Brokers’ financial network and stock return

Brokerage firms are usually not only known for trading stocks for their retail clients in return for commission fee but also known for being information distributors of their clients’ investment recommenders. However, only a few studies have examined investors’ trading behaviors within a brokerage firm. This study proposes a financial network model in modeling the information diffusion process of investors within brokerage firms and investigates the potential effect of interconnectedness among brokerage firms on stock returns. We find that the centrality of brokerage firms has strong explanatory power to stock returns even if we control for the Fama–French pricing factors and other characteristics of stock.     

公司治理结构对财务报告品质可靠性的影响*——从盈余门坎的角度分析

研究重点在于探讨台湾上市公司治理结构是否会影响公司财务报告品质可靠性.由于台湾上市公司的核心代理问题主要来自控制股东与小股东之间的利益冲突.本文预期,控制股东会通过盈余管理达到门坎.实证结果发现,代理问题较严重的公司,裁决性应计项目较大,并会通过盈余管理跨越前期盈余门坎,造成财务报告信息可靠性降低.相较于其他类型的控制股东,具有家族色彩的控制股东较会通过盈余管理达到门坎,并降低财务信息品质可靠性.     

Deregulation of short selling and corporate cash dividend policy: A quasi-natural experiment from China

This study takes China’s short selling deregulation as a quasi-natural experiment, employs a sample of Chinese A-share listed firms from 2007 to 2017, and tests the impact of a short selling pilot on firms’ cash dividends using a difference-in-differences model (DID). We find that China’s short selling pilot significantly increases the pilot firms’ cash dividends. The mechanism test shows that short selling can improve the pilot firms’ cash dividends by playing a corporate governance role to restrain dual agency costs such as management fees and major shareholders’ tunneling. Furthermore, we identify that short selling restrains the behavior of “large stock dividends” and increases the cash dividends of “large stock dividends” firms. Moreover, the governance effect of short selling is complementary to the external governance environment. The higher the degree of marketization and government quality, the more significant the governance effect of short selling to increase the pilot firms’ cash dividends. This study enriches not only the research related to cash dividends in emerging economies, but also provides new empirical evidence for the evaluation of China’s short selling deregulation and offers valuable lessons to other emerging economies.     

Buyer brokerage: Experimental evidence

This paper offers an experimental investigation of two commission structures for buyer brokerage. One commission structure is the currently used structure in the industry where both the seller’s broker and the buyer’s broker each receive a percentage of the sales price as their compensation from the seller. In an alternative commission structure, while the seller’s broker still receives a percentage of the sales price from the seller, the buyer’s broker is compensated by the buyer and the compensation is inversely related to the sales price. We find that how the buyer’s broker gets compensated has significant implications. While both commission structures yield a similar probability of reaching an agreement, the alternative commission structure yields a lower price and a longer time to reach an agreement. Furthermore, the alternative commission structure achieves a better alignment of the interests of the buyer and the buyer’s broker without affecting the earnings of the players in the transaction. We also find that the improvement in the alignment of interests is more significant for female buyers than for male buyers. Furthermore, a higher listing price by the seller and a higher initial bid price by the buyer each lead to a significant increase in the negotiated price.     

When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair

This study examines how shareholders will interpret a socially desirable action taken by firms with a damaged corporate reputation status. We first explain theoretically why shareholders’ path‐dependent judgments of a tainted firm increase the likelihood of shareholders making less favourable judgments of the firm's socially desirable actions. We then test the theoretical predictions using a sample of Chinese listed firms that were sanctioned for securities fraud and subsequently made donations to the 2008 Sichuan earthquake relief funds. We find that the shareholders evaluate the donations made by fraud‐tainted firms less favourably than those made by firms that have not been sanctioned for fraud. Furthermore, the shareholders’ evaluations of the donations made by fraud‐tainted firms is less favourable if the firms have committed more serious fraud and undertaken fewer positive remedial actions in the post‐fraud period. Overall, our evidence demonstrates that shareholders’ path‐dependent judgments of fraud‐tainted firms constitute a major obstacle that constrains the effectiveness of reputation repair.     

