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Article
Publication date: 2 May 2017

Wenxia Ge, Tony Kang, Gerald J. Lobo and Byron Y. Song

The purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting.

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Abstract

Purpose

The purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting.

Design/methodology/approach

Using a sample of US firms during the period 1992-2011, the authors examine the association between overinvestment (underinvestment) and three characteristics of bank loan contracts: loan spread, collateral requirement, and loan maturity.

Findings

The authors find that overinvesting firms obtain loans with higher loan spreads. Additional tests show that the effect of overinvestment on loan spreads is generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership. The effect of overinvestment on collateral requirement is mixed, and investment efficiency has no significant relation to loan maturity.

Research limitations/implications

The results are subject to the following caveats. First, while the study provides empirical evidence that investment efficiency affects bank loan contracting terms, especially the cost of bank loans, the underlying theory is not well-developed. The authors leave it up to future research to provide a theoretical framework to clearly distinguish the cash flow and credit risk effects of past investment behavior from those of existing agency conflicts. Second, due to data limitation, the sample size is small, especially when the authors control for corporate governance measured by G-index and institutional ownership.

Practical implications

The finding that overinvestment is costly to corporations suggests that managers should consider the potential trade-offs from such investment decisions carefully. The evidence also alerts shareholders and board members to the importance of monitoring management investment decisions. In addition, the authors find that corporate governance moderates the relationship between investment decisions and cost of bank loans, suggesting that it would be beneficial to design effective governance mechanisms to prevent management from empire building and motivate managers to pursue efficient investment strategies.

Originality/value

First, the findings enhance understanding of the potential economic consequences of overinvestment decisions in the context of a firm’s private debt contracting. The evidence suggests that lenders perceive higher credit risk from overinvestment than from underinvestment, likely because firms squander cash in the current period by investing in (negative net present value) projects that are likely to result in future cash flow problems. Second, the study contributes to the literature on the determinants of bank loans by identifying an observable empirical proxy for uncertainty in future cash flows that increases credit risk.

Details

Asian Review of Accounting, vol. 25 no. 2
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 7 November 2019

Xingqiang Du and Quan Zeng

The purpose of this paper is to investigate the influence of religious entrepreneurs on bank loans and further examine the moderating effect of entrepreneurial gender.

480

Abstract

Purpose

The purpose of this paper is to investigate the influence of religious entrepreneurs on bank loans and further examine the moderating effect of entrepreneurial gender.

Design/methodology/approach

In 2010, the Chinese national survey reported the different religious beliefs of private entrepreneurs. Using this set of survey data, the authors obtain a sample of 4,330 Chinese family firms and employ the Tobit regression approach to examine the relationship between the amount of bank loans and the religious background of entrepreneurs. In addition, the authors use the propensity score matching approach to address the endogeneity issue.

Findings

Based on the data from the 2010 national survey, the authors document that the amount of bank loans is significantly higher for Chinese family firms with religious entrepreneurs than for their counterparts. This finding suggests that religious individuals are inclined to be more ethical and honest and Chinese family firms with religious entrepreneurs transfer soft information to banks, and eventually lenders favor religious entrepreneurs with more bank loans. Moreover, the authors reveal that the amount of bank loans is significantly larger for firms with female entrepreneurs than for those without female entrepreneurs. In addition, entrepreneurial gender attenuates the positive relationship between religious entrepreneurs and bank loans.

Originality/value

This study is one of few studies to examine the influence of an entrepreneur’s religious belief on bank credit decisions and adds to previous studies about religious influence on corporate behavior by revealing a positive association between religious entrepreneurs and bank loans. Moreover, this study validates that female entrepreneurs exert positive effects on the amount of bank loans and attenuate the positive influence of religious entrepreneurs on bank loans.

Details

Asian Review of Accounting, vol. 27 no. 4
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 10 April 2009

Chunyuan Li, Xitao Wang and Wenxia Yuan

The increasing utilization of Al‐matrix composites in electronics packaging industry raises demands of solder materials with melting temperature at 400‐500°C. The purpose of this…

274

Abstract

Purpose

The increasing utilization of Al‐matrix composites in electronics packaging industry raises demands of solder materials with melting temperature at 400‐500°C. The purpose of this paper is to determine the thermal properties of two Ag‐Cu‐Sb alloys with the composition close to two eutectic points, and two Au‐Ag‐Ge alloys along the eutectic line, to observe the microstructures and to investigate the wettability of the alloys, and to evaluate the possibility for them to be used as medium temperature solders.

Design/methodology/approach

Four candidates of solder alloys in the Au‐Ag‐Ge (AAG1, AAG2) and Ag‐Cu‐Sb systems (ACS1, ACS2) were studied to reveal microstructures, melting points, wettabilities, and the interfaces between the solder and Al/SiC substrate coated with Au and Ni.

