Perk consumption as a suboptimal outcome under pay regulations

Donghua Chen, Nanjing University
Oliver Zhen Li*, National University of Singapore
Shangkun Liang, Central University of Finance and Economics

Abstract
We examine how perk consumption is determined and whether it impacts firm value in China where executive pay is regulated. We find that perks are provided when the relative pay between top executives and average employees is low, in firms with high free cash flows, economic rent, and growth. Perks are positively associated with firm value, but to a much lesser extent than monetary compensation. This suggests that if perks are converted to cash compensation, shareholder wealth can be further enhanced. However, under China’s regulated compensation structure, this conversion may not be easily achieved and perks likely represent a second-best suboptimal solution in motivating executives.

Keywords: Compensation, perk, agency conflict, China

Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea

Eunho Cho, New York Institute of Technology
Sungbin Chun*, Sogang University

Abstract
We examine whether a firm’s corporate social responsibility (CSR) activities are associated with real activities earnings management (RAEM) based on stakeholder perspective. We also investigate whether corporate governance (CG) moderates the relationship between CSR and RAEM. Using a sample of 1432 firm-year observations of Korean-listed firms during 2005–2010, we find that socially responsible firms are significantly and negatively associated with RAEM. More importantly, we find that this relationship is moderated by CG as measured by a composite CG index. These results remain robust after we perform various sensitivity analyses. This study primarily contributes to the literature on CSR, CG, and RAEM by providing evidence for the moderating role of CG on the relationship between CSR and RAEM.

Keywords: accrual-based earnings management; corporate governance; corporate social responsibility; real activities earnings management

The impact of ESG disclosures and institutional ownership on market information asymmetry

Renard Y. J. Siew, Sime Darby Berhad
Maria C. A. Balatbat, UNSW Australia
David G. Carmichael, UNSW Australia

Abstract
This paper investigates the impact of ESG disclosures and institutional ownership on market information asymmetry for 683 firms listed on the New York Stock Exchange for years 2007 2011. Overall, the results suggest that there is a statistically significant negative relationship between ESG disclosures and bid-ask spread and that the presence of institutional investors reduces market information asymmetry. However, it is further established in this paper that a relatively higher level of institutional ownership may attenuate this effect because there is a tendency for institutional owners to exploit private ESG information gained through their position.

Keywords: ESG disclosures, voluntary disclosures, bid-ask spread, information asymmetry, institutional investors

Managerial ability and tax avoidance: evidence from Korea

Joonho Park, Hanyang University
Chang Youl Ko, Jeju National University
Hoon Jung, Korea Information Society Development Institute
Yong-Seok Lee, Hannam University

Abstract
This study investigates the incremental effects of managerial ability on tax avoidance. Managerial ability is estimated through a data envelopment analysis (DEA) and tobit regressions. We find that there is a negative relationship between tax avoidance and firm value. In addition, we document a statistically meaningful negative relation between managerial ability and tax avoidance. The results also suggest that high managerial ability mitigates the negative relationship between tax avoidance and firm value. These findings suggest that managerial ability influences the tax avoidance behavior of the firm.

Keywords: managerial ability, tax avoidance, firm value, data envelopment analysis

Economic growth and savings in Saudi Arabia: empirical evidence from cointegration and causality analysis

Jamel Jouini, King Saud University

Abstract
The similar evolution of GDP and savings, the high level of natural resources, and the high financial surplus of Saudi Arabia motivate us to examine the linkages between economic growth and savings from 1980 to 2012 in the ARDL framework. By incorporating relevant determinants, we find cointegration among the variables and positive two-way Granger-causality between economic growth and savings over the long- and short-run. Authorities should thus pursue policies that promote economic growth and savings, to achieve higher levels of both. The results are robust to using alternative specifications and econometric procedures, and show stable economic growth and savings functions.

Keywords: Economic growth, savings, auxiliary variables, ARDL approach, Saudi Arabia