Entrepreneurial optimism and creative destruction

Using textual analysis of annual reports of US-listed firms, we provide empirical evidence that uncertainty (rather than risk) and optimism are distinctive characteristics of high-impact entrepreneurial firms (recently listed firms) relative to old incumbent firms. We construct an entrepreneurial entry predation model with uncertainty based on this evidence. We show that optimistic entrepreneurs may enter markets that otherwise would be blocked from entry by incumbents’ predatory threats. Thus entrepreneurial optimism may be to the benefit of consumers. Entrepreneurial optimism can also create a strategic advantage for entrepreneurs since incumbents may react by being less aggressive in product market interactions, which will benefit the profitability of the entrepreneur’s venture and consumers via lower prices.     

The effect of CEO compensation structure on the early internationalization of newly public firms

This study suggests the incentive perspective as an antecedent of early internationalization. We argue that early internationalization is a risky strategy for a CEO in a relatively young firm and that a potential agency problem arises between a CEO and shareholders in such a context. By drawing on agency theory, we theorize that the CEO compensation structure plays a critical role in the early internationalization decision. In a sample of 145 newly public U.S. firms, we find that the likelihood of early internationalization is negatively associated with the CEO’s secured cash pay and positively associated with the CEO’s equity-based compensation. In addition, we find that the positive association between equity-based compensation and the likelihood of early internationalization becomes stronger as the CEO’s tenure increases. These findings show that the interest alignment between a CEO and shareholders affects the strategic decision of early internationalization. Our study contributes to the literature on corporate governance and international business by underscoring the importance of the compensation structure as a significant driver of value-creating strategic initiatives and by identifying incentive factors that spur firms to internationalize early.     

Common analyst links and predictable returns: Evidence from China

Based on shared analyst coverage, we are the first to document the common-analyst momentum (CAM) effect in China. Empirically, we show that average returns of common-analyst peer firms have strong predictive power for future focal firm returns. Moreover, the CAM effect is stronger than other cross-asset momentum (XAM) effects. Interestingly but differently, the CAM cannot unify other XAM effects as the U.S. market does. Exploiting the underlying mechanism, we find that common-analyst-connected firms are fundamentally similar. Further, the CAM effect is stronger when inter-firm linkages are stronger when the information processing task is more complex and on earnings announcement dates. We conclude that sluggish analyst forecasting and investors’ attention constraint could contribute to the stronger CAM effect, and our results support the hypothesis that slow information diffusion generates the CAM effect.     

The impact of the logistics service standardization on firm value: Evidence from China

In 2014, the Standardization Administration of China launched its first pilot project of the logistics service standardization (LSS). We examine whether the staggered adoption of the LSS creates value for shareholders using a difference-in-difference research design. The findings suggest that firms located in LSS cities have higher firm value in terms of Tobin’s Q and stock returns than those of non-LSS cities. In further analysis, we find that the LSS enhances firm value by improving corporate operational efficiency. However, the LSS increases large firms’ market share at the expense of small firms. Overall, our findings advance the literature of logistics system reform and show that such reform creates value for shareholders.     

The effect of corporate governance on credit ratings: Evidence from China's bond market

This paper examines the association between firms’ corporate governance and credit ratings (both bond ratings and issuer ratings) in China. In addition to considering the financial attributes of bond issuers, we ask to what extent do credit rating agencies consider the corporate governance attributes of issuers? In concept, bondholders are concerned with the financial effects of how corporate governance resolves the agency conflicts between bondholders and managers, majority and minority shareholders, and shareholders and bondholders. We find that corporate governance affects bond issuer credit ratings in China. After controlling for firms’ financial attributes, we find that issuer ratings are positively related to dual‐listing, whether the firm is a state‐owned enterprise, the ownership of the second to the tenth largest shareholder; and negatively related to the relative scale of audit fees. We attribute the positive association between dual‐listing and credit rating to higher quality and transparency of information reported by the dual‐listed firm. The value to bondholders of the implicit government guarantee of debt payments more than offsets the negative association between firm value and being an SOE. Bond rating agencies expect that the change in agency costs with a reduction in the ownership of the largest shareholder benefits bondholders. To credit rating agencies, the scale of audit fees (relative to total assets of the accounting firm) signals interest binding between the client firm and the accounting firm that threatens the independence of auditing and the quality of financial reporting. We also find that bond‐specific attributes: collateral and issue size, are positively related to bond credit ratings.     

