The Impact of Institutional Characteristics on Return–Earnings Associations in Japan

In this paper, we report the result of investigation into the impact of institutional characteristics on return–earnings associations in Japan. It is found that the strength of return–earnings associations in Japan is inversely affected by the extent to which a firm's shares are cross-held, the degree of a firm's holding of real estate assets relative to other assets, the amount of a firm's investment in equities of other firms, and the degree of a firm's reliance on debt financing, while it is positively affected by the extent to which a firm's shares are owned by foreign investors. We also provide evidence suggesting that reported earnings are less value-relevant in Japan than in the US, and that the pervasive use of conservative accounting practices in Japan is well manifested in the return–earnings association. Collectively, our results indicate that future research on cross-national differences in the value relevance of accounting disclosures must pay more attention to institutional environments unique to countries concerned.     

High-Technology Intangibles and Analysts' Forecasts

This study examines the association between firms' intangible assets and properties of the information contained in analysts' earnings forecasts. We hypothesize that analysts will supplement firms' financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers.     

Investment Opportunity Set and Voluntary Disclosure of Prospective Information: A Simultaneous Equations Approach

Abstract:   This paper examines empirically the relationship between the level of disclosure of prospective information and the investment opportunity set for firms in New Zealand. Using a systems (two‐stage least squares) approach that explicitly controls for potential endogeneity between disclosure and IOS, we find that the level of prospective information disclosure is significantly and positively related to IOS in both specifications in our simultaneous analysis. Further, we document that prospective information disclosure is positively related to firm size and new security offerings, and is not related to inside ownership and firm profitability. IOS is positively impacted by a firm's investments in fixed assets and its profitability. Finally, we find that forward looking disclosure levels are positively related to the proportion of outside directors on the board and negatively related to barriers to entry, but these findings are not robust across alternative model specifications.     

金融资产配置与违约风险:蓄水池效应,还是逐利效应？

本文以2007—2016年中国A股上市公司为研究对象,检验了企业金融资产配置对违约风险的影响。实证研究发现:金融资产持有量越多,企业的违约风险越低,金融资产配置的“蓄水池效应”显著;在货币政策宽松时期,金融资产配置导致的代理冲突显现,宽松的货币政策会抑制金融资产投资对违约风险的降低作用。政府规制也会有一定的公司治理作用,将产业政策纳入讨论发现:对于产业政策支持的行业来说,企业金融资产配置能够降低违约风险,但是宽松的货币政策会刺激管理层的短视投资行为,抑制政府规制的公司治理作用。进一步地,本文提出会计稳健性的提升是企业金融资产配置降低违约风险的重要路径。本文的研究结论丰富了企业金融资产配置动机和违约风险影响因素的讨论,能够为政府部门防范经济运行中的内在风险提供有益借鉴。     

Intangible Assets, Information Complexity, and Analysts' Earnings Forecasts

Abstract:   We examine the relation between analysts' earnings forecasts and firms' intangible assets, including technology‐based intangibles, brand names, and recognized intangibles. We predict that high information complexity of intangible assets increases the difficulty for analysts to assimilate information and increases analysts' forecast error of intangibles‐intensive firms. We find a positive association between analysts' forecast error and the firm's intangible intensity that deviates from the industry norm. We also find that analysts' forecast errors are greater for firms with diverse and innovative technologies. In contrast, analysts' forecast errors are smaller for biotech/pharmaceutical and medical equipment firms that are subject to intangibles‐related regulation.     

The Effect of Decimalization on Trade Size and Adverse Selection Costs

Abstract:   We examine adverse selection costs around NYSE decimalization. Further, we analyze the relation between adverse selection costs and trade size. We find a significant increase in the percentage adverse selection cost and a reduction in dollar adverse selection cost (percentage adverse selection multiplied by the spread) following complete decimalization on the NYSE. On estimating the adverse selection components by trade size classes, we find a decline in dollar adverse selection costs in trades of all sizes, with the strongest evidence coming from medium size trades, followed by small and large size trades. One implication of our findings is that there appears to be less stealth trading following complete decimalization and less institutional trading overall.     

