International Review of Finance

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 1369-412X

Issue Number

No. 23-4, December 2023

Latest documents

Issue Information
Political institutions and corporate risk‐taking: International evidence
Tapping into firm‐level accounting data across 90 countries over a 26‐year period, we find that sound political institutions are positively associated with corporate risk‐taking. This result is economically significant, robust to alternative proxies for corporate risk‐taking and political institutions, and continues to hold after mitigating endogeneity concerns of political institutions. We also collect evidence that sound political institutions may compensate for weak legal institutions in inducing corporate risk‐taking. We argue that sound political institutions improve the investment environment for firms and can induce higher levels of corporate risk‐taking, which is ultimately associated with economic growth.
Accumulating human capital: Corporate innovation and firm value
We empirically document that industries that are more R&D intensive exhibit disproportionately greater innovation quantity and better innovation quality in economies with more human capital. Firm‐level evidence confirms that innovation is an important channel through which firm responds to labor market conditions. Further analyses show that in economies with greater human capital, firms better able to innovate exhibit larger increase in labor productivity and capital–labor ratio, an effect driven by deceases in employment and increase in intangible capital investment. By facilitating the adjustment in input mix and capital structure, human capital accumulation allows firms with high innovation ability to enhance firm equity value and improve firm performance.
The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID‐19 pandemic shock
This study examines the effectiveness of macroprudential policies in reducing the banks' risk during the COVID‐19 pandemic and compares these results with the systemic banking crises years. Based on a sample of 624 banks across 40 countries during the period 2006–2020, we find that loosening capital‐aimed macroprudential policies effectively reduced banks' risk during the COVID‐19 pandemic, while this behavior led to increased risk during the systemic crises years. In contrast, tightening the remaining macroprudential policies during the systemic crises years and during the pandemic proved effective in reducing banks' risk. Furthermore, we show that the magnitude of the impact of macroprudential policies was stronger during the systemic crisis than that during the pandemic. Finally, we show that the results are driven by the capital requirement prudential policy, both during the systemic crisis and the COVID‐19 pandemic, although the conservation buffer and the leverage limit also contributes to the ineffectiveness of these policies during the COVID‐19 pandemic. The banks' leverage and loan growth also play an enhancing role of the effects of the macroprudential policies.
Topic tones of analyst reports and stock returns: A deep learning approach
We present a novel approach that analyzes topics and tones of analyst reports using a deep neural network in a supervised learning approach. By letting trained classifiers evaluate topics and tones of the reports, we find that incorporation of topic tones significantly enhances the accuracy of predicting cumulative abnormal returns, increasing adjusted R2 from 6.1% without considering textual information to 17.9% with detailed topic tones. This improvement is primarily driven by the inclusion of opinion and corporate fact type of topics. Our findings highlight importance of topic assessment to make the most use of analyst reports for informed investment decisions.
Economic growth and labor investment efficiency
We examine the relationship between economic growth and labor investment efficiency. Using a sample of US firms from 1991 to 2019, our findings suggest that labor investment inefficiency increases with the expansion of economic activities. Although economic growth increases labor overinvestment, it also decreases labor underinvestment. The magnitude effect of economic growth is more pronounced for labor overinvestment. Labor investment inefficiency is noticeable during low economic policy uncertainty. Economic growth‐induced labor investment inefficiency is pronounced for (1) large firms, (2) high labor intensity firms, and (3) firms with overinvestment in non‐labor investments. Further, economic growth negatively (positively) influences the firm's future performance for labor overinvested (underinvested) firms. Our findings remain robust to alternative specifications.
The cross‐predictability of industry returns in international financial markets
This article finds evidence of return cross‐predictability among trading partners in international financial markets. We show that the predictability of international customers dominates the predictability of domestic customers, and the predictability of international intra‐industry customers dominates the predictability of international inter‐industry customers. This return cross‐predictability decreases with two country characteristics: financial sophistication and size.
A novel approach to portfolio selection using news volume and sentiment
In this study, we develop a novel approach to portfolio diversification by integrating information on news volume and sentiment with the k‐nearest neighbors (kNN) algorithm. Our empirical analysis indicates that high news volume contributes to portfolio risk, whereas news sentiment contributes to portfolio return. Based on these findings, we propose a kNN algorithm for portfolio selection. Our in‐sample and out‐of‐sample tests suggest that the proposed kNN portfolio selection approach outperforms the benchmark index portfolio. Overall, we show that incorporating news volume and sentiment into portfolio selection can enhance portfolio performance by improving returns and reducing risk.
Impact of professor‐directors on Chinese firms' environmental performance
This study investigates the impact of academic professor‐directors on Chinese firms' environmental performance. We find that the presence of board directors who are also professors has a positive impact on firms' environmental protection performance, and the result is robust after controlling for the potential endogeneity of professor‐directors. This is consistent with the notion that professor board directors are perceived to take more social responsibility and are more likely to advocate for sustainability. However, this positive impact is mitigated significantly by the presence of professor board directors with administrative titles. Moreover, the above results are mainly driven by non‐state‐owned enterprises, firms with less powerful CEOs, firms with better analyst coverage, and firms with less financial distress. Our study highlights the importance of academic directors for firms' environmental performance.
Local green finance policies and corporate ESG performance
Based on China's government‐business relations theory, we use difference‐in‐differences and causal forest to find that local green finance policies can significantly enhance corporate ESG performance especially for nonstate‐owned companies, companies with high levels of executive social capital, non‐heavily polluting companies, and companies in developed regions. We also find that the corporate financing constraint mitigation effect and the regional environmental regulation effect of local green finance policies are important mechanisms for promoting corporate ESG performance. Additionally, local green finance policies can strengthen the positive role of corporate ESG performance in enhancing corporate value, which is conducive to corporate sustainability.