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This paper studies the impact of societal trust on the conservative financing policy puzzle, aiming to cover a gap in the relationship between cultural values and the conservative financing policy.

We use a sample of 14,509 privately held medium-sized manufacturing firms from 26 European countries between 2015 and 2020 and rely on logistic regression methods controlling for firm-specific and macroeconomic factors.

We show that societal trust decreases the odds of being a zero-leverage or almost zero-leverage firm. Also, the probability of being a conservatively financed firm increases for older and more profitable firms and decreases with tangibility. In more trustworthy national environments, firms are less averse to debt as a source of financing. Our results are robust to the specific measure of trust, estimation methods, sampling procedures, and annual financial constraint status. Moreover, we show that the effect is noticed both in the long-term debt and the short-term debt with a lower economic impact in the latter situation and that increased societal trust attenuates (reinforces) the effect of being a financially constrained (unconstrained) firm on the odds of adopting a conservative financing policy.

Societal trust strategically impacts debt financing policy and could help foster firms’ growth, particularly for those facing heavier financial constraints.

Novel evidence on the impact of societal trust on the conservative financing policy, for privately held medium-sized European firms.

Does societal trust influence short-term financial management? Recent papers uncover the importance of societal trust for financial management in specific countries and large firms. Our paper aims to provide a comprehensive analysis of the impact of societal trust on short-term financial policies of SMEs, namely working capital management and cash holdings.

We rely on a sample of 14,711 privately owned medium-sized manufacturing firms from 26 European countries with a sample period between 2014 and 2020. For estimation, we use pooled OLS and hierarchical linear models and control for several firm-specific and country-specific known determinants of short-term financial management. Moreover, our results are robust to the specific measurement of trust, financial constraints, and corruption.

We show a positive relationship between trust and working capital requirements investment and a negative relationship between trust and the level of cash holdings. Moreover, we show that trust attenuates the negative impact of being a financially constrained firm and the positive impact of national perceptions of corruption. Finally, in higher trustworthy environments, firms operate with relatively higher inventories and relatively lower trade credit granted and obtained.

Results suggest that policies supporting societal trust may also foster business development and that when dealing with clients or suppliers from different trustworthy environments, firms may have to adapt their business models to incorporate trust differences between business environments.

Firstly, the comprehensive analysis of the impact of trust on working capital management and cash holdings while controlling for different firm-level and country-level known determinants of short-term financial management. Secondly, it addresses a European sample of unquoted, medium-sized firms. Thirdly, it studies the combined effect of trust and financial constraints and trust and corruption.

This paper provides empirical evidence on the impact of societal trust in three dimensions of banking activity: the quantity and quality of credit granted by banks and their economic performance.

The paper uses a sample of 1,366 European banks from 36 countries between 2014 and 2020. In our estimations, we control for bank-specific and country-specific determinants of banking activity. Moreover, we perform several robustness tests, including estimation by instrumental variables and hierarchical linear methods, variable definitions, and subsamples.

Societal trust increases the weight of credit on the balance sheets of banks and decreases the weight of nonperforming loans and net interest margins. Moreover, the results suggest a smaller (higher) impact of trust on loans and net interest margins (nonperforming loans) in the European Monetary Union (EMU) countries. Also, on the importance of loans and net interest margins, our results suggest a substitution effect between trust and the credit-favorable nature of the legal environment.

The symmetrical sign of the effect of societal trust on the importance of loans – positive – and nonperforming loans and net interest margins – negative – suggests that potential asymmetric information biases may be less severe or better accounted for by the credit risk evaluation in highly trustworthy environments. Also, bank managers should recognize risk factors related to trust levels and benefit from targeted risk mitigation measures and from implementing strategies aimed at enhancing profitability in different societal trust scenarios.

This paper provides empirical evidence on the impact of societal trust on banking activity from the perspective of the lending activity, risk and performance of banks. It also analyses the effects of EMU membership and the credit-favorable nature of the legal environment.

This paper aims to study the effect of country-level perceptions of corruption on commercial banks’ lending activity over the importance of loans and the quality of loan portfolios of banks in Europe.

