The effect of institutional dual holdings on CSR performance

in Journal of Sustainable Finance and Investment (in press)

ABSTRACT This study sheds light on agency conflicts between creditors and shareholders and their effect on a firm's corporate social responsibility (CSR) performance. We find that the presence of ... [more ▼]

ABSTRACT This study sheds light on agency conflicts between creditors and shareholders and their effect on a firm's corporate social responsibility (CSR) performance. We find that the presence of institutional investors which simultaneously hold debt and equity claims in the same firm, so-called dual holders, leads to an increase in CSR performance by the firm that is dual-held (the dual holding firm). Using institutional mergers between separate lenders and equity holders as a natural experiment involving the shareholder-creditor conflict, we find that firms which exhibit dual ownership for the first time increase their CSR activities to a greater extent than a matched control group. In line with the previous literature, we interpret our findings as evidence that dual holders internalise agency conflicts. Thus, we find that a reduction in agency conflicts between creditors and shareholders, partly achieved by dual holders, positively affects the CSR activities of dual holdings. [less ▲]

Financial performance and safety in the aviation industry

in International Journal of Managerial Finance (in press)

This paper investigates whether financial factors, which are presumed to influence an airline's maintenance, purchasing, and training policies, are associated with the air carrier's safety performance.

The moderating role of CEO sustainability reporting style in the relationship between sustainability performance, sustainability reporting, and cost of equity

in Journal of Business Economics (2022), 92

This paper explores the role of individual managers in the relationship between sustainability performance, sustainability reporting, and cost of equity. Based on prior research showing that both ... [more ▼]

This paper explores the role of individual managers in the relationship between sustainability performance, sustainability reporting, and cost of equity. Based on prior research showing that both sustainability performance and reporting reduce the risk premium, this paper contributes to the literature by acknowledging that the true motives behind a manager’s corporate sustainability engagement are not apparent to investors. Thus, investors need to rely on further information to assess the relationship between sustainability performance and risk. We argue that CEOs’ values and preferences drive their decisions regarding sustainability activities. Thus, their fixed effect on sustainability reporting conveys a signal to investors about the motives behind corporate sustainability engagement and the extent of reporting. In the first step of our empirical analysis, we document that a CEO’s specific reporting style indeed has significant statistical power in explaining a company’s level of sustainability reporting. In the second step, we find that improved sustainability performance is associated with increased cost of equity when the CEO exerts a strong personal influence on sustainability reporting. However, cost of equity declines if the CEO’s influence on the reporting of improved sustainability performance is low. Our results are consistent with the argument that investors interpret CEO’s fixed-effect on sustainability reporting as a signal. That is, for a high CEO fixed-effect, increases in sustainability engagement are conflated with the CEO's self-interested values. In further tests, we show that the signal seems to be particularly important for normative sustainability activities (vs. legal sustainability activities). [less ▲]

Improving predictions of upward cost adjustment and cost asymmetry at the firm-year level

in Journal of Management Accounting Research (2019), 31(3), 99-127

This study introduces a new method for predicting cost elasticity with respect to changes in sales that incorporates cost asymmetry at the firm-year level. The new method is based on widely available ... [more ▼]

This study introduces a new method for predicting cost elasticity with respect to changes in sales that incorporates cost asymmetry at the firm-year level. The new method is based on widely available factors that, according to the “economic theory of sticky costs” (Banker et al., 2013) and the “integrated theory of cost behavior” (Banker and Byzalov, 2014), are expected to influence cost behavior. The new method is subject to fewer data restrictions than the method proposed by Weiss (2010). By extending the cost variability and cost stickiness (CVCS) model of Banker and Chen (2006), we find that incorporating firm-year specific proxy measures for upward cost adjustment and cost asymmetry significantly enhances earnings forecasts. However, this improvement in forecast accuracy is not reflected in contemporaneous stock returns, pointing towards a partial understanding of cost behavior by capital markets. We further find that predicted cost stickiness is associated with lower analysts’ forecast accuracy and a weaker effect of earnings surprises on market reactions, confirming the results reported in Weiss(2010) for his measure of cost asymmetry. [less ▲]

