Firms’ Sustainability: Does Economic Policy Uncertainty Affect Internal Control?

Liao, Fangnan; Ji, Xiaoli; Wang, Zhiping

doi:10.3390/su11030794

Cited by 14 publications

(10 citation statements)

References 76 publications

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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%

How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

Ahsan

Mirza

Al‐Gamrh

et al. 2020

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Purpose The purpose of this study is to investigate the moderating impact of corporate governance (CG) on the relationship between economic policy uncertainty (EPU) and the sustainable growth (SG) of Chinese firms. Design/methodology/approach The study collects data of 975 Chinese non-financial listed firms for the period from 2010 to 2017. The study measures SG using a comprehensive index based on nine financial indicators and applies industry and year fixed effects regression to investigate the direct and moderating impact of CG on the relationship between EPU and SG of Chinese firms. Findings The results of the study explain that EPU negatively affects SG, while concentrated ownership, board independence and board gender diversity (BGD) positively contribute to the SG of the Chinese firms. The results also explain that concentrated ownership and BGD reduce the negative impact of EPU on the SG of the Chinese firms. Research limitations/implications The study considers only non-financial firms; therefore, the results of this study cannot be generalized for financial firms. Future research can be carried out while considering financial firms as a unit of analysis. Practical implications The investigation of the negative impact of policy uncertainty on SG is essential for the government and policymakers to devise policies to reduce uncertainty. The investigation of the moderating effect of CG enriches the literature on corporates’ response to policy uncertainty. It provides valuable insights for corporates regarding CG mechanisms to attain SG. Originality/value To the best of the authors’ knowledge, this is the first study that investigates the moderating impact of CG on the SG of Chinese firms using an index-based measurement of SG.

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Section: Introductionmentioning

confidence: 99%

How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

Ahsan

Mirza

Al‐Gamrh

et al. 2020

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“…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%

Independent director interlocks: effects and boundary on the earnings persistence of the firm

Liao

Chen

2020

Economic Research-Ekonomska Istraživanja

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This article first analyses the impact of independent director interlocks on firms' earnings persistence in China, an emerging market from 2007 to 2017. Using the independent director network data and the unique internal control index, this article investigates the association between independent director interlocks and earnings persistence, and the roles of firms' outside director interlocks and firms' inside internal control playing in earnings persistence. Our results reveal a significant and positive association between independent director interlocks and earnings persistence, and in the context, there is a clear mediation effect of internal control in relationship of independent director interlocks and earnings persistence. Further analyses on the scope and stability of independent director interlocks effects show that independent director interlocks can both improve accrual earnings persistence and cash flow persistence. Meanwhile, the effect of independent director interlocks differentiates under the influence of firms' strategy, only playing a significant role in defensive ones. Moreover, we find that independent director interlocks can relieve the 'accrual anomalies' in the securities market. Our results are robust to the various measure of earnings persistence and alternative methodological techniques.

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“…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%

Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust

Liu

Dong

2020

Sustainability

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This paper explores the impact of economic policy uncertainty (EPU) on trade credit while taking into account the interactive role of social trust. The analysis is based on the panel data econometric model with fixed effects. Using firm-level data across 16 economies from 1995Q1 to 2015Q1, we find that (i) there exists a negative and highly significant relationship between economic policy uncertainty and the provision of trade credit; (ii) this relation is weaker for firms in countries with higher levels of social trust; and (iii) the effects of EPU and social trust are both more substantial for firms in more financially constrained industries. The impact of social trust is not a result of people's high confidence in government, an effective legal system of enforcing contracts, a high-quality institutional system or an excellent system of protecting shareholders. Our result is robust if we exclude business cycle effects or use an alternative measure of financial constraints.

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Firms’ Sustainability: Does Economic Policy Uncertainty Affect Internal Control?

Cited by 14 publications

References 76 publications

How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

Independent director interlocks: effects and boundary on the earnings persistence of the firm

Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust

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