• July 2021
• Article

This paper examines the impact of corporate governance on capital structure dynamics. Using ordinary least squares regressions on 17,496 firm-year observations for 2,294 U.S. multinational companies (MNCs) over the period 1990–2018, we find that MNCs with strong corporate governance use more debt than those with weak governance. Furthermore, strong corporate governance is associated with a faster speed of adjustment to capital structure. This relationship is more pronounced for MNCs than domestic companies, and particularly for overlevered firms. We also use the two-part zero-inflated fractional regression model, instrumental variable, and structural equation model estimations to deal with any endogeneity concerns associated with the explanatory variables. Overall, our findings, which withstand a battery of robustness checks, suggest that improvements in corporate governance reduce the costs of monitoring for bondholders, resulting in increased debt financing.

• July 2021
• Article

As part of the SEC’s revision of Regulation S-K, many investors proposed the mandatory disclosure of sustainability information in the form of environmental, social, and governance (ESG) data. However, progress is contingent on collecting evidence regarding which sustainability disclosures are financially material. To inform this issue, we examine materiality standards developed by the Sustainability Accounting Standards Board (SASB). We find firms voluntarily disclosing more SASB-identified sustainability information have higher stock price informativeness. In contrast, sustainability disclosures not identified as material by SASB are not associated with informativeness. Our result is robust to including controls for sustainability performance ratings, analyst forecasts, insider trading, institutional ownership, earnings quality, and other voluntary disclosure activity. Changes in material sustainability disclosure are followed by changes in stock price informativeness. Differences-in-differences estimates suggest that following the release of SASB standards, the treatment group of firms increased SASB-identified sustainability disclosure relative to the control group of firms and that the treatment group experienced an increase in stock price informativeness. The results are stronger for firms with higher exposure to sustainability issues, greater institutional and socially responsible investment fund ownership, and coverage from analysts with lower portfolio complexity. Moreover, we document intra-industry information transfers to firms with low SASB-identified sustainability disclosure in industries where firms have higher SASB-identified sustainability disclosure.

• June 2, 2021
• Article

The Centers of Medicare and Medicaid Services (CMS) recently announced that it will be removing more than 250 musculoskeletal surgeries from its “inpatient-only list” in January 2022. An additional 1,500 surgeries will be eliminated in the following year. The change provides more flexibility for patients and physicians, lowers costs, and promotes competition between hospitals and independently owned ambulatory surgical centers (ASCs). It will also allow more surgeries to be performed in facilities that do not treat patients with infectious diseases, legitimizing ASCs as the “right place for the right care” for the many surgeries with low likelihood of complications. CMS, however, failed to change its reimbursement practices in which physicians receive lower fees and patients incur higher co-pays when surgeries are performed in ASCs. This omission will cause many hospitals, surgical practices, and patients to prefer in-hospital to ASC-based surgeries. CMS can remedy this gap by changing historical payment policies that dis-incentivize surgeries performed in ASCs.