Explore the vast range of titles available.

Environmental sustainability, social engagement and robust governance gained growing attention from consumers and investors alike, leading to what we call ‘ESG finance’. ESG criteria are now shaping the behaviour and choices of enterprises, investors and consumers. Indeed laudable, the increased importance of ESG finance could raise concerns about the robustness underneath this new set of financial products. Moreover, the reliability of ESG-related data and information shared by companies may also be challenged due to the ability of those indicators to shape the public profile of companies and their attractiveness for investors. A new breed of ESG rankings and ratings is widening the metrics that consumers and investors use to make informed decisions about their consumption and investment. Yet, such rankings and ratings hinge on the individual disclosure approaches of the interested companies. This article wishes to complement available data and information about specific emissions data released by companies with the ESG disclosure levels, in particular relating to the “environment” dimension. Based on these disclosure levels, the authors build a new metric with the purpose of reducing asymmetric information and promoting more responsible investment. Starting from ESG-related data and publicly available information, a new disclosure-adjusted pollution index (namely, the GHG Scope-1 DAdj index) is developed. The second part of the article puts forward an empirical analysis on the basis of this new index, suggesting that the rush to ESG finance could be poised to generate leeway for new types of asymmetries and possible distortions in investment decision-making, also providing grounds for potentially reckless speculative attitudes, especially in the domain of product development of financial instruments that may generate new forms of risk for investors. Using the GHG Scope-1 DAdj index makes a few companies less environmentally friendly and interesting for investors who are seeking responsible and sustainable investment options. The innovative index and the empirical analysis lead the authors to suggest to “split the domains of ESG” to better gauge the relation between impact and compliance costs for companies as the individual components of environment, social engagement and governance are considered separately.

'Investor Protection and Corporate Governance' analyzes the impact of corporate governance on firm performance and valuation. Using unique datasets gathered at the firm-level—the first such data in the region—and results from a homogeneous corporate governance questionnaire, the book examines corporate governance characteristics, ownership structures, dividend policies, and performance measures. The book's analysis reveals the very high levels of ownership and voting rights concentrations and monolithic governance structures in the largest samples of Latin American companies up to now, and new data emphasize the importance of specific characteristics of the investor protection regimes in several Latin American countries. By and large, those firms with better governance measures across several dimensions are granted higher valuations and thus lower cost of capital. This title will be useful to researchers, policy makers, government officials, and other professionals involved in corporate governance, economic policy, and business finance, law, and management.

This study investigates the role of foreign institutional investors (FIIs) in restraining earnings management activities of firms under varying levels of investor protection. Firms manage their earnings less when independent FIIs are among their shareholders, especially for firms in which monitoring is more valuable – firms in weak investor protection countries and when firms have greater growth opportunities. These effects are robust to a quasi-exogenous shock to FIIs’ shareholdings, unobserved firm heterogeneity, and alternative earning management measures. FIIs are associated with an increase in foreign director presence on corporate boards and audit committees.

Within the EU investor protection framework, issuers are required to provide different investor groups with relevant information. The introduction of the prospectus summary (which has recently undergone substantial changes) clearly shows that EU legislator include unsophisticated investors among the users of financial information. Nevertheless, the issuers’ accounting regime seems to be inconsistent with this regulatory approach. Due to their ever increasing complexity, IAS/IFRS are not suitable to meet unsophisticated investors’ needs and can lead to information overload. Given that a simplification of IAS/IFRS does not appear to be possible, and would be inefficient, the article looks at the UK Strategic Report model and argues that the narrative component of financial reports can play a key role in rendering EU issuers’ financial reports more informative and more suited to meeting information needs of different groups of users by diversifying information directed at unsophisticated and sophisticated investors. Although Directive 2013/34/EU regulates the contents of management reports, a harmonised practice of narrative reporting at EU level is lacking, due to the high degree of flexibility provided by the Directive 2013/34/EU. The article outlines the framework of a possible EU (more) harmonised approach in the area of narrative reporting, arguing that the ESMA may foster harmonisation by promoting the adoption at the national level of proactive enforcement activities aimed at developing guidance and recommendations on the contents and format of narrative reporting, and possibly providing issuers and national enforcers (on which first rests the responsibility to enforce accounting rules) with guidelines on narrative reporting.

We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long-run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.

Investor protection is associated with greater investment sensitivity to q and lower investment sensitivity to cash flow. Finance plays a role in causing these effects; in countries with strong investor protection, external finance increases more strongly with q, and declines more strongly with cash flow. We further find that q and cash flow sensitivities are associated with ex post investment efficiency; investment predicts growth and profits more strongly in countries with greater q sensitivities and lower cash flow sensitivities. The paper's findings are broadly consistent with investor protection promoting accurate share prices, reducing financial constraints, and encouraging efficient investment.

During 1980–2000, an average of 310 companies per year went public in the United States. Since 2000, the average has been only 99 initial public offerings (IPOs) per year, with the drop especially precipitous among small firms. Many have blamed the Sarbanes-Oxley Act of 2002 and the 2003 Global Settlement’s effects on analyst coverage for the decline in IPO activity. We find very little support for the conventional wisdom, and we offer an alternative explanation. Our economies of scope hypothesis posits that the advantages of selling out to a larger organization, which can speed a product to market and realize economies of scope, have increased relative to the benefits of operating as an independent firm.

We examine contagion in earnings management using 2,376 restatements announced during the years 1997–2008. Controlling for industry and firm characteristics, firms are more likely to begin managing earnings after the public announcement of a restatement by another firm in their industry or neighborhood. Such contagion is absent when the restating firm is disciplined by the SEC or class action lawsuits, suggesting deterrent effects of enforcement activity. Contagion among peers is observed (1) in the same account as the one restated by the target firm, or (2) when larger target firms restate or the restatement is prominently disclosed, or (3) when the target firm's restatement is less severe. Contagion stops during the years 2003–2005, possibly due to the enforcement associated with the Sarbanes-Oxley Act (SOX), but reappears during 2006–2008, perhaps because the sting associated with SOX has worn off. In sum, peers' actions appear to affect a firm's earnings management decisions.

The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue that adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE/NASDAQ listing rules (collectively, SOX) as natural experiments, to examine whether board independence improves decision making by overconfident CEOs. The results are strongly supportive: after SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve postacquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to SOX.

This paper investigates the effect of investor protection on the value impact of stock liquidity. Using a sample of firms from 40 countries for the period between 1996 and 2010, we show that investor protection is positively associated with the value impact of stock liquidity. This association is robust to the difference-in-differences approach based on a natural experiment. Further evidence shows that the positive effect of home-country investor protection on the liquidity–valuation association attenuates in countries with globally integrated capital markets.