Shareholder value implications of compliance with the German Corporate Governance Code

in Managerial and Decision Economics (2017), 38(2), 166-177

This study contributes to the ongoing discussion of the German Corporate Governance Code (GCGC) of the Regierungskommission Deutscher Corporate Governance Kodex (Government Commission), which should ... [more ▼]

This study contributes to the ongoing discussion of the German Corporate Governance Code (GCGC) of the Regierungskommission Deutscher Corporate Governance Kodex (Government Commission), which should enhance the confidence of national and international investors. We apply the Feltham and Ohlson (1995) valuation model to a panel dataset of 421 German CDAX firms over the period 2002–2012 and find a positive effect of the level of compliance with the GCGC on the market value of firms. We conclude that the recommendations of the GCGC reflect corporate governance that satisfies investors' needs, as the capital markets perceive them. Our results are in favor of the efforts of the Government Commission, which have attracted criticism from both theorists and practitioners both in the past and at present. From the perspective of managerial and decision economics, the empirical results of this study suggest that executives should follow as many recommendations of the GCGC as possible. [less ▲]

Systemic operational risk − Spillover effects of large operational losses in the European banking industry

in Journal of Risk Finance (2017), 18(3),

Asymmetric information and corporate social responsibility

in Business and Society (2016), 55(3), 458-488

This article addresses the question whether companies benefit from their commitment to corporate social responsibility (CSR). The authors argue that firms which score high on CSR activities build investor ... [more ▼]

This article addresses the question whether companies benefit from their commitment to corporate social responsibility (CSR). The authors argue that firms which score high on CSR activities build investor confidence and find evidence that they benefit from lower information asymmetry. The authors measure information asymmetry by insider trading, which is defined as the trading of a company’s shares by corporate insiders who have an information advantage with the aim to reap gains or avoid losses. Using a sample of U.S. firms listed in the MSCI World Index during the period 2004 to 2013 and the firm- and industry-level CSR rating from Global Engagement Service (GES), the authors show that insider transactions in firms with a high score on CSR activities lead to lower abnormal returns. This investigation extends current literature on the business case for CSR by explaining the influence of CSR activities on asymmetric information [less ▲]

Kritischer Vergleich der Wertminderungsmodelle nach IAS 39 und IFRS 9 - eine Fallstudie

in Zeitschrift für internationale Rechnungslegung (2016), 11(12), 499-505

The information content of issuer rating changes: Evidence for the G7 stock markets

in International Review of Financial Analysis (2016), 47

We study the firm-specific and intra-industry stock market effects of issuer credit rating changes and negative watch list placements for the G7 countries. We show that both the information content and ... [more ▼]

We study the firm-specific and intra-industry stock market effects of issuer credit rating changes and negative watch list placements for the G7 countries. We show that both the information content and the information transfer effects of these rating signals differ considerably in terms of magnitude and in terms of direction across the G7 countries. In particular, conditional on the type of rating change we find significant contagion effects for the US, the UK and Italy, but not for the other G7 countries. Moreover, we show that in some countries abnormal industry portfolio returns associated with rating downgrades and negative watch list signals tend to be more negative for more concentrated and more heavily levered industries. Overall, our results shed new light on country-specific differences in the relevance of credit ratings as risk indicators from an equity investor's perspective, and they may also be of interest to both risk managers and financial market supervisors striving to develop more accurate credit risk models and to better assess the systemic relevance of credit ratings. [less ▲]

Does compliance with the German Corporate Governance Code pay off?: An investigation of the implied cost of capital

in Journal of Risk Finance (2015), 16(3), 344-376

This paper aims to empirically investigate the relationship between the level of compliance with the German Corporate Governance Code’s (GCGC) recommendations and the implied cost of equity capital (ICC ... [more ▼]

This paper aims to empirically investigate the relationship between the level of compliance with the German Corporate Governance Code’s (GCGC) recommendations and the implied cost of equity capital (ICC). German listed companies are required by law to annually disclose their compliance with the recommendations of the GCGC. Whether the GCGC achieves its aim to promote the trust of stakeholders in the management and supervision is still an open question [less ▲]