Do institutional shareholder services (ISS) corporate governance ratings reflect a company's operating performance?

Little is known about the relation between the actual governance rating received by a firm and the firm's performance. In this study, we examine the relation between the actual corporate governance rating received by a firm and the firm's performance during the years 2002–2004. We use the institutional shareholder services (ISS) corporate governance quotient (CGQ) rating of a firm's corporate governance structure and analyze this rating in relation to the firm's operating performance. We compare the institutional shareholder services’ CGQ rating to two measures of the firm's operating performance, return on assets (ROA) and return on equity (ROE). Based upon our results, we do not find statistical evidence suggesting that the firms’ operating performance is related to the firms’ ISS corporate governance rating.     

CORPORATE CASH HOLDINGS

There have been several cases in recent years—most notably, Chrysler—in which shareholders have objected to the level of companies' holdings of cash and other liquid assets. This paper describes the authors' study of the determinants of liquid asset holdings by publicly traded U.S. firms and how these holdings change over time. For those companies that appear to hold excess cash, the study also attempts to investigate whether such companies have a tendency to reduce value by "overinvesting"—a tendency described in the academic finance literature as the "free cash flow problem."
According to the study, the most important determinants of corporate cash holdings are size, risk, and the extent of the firm's investment opportunities, with smaller, riskier, and high-growth firms holding larger amounts of cash as a percentage of total (noncash) assets. These results are consistent with corporate decisions to hold liquid assets in order to preserve the firm's ability to make strategic investments when operating cash flow turns down and outside funds are expensive.
The authors also report that most companies with large amounts of excess cash tend to acquire it mainly by accumulating internally generated cash flows, and not by issuing securities. Perhaps surprising, the study also finds that spending on new projects and acquisitions is only slightly higher for firms with excess cash—and that such firms also tend to have higher payouts to shareholders in the form of dividends or stock repurchases. Thus, there is little evidence in this study of a free cash flow problem, as well as some indication that managers are aware of and attempt to address the problem.     

The Impact of Taxes on Corporate Defined Benefit Plan Asset Allocation

This paper investigates the extent to which taxes affect a corporation's decision to allocate its defined benefit plan's assets between equity and bonds. Prior theoretical research shows that if a corporation integrates its financial policy and pension investment policy, differences in tax rates create an arbitrage opportunity. The firm's tax benefits from the arbitrage should be positively related to the percentage of its pension assets allocated to bonds. Consistent with this prediction, but contrary to prior empirical work, this paper finds firms' tax benefits are positively and significantly associated with the percentage of their pension assets invested in bonds.     

Analyst Coverage and Intangible Assets

This study examines the relation between analysts' incentives to cover firms and the extent of their intangible assets. Because intangible assets typically are unrecognized and estimates of their fair values are not disclosed, absent analyst coverage firms with more intangible assets likely have less informative prices. Accordingly, we expect analysts have greater incentives to cover firms with more intangible assets and, thus, predict they have higher analyst coverage. As predicted, we find that analyst coverage is significantly greater for firms with larger research and development and advertising expenses relative to their industry, and for firms in industries with larger research and development expense. We also predict and find that analyst coverage is increasing in firm size, growth, trading volume, equity issuance, and perceived mispricing, and is decreasing in the size of the firm's analysts' brokerage houses and the effort analysts expend to follow the firm. These findings indicate that analyst coverage depends on private benefits and costs of covering a firm. We also test hypotheses related to analyst effort. We predict and find that analysts expend greater effort to follow firms with more intangible assets, after controlling for other factors associated with analyst effort. Our evidence indicates that intangible assets, most of which are not recognized in firms' financial statements, are associated with greater incentives for analysts to cover such firms, and greater costs of coverage. An open question is whether financial statement recognition of intangible assets could more efficiently provide information about such assets to investors.     

