Research Summary
Given the growing legitimacy of corporate social responsibility (CSR), many firms engage in symbolic communication to showcase CSR without undertaking commensurate substantive ...actions. This “CSR decoupling” can create a risk of perceived greenwashing, which, in turn, may negatively affect a firm's performance. In this study, we explore an unexamined antecedent of decoupling: interfirm affiliation. Specifically, we use the structure of Business Groups (BGs) to investigate CSR decoupling across rather than within firms. We find that apex firms within a group are more likely to engage in CSR decoupling compared with non‐apex firms and, importantly, are partially shielded from greenwashing perceptions by the market. Our research contributes to the literatures on decoupling, perceived greenwashing, and the role of BGs and their CSR practices.
Managerial Summary
Companies that engage in symbolic communication about corporate social responsibility (CSR) without substantive actions risk being perceived as “greenwashers,” a perception that harms firm performance. Our study demonstrates how, in certain contexts where firms are affiliated with others, this may not occur. For instance, apex firms within Business Groups (BGs)—where firms are interconnected through equity and social relationships—can report on the CSR actions of non‐apex affiliates without providing commensurate substantive actions of their own. Importantly, the control and coordination abilities of these apex firms protect them from greenwashing perceptions. This study, therefore, demonstrates the role of BGs in shaping CSR practices and provides insights for managers to understand the potential risks and benefits of affiliations within BGs.
Green building certification has gained global prominence in the wake of the recent calls for ensuring the sustainable development of expanding urban areas. This trend rooted in the fact that ...buildings are among the main sources of energy consumption and CO2 emissions. Green certification therefore emerged in response to sustainability concerns throughout the building sector. Nonetheless, the significant costs required by green investments have elicited scholars’ attention, in an attempt to determine if the benefits of green certification outweigh its costs. This study uses a proprietary data-set of office building transactions from three major European countries - Finland, France, and Germany - in order to analyze the price premium of green certification over the 2010–2015 period. Considering the increasing demand for certification in the European Union (EU) after 2010, it is expected that green office buildings would sell at higher prices relative to non-green buildings. Empirical tests suggest that office buildings with green certification have a 19 percent higher price relative to non-certified buildings. Further, the study aims to assess whether the premium varies with the location of the green buildings within the urban area. Given the price premium brought by a central location - irrespective of green certification - it is expected that the price premium of green investments would incrementally increase in non-central locations. The distance variable is hand-constructed based on geocoding all properties in the dataset - empirical results indicate that the green certification price premium incrementally increases by 10.5 percent for 1-km distance from the city center. Further tests show that the distance effect becomes insignificant in both (i) large cities and (ii) cities of under 200,000 inhabitants. In these two contingencies, the price premium associated with central locations is reduced - which also diminishes the relevance of the green buildings’ location. The empirical results are robust to eliminating 2010 and 2011 from the sample and to employing a propensity score matching approach, aimed at increasing the similarity of the treatment and control groups. This paper adds to the rising literature on the topic of green buildings, as it is the first international study to assess the price impact of green certification as a function of office building location.
•Office building transactions from Finland, France and Germany in the 2010–2015 period.•Multiple-country study finds a 19 percent price premium for green certification.•10.5 percent incremental premium if distance from the city center increases by 1 km.•The distance effect becomes insignificant in large cities.•The distance effect becomes insignificant in cities of under 200,000 inhabitants.
ABSTRACT
Starting in October 2013, auditors of premium‐listed firms in the United Kingdom are mandated to prepare an expanded auditor's report that provides details on audit procedures, risks of ...material misstatement (RMMs), and materiality thresholds. This regulatory change is important to study, because it aims to increase the informational value of the traditional, highly standardized, pass‐or‐fail auditor's report. We examine whether the disclosures in the expanded auditor's report provide information that is relevant for adopting firms' loan contracting terms in the post‐adoption period. Our results indicate that the introduction of the expanded auditor's report is associated with reduced loan spread and longer maturity for loan facilities of adopting firms relative to non‐adopting UK firms. When we focus on adopting firms in the post‐adoption period, we find that the number of “unique RMMs” mentioned in the auditor's report, but not in the audit committee report, are positively associated with loan spread but are not associated either with loan maturity or the number of lenders in the loan syndicate. Additional tests show that the benefits, in terms of a reduced spread, of having a lower number of “unique RMMs” accrue mostly to adopters with a poor information environment. Taken together, our results provide preliminary evidence that the expanded auditor's report disclosures contain relevant information for loan contracting in the United Kingdom. This study highlights the unique role of the expanded auditor's report in providing information relevant to lenders and supports standard setters' efforts to enrich its informational content.