Findings

The paper finds that the ACS1 and ACS2 alloys possess small temperature gaps between solidus and liquidus: 422.9°C/429.2°C and 483.3°C/488.1°C, respectively. For two AAG alloys, the temperature ranges between solidus and liquidus are larger than 40°C. The wettability tests showed that two ACSs and AAG1 alloys have good wettability to the substrate. Similarly, except ACS2 alloy, the other alloys exhibit good adhesion with the substrate.

Originality/value

The paper shows that the ACS1 alloy and the AAG1 alloy could be used as the optimum solder materials for 400‐500°C owing to the good wettability and proper melting point.

Details

Soldering & Surface Mount Technology, vol. 21 no. 2
Type: Research Article
ISSN: 0954-0911

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Article
Publication date: 18 February 2021

Beibei Yan, Özgür Arslan-Ayaydin, James Thewissen and Wouter Torsin

Prior research shows that managers with lower ability release less accurate management earnings forecasts and have more earnings restatements, lower earnings persistence and lower…

823

Abstract

Purpose

Prior research shows that managers with lower ability release less accurate management earnings forecasts and have more earnings restatements, lower earnings persistence and lower quality accruals estimations. Yet, whether the impact of managerial ability (MA) on financial reporting can be extended to the narrative section of firms' financial disclosures needs to be theoretically and empirically examined. The authors theorize in this paper that managers with low ability opportunistically inflate the tone to increase outsiders' perceptions of their ability. The authors also examine the relation between MA and the informativeness of tone to predict future firm performance and explain investors' reaction at earnings announcement.

Design/methodology/approach

The authors collect 24,000 earnings press releases of 1,149 distinct firms between 2004 and 2013. Content analysis is used to proxy the tone of the disclosures. The authors use the score developed by Demerjian et al. (2012) to measure MA. The authors then employ panel data regressions to examine the impact of MA on disclosure tone.

Findings

The authors find that low-ability managers inflate the disclosure tone to positively influence labor market's perceptions about their ability. This effect is magnified for younger and shorter-tenured managers, for firms with more intense monitoring and during bear markets. The authors also find that the tone of earnings press releases of low-ability managers results in a lower stock price reaction. Supplementary analyses show that the results do not only hold for the tone, but also can be extended to other linguistic features such as the numerical intensity and the readability of earnings press releases. The results are robust to alternative library specifications and other corporate disclosures such as CEO letters to shareholders or 10-K filings.

Research limitations/implications

The paper shows that managers worry about how firm performance influences the labor market assessment of their ability. In particular, the authors find that managers of low ability are willing to opportunistically manipulate the content of corporate disclosures to improve this perception and build their reputation.

Originality/value

The authors contribute by providing theoretical and empirical evidence on how managers attempt to steer assessments of their ability by manipulating corporate disclosures. Consistent with prior business research suggesting that one's ability is a key feature that affects managers' propensity to engage in ethical practices, such as tax avoidance or manipulation of financial information, this study shows that less able managers tend to inflate the tone of the earnings announcements and that this ability-driven bias is likely to be magnified by career concerns.

Details

Asian Review of Accounting, vol. 29 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

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Article
Publication date: 10 January 2023

Bijoy Rakshit and Samaresh Bardhan

The primary purpose of this study is to investigate the effects of bank competition on SMEs' access to finance in selected Indian states. Using 9,281 firm-level observations from…

740

Abstract

Purpose

The primary purpose of this study is to investigate the effects of bank competition on SMEs' access to finance in selected Indian states. Using 9,281 firm-level observations from World Bank Enterprises Survey (WBES), this study tests the market power hypothesis versus the information hypothesis to determine whether bank competition promotes access to finance for financially constrained firms.

Design/methodology/approach

The authors measure state-level bank competition using two structural indicators: the Herfindahl Hirschman Index (HHI) and three bank concentration ratios (CR3). The authors apply simple probit regression, probit model with sample selection (PSS) and two-stage least squares (2SLS) to examine the effects of bank competition on firms' financing constraints.

Findings

The results obtained through PSS and 2SLS indicate that bank competition alleviates firm's financing constraints and positively impacts its need for a bank loan and the decision to apply for bank credit. However, the prevalence of bank competition in promoting access to finance is more pronounced for small and medium-sized firms than for large firms. Higher bank competition also alleviates the credit constraints faced by female entrepreneurs.

Practical implications

Reserve Bank of India (RBI) and other government stakeholders should ensure bank competition without hampering the agenda of bank consolidation to facilitate access to credit for SMEs. Regulators should also identify and monitor the financial institutions that make an insignificant contribution to promoting competitiveness in the financial system.

