Estimating the effect of corporate integrity culture on tax avoidance using a text-based approach: A research note.

Tax avoidance holds immense importance due to its substantial implications for government revenues and the fair allocation of resources. Consequently, understanding the factors that shape tax avoidance is critically important. Exploiting a cutting-edge measure of corporate integrity derived from state-of-the-art machine learning algorithms and textual analysis, we explore the effect of corporate integrity on tax avoidance. Our text-based measure is based on a textual analysis of earnings conference call transcripts. Our findings show that companies with greater corporate integrity are significantly less involved in tax avoidance. Further analysis corroborates the results, i.e., propensity score matching, entropy balancing, and an instrumental variable analysis. Our findings are especially noteworthy as they demonstrate that corporate culture, although intangible in nature, exerts a substantial influence on corporate behavior.

Infectious diseases, dividend policy, and independent directors: Evidence from textual analysis.

We investigated the effect of uncertainty associated with infectious diseases on corporate dividend policy. We used a unique text-based measure of infectious diseases that includes not only the Covid-19, but also other important diseases, such as SARs, MERs, and Ebola. Based on a sample of 287,151 firm-year observations across four decades (from 1985 to 2021), our results show that a higher level of uncertainty associated with infectious diseases significantly reduce dividends. Interestingly, we also found that having more independent directors on the board mitigates the negative effect of uncertainty associated with infectious diseases on dividends which implies that the reduction in dividends was partly driven by agency conflicts. We performed several robustness checks which confirm that our findings are unlikely to be affected by endogeneity issues.

The effect of shareholder litigation rights on female board representation: A quasi-natural experiment.

Employing as a quasi-natural experiment an unexpected judgment by the Ninth Circuit Court of Appeals that raised the difficulty of shareholder litigation, we explore the effect of shareholder litigation rights on board gender diversity. Our difference-in-difference estimates show that an exogenous reduction in shareholder litigation risk results in significantly less female board representation, a decline by 11.44% in particular. Our findings corroborate the view that strong shareholder litigation rights strengthen internal governance such as board oversight. Therefore, when shareholder litigation rights are weakened, there is a drop in board quality. Additionally, we document a decline in board independence and an increase in board size following the Ninth Circuit ruling, both of which are associated with poorer board monitoring. Further analysis validates the results. i.e., propensity score matching, entropy balancing, GMM dynamic panel data estimation, and Oster's (2019) testing for coefficient stability. Based on a quasi-natural experiment, our conclusion probably reflects a causal influence, rather than a mere correlation.

Do hostile takeover threats matter? Evidence from credit ratings.

Exploiting a novel measure of takeover vulnerability mainly based on state legislations, we explore the effect of hostile takeover threats on credit ratings. Our results reveal that companies with more takeover exposure are assigned significantly better credit ratings. In particular, a rise in takeover vulnerability by one standard deviation results in an improvement in credit ratings by 7.89%. Our findings are consistent with the view that the disciplinary mechanism associated with the takeover market mitigates agency problems and ultimately raises firm value. Further analysis corroborates our conclusion, including propensity score matching, entropy balancing, and an instrumental-variable analysis. As our proxy for takeover susceptibility is plausibly exogenous, our results are more likely to show a causal effect.

Does board gender diversity weaken or strengthen executive risk-taking incentives?

We investigate the effect of board gender diversity on managerial risk-taking incentives. Our results demonstrate that companies with stronger board gender diversity provide more powerful executive risk-taking incentives. It appears that female directors' risk aversion exacerbates managers' risk aversion, resulting in a sub-optimal level of risk-taking. To offset this tendency for too little risk, companies are induced to provide stronger risk-taking incentives. Specifically, an increase in board gender diversity by one standard deviation raises vega by 10.3%. Further analysis corroborates the results, including propensity score matching, entropy balancing, and an instrumental-variable analysis. Endogeneity appears to be unlikely, suggesting that female directors are not merely associated with, but probably bring about stronger risk-taking incentives.