RÉSUMÉ
Rapports d'audit élaborés et contrats d'emprunt
Depuis octobre 2013, les auditeurs des principales entreprises cotées en bourse au Royaume‐Uni sont tenus de préparer un rapport d'audit plus élaboré qui décrit les procédures d'audit, les risques d'anomalies significatives (RAS) et les seuils d'importance relative. Il est important d'étudier cette modification réglementaire, car elle vise à accroître la valeur informative des rapports d'auditeurs conventionnels, fortement normalisés et de type « réussite ou échec ». Nous examinons si les renseignements divulgués dans le rapport d'audit élaboré fournissent de l'information pertinente relativement aux modalités des ententes de prêts des entreprises assujetties au règlement lors de la période suivant son adoption. Nos résultats indiquent que la mise en œuvre du rapport élaboré est associée à des marges d'intérêt réduites et à des échéances plus longues pour les facilités de prêt des entreprises assujetties par rapport aux entreprises non assujetties au Royaume‐Uni. Lorsque nous nous attardons aux entreprises assujetties au cours de la période post‐adoption, nous constatons que le nombre de « RAS uniques » mentionnés dans le rapport de l'auditeur, mais pas dans celui du comité d'audit, est positivement associé aux marges d'intérêt, mais non pas aux échéances des prêts ou au nombre de prêteurs dans le groupement d'emprunt. Des tests additionnels révèlent que ce sont surtout les entreprises assujetties dont l'environnement d'information est de piètre qualité qui bénéficient, sur le plan des marges réduites, du fait d'avoir un moins grand nombre de « RAS uniques ». Ensemble, nos résultats fournissent des données probantes préliminaires indiquant que les rapports d'audit plus élaborés contiennent de l'information pertinente aux fins des ententes de prêts au Royaume‐Uni. La présente étude met en lumière le rôle unique que jouent les rapports d'audit élaborés pour fournir de l'information pertinente aux prêteurs et soutient les efforts des organismes de normalisation pour enrichir leur contenu informatif.
Corporate spinoffs are important events that are accompanied by valuation and credit‐risk implications for the parent firm. Among other benefits, spinoffs can improve corporate focus and enhance ...valuation transparency. In the debt‐contracting context, however, spinoffs can also be associated with negative outcomes for the divesting firms. We examine whether banks, due to their timely access to material private information, are able to ascertain the likelihood and the implications of impending spinoffs for the parent firm before a formal public announcement of the spinoff. Our empirical analyses indicate that, in the 365‐day pre‐spinoff announcement period, banks charge incrementally higher (lower) spreads to borrowers with increased (decreased) post‐spinoff riskiness relative to nondivesting firms. This suggests that, while lenders recognize the value‐ and transparency‐enhancing effects of spinoffs, they are also able to foresee potentially negative implications of these divestitures. Cross‐sectional analyses indicate that banks charge incrementally lower loan spreads if spinoffs result in high‐risk borrowers having either higher reporting quality or lower reporting or operational complexity. These results suggest that the post‐spinoff increase in riskiness is compensated by the divestiture benefits typically associated with spinoffs. Similarly, high‐risk borrowers incur larger spreads if they do not undergo “focus‐increasing” spinoffs. Overall, our findings suggest that banks are able to ex ante determine the implications of important corporate events such as spinoffs.
Résumé
Informations privilégiées et fixation du taux d’intérêt bancaire : l’effet des scissions imminentes d’entreprises
Les scissions d’entreprises sont des événements importants qui s’accompagnent d’implications en matière d’évaluation et de risque de crédit pour l’entreprise mère. Les scissions permettent notamment d’améliorer les objectifs de l’entreprise et la transparence de l’évaluation. Dans le contexte des contrats d’emprunt, cependant, les scissions peuvent également être associées à des résultats négatifs pour les entreprises qui désinvestissent. Les auteurs examinent si les banques, en raison de leur accès en temps opportun aux informations privilégiées et importantes de l’entreprise, sont aptes à déterminer la probabilité et les implications des scissions imminentes pour l’entreprise mère avant l’annonce publique officielle de la scission. Leurs analyses empiriques indiquent que, pendant la période de 365 jours précédant l’annonce de la scission, les banques calculent des écarts de cotation progressivement plus grands (faibles) pour les emprunteurs avec un risque accru (plus faible) après la scission par rapport aux entreprises qui ne désinvestissement pas. Cela donne à penser que, si les prêteurs reconnaissent les effets des scissions en matière d’augmentation de la valeur et d’accroissement de la transparence, ils sont également en mesure de prévoir les implications potentiellement négatives de ces scissions. Des analyses transversales révèlent que les banques calculent des écarts de cotation progressivement plus faibles si les scissions entraînent une qualité de l’information élevée pour les emprunteurs à haut risque ou une complexité informationnelle ou opérationnelle réduite. Ces résultats tendent à démontrer que l’augmentation du risque après la scission est compensée par les avantages du désinvestissement souvent associés aux scissions. De même, les emprunteurs à haut risque maintiennent des écarts de cotation plus grands s’ils ne naissent pas de scissions pour « améliorer les objectifs ». Dans l’ensemble, les résultats montrent que les banques sont en mesure de déterminer ex ante les implications d’événements importants tels que les scissions.