Valuation Effects of Listing on a More Prominent Segment of the Stock Market: Evidence from France

We examine the behaviour of stock prices during the period around the transfer to the Marchéà Règlement Mensuel . First, we discuss the financial reasons, which can justify abnormal returns around the transfer. Second, an event study based on a sample of 71 firms is set up to test the existence of the exchange listing effect on the French market. Third, we explore three hypotheses in order to explain the impact on stock returns: the informative content of the transfer, the increase in the relative size of the firm's investor base, and the reduction of trading costs (immediacy and adverse selection). Cross–sectional regressions show that the increase in the relative size of the firm's investor base is the only variable, which helps to explain the valuation effect.     

The Relation Between Patent Citations and Tobin's Q in the Semiconductor Industry

The market value of a firm is largely determined by the expected returns to the firm's tangible and intangible assets. However, accounting data generally excludes intangible assets. Financial variables which are constructed in part from accounting data, such as Tobin's Q, are thus biased. If measures of intangible capital are successful in explaining variation in Q, then a case can be made for incorporating such measures into future research. In high technology industries, such as the semiconductor industry, valuing a firm's intangible assets requires the valuation of its technological capital. Past studies have relied heavily on simple patent counts and research and development expenditures to quantify the technological component of a firm's intangible assets. This paper examines the ability of measures of intangible capital to explain variation in Q and considers an additional data source, patent citations. We find that stock variables created from citation data contain relevant information about the market's valuation of intangible assets.     

Endogenous Liquidity in Asset Markets

This paper analyzes a model in which long‐term risky assets are illiquid due to adverse selection. The degree of adverse selection and hence the liquidity of these assets is determined endogenously by the amount of trade for reasons other than private information. I find that higher productivity leads to increased liquidity. Moreover, liquidity magnifies the effects of changes in productivity on investment and volume. High productivity implies that investors initiate larger scale risky projects which increases the riskiness of their incomes. Riskier incomes induce more sales of claims to high‐quality projects, causing liquidity to increase.     

经营风险与企业杠杆率

本文从理论和实证两方面考察企业经营风险将如何影响其杠杆率。其中,企业面临的经营风险被定义为在企业所属“年份×城市×二位行业”层面内除自身外其他所有企业资产收益率(ROA)的分布标准差。整体而言,当企业经营风险上升时,其投资和负债决策将更加保守,表现为资产负债表收缩和杠杆率下降。分债务期限来看,杠杆率的变化又可分为“规模效应”和“结构效应”,前者指向投资、负债决策的整体收缩,后者指向债务结构中短期负债占比的下降。经营风险上升时,杠杆率下降主要体现为短期债务的缩减;分所有制来看,非国有企业对经营风险的敏感度较强,国有企业对经营风险的敏感度较小,这与两类企业的融资难易程度相符。     

我们为什么需要绿色金融?——从全球经验事实到基于经济增长框架的理论解释

当前,绿色金融备受关注,然而该领域的基础理论尚需进一步强化。根据经济学的一般原理,由于污染的外部性问题,环保的主要力量应当是公共部门而非金融系统。然而为何越来越多国家选择发展绿色金融?其背后的经济学原理是什么?深入探讨这些问题是有效制定政策、构建绿色金融理论体系的基础。本文基于跨国面板数据的分析表明,绿色金融对经济增长具有显著的促进效应,表现出与公共部门环保投入的显著差异。在此基础上,本文构建基于经济增长框架的绿色金融理论模型,对经验事实给出理论解释。模型证明:绿色金融的成本分摊与风险分担功能使其具有独特的长期增长效应,是经济发展必然选择;绿色金融政策与绿色财政政策的协调配合是实现高质量发展的有效手段。本文从理论层面回答了“为什么需要绿色金融”这一问题,为绿色金融的经济学理论发展和政策分析提供了可借鉴的框架。     

Optimal Investment, Growth Options, and Security Returns

As a consequence of optimal investment choices, a firm's assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm's systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: (i) the time-series relation between the book-to-market ratio and asset returns; (ii) the cross-sectional relation between book-to-market, market value, and return; (iii) contrarian effects at short horizons; (iv) momentum effects at longer horizons; and (v) the inverse relation between interest rates and the market risk premium.     

