Gone with the wind: An externality of earnings pressure

Liu, Zheng; Shen, Hongtao; Welker, Michael; Zhang, Ning; Zhao, Yang

doi:10.1016/j.jacceco.2021.101403

Cited by 67 publications

(67 citation statements)

References 43 publications

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“…In order to further test the moderating role of firms’ economic contribution on the relationship between air pollution and the cost of debt, we introduced the intersection term of firms’ economic contribution and air pollution as shown in Equation (7). Following Liu et al [ 17 ], we measured the economic contribution of a firm by its tax expenditure as a percentage of the total tax revenue in that province. The variable Tax refers to a firm’s economic contribution.…”

Section: Methodsmentioning

confidence: 99%

“…Third, our study provides firms with useful insights for forecasting creditors’ responses and decision making in the face of air pollution based on diverse conditions that include regional environmental supervision, industry characteristics, ownership, and firms’ economic contribution. Specifically, our research reminds the firms subject to strict environmental supervision, heavily polluting firms, non-state-owned firms, and firms with low economic contributions to be more vigilant against the environmental risk hidden in air pollution, which complements the existing literature on the environmental violation risk of firms to a certain extent [ 17 , 18 , 19 ].…”

Section: Introductionmentioning

confidence: 93%

“…Strict environmental policies threaten the legitimacy of polluting firms and bring administrative penalties or legal proceedings against polluting firms [ 34 , 35 ], which bring losses to the reputation and market valuation of firms [ 36 ]. During the 11th five-year plan period, Chinese local governments continued to strengthen the implementation of environmental policies, which was represented by the inclusion of regional air pollution control in the assessment system of local governments [ 17 , 37 ]. Since 2014, the Ministry of Environmental Protection of China has implemented a new policy of interviewing local government managers.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Thus, ownership is regarded as a strong political link between firms and government [ 42 ]. Political connection not only brings more advantages to state-owned firms, such as more investment funds, tax incentives, lower financing constraints, and capital cost [ 43 , 44 , 45 , 46 ], but also brings some obstacles to the implementation of environmental supervisions by local governments [ 17 , 38 ]. When local governments implement environmental supervision, the political connection can always protect state-owned firms from punishments due to environmental violations to a great extent.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…If a firm is a major contributor to local economic development, it may have stronger bargaining power when it comes to environmental supervision. Therefore, under the condition of serious information asymmetry in environmental problems, for the consideration of economic development and political performance objectives, local managers are likely to tolerate the environmental violations of heavily polluting firms that provide significant contributions to local economies and taxation at the expense of environmental protection [ 17 ]. We expect that an economically important firm has stronger negotiating abilities when it comes to environmental supervision, effectively reducing the administrative penalty they may suffer in air pollution events and reducing the sensitivity of creditors to the environmental violation risk.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

Wang

Zhang

Zhou

2022

IJERPH

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Although a firm’s exposure to air pollution-related risk has become an important factor that creditors cannot ignore in the procedure of lending decision making with the aggravation of air pollution, empirical evidence on whether and how air pollution affects the cost of debt has been relatively scarce. Employing a series of Chinese listed firms from the main board of the Shanghai and Shenzhen Stock Exchanges covering 2014 to 2018, our research responds to this research gap by exploring how air pollution-induced environmental violation risk affects the cost of debt by constructing an assessment system of firms’ environmental violation risk. The results shed light on an issue that firms exposed to higher concentrations of air pollution may suffer a higher environmental violation risk, resulting in a higher debt cost. In addition, a further analysis shows that environmental regulatory pressure and heavily polluting firms enhance the influence of air pollution on the cost of debt, while state-owned firms and firms’ economic contributions weaken the influence of air pollution on the cost of debt. Our research is conducive to highlighting not only the importance of environmental governance for mitigating the cost of debt to the firms exposed to air pollution, but also its importance to creditors exposed to their clients’ environmental violation risk and default risk.

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Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 93%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

Wang

Zhang

Zhou

2022

IJERPH

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Major overseas customers and corporate decoupling of environmental responsibility: Evidence from China

Chen,

Zhao

2024

Bus Strat Env

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In this study, we examine firms' decoupling of how they communicate about environmental responsibility and what they actually do in terms of environmental responsibility. We argue that this decoupling is driven by their trade relations with major overseas customers. Specifically, we propose that major overseas customers increase the likelihood of corporate environmental decoupling. We test our argument in a sample of Chinese industrial firms for the period 2007–2012. We find that the higher the proportion of sales to major overseas customers, the more likely supplier firms are to decouple environmental responsibility, that is, to obtain ISO 14001 environmental management system certification but not significantly reduce their pollution emissions. Heterogeneity analyses show that the impact of major overseas customers is more significant when these customers are larger, when the customers are located in Western developed countries, when the economic relationship between supplier firms and major overseas customers is more important to supplier firms, when supplier firms are more short‐sighted, and when supplier firms are in more competitive product markets. Our findings advance research on corporate environmental management and on corporate major customers by providing large‐scale empirical evidence of the drivers of the decoupling of corporate environmental responsibility and the impact of major customers on corporate environmental behavior.

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The effect of shareholder pressure on stakeholder interests: Evidence from corporate tax avoidance

Jiang,

Bao,

Yang

2024

Int. J Fin Econ

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Research on how shareholder pressure influences the interests of stakeholders has recently witnessed a sharp increase, but yields mixed findings. We revisit this question by investigating the impact of managers' attempts to meet or beat earnings expectations on corporate tax avoidance. Using a sample of Chinese listed firms during 2005–2022, we find that firms with earnings pressure are more tax‐aggressive. Furthermore, such a higher level of tax avoidance due to earnings pressure is associated with higher real activity management. Cross‐sectional analysis shows that the effect of earnings pressure on tax avoidance is weaker among firms with better environment, society, and governance performance, but becomes more salient for state‐owned enterprises, firms with higher financial constraints, and during periods when local officials are devoid of incentives for career advancement. Taken together, our study sheds light on the consequences of shareholder pressure stemming from capital markets on corporate tax policies, and provides implications for enterprises and policymakers concerning taxation in emerging markets.

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Gone with the wind: An externality of earnings pressure

Cited by 67 publications

References 43 publications

Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

Major overseas customers and corporate decoupling of environmental responsibility: Evidence from China

The effect of shareholder pressure on stakeholder interests: Evidence from corporate tax avoidance

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