This paper examines whether the ‘style’ of individual auditors influences financial reporting quality in Germany. Audit quality in Germany should be uniformly high, because of strong reputational ...needs, strict controls on operating procedures, and quality enforcement mechanisms. An audit partner's style should not affect this quality level. However, our results do not support this expectation. Exploiting a unique dataset comprising the names of the audit engagement and review partners of listed German companies, we find that audit engagement partners in Germany have a significant influence on audit quality, beyond firm‐ and office‐level factors. In contrast, audit review partners do not have a consistent significant influence on audit quality. We measure audit quality by the level of a firm's abnormal accruals and its propensity to meet or beat an earnings target. We also find that the 2005 adoption of a new audit quality enforcement system that includes ‘naming and shaming’ does not reduce the influence of audit partner style on financial reporting quality.
We use a sample of banks from 24 European countries to investigate whether the adoption of the Basel II Capital Accord in 2008 affects the market valuation of discretionary loan loss provisions ...(DLLPs). Although Basel II lowers the incentives of internal ratings-based (IRB) banks to recognize income-increasing DLLPs in an opportunistic manner, it has no such impact on the remaining banks, which adopt the Standardized methodology. We use this setup in a difference-in-difference (DiD) design, where Standardized banks act as a control group. Our evidence supports the three hypotheses that, for IRB relative to Standardized banks, Basel II is associated with (i) less income-increasing DLLPs and (ii) less income-smoothing via DLLPs, which enhances the informational content of DLLPs about future loan losses and leads to (iii) higher market valuation of DLLPs. Our findings are timely and have policy implications for future regulatory developments in the banking industry.
An audit review (AR) is a mechanism used by boards to assess the quality of interim financial reports on a timely basis. In Canada, the AR is voluntary, with listed firms mandated to disclose when ...they choose to not purchase additional audit verification. Given the relatively low cost of an AR, opting out of it can be regarded as a negative signal, especially in the context of lenders' sensitivity to downside risk. Using a sample of 7,585 firm-year observations from 1,616 public firms in Canada over the period 2004-2015, we document that firms without a voluntary AR have a higher cost of debt than firms with an AR. Furthermore, after firms opt out of the AR, the increase in the cost of debt is accompanied by a rise in discretionary abnormal accruals and managers' stock-based compensation. Moreover, no-AR firms are more likely to reduce post-switch private borrowing and have lower equity analyst following. Our study is the first to document that although listed borrowers that opt out of an AR have a higher cost of debt financing, they are concurrently able to engage in more earnings management and grant their managers higher stock-based compensation because of lower external monitoring.
Both cutaneous melanoma (CM) and uveal melanoma (UM) represent important causes of morbidity and mortality. In this review, we evaluate the available knowledge on the differences and similarities ...between cutaneous melanoma and uveal melanoma, focusing on the epidemiological aspects and risk factors. Uveal melanoma is a rare condition but is the most prevalent primary intra-ocular malignant tumor in adults. Cutaneous melanoma, on the other hand, is significantly more common. While the frequency of cutaneous melanoma has increased in the last decades worldwide, the incidence of uveal melanoma has remained stable. Although both tumors arise from melanocytes, they are very distinct entities biologically, with complex and varied etiologies. Both conditions are encountered more frequently by individuals with a fair phenotype. ultraviolet-radiation is an important, well-documented risk factor for the development of CM, but has shown not to be of specific risk in UM. Although cutaneous and ocular melanomas seem to be inherited independently, there are reported cases of concomitant primary tumors in the same patient.
Neoplasia occurs as a result of genetic mutations. Research evaluating the association between gene mutations and skin cancer is limited and has produced inconsistent results. There are no ...established guidelines for screening skin cancer at molecular level. It should also be noted that the combinations of some mutations may play a role in skin tumors’ biology and immune response. There are three major types of skin cancer, and the originality of this study comes from its approach of each of them.
The chemical constituents of the
plant known as cannabinoids have been extensively researched for their potential therapeutic benefits. The use of cannabinoids applied to the skin as a potential ...method for both skin-related benefits and systemic administration has attracted increasing interest in recent years. This review aims to present an overview of the most recent scientific research on cannabinoids used topically, including their potential advantages for treating a number of skin conditions like psoriasis, atopic dermatitis, and acne. Additionally, with a focus on the pharmacokinetics and security of this route of administration, we investigate the potential of the transdermal delivery of cannabinoids as a method of systemic administration. The review also discusses the restrictions and difficulties related to the application of cannabinoids on the skin, emphasizing the potential of topical cannabinoids as a promising route for both localized and systemic administration. More studies are required to fully comprehend the efficacy and safety of cannabinoids in various settings.
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