Refinancing Risk and Disclosure of Corporate Investment

Magnan

Cormier

et al. 2021

IJMF

PurposeThis article aims to explore whether a firm's corporate social responsibility (CSR) transparency alleviates a firm's cash holdings.Design/methodology/approachCSR transparency ratings encompass both the quantity and the quality of CSR practices, as validated by Bloomberg. While based upon firm-specific disclosure, transparency ratings impound additional information gathered independently by Bloomberg and thus bridge the gap between CSR disclosure and CSR performance. The authors use ordinary least squares estimators, and the authors concentrate on a panel of S&P 500 index companies over the period of 2012–2018 to examine the effect of CSR transparency on corporate cash holdings.FindingsThe authors document that a higher level of CSR transparency induces a lower level of corporate cash holdings. Additional results imply that this negative relationship is more pronounced for firms suffering from high information asymmetry, with low financial reporting quality and for those with weak governance. Further analyses document that higher CSR transparency can help firms to enjoy lower cost of debt and to be less financially constrained, enabling high CSR transparent firms to obtain external financing more easily and at a lower cost, thus lowering the need to hoard cash. Ultimately, the study findings suggest that CSR transparency increases the market value relevance of an additional dollar in cash holdings.Originality/valueThe authors contribute to both research streams of CSR and corporate cash holdings as they provide evidence about the influence of CSR transparency as a monitoring and insurance-like mechanism on corporate cash holdings.

Section: Additional Resultsmentioning

confidence: 99%

Section: Additional Resultsmentioning

confidence: 99%

Does corporate social responsibility transparency mitigate corporate cash holdings?

Magnan

Cormier

et al. 2021

IJMF

“…If this reasoning is correct, we expect that the association between audit quality and the auditee’s payouts becomes less (more) pronounced with higher (lower) rollover risk. We estimate refinancing risk ( ROLL ) as the percentage of long-term debt due for repayment in the following period (Paul and Zhou, 2018). A greater ROLL indicates a higher requirement for refinancing, implying a higher refinancing risk (Chiu et al , 2017).…”

Section: Further Investigationmentioning

confidence: 99%

Auditee’s payout policies: does audit quality matter?

2022

MAJ

Purpose This study aims to explore whether an auditee’s audit quality influences its payout policies (i.e. each form of dividend payouts and stock repurchase payouts). Design/methodology/approach Based on a panel data of US public firms, from 2004 to 2018, and Tobit estimators, this study aims to examine whether auditees’ audit quality is related to their payouts and under which circumstances (from the standpoints of auditees’ information asymmetry, refinancing risk, corporate governance and financial constraints) the aforesaid associations are more pronounced. Findings The findings of this study imply that auditees’ audit quality is positively related to auditees’ payouts. Further examination suggests that this positive relationship is stronger for auditees with higher information asymmetry, lower financial constraints and refinancing risk and for those with weaker governance. Finally, this study documents that dividend payouts are more stable for auditees with high-quality audits than those with low-quality audits. The results support the view that auditees’ transparency (reflected in high-quality audits) could be a crucial driver and rationale for their payout policies and, ultimately, overall policies. Originality/value By combining two different research lines of audit quality and corporate payout policies, this paper adds to both literature, as it is a novel one to document the contributing function and impact of audit quality on auditee’s payout policies (tangible financial decisions and policies). The findings are significant considering that it documents high-quality audits affecting the auditees besides their financial reporting quality. This study also shows the moderating roles of the auditee’s information asymmetry, rollover risk, financial constraints and corporate governance in the relation between audit quality and an auditee’s payout decisions. Furthermore, the findings can help shareholders (aiding them in determining companies with high payout policies), regulators and policymakers who emphasize audit quality. The results indicate that policymakers’ and standard setters’ efforts fostering high-quality audits should be in conjunction with firm payout standards.

“…cash reserves) to have a smoother refinancing (Harford et al, 2014). We estimate rollover risk (RollOver) via the percentage of long-term debt due for repayment in the next year (Chiu et al, 2017;Paul and Zhou, 2018). A greater RollOver means a higher requirement for refinancing that indicates a higher refinancing risk (Chiu et al, 2017).…”

Section: Further Investigationmentioning

confidence: 99%

Audit quality and liquidity policy

2022

IJMF

PurposeThe purpose of this study is to examine whether audit quality influences auditees' liquidity policy.Design/methodology/approachThe author uses ordinary least squares (OLS) estimators, and we focus on a panel of US publicly traded companies (36,118 company-year observations) over the period of 2004–2019 to examine the effect of audit quality on auditees' cash reserves.FindingsThe author finds that high quality audits are negatively related to auditees' cash reserves. Additional analyses show that the potential channel by which audit quality influences these reserves is financial constraints (FC). Particularly, his results suggest that an auditee's FC serve as an intermediary in the association between audit quality and auditee's cash reserves. Ultimately, we show that high quality audits raise the market value relevance of an extra dollar in cash reserves.Originality/valueBy linking two distinct research lines of audit quality and corporate cash reserves, this study adds to both lines of literature, as it is a novel one (to the best of the author’s knowledge) to provide evidence about the effect of audit quality on the auditees' liquidity policy (a real economic decision and internal financial policy) that ultimately boosts the auditees' investment efficiency. The author’s findings are consistent with influential monitoring and an insurance-like function of high quality audits in reducing information asymmetry and its consequences. His results also support the argument that auditees' transparency through high quality audits can be a pivotal determinant of their liquidity policy.