The paper investigates the determinants of bankruptcy in three representative unbalanced samples of Italian firms for the periods 1989–91, 1992–94 and 1995–97. Two important results are that: (i) the degree of relative firm inefficiency measured as the distance from the efficient frontier has significant explanatory power in predicting bankruptcy (ii) qualitative regressors such as customers’ concentration and strength and proximity of competitors have significant predictive power and suggest that banks should not restrict their monitoring activity to balance sheet variables. These findings remain significant after controlling for balance sheet liquidity and profitability variables usually considered in these estimates.

We investigate how reputational risk arising from traditional and online media coverage of Corporate Social Irresponsibility (CSI) conducts affects the cost of borrowing and what are the factors that can mitigate or amplify this effect. First, we find that negative media attention increases bank loan costs and show that this result is robust to endogeneity concerns and alternative measures of key variables. Next, we find that the impact of negative media attention on bank loan costs is more severe if the misconduct involves borrowers with prior high Corporate Social Responsibility (CSR) reputations, while it is smaller when prior lending relationships exist between the lead arranger and the borrower.

The paper analyses the determinants of cross-sectional stock returns at the London Stock Exchange in the last 26 years. It finds that portfolio strategies based on low values of earning per share (EPS), market to book value (MTBV), market value (MV) and return on equity (ROE) significantly outperform the index. Do size and value (S&V) strategy premia disappear when risk-adjusted or do they reveal gains from trading against noise, near rational, liquidity or “weak-hearted” traders? We find that the significance of cross-sectional determinants of these strategies is not absorbed by ex post betas. They are not riskier in terms of monthly return standard deviations, covariation with GDP growth and their premia do not disappear when survivorship bias is taken into account. Portfolio mean monthly returns (MMRs), regressed on several risk factors in 3-CAPM models, confirm that S&V strategy premia persist when risk adjusted. Empirical results also mark the difference between ROE and MTBV portfolios, on the one side, and MV and EPS portfolios, on the other. Descriptive statistics on preformation and postformation returns, average balance sheet values and preformation standard deviations clearly show that ROE and MTBV portfolios have a common financial distress factor and are then more exposed to systematic risk.

By devising a real effective exchange rate (REER) index where bilateral exchange rates are weighted for relative trade shares, we find that the REER volatility (differently from the bilateral exchange rate volatility with the dollar) has significant impact on growth of per capita income after controlling for other variables traditionally considered in conditional convergence estimates. We also find that this (cost of volatility) effect can be reconciled with the concurring negative and significant effect on growth of the adoption of a fixed exchange rate regime (advantage of flexibility effect), where the latter may be also interpreted as the cost of choosing pegged regimes without harmonization of rules and macroeconomic policies with main trading partners. The adoption of an REER volatility measure, instead of a bilateral exchange rate with the dollar, has the advantage of making it possible a joint test for these two effects. This is because, while fixed exchange rate regimes are strongly negatively correlated, and almost collinear, with bilateral exchange rate volatility with the dollar, the correlation is much weaker when considering our REER volatility measure.

A typical argument in the literature is that Corporate Social Responsibility (CSR) reduces the risk of conflicts with stakeholders. In accordance to this, we test whether: (i) domain specific CSR portfolios present pricing anomalies that could be captured by the introduction of risk factors accounting for exposition to stakeholder risk, (ii) this risk source is priced in the cross-section of stock returns. In doing so we are particularly cautious in disentangling the contributions of different CSR domains in generating the pricing anomalies. Our findings show the existence of pricing anomalies related to CSR, which vary in numbers across all the domains under analysis. Even if our domain-specific CSR risk factors are not able to capture all pricing anomalies, we find that they reduce their absolute value. Additionally, our results show that the stakeholder risk is priced in the cross-section of returns, and that such additional risk source presents different premiums for each domain.

Idiosyncratic volatility (IV) is a measure of firm specific information that is correlated with lower stock returns. We explore the nexus between IV and corporate social responsibility (CSR) and document that IV is positively correlated with aggregate CSR and is negatively correlated with a CSR-specific (stakeholder) risk factor. Our findings are consistent with the view that CSR reduces flexibility in responding to productive shocks via the reduction of stakeholder well-being, thereby producing the combined effect of making earnings less predictable and reducing exposure to risk of conflicts with stakeholders.

We investigate the relationship between corporate social responsibility (CSR) and I/B/E/S analysts’ earnings per share (EPS) forecasts using a large sample of US firms for 1992–2011. Based on literature findings, we decompose the CSR effect into four factors: accounting opacity, corporate governance, stakeholder risk, and overinvestment. We find that all of them significantly affect both the absolute forecast error on EPS and its standard deviation controlling for forecast horizon; number of analysts and forecasts; and year, industry, and broker house effects. Consistently with our ex ante hypotheses, overinvestment, stakeholder risk, and accounting opacity have a positive effect, increasing both dependent variables, while corporate governance quality has a negative effect. A crucial aspect of our findings is that high CSR quality in terms of the four factors (i.e., accounting transparency, high corporate governance quality, stakeholder risk mitigation, and absence of overinvestment) contributes to making earnings forecasts unbiased as unbiasedness is generally met in the subsample of the Top CSR quality companies and markedly violated in the subsample of the Bottom CSR companies. We also document that overinvestment and stakeholder risk are sufficient to produce this effect.