This paper discusses the impact and mechanism of corporate social security contributions on the demand for higher audit quality. The study finds that social security contributions increase ...high-quality audit demand of firms. The mechanism is found to be that social security contributions motivate firms to raise capital by increasing financing constraints, and then firms choose high-quality audit services to strive for financing. Heterogeneity analysis shows that the impact of social security contributions on the demand for higher audit quality is more significant in non-state-owned firms and firms with higher labour intensity. The above findings respond to audit demand signalling theory in terms of theoretical and empirical data and provide thinking for better understanding the effects of social security contributions.
Wellbore instability is always inevitable in shale formation due to hydration, swelling, and dispersion of clay, especially when using water-based drilling fluids (WBDFs). To mitigate the wellbore ...instability of shale formation and avoid correlative detriments such as formation damage, various nano-silica particles (nano-SiO2) were employed to plug the nano-sized pores, inhibit water invasion into shale, and prevent shale swelling. Firstly, the influence of various nano-SiO2 on rheological and filtration properties of a set WBDF was evaluated. Then, the linear swelling test, shale recovery test, zeta potential test, imbibition test, contact angle measurement, scanning electron microscopy (SEM) observation, and computed tomography (CT) analysis were conducted to assess the characteristic of nano-SiO2. Experimental results showed that solid phase nano-SiO2 could dramatically increase the viscosity and yield point while liquid phase nano-SiO2 only caused small fluctuations on these parameters. Besides, hydrophobic nano-SiO2 displayed better filtration performance than hydrophilic nano-SiO2. On the whole, the hydrophobic nano-SiO2 dispersion, called as nano-2, showed the best performance in WBDFs. Furthermore, nano-2 exhibited better inhibition than hydrophilic nano-SiO2, KCl, and polyether amine (PA). Mechanism analysis demonstrated that nano-2 could improve the hydrophobic degree of shale surface and prevent water from contacting with the shale. Meanwhile, nano-2 plugged the pores and throats in the shale. As a consequence, water in the drilling fluid was prevented from invading the shale, and the shale was inhibited. Nano-2 could form a thin barrier in the surface of shale, and mitigate the damage degree of shale cores after perforation operation. As a result, nano-2 displayed great potential to stabilize shale and protect formation in WBDFs.
In January 2002, China decided to centralize corporate income tax collection, shifting the collection authority from the local tax bureaus (LTBs) to the state tax bureaus (STBs), for all firms ...established after December 31, 2001. We exploit this exogenous shock to identify a new cause for corporate bribery, namely, the complicit role of local government authorities. We find that firms whose income taxes are still collected by LTBs after the reform bribe more than similar firms whose taxes are collected by STBs. Such effects are more pronounced for firms located in provinces where government intervention is more prevalent and where judicial system is less independent. Moreover, we find that firms whose taxes are collected by LTBs enjoy lower tax burdens and receive greater tax-related subsidies, especially when they bribe more. Overall, our results highlight the reciprocation between local government authorities and firms in determining corporate bribery.
•Using a tax collection reform in China, we identify a new cause for corporate bribery, namely, the complicit role of local government authorities.•Firms whose income taxes are still collected by LTBs after the reform bribe more than similar firms whose taxes begin to be collected by STBs.•Such effects are stronger for firms located in provinces where government intervention is higher and where judicial system is less independent.•Even more concerning, we show that paying higher amounts of bribes leads to a decreased tax burden and increased tax-related subsidies.
We study the relation between social trust and stock price crash risk using a sample of Chinese publicly traded A-share stocks during 2001–2012. The crash-prone environment and China's culturally and ...economically diverse society provide a good background for the examination. We document that (1) social trust and stock price crash risk are negatively correlated and (2) this relation is less pronounced for firms with greater analyst coverage or high institutional ownership. Our findings are robust to alternative measures of crash risk and social trust and additional control variables. Our results also indicate that, as an informal institution, social trust and other formal institutional monitoring mechanisms are partial substitutes. Social trust, as a socioeconomic factor, relates to crash risk.
•We study the relation between social trust and stock price crash risk.•Social trust and stock price crash risk are negatively correlated.•Our findings are robust.•Social trust and other formal institutional monitoring are partial substitutes.•Social trust, as a socioeconomic factor, relates to crash risk.
In March 2015, the Chinese government initiated an important reform program targeting the defense industry, namely civil-military integration (CMI), with the objectives of introducing military ...technologies to the civilian market and infusing private capital into military enterprises. On examining this unique exogenous shock in a 2007-2017 sample of Chinese A-share listed firms, we identify the following effects of CMI on military firms' performance. (1) The market value of military firms significantly increases after the establishment of the CMI policy in 2015 and the market value of military firms is on average 6.682% higher after 2015. (2) This effect is robust to propensity score matching, instrumental regression, alternative measures of corporate market value. (3) The positive impact of CMI on military listed firms' market value is stronger for firms with lower innovation ability and weaker corporate governance, suggesting that the CMI policy can improve the research and development abilities and ease the agency conflicts of military firms. (4) After 2015, military firms with weaker financial constraints and those located in provinces with lower marketization levels perform better. Overall, offering a micro-perspective on military firms, this paper complements the growing literature on defense economics and clarifies how CMI improves military firms' performance.
