2019
DOI: 10.3390/su11030794
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Firms’ Sustainability: Does Economic Policy Uncertainty Affect Internal Control?

Abstract: This paper studies whether economic policy uncertainty (EPU) influences internal control (IC). Exploiting EPU as an exogenous shock and using unique internal control index data at the firm level from China, we can make causal inferences about the EPU effect on IC, and provide new insight into firms’ sustainability. Our results show that firms tend to cope with higher EPU by improving IC, indicating their efforts to ensure sustainability development. We also find that this trend is intensified for firms localiz… Show more

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Cited by 14 publications
(10 citation statements)
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“…Higher economic policy uncertainty (EPU) makes it difficult for the corporations to grow sustainably; however, improved internal control can reduce the impact of EPU on the SG of the corporations (Liao et al, 2019;Iqbal et al, 2019). A robust corporate governance (CG) system can improve internal control by reducing agency conflicts (Tirole, 2010) and can help corporations to devise strategies to cope up with EPU.…”
Section: Introductionmentioning
confidence: 99%
“…Higher economic policy uncertainty (EPU) makes it difficult for the corporations to grow sustainably; however, improved internal control can reduce the impact of EPU on the SG of the corporations (Liao et al, 2019;Iqbal et al, 2019). A robust corporate governance (CG) system can improve internal control by reducing agency conflicts (Tirole, 2010) and can help corporations to devise strategies to cope up with EPU.…”
Section: Introductionmentioning
confidence: 99%
“…Because of poor management and weak investor protections, firms' ability to sustain profitability is restricted (Syverson, 2011). After decades of rapid economic growth in China, the linkage among major economic indicators has witnessed divergence, which can be attributed to the firms' poor sustained profitability (Anderson et al, 2003) as the result of weak corporate governance and outside investor protections (Liao et al, 2019) and poor management (Han et al, 2018). Our study proposes a link between Independent director interlocks (IDI) and Earnings persistence (EP) to explore whether IDI could play a positive role and where is its boundary on firms' sustainable profitability.…”
Section: Introductionmentioning
confidence: 99%
“…They point out that a high level of EPU is negatively associated with M&As, and this impact is exacerbated for more irreversible deals and acquirers whose product demand or stock returns are more sensitive to government policy. In addition to corporate investment, the BBD EPU index is significantly associated with risk premia [32], excess market returns [33], corporate bond credit spreads [10], sensitivity of investment to the cost of capital [11], and firms' voluntary disclosures [17] and internal controls [34]. In addition to the BBD index, election dummies are widely used to study the impact of policy uncertainty.…”
Section: Literature Reviewmentioning
confidence: 99%