Vol 18, No 1 (2024)

The aim of our paper is to examine the impact of environmental, social, and governance (ESG) ratings on investment decisions in the pre-pandemic US bond and equity exchange-traded fund (ETF) markets. We measure the attractiveness of investments in the ETF as net fund flows and estimate whether the attractiveness varies with the ESG score. For empirical estimations, we employ the regression analysis methodology; specifically, we use linear mixed-effect model to analyze time-series dataset and ordinary least squares to analyze the cross-section data. On the one hand, we found that, on average, ETFs which comply with ESG criteria attracted additional net assets per month as compared to conventional ETFs. Thus, the results of our study indicate that investors demonstrate collective preference towards ESG investments and pay attention to the information on whether the ETF complies with the ESG criteria. On the other hand, we found mixed evidence that higher ESG score always leads to larger investments: differences in scores could not explain the variation in net fund flows. Overall, our study shows that ETF market investments are not directed by the risk-return profile only, and investors also have non-pecuniary motives for their decisions. The results have several practical implications. First, our findings offer business entities useful insight into the fact that incorporation of ESG policy can increase the attractiveness of their business for potential investors. Second, it shows that the market participants would benefit from increasing transparency and unification of rating methodology.

Despite the fact that environmental issues are coming to the fore today, the market reaction to environmental disasters is not strong enough. This article examines the impact of a number of major industrial disasters on the companies’ stock performance, depending on financial health of the companies involved in an accident. We assessed the impact of financial indicators such as: financial leverage, profitability, balance value per share, capital expenditures, market capitalization and revenue on the amplitude of cumulative average abnormal returns (CAAR). The sample consists of 32 companies from the oil, chemical, mining and energy industries of developed countries involved in 80 major accidents between 2000 and 2020. The majority of disasters occurred in North America (47.5%) and in Europe (26.3%). Using the event study method to assess shareholders’ reaction and regression analysis, we proved that the financial leverage, profitability and book value per share has a positive impact on the amplitude of CAAR, while the ratio of capital expenditures to revenue has a negative impact on cumulative returns. The results showed that market capitalization and revenue growth do not affect the dynamics of stock prices after industrial disasters. In general, our study shows that the impact of all financial indicators on CAAR is small (<1%). That is, despite the mandatory publication of climate risk reports, investors did not actively sell shares of companies guilty of industrial disasters. The results of the study are useful in several areas. On the one hand, by forming a diversified investment portfolio, investors taking into account the type of companies that are more sensitive to disasters. On the other hand, knowing such a market reaction, the state should provide financial players with strict rules and penalties for companies responsible for accidents.

The article analyzes the dividend policies of Russian companies using two dividend payment theories: signaling theory and agency cost theory. A sample of 30 Russian companies over the period 2010–2021 is used. To test the applicability of signaling theory, pooled regression and fixed effects models are developed. It is shown that an increase/reduction in dividend payments exceeding 20% in the current year allows one to predict an increase/decrease in the return on assets in one or two subsequent years (in comparison to the year preceding dividend payments). However, the growth rate of dividend payments shows no stable relationship with the future return on assets. To test the applicability of agency cost theory, a Tobit model is used with the participation of a principal majority shareholder represented by the government as the dependent variable. This binary variable is equal to 1 if the government owns directly or indirectly over 30% of corporate stocks and 0 otherwise. The results do not confirm the applicability of agency theory to the Russian market. Government participation in stock capital exerts no significant impact on the dividend payout ratio. These findings contribute to understanding the relationship between a company’s dividend policy and its future financial performance, providing a useful tool for Russian investors.

Stimulation and improvement of innovative development is an extremely important component of economic growth in an economy, along with the companies’ competitiveness in stagnating industries, which is especially relevant for companies at the maturity stage of the life cycle, where the risk of transition to the decline stage is highest. Without new developments and a sustainable innovation strategy, a company loses its leading position in the industry and misses new opportunities, leading it to the stage of stability and decline. Thus, it is important to study the factors that contribute to R&D intensity and encourage innovations in detail. This study investigates the impact of high level and quality of companies’ patent activity on their financial potential in order to maintain stable innovation performance in the medium term. The sample comprises companies from the printer and camera sector between 2007 and 2020. The determinants of innovation expansion that characterize the technological readiness and market potential of firms to maintain their leading position in a highly competitive market are identified, using a case study method using the example of Canon and its competitor Xerox. The data are collected from Bloomberg and Orbis Patent Database. The results show that while high innovation activity is an important driver of growth, it does not always lead to better financial performance in the earlier stages of the life cycle. The study contributes to the literature by examining different characteristics of innovation activity and life cycle stages through the lens of external economic changes, which brings transparency and clarity in understanding the possible problems that may result from using already disclosed innovations of competitors as well as disclosing one’s own intellectual property rights. The study proves that the greatest effect of innovation activity is observed in companies whose R&D expenditures are close to the industry average values along with diversification of revenue. The results of the study can help policy makers, managers and shareholders to build effective corporate governance to achieve strategic goals and minimize the risks of making wrong management decisions in R&D investments.

The review analyzes Russian academic publications from the early 2000s to the present on financial derivatives and their use by Russian non-financial companies to hedge foreign exchange exposure. During this period, studies have made significant progress, from discussing general issues, like the concept of FX exposure, the types of derivatives and the basics of hedging, to original research of hedging effects on company value or cost of equity using generally accepted quantitative methods, such as VaR evaluation. The research demonstrates that hedging practices vary by industry and by the firm size; the 2008 and 2014 financial crises followed by increased FX volatility had a twofold effect on these practices, with some
companies starting to apply hedging on a larger scale, and others abandoning it at all. The general opinion is that the use of derivatives to hedge foreign exchange exposure, specifically the transaction one, in Russia is much lower than in developed markets due to the market immaturity, regulatory and accounting difficulties, low demand for hedging instruments because of underdeveloped corporate treasury function, high hedging costs, etc. Instead, companies adhere to natural hedging, use non-financial techniques, or accept foreign exchange exposure. Still, most authors agree that to manage FX exposure, companies need to develop a comprehensive strategy; however, commercial flows reorientation due to the current political and economic situation requires developing new FX derivatives and a market for them. Overall, it can be concluded that the studies of Russian practices of using financial derivatives to hedge foreign exchange exposure are relatively small in number compared to foreign ones; data availability limits their factual base to information disclosed by public companies and model examples and does not allow to consider mid-sized and private firms’ practices.