The paper uses country-level perceptions of corruption scores from Transparency International, individual bank-specific data from ORBIS and macroeconomic data from the World Bank. The sample is composed of 640 commercial banks in 42 European countries from 2013 to 2019. The authors estimate, by pooled OLS, the relationship between corruption and the importance of loans and the quality of the banks’ loan portfolios. In addition, several robustness tests reinforce the results.

The results show that corruption negatively impacts the importance of loans in bank assets and positively impacts the proportion of bad loans. In addition, trade openness increases the weight of loans and the weight of nonperforming loans. Bank size, capital and risk also affect bank lending activity. Finally, European Monetary Union (EMU) membership reinforces the negative (positive) effect on loans (bad loans).

The results highlight the importance of fighting corruption. Governments, regulators and banks benefit from pursuing transparency-oriented policies to decrease the perception of corruption and foster economic development.

The literature on the impact of corruption on bank lending activity focuses mainly on high-corruption countries. This paper studies the European case, scarcely investigated in the literature, in the aftermath of two international financial crises and when significant regulatory transformations in banking supervision were instituted in the EMU countries.

The research objective was twofold: first, to propose a novel framework for composing an organization’s aggregate risk appetite, and second, to demonstrate the application of this framework in a suitable organization.

A conceptual framework for defining an organization’s aggregate risk appetite was developed based on relevant organizational theory and research through the lens of knowledge management. The organizational appetite for risk framework was subsequently implemented at the São Paulo State Technological Research Institute (IPT) using the design science research approach. Finally, the implementation was carefully examined in order to encourage future applications and to further refine the appetite for risk framework.

The composition and application of the proposed appetite for risk framework optimally identified the aggregated risk appetite of the complete test organization. Moreover, organizational differences between bottom-up tolerance and top-down appetite were revealed.

Our main practical contribution is a comprehensive procedure to conduct a risk assessment and achieve an organization-wide aggregate risk appetite through the lens of knowledge management.

Unlike past theory and research that take a strictly top-down approach to risk appetite, our framework integrates dispersed knowledge on risk-taking at various levels of the organization, thereby contributing to the underexplored role of bottom management in shaping aggregate risk appetite.

By the end of the case study discussion, it is expected that students will have learned to assess what makes it likely that firms will respond to episodes of stakeholder activism; establish the interplay between nonmarket strategies and corporate governance mechanisms in assessing shareholder activism; explain about the board of directors as a corporate governance mechanism; evaluate the threats of nonmarket dimensions as a strategic response from the board; and understand the impact and increasing power of shareholders over board decisions.

In April 2019, to pressure Rumo S.A. regarding the duplication of the Itirapina–Cubatão railroad, indigenous peoples from 12 São Paulo villages bought six Rumo shares, which were quoted on Tuesday, April 23, 2019, at around BRL17 each. Duplication of the railroad started in 2011 and affected the lives of the Indians. The company promised to implement more than 100 improvements to the villages, but as of 2019, half of the improvements were at a standstill. After buying enough shares to entitle them to participate in the annual general meeting (AGM) of shareholders, the Indians went to Rumo’s AGM to voice their concerns and show how the villages had been affected. It was the audit committee that needed to discuss and solve the case of the indigenous peoples. What steps would Rumo take next? What was the best thing to do with regard to the claims of the Indians? This case shows the start of corporate activism in Brazil. This case reports the dilemma that Rumo faced with the indigenous activism at the beginning of 2019 because of the expansion of their railroad network across indigenous lands.

This case is suited for a class in which the students are exposed to a corporate governance framework and internal and external governance mechanisms. The case can be applied at the graduate and executive levels in relevant courses such as corporate governance, corporate responsibility, strategic management, and the stock market.

Teaching notes are available for educators only.

CSS 11: Strategy.

This paper aims to study individual managers’ market timing capabilities while trading (either buying or selling) stock from their portfolios, as well as the impact of gender, seniority and trading frequency on their market timing performance.

This study uses a relative transaction price approach introduced by Dittmar and Field (2015) on 837 aggregated trades made by managers from their portfolios between 2010 and 2015. These were taken from publicly disclosed information through the Portuguese regulator. Furthermore, this study uses a median regression-based method to infer the authors’ conclusions.

