Corporate managers often invest in activities that are deemed to be socially responsible. In some instances, these investments enhance shareholder value. However, in other cases, altruistic managers ...or managers who privately benefit from the positive attention arising from these activities may choose to make socially responsible investments even if they are not value enhancing. Given this backdrop, we investigate the various factors that motivate firm managers to make socially responsible investments. We find that larger firms, firms with greater free cash flow, and higher advertising outlays demonstrate higher levels of corporate social responsibility (CSR). We also find that companies with stronger institutional ownership are less likely to invest in CSR — which casts doubt on the argument that these investments are designed to promote shareholder value. Consistent with the literature that explores how CEO personal attributes influence corporate decision making, we find that female CEOs, younger CEOs, and managers who donate to both Republican and Democratic parties are significantly more likely to invest in CSR. This latter result suggests that CSR investments may not be driven solely for altruistic reasons, but instead may be part of a broader strategy to create goodwill and/or help maintain good political relations. Finally, we find a strong positive connection between the level of media scrutiny surrounding the firm and its CEO, and the level of CSR investment. This finding suggests that media attention helps induce firms to make socially responsible investments.
•CEO age, gender, political affiliation contributions, and media exposure affect CSR.•Firm size, free cash flows, and advertising positively influence CSR.•Institutional ownership is negatively related to CSR.•CEOs receive private benefits from CSR investments.•CSR intensity and excess stock returns are negatively correlated.
Abstract
We show that banking relationships promote corporate environmental, social, and governance (ESG) policies. Specifically, banks are more likely to grant loans to borrowers with ESG profiles ...similar to their own and positively influence the borrower’s subsequent ESG performance. Their influence is more pronounced when (1) banks have significantly better ESG ratings than borrowers and (2) borrowers are bank dependent. We exploit M&A among lenders as a source of quasi-exogenous variation in the lender’s ESG standard to alleviate endogeneity concerns. Overall, our study presents the first evidence on the interplay between responsible bank lending and borrowers’ ESG behavior.
This paper analyzes whether the political connections of listed firms in the United States affect the cost and terms of loan contracts. Using a hand-collected data set of the political connections of ...S&P 500 companies over the 2003–2008 time period, we find that the cost of bank loans is significantly lower for companies that have board members with political ties. We consider two possible explanations for these findings: a Borrower Channel in which lenders charge lower rates because they recognize that connections enhance the borrower's credit worthiness and a Bank Channel in which banks assign greater value to connected loans to enhance their own relationships with key politicians. After employing a series of tests to distinguish between these two channels, we find strong support for the Borrower Channel but no direct evidence supporting the Bank Channel. Finally, we demonstrate that political connections reduce the likelihood of a capital expenditure restriction or liquidity requirement commanded by banks at the origination of the loan. Taken together, our results suggest that political connections increase the value of U.S. companies and reduce monitoring costs and credit risk faced by banks, which, in turn, reduces the borrower's cost of debt.
We study whether cross-country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This ...form of regulatory arbitrage suggests there may be a destructive "race to the bottom" in global regulations, which restricts domestic regulators' ability to limit bank risk-taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that, while differences in regulations have important influences, without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.
Looking at a sample of nearly 2,400 banks in 69 countries, we find that stronger creditor rights tend to promote greater bank risk taking. Consistent with this finding, we also show that stronger ...creditor rights increase the likelihood of financial crisis. On the plus side, we find that stronger creditor rights are associated with higher growth. In contrast, we find that the benefits of information sharing among creditors appear to be universally positive. Greater information sharing leads to higher bank profitability, lower bank risk, a reduced likelihood of financial crisis, and higher economic growth.
Social networks in the global banking sector Houston, Joel F.; Lee, Jongsub; Suntheim, Felix
Journal of accounting & economics,
04/2018, Letnik:
65, Številka:
2-3
Journal Article
Recenzirano
We show that banks with shared social connections partner more often in the global syndicated loan market and that central banks in the network play dominant roles in various interbank transactions, ...indicating that social connections facilitate business connections. However, more centralized banks in the network also contribute significantly to the global systemic risk. Moreover, we find the soft information generated by social networks is particularly valuable when potential partners operate under different accounting and regulatory standards. Finally, we show that the recent banking crisis significantly limited the positive soft information effects of social networks in the global banking system.
ABSTRACT
This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous ...variations in firms' litigation risk. Using a matching-based fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples, and outcome variables.
JEL Classifications: D80; G14; K22; K41; M41.
We examine how a firm’s bankruptcy affects the bank financing costs of its key suppliers. We do so by using an extensive, hand-collected data set that captures the supply chain relationships of ...bankrupt firms over the time period 1990–2009. Looking at a sample of more than 2,000 loan contracts, we compare the average borrowing cost of suppliers in the two years prior to the bankruptcy of a key customer to the average cost in the two years following the announced bankruptcy. We find the average loan spreads increase by roughly 20% following the customer’s announced bankruptcy. These effects are even stronger if the bankrupt firm is operating within a distressed industry or when there is a strong supplier–customer relationship. We also find that the structure of lending agreements significantly changes in the aftermath of a client bankruptcy. More specifically, we find that the number of covenants increases and the lead banker(s) take an increasingly important role in the period following the client’s bankruptcy. Taken together, the results of this study provide new insights into the financial implications of supply chain changes.
This paper was accepted by Uday Rajan, finance
.
In recent years, quarterly earnings guidance has been harshly criticized for inducing "managerial short-termism" and other ills. Managers are, therefore, urged by influential institutions to cease ...guidance. We examine empirically the causes of such guidance cessation and find that poor operating performance -- decreased earnings, missing analyst forecasts, and lower anticipated profitability -- is the major reason firms stop quarterly guidance. After guidance cessation, we do not find an appreciable increase in long-term investment once managers free themselves from investors' myopia. Contrary to the claim that firms would provide more alternative, forward-looking disclosures in lieu of the guidance, we find that such disclosures are curtailed. We also find a deterioration in the information environment of guidance stoppers in the form of increased analyst forecast errors and forecast dispersion and a decrease in analyst coverage. Taken together, our evidence indicates that guidance stoppers are primarily troubled firms and stopping guidance does not benefit either the stoppers or their investors. PUBLICATION ABSTRACT
Building on the pioneering study by
Beck, Demirguc-Kunt, and Levine (2006), this study examines the effects of media ownership and concentration on corruption in bank lending using a unique World ...Bank data set covering more than 5,000 firms across 59 countries. We find strong evidence that state ownership of media is associated with higher levels of bank corruption. We also find that media concentration increases corruption both directly and indirectly through its interaction with media state ownership. In addition, we find that media state ownership and media concentration both accentuate the positive link between official supervisory power and lending corruption and attenuate the negative link between the regulations that empower private monitoring and corruption in lending. Media state ownership or media concentration also accentuates the positive link between banking concentration and corruption in lending. Furthermore, the links between media structure and corruption are more pronounced when the borrowing firm is privately owned.
PDF
