2024

Cited by 2 | Viewed by 977

Abstract

This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low [...] Read more.

This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low likelihood of success. Theoretical explanations for the association between executive turnover and escalation include self-justification and reputation protection. Top managers may conceal prior errors, escalate commitment to earlier decisions, and exit the organization before the outcome of decisions is observed. Successor managers do not have a commitment to earlier decisions and have the capability to stop investments that are discovered to be failing. Empirical analysis utilizing a sample of over 1600 U.S. firms confirms that departures by non-CEO executives from top management teams are associated with an increased likelihood of new reporting of discontinued operations and extraordinary items by firms and a reduction in the firms’ performances relative to their industry. These effects reflect de-escalation activities and are amplified in the years concurrent with and following a joint departure of multiple management team members. Prior empirical studies on escalation and de-escalation behavior focused on CEO turnover. The contribution of this article is its documenting of the key role of non-CEO managers and team turnover in the context of escalation. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

21 pages, 432 KiB

Open AccessArticle

The Influence of Financial Indicators on Vietnamese Enterprise’s Sustainability Reports Disclosing Process

by Nguyen Thi Mai Anh, Nguyen Thanh An, Nguyen Thi Minh Ngoc and Vu Ngoc Xuan

J. Risk Financial Manag. 2024, 17(4), 146; https://doi.org/10.3390/jrfm17040146 - 4 Apr 2024

Viewed by 3350

Abstract

Sustainability reporting has become increasingly crucial for businesses worldwide, communicating environmental, social, and governance (ESG) performance to stakeholders. Despite the growing importance of sustainability reporting, there remains a gap in understanding how financial indicators influence the disclosure process, particularly in Vietnamese enterprises. This [...] Read more.

Sustainability reporting has become increasingly crucial for businesses worldwide, communicating environmental, social, and governance (ESG) performance to stakeholders. Despite the growing importance of sustainability reporting, there remains a gap in understanding how financial indicators influence the disclosure process, particularly in Vietnamese enterprises. This paper aims to address this gap by investigating the influence of financial indicators on the sustainability reporting practices of Vietnamese companies. Employing a mixed-methods approach, combining a quantitative analysis of financial data with a qualitative assessment of sustainability reports, the research seeks to uncover the nuanced relationship between financial performance metrics and the quality and extent of sustainability disclosures. The research was conducted to identify, evaluate, and measure financial factors affecting the quality of companies’ sustainability reports in Vietnam. The research is based on scoring the sustainable development reports of the top 100 listed joint stock companies on the HOSE—Ho Chi Minh City Stock Exchange. Based on the research model of Dissanayake, in the case of Vietnam, we build a scoring model for the sustainable development report based on GRI standards and add additional criteria appropriate to the situation of each listed company on the Vietnam stock exchange. Based on the research overview, our team tested hypotheses related to the short-term current ratio, total asset turnover ratio (AT), return on equity ratio (ROE), and debt-to-equity ratio (DE). The empirical results show that the AT and ROE significantly positively affect the sustainability reports; the DE hurts the sustainability reports. The findings are expected to provide valuable insights into the factors shaping sustainability reporting practices in Vietnam and contribute to the existing literature on corporate disclosure and sustainability. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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28 pages, 5354 KiB

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CFO (Chief Financial Officer) Research: A Systematic Review Using the Bibliometric Toolbox

by Umra Rashid, Mohd Abdullah, Mosab I. Tabash, Ishrat Naaz, Javaid Akhter and Mujeeb Saif Mohsen Al-Absy

J. Risk Financial Manag. 2024, 17(11), 482; https://doi.org/10.3390/jrfm17110482 - 25 Oct 2024

Viewed by 1341

Abstract

The chief financial officer (CFO) is a crucial executive position in an organisation, responsible for overseeing the financial operations and strategy of the company. Despite rising interest among academics and practitioners, the literature corpus on CFO research remains largely fragmented, which warrants the [...] Read more.

The chief financial officer (CFO) is a crucial executive position in an organisation, responsible for overseeing the financial operations and strategy of the company. Despite rising interest among academics and practitioners, the literature corpus on CFO research remains largely fragmented, which warrants the unpacking of the underlying intellectual knowledge structure of the domain. In response, this study aims to provide a concise overview of the trends and science relating to CFO research, comprehend potential gaps in the literature, and highlight crucial future research pathways. A quantitative bibliometric overview of 669 research articles from 1982 to 2022 provides a spectrum of intellectual clout that helps decipher performance trends and delineates six significant clusters of knowledge in CFO research. We selectively discuss the empirical findings and theoretical and conceptual advancements within each cluster. This study offers recommendations for future research, emphasising the growing role of CFOs in leadership and addressing the fragmentation in current research. The findings and contributions of this study could further elevate CFOs’ importance in the C-suite. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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