Analyst following,disclosure quality,and discretionary impairments: Evidence from China

Financial statement preparers’ discretion in fair value measurements is integral to asset impairment accounting. Firms may misuse this discretion to report more or less impairment loss than is warranted by underlying economic circumstances. Using data from a sample of publicly listed firms in China, this study finds that analyst following reduces abnormal impairment loss, the portion of reported impairment loss that cannot be explained by corporate economic circumstances and that this effect is more pronounced for firms with lower information disclosure quality. However, the reducing effects of analyst following and its interaction with disclosure quality are greater for income‐decreasing than for income‐increasing abnormal impairment loss. Additional analyses support the argument that these differences are attributable to the dominance of accounting’s contracting role over its informational role. Overall, the findings indicate that the influence of analyst following on discretionary impairment accounting decisions is moderated by disclosure quality and by the relative importance of accounting’s contracting and informational roles in an emerging market setting.     

Firms,shareholders, and financial markets

We study the influence of the financial market on the decisions of firms in the real market. To that end, we present a model in which the shareholders’ portfolio selection of assets and the decisions of the publicly traded firms are integrated through the market process. Financial access alters the objective function of the firms, and the market interaction of shareholders substantially influences firms’ behavior in the real sector. After characterizing the unique equilibrium, we show that the financial sector integrates the preferences of all shareholders into the decisions for production and ownership structure. The participation from investors in the financial market also limits the firms’ ability to manipulate real prices, i.e., there is a loss of market power in the real sector. Note that, while the loss of market power changes expected profits, it is not detrimental to shareholders since the expected return of equity share depends on the variance (and not the mean) of profits. Indeed, any change in expected profits is absorbed by the financial price. We also show that financial access increases production, thereby altering the distribution of profits. In particular, financial access induces firms to take on more risk. Finally, financial access makes the relationship between risk-aversion and risk-taking ambiguous. For example, it is possible that an increase in risk-aversion leads to more risk-taking, i.e., the variance of real profits increases.     

Investment decisions and debt financing under information uncertainty

This study examines how information uncertainty influences investment decisions. In contrast to prior studies, which assume no information uncertainty, our model includes a discrepancy in valuing debt between shareholders and debtholders at the time of debt issuance. We derive the values of corporate securities and the optimal investment threshold and coupon under information uncertainty. We show that compared with the absence of information uncertainty, debtholders value debt less than shareholders do, and hence, shareholders should contribute more investment funds. Debt financing restraints due to information uncertainty lead to delayed investment. We find that information uncertainty plays a mitigating role in shareholder-debtholder conflicts over investment policy. Moreover, the information uncertainty costs that shareholders incur increase sharply with the level of information uncertainty.     

Do related party transactions always deteriorate earnings informativeness?

There are two competing views in explaining the motives of related party transactions (RPTs): an efficient contracting arrangement to benefit shareholders and a mean for insiders to expropriate outside shareholders via self-dealing. This study hypothesizes that, in Taiwan, a quasi-developed economic unity with high vertical-integrated products and services, a firm’s different types of revenue-related RPTs will reflect its diverse characteristics and result in a distinctive earnings informativeness. We use both the product (or processing) sales and non-operating revenues to examine how RPTs influence the amount of current and future earnings embedded in current stock returns. The empirical results show that earnings informativeness is enhanced for firms disclosing high related-party’s product (or processing) sales, yet it deteriorates for firms reporting high related-party’ non-operating revenues. It suggests the sub-classification of revenue-related RPTs has implication to investors. We run some diagnostic checks and document results that are robust for various specifications.     