Growth Opportunities and Investment Decisions: A New Perspective on the Cost of Capital

This paper shows that it is not always correct to make an upward adjustment to the stock beta in calculating the hurdle rate for capital budgeting even when the project under consideration is riskier than existing assets. The paper also shows that the correct hurdle rate is smaller than the market capitalization rate calculated from the firm's stock beta when the project under consideration has the same risk as existing assets. In addition, it is shown that the market capitalization rate will be an underestimate (overestimate) of the correct hurdle rate when the risk of future assets is greater (smaller) than both the risk of assets in place and that of future capital expenditures. These new results are direct consequences of the insight that the firm's investment opportunities are in fact real call options written on underlying assets.     

Intangible Assets and Corporate Signaling

Research and development (R&D) and advertising expenditures often result in patents, technologies and brand names which are difficult to accurately value. Under current generally accepted accounting principles (GAAP) these intangible assets are generally not recognized in the financial statements, but instead are expensed in the period that they occur. Prior studies note that the market-to-book ratios of firms with significant levels of R&D and advertising expenditures suggest that investors, at least partially, value these assets. Researchers and practitioners argue that current GAAP, by not recognizing these intangible assets, reduces the usefulness and relevance of accounting reports.We investigate whether companies with significant levels of intangible assets are more likely to emphasize dividend increases and stock repurchases (which are generally perceived as signaling favorable investment opportunities), instead of traditional accounting disclosures, as a means of overcoming adverse selection. Because these assets are difficult to measure, cash distributions may be viewed as a more credible means of signaling firm value to investors. Using analysts' ratings of firms' accounting disclosures, we find that companies with higher levels of R&D and advertising expenditures are less likely to provide extensive accounting disclosures and instead tend to employ dividend and stock repurchase signals. We obtain these results even after controlling for other firm attributes, such as size, stock returns performance, leverage, liquidity and investors' expectations of growth opportunities. We also find that the market reaction to dividend increase and stock repurchase announcements is greater for firms with higher levels of R&D and advertising expenditures, indicating that these announcements are more informative for such firms.     

Accruals: An overview

The paper provides a broad discussion of the topic "accruals". Though much of what is said is familiar from the literature on accruals, the paper tries to develop concepts and show how theses forge tight links across a variety of themes. The starting point of the analysis concerns the construct of an accrual.The case is made that it should rest solely on consecutive balance sheets and the splitting of assets/liabilities into(i) cash and approximate cash,assets/liabilities and(ii) all other kinds of assets/liabilities. Given this divide of assets/liabilities one can measure the components in the foundation equation: cash earnings + net accrual = comprehensive earnings. The paper then proceeds to discuss how the net accrual relates to growth in a firm's operating activities and the extent to which it can be informative or misleading.This topic in turn integrates with the issue of a firm's quality of earnings and the role of accounting conservatism. Among the remaining topics, the paper discusses how one conceptualizes diagnostics to assess whether or not a period's accrual is likely to be biased upwards or downwards. It gives rise to a consideration of how one constructs accruals that may be more informative than GAAP accruals and the role of value-relevance studies to assess the information content of accrual constructs. The paper ends with a list of suggestions how future research may be modified in light of the discussions in this paper.     

The underpricing of initial public offerings: A theoretical and empirical reconsideration of the adverse selection hypothesis

In this paper we generalize Rock's theory regarding the underpricing of IPOs. In Rock's model, informed investors have a firm-specific informational advantage pertaining to a firm's cash flow. We derive the new results that the level of beta and the size of the market risk premium positively affect underpricing. These implications extend the adverse selection theory and further distinguish this theory from the current state of signalling theories of underpricing. The results put the “hot and cold” issue markets phenomenon in a theoretical context. Empirical results are consistent with the theoretical propositions and provide support for Rock's theory of underpricing.