The authors find that insiders buy (sell) at a relatively lower (higher) price when compared to other traders. This evidence shows that insiders have market timing capabilities. Moreover, this paper shows that contrarily to gender, both seniority and frequency help explain market timing performance and that insiders’ trades made over-the-counter (OTC) generally overperform the ones made on the open market (OM). Finally, this study finds a significant crisis-related influence on insiders’ market timing performance.

This study contributes to the literature by studying insider trading at the portfolio level, by analyzing the impact of personal characteristics of insiders (including gender, tenure and eagerness), focusing both on studying the buying and selling behavior across both OMs and OTC and analyzing firsthand the impact of a macroeconomic shift on insider trading performance.

This review aims to identify the determinants of voluntary disclosure of corporate social performance (CSP) and to analyze and consolidate previous quantitative studies to identify the theoretical perspectives and the variables used in measuring the determinants of CSP disclosure (CSP-D).

A literature review of articles published from 1987 to 2015 was conducted using the three databases, Ebsco, ISI and Jstor, with CSP-D as the dependent variable. The goal was to identify the theoretical perspectives underlying the studies and the independent variables.

The literature revealed a set of variables and their general measures, but the consensus confirmed that there was no single explanation for what determined CSP-D. The published theories that support a relationship between CSP-D and its determinants are legitimacy, institutional, stakeholder, agency and voluntary disclosure theory.

The results allowed us to identify the perspectives underlying the major theories and disclosed a set of factors considered by the literature as the ones that influence CSP-D. This information will be useful for researchers interested in developing their own studies on CSP-D because it presents the evolution of CSP-D factors over time and organizes the findings of multiple studies developed since the emergence of the theme.

The purpose of this paper is to explore how a politically connected firm moderates the relationship between media coverage and market value. More specifically, the authors are interested in the interplay of an external corporate governance (CG) mechanism with an internal one. By interacting different mechanisms, this paper advances the empirical setting of application and functions of the corporate governance.

This paper tests the hypotheses presented using panel data with a fixed-effect model, by assembling and exploiting a unique, hand-collected set of data on media coverage consisting of over 164,000 media reports and a politically connected board of directors comprising over 12,000 CVs tracked from 2010 to 2014. Data is originally from Brazil, a country where political connections are highly used by firms and that has been a place of much research on corporate political activity.

The results of this paper suggest that a politically connected board of directors can mitigate the negative effects of media coverage on market value. Overall, the results imply that the validity of a CG mechanism might be affected by other mechanisms.

The findings of this paper imply the need for research focusing on the mutual effects of different CG mechanisms. While CG is understood as a set of mechanisms, new research could focus on the interplay of these mechanisms.

The findings suggest that the presence of former politicians and government officers on the board dissipates bad news reported by the media and boosts market value when media is positive. To maximize investment returns, investors should analyze firms' political human capital.

To the best of the authors’ knowledge, this paper is the first to develop hypotheses on the moderation effects of a politically connected board on the relation between media coverage and market value. This is relevant because this brings insights on how firms could jointly manage these mechanisms.

Few studies have analysed how to actively manage strategic networks (SNs) to achieve individual and collective goals and create value. This paper aims to examine the influence of network management on the value created by SNs and the mediation role of resources and relationship quality.

The authors distributed a survey to 126 companies linked to SNs in the Brazilian information and communication technology sector. This study tested the hypothesized relationships using partial least squares structural equation modelling.

This study found that network management directly influences value creation. Furthermore, the exchange and combination of resources mediate the relationship between the two constructs. Surprisingly, the quality of the relationships does not mediate the relationship between management and the value created. However, it positively impacts the exchange and combination of complementary resources.

This study provides a new interpretation of the determinants of value creation in SNs. The results contribute to the theory by demonstrating that the relationship between network management and value creation is strengthened when the exchange and combination of resources between network participants occur. In turn, these are positively influenced by the quality of relationships established in the network, thus providing a new interpretation of the determinants of value creation in SNs.