Do Tournament Incentives Matter for CEOs to Be Environmentally Responsible? Evidence from Chinese Listed Companies

Relying on tournament theory and environmental management research, we examine how CEO tournament incentives induce top executives to invest more in green innovation. Using a sample of Chinese listed companies from 2010 to 2016, we find evidence that CEO tournament incentives are positively associated with green innovation. In addition, we find that a positive relationship between CEO tournament incentives and green innovation is stronger in state-owned enterprises than in non-state-owned enterprises. These results support tournament theory, which proposes that better incentives induce top executives’ efforts to win the tournament incentives, and such efforts are subject to fiercer competition among employees, which improves firms’ social and financial performance. Moreover, our findings have implications for policy makers and regulators who wish to enhance environmental legitimacy by providing tournament incentives to top executives.

Determinants of profitability in Chinese companies

Purpose This study is conducted to determine the factors that affect profitability in Chinese listed companies (by using financial ratios). Four independent variables liquidity, intangible assets, working capital and company leverage were empirically tested for their relationships with profitability besides two control variables which are firm size and company efficiency.Design/methodology/approach This study used secondary data extracted manually from the annual reports of non-financial Chinese listed companies on the Shanghai stock exchange (http://www.szse.cn/); the data set covers 100 companies during the period of 2017–2019, and a random selection method was used in order to achieve credibility and fairness as much as possible.Findings The findings show firm size, working capital and intangible assets have positive and significant relationships with profitability [return on assets (ROA) and earnings per share (EPS)]. Positive working capital is important to lower the cost of capital and improve companies' profitability. Intangible assets are also an essential source to improve profitability due to their low costs. In addition, the findings display a negative and strong relationship between liquidity and profitability, meaning that companies suffer low profit due to inefficient use of liquid items. Interestingly, leverage, which is measured by debt ratio and leverage ratio, shows mixed results; debt ratio shows a positive and strong association with ROA but not with EPS; while leverage ratio displays a strong but negative association with ROA but not with EPS. These results confirm the inverted U-shape relationship between leverage and profitability, which depends on the balance between benefit and cost of debt.Social implications Profitability is also important for employees and society where business organization provides sustainability and stability for both of them. Employees can then significantly contribute to achieve higher firm's profitability by efficiently using firm's resources.Originality/value This study differs than previous studies in number of aspects: First, this study focuses on financial ratios to explain profitability in Chinese companies. This study provides empirical results about the factors connected to profitability and help stakeholders to make their right decisions. Second, it examines the impact of four independent factors and two control variables that some of them are new in Chinese context such as intangible assets. Third previous studies focus on financial industry such as banks; however, this study focuses on non-financial industry.

ARE CORPORATE SOCIAL RESPONSIBILITY ACTIVE FIRMS LESS INVOLVED IN EARNINGS MANAGEMENT? EMPIRICAL EVIDENCE FROM CHINA

This paper investigates whether corporate social responsibility active (CSR active) firms operate dissimilarly from other firms in their financial reporting. Specifically, we examine whether the corporate social responsibility (CSR) attitude of a firm sways its reporting incentives, in respect of the extent of earning management. To test our predictions, we use a sample of 25,861 year-company observations, corresponding to 3538 Chinese listed companies, for the period 2009–2019. We find a significant positive association between CSR activity and earning management assessed by the level of discretionary accruals in Chinese listed companies. Moreover, we document that Chinese CSR active firms engage more in earnings management through discretionary accruals than CSR inactive firms. These findings are consistent with the opportunistic financial reporting hypothesis: advances in CSR used by managers to safeguard their position by evading scrutiny from stakeholder activists. This study contributes to the growing awareness among investors, stakeholders and researchers that we should distinguish between CSR active firms and socially responsible firms and that being the latter entail something more than just mechanically produce CSR reports.

Green Policy, Corporate Social Responsibility and Environmental Protection Investments - Evidence from Chinese Listed Companies in Heavy Pollution Industries

Corporate environmental investment decision-making behavior is influenced by both the external factor of government green policy and the internal factor of corporate social responsibility. This paper empirically examines the effects of green policies and corporate social responsibility on corporate environmental investment using a fixed-effects panel data model with a sample of Chinese listed companies in the heavy pollution industry from 2013-2019 and further analyzes the possible moderating role played by market competition. The results show that: (1) Green policy and corporate environmental investment have an inverted “U-shaped” relationship, which indicates that there is a ”degree” limit to the impact of green policy on corporate environmental investment. (2) There is a U-shaped relationship between green investment and environmental governance green policy tools and corporate environmental investment, while infrastructure green tool and corporate environmental investment in an inverted U-shaped relationship (3) Corporate social responsibility and the scale of its environmental investment has a positive relationship, green policy and corporate social responsibility have a joint effect corporate environmental investment. (4) The higher the degree of market competition, the more significant the effect of green policy on corporate environmental investment.

The Impact of Employee Stock Ownership Plan on the Cost of Equity Capital: Evidence from China

Due to the immaturity of bond market and the defects of internal governance structure, Chinese-listed companies have a strong preference for equity financing. How to reduce the cost of equity capital is particularly important for Chinese-listed companies. As an equity incentive system, employee stock ownership plan (ESOP) can reduce the agency conflicts among shareholders, executives, and employees to some extent. These reduced conflicts will, in an efficient capital market, be reflected in a lower cost of equity capital. This paper investigates whether the implementation of ESOP in a new era in China affects the cost of equity capital and further explores whether the impact of ESOP on the cost of equity capital is affected by the ownership nature, the firm size, and the contract design of ESOP. The results show that the implementation of ESOP reduces the cost of equity capital of enterprises. Compared with state-owned enterprises and large enterprises, the implementation of ESOP is more likely to reduce the cost of equity capital in non-state-owned enterprises and small enterprises. Furthermore, the reduction effect of ESOP on the cost of equity capital is influenced by the contract design of ESOP. This study not only enriches the literature on the relationship between employee stock ownership and the cost of equity capital but also provides a new idea for listed companies to reduce the cost of equity financing.

Financial constraints, government subsidies, and corporate innovation

To investigate the relationships between financial constraints, government subsidies, and corporate innovation, a semi-logarithmic fixed-effect panel model and mediation effect test were applied, based on the data of Chinese listed companies from 2007 to 2017. We find that (1) financial constraints suppress corporate innovation. (2) Government subsidies are targeted at bailing out firms facing financial constraints. (3) Government subsidies promote corporate innovation (4) Government subsidies partially offset the suppression of financial constraints on innovation. We contribute to the fields of public finance, corporate finance, and corporate innovation by: (1) justifying the government subsidies target strategy as a bailout of corporate financial constraints, (2) verifying the corporate-innovation promotion of government subsidies, thus justifying the efficiency of government subsidies, and (3) showing that different types of innovation benefit differently from subsidies, thus justifying subsidies as a structural innovation engine.