We examine the impact of the social trust environment in which a firm is located on its tax avoidance in China and paying attention to the moderating effect of corporate governance and ...state-ownership. Drawing from theoretical and empirical work on firm tax avoidance and manager–shareholder agency conflict, we hypothesize that social trust can lower firm tax avoidance. It is because a high social trust environment can reduce agency conflict so that tax avoidance is less. Our findings are consistent with our hypothesis, and robust to a battery of robustness tests. Furthermore, we document that the association between social trust and firm tax avoidance is more pronounced for firms with weak corporate governance and state-owned. Moreover, we find that firms in more trustworthy provinces present less general and administrative expenses and higher asset turnover, corroborating our theoretical foundations with respect to agency cost in our hypothesis. Our findings suggest that social trust and its interactions with corporate governance and state ownership are important internal and external determinants on the variations in tax avoidance.
We propose and examine a trade credit financing hypothesis of independent director connectedness. Our conjecture is that a firm with well-connected independent directors can obtain more trade credit. ...The findings suggest that independent director connectedness is positively correlated with the amount of trade credit available to a firm. The trade credit obtained is costly, however. Relationship-based financing comes in the form of higher-cost notes payable, rather than lower-cost accounts payable. Specifically, we find that firms with financial constraints are more likely to benefit from independent director connectedness in obtaining trade credit. We show that the roles of independent directors include trade credit financing in addition to traditional monitoring and advising.
Do directors with foreign experience increase the corporate demand for directors' and officers' liability (D&O) insurance? Previous studies have documented the impacts of firms having D&O insurance ...on corporate practices. However, it is unclear how a firm's decision to acquire D&O insurance is made in an emerging market. Using a sample of Chinese firms from 2008 to 2018, we examine the impact of having overseas returnee directors (ORDs) on a firm's demand for D&O insurance. Our findings suggest that firms with ORDs are likely to have such insurance. Further analyses suggest that the association is more pronounced for firms with a high level of internationalization or located in high marketization regions (i.e., locations with a well-functioning market system). Hence, a firm's internationalization and its location's marketization are the mechanisms for the impact. Our results advance the literature on the effect of personnel internationalization on the demand for D&O insurance.
•We study the impact of overseas returnee directors (ORDs) on D&O insurance.•Having ORDs increases the demand for D&O insurance in a sample of Chinese firms.•The effect is stronger for firms located in high internationalization regions.•The effect is stronger for firms in a well-functioning market (high marketization).•Internationalization and marketization contribute to the demand for D&O insurance.
ABSTRACT This study examines whether politicians exhibit hometown favoritism in assigning preferential corporate income tax rates. We find that firms with hometown connections to incumbent provincial ...leaders experience favorable tax treatment. This effect is more pronounced when those leaders have strong hometown preferences and weaker when they have a strong incentive to seek promotion, suggesting that social incentives are the primary drivers of the effects on corporate tax benefits of hometown favoritism by politicians. Moreover, this effect is intensified when members of senior management have personal connections with the provincial leader. The mechanism test reveals that the provincial governments tend to qualify connected firms for preferential tax policies under their jurisdictions. Overall, our results suggest that hometown favoritism by politicians promotes tax benefits for business entities. Data Availability: Data are available from the public sources cited in the text. JEL Classification: H26; H71; M48.
This paper investigates the impact of social trust on a firm's adjustment speed toward an optimal capital structure. Leveraging the availability of generalized trust and personalized trust metrics in ...China, we find that, as expected, when a firm is located in a high social trust region (with either generalized or personalized trust), it adjusts more quickly toward its target capital structure. Moreover, we document that the impact of generalized trust (personalized trust) on the adjustment speed is magnified if the firm already had stringent financial constraints (less-severe agency problems) but it is not related to the severity of a firm's agency problems (financial constraints). Additional analysis suggests that the impact of social trust on capital structure dynamics is primarily through debt rather than equity. Furthermore, we find that when a firm is located in a weak formal institutional environment, the impact of generalized trust on the adjustment speed strengthens, suggesting that formal institutions and generalized trust are partial substitutes. Interestingly, the substitution effect of formal institutions and personalized trust is weak. Hence, the impact of generalized trust and personalized trust on capital structure adjustment share some similarities but differ in other respects.
•Investigates the impact of social trust on a firm's optimal capital structure.•Consider generalized and personalized trust.•When a firm located in a high social trust (both types) area, it adjusts faster.•The impact the two types of trust share similarities and differ in other aspects.•The dynamics is primarily through debt rather than equity.