Originality/value

Previous studies primarily investigate the effect of bank competition on a firm's access to finance from advanced and cross-country perspectives. This study contributes to the literature on bank competition by examining its role in promoting access to finance from an emerging economy standpoint. Measurement of bank competition indicators at the state level is an additional contribution.

Details

Asian Review of Accounting, vol. 31 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

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Article
Publication date: 28 May 2021

Ming Liu and Zhefeng Liu

The purpose of the study is to investigate the possible role of annual report readability in accrual anomaly, shedding light on why investors fail to incorporate accruals…

465

Abstract

Purpose

The purpose of the study is to investigate the possible role of annual report readability in accrual anomaly, shedding light on why investors fail to incorporate accruals information in a timely and unbiased manner beyond the original naive investor fixation explanation.

Design/methodology/approach

Using five proxies of annual report readability and available data over 1993–2017, we investigate whether accrual overpricing is more severe when annual reports are less readable.

Findings

We find little (substantive) evidence of accrual overpricing among high (low) readability firms. The readability effects are contingent on the level of business complexity and earnings management.

Research limitations/implications

This study extends the original naive investor fixation explanation and documents annual report complexity as a market friction in explaining the accrual anomaly, contributing to the mispricing vs risk debate and supporting the efficient market hypothesis.

Practical implications

Low readability of annual reports is a red flag to investors.

Social implications

This study provides support for regulatory initiatives aimed at enhancing readability of corporate disclosures to address market frictions and improve market efficiency.

Originality/value

Accrual anomaly has posed a challenge to the efficient market hypothesis. This study draws on and adds to the line of research indicating that annual report complexity is a friction erecting a barrier to transparency, hindering market efficiency. This study contributes to our understanding of the enigmatic accrual anomaly.

Details

Asian Review of Accounting, vol. 29 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 14 July 2021

Aref M. Eissa and Yasser Eliwa

This paper examines the effect of political connections (PCs) on firms' profitability and market value in the Egyptian market after the uprising of 2013.

712

Abstract

Purpose

This paper examines the effect of political connections (PCs) on firms' profitability and market value in the Egyptian market after the uprising of 2013.

Design/methodology/approach

An empirical study is conducted based on 284 firm-year observations for non-financial listed firms on the EGX100 during the period of 2014–2017. To test the study’s hypothesis, two independent sample t-test, Pearson correlation analysis and ordinary least square (OLS) regressions are conducted.

Findings

The results suggest that PCs are common across all industries in Egypt, the PCs through top officers do not improve firm's profitability; however, it has a positive effect on firms' market value. Further, PCs through business owners improve neither profitability nor the market value. Finally, the results suggest that PCs through government ownership have a positive effect on both firms' profitability and market value.

Practical implications

The study’s finding encourages policymakers and regulators in emerging markets, e.g. Egypt, to develop stricter laws, policies and regulatory initiatives to restrain the potential conflict of interest in the politically connected firms.

Originality/value

To the best of the authors' knowledge, this study is one of the first to examine the relationship between PCs and both firms’ profitability and market value in Egypt.

Details

Asian Review of Accounting, vol. 29 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 13 February 2023

Soad Moussa Tantawy and Tantawy Moussa

This paper aims to examine how different types of corporate political connections (PCs) affect auditor choice decisions (and, therefore, audit quality) and audit opinions…

469

Abstract

Purpose

This paper aims to examine how different types of corporate political connections (PCs) affect auditor choice decisions (and, therefore, audit quality) and audit opinions following the 2013 Egyptian uprising.

Design/methodology/approach

This paper utilizes a unique hand-collected dataset on the type of PCs of Egyptian listed companies from 2014 to 2019. Several analyses are employed to test the hypotheses, including logit regression, probit regression and generalized linear mixed models (GLMM). A number of additional analyses are conducted to ensure the robustness of the results, including the instrumental variables (IVs) probit models and propensity score matching (PSM).

Findings

The results show that firms' choice of auditor and audit opinion is heavily influenced by firms' PCs. Companies with PCs through boards of directors and major shareholders hire Big 4 audit firms to enhance corporate legitimacy; however, government-linked companies usually retain non-Big 4 audit firms to avoid increased transparency and to conceal improper activities, including tunneling and rent-seeking. Further, the results indicate that companies with PCs through boards of directors or major shareholders are more likely to receive favorable audit opinions, whereas government-owned businesses are less likely to receive such opinions.

Research limitations/implications

This study provides additional evidence to policymakers that binding regulations and guidelines are necessary to oversee politically connected firms (PCFs) and to enhance governance and investor protection.

Originality/value

This study provides the first empirical evidence on how corporate PCs influence the choice of auditors and the opinions of audit firms in Egypt. This paper also sheds light on the impact of different types of corporate PCs on the choice of auditors and audit opinions.

Details

Asian Review of Accounting, vol. 31 no. 3
Type: Research Article
ISSN: 1321-7348

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