政治联系、市场化进程与权益资本成本——来自中国民营上市公司的经验证据

以中国民营上市公司为样本,文章实证检验不同市场环境下政治联系对企业权益资本成本的影响,研究发现:政治联系对权益资本成本的影响在不同地区是有差异的;在市场化程度较低地区,由于政府干预导致企业经营业绩有较高的不确定性,有政治联系企业承担着较高的权益资本成本;在市场化程度较高地区,政府干预相对较少,政治联系更多地体现为一种荣誉或良好的政商关系,此时有政治联系企业享有较低的权益资本成本;当上市公司存在控股股东利益输送时,投资者预期到无法共享政治联系为企业带来的利益,此时有政治联系企业要承担较高的权益资本成本。本研究为厘清政治联系对企业和投资者的利弊影响提供了一个有益的视角。     

Moral management in competitive markets

The intrinsic motivation of a firm’s management for engaging in prosocial behavior is an important determinant of a firm’s social conduct. I provide the first model in which firms run by morally motivated managers engage in corporate social responsibility (CSR) in a competitive setting. Moral management crowds out a competitor’s strategic CSR, increasing profitability and leading shareholders to strategically delegate moral managers, although necessary for socially optimal CSR is that shareholders be morally motivated as well. Shareholders appoint managers that engage in a socially excessive amount of CSR, counter to existing literature, whenever product‐market competition is sufficiently intense.     

Premium,merger fees and the choice of investment banks: A simultaneous analysis

We analyze 635 US M&A transactions from 1985 to 2004. In contrast with prior research, we distinguish between the target and acquirer fees, and examine their independent effects on the level of the merger premium. The study provides evidence of a positive (negative) association between target (acquirer) fees and the level of the premium. It indicates that the reputation of investment banks affects the level of merger fees, but does not affect the level of the premium. The findings confirm the conflict of interests between target and acquirer firms where the investment banks’ efforts are positively related to shareholders’ interest. The study also finds that when acquirers pay higher fees than target firms, they pay lower premiums. The findings also imply that for the small proportion of mergers (13%) resulting in relatively large value gains for buying firms, an acquirer might be willing to pay large advisory fees even though this may result in a higher premium.     

New insights into mutual fund brokerage commissions

Using data collected from equity mutual fund reports filed by single-fund registrants to the Securities and Exchange Commission, I study the determinants of brokerage commissions paid by fund managers when they buy or sell securities and investigate the role these commissions play in fund performance. Consistent with related studies, my results from cross-sectional analyses reveal that higher portfolio turnover funds are associated with higher commissions and larger funds incur lower commissions, as well as the positive relation between expense ratios and commissions. This positive relation is puzzling as most commissions include “soft dollars” for payments of products and services that should be already covered by the costs reported under expense ratios. However, once I take into account unobservable fund heterogeneity, I find that higher expense ratio funds do not necessarily pay higher commissions. Further, controlling for whether a fund increased commission payments as the result of flow-induced trading, I show that the underperformance related to brokerage commissions documented in the literature is attributable (at least partly) to higher level of fund flows.     

The impact of ultimate controller’s ownership on cash dividend policy based on a comparative analysis between owner-management and professional-management modes

This study uses Chinese listed firms to examine the relation between the ultimate controller’s ownership and cash dividends under different allocation modes of management rights. The empirical results show that under the professional-management mode, the ultimate controller’s ownership and dividend payments form an inverted U-shaped relation which results from the ultimate controller’s monitoring and collusion with the executive. Under the owner-management mode, the ultimate controller’s ownership and dividend payment levels assume a U-shaped relation which is attributed to its interest encroachment and convergence effect. The shape flip from professional-management to owner-management is the result of the changing opportunity cost of the controller’s dividend payments.     

独立董事对家族高管薪酬治理效应分析

高管薪酬契约是现代公司治理结构中的重要组成部分,是所有者用于减轻代理成本的一种手段.通过选取2009-2010年家族类上市公司492家和国有上市公司521家,实证结论表明:家族类上市公司与国有上市公司相比,家族高管薪酬比国有企业高管薪酬水平平均要高,并且薪酬业绩敏感性低;独立董事作为保护外部中小股东利益的监督机制,与国有企业相比,家族企业的独立董事对高管(家族高管)薪酬治理作用更为有限;这一结论表明,独立董事监督作用的发挥还需一个合适的治理环境.