Why do institutional investors buy green bonds: Evidence from a survey of European asset managers

Using survey evidence from European asset managers, we provide insights into their green bond investment activities and the factors that affect their investment decisions. We find that the majority of investors are actively invested in the green bond market via a variety of investment channels. Investors prefer green bonds issued from corporate issuers and sovereigns and we find that there is strong unmet investor demand for green bonds from these issuer types, in particular from non-financial corporates in the industrials, automotive and utilities sectors. Competitive pricing and strong green credentials, both pre- and post-issuance, are the most frequently named factors impacting respondents' decision to invest in a green bond, and unclear and poor reporting on how bond proceeds are allocated to green projects induces a majority of investors to not invest in a green bond or to sell a bond if already included in the portfolio. Among policy measures to grow the green bond market, preferential capital treatment for low-carbon assets and minimum standards for green definitions receive the highest investor support, but respondents are divided whether a strict definition of ‘green’ or a less strict definition would be more beneficial for scaling up the green bond market.     

Investor Protection,Investment Efficiency and Value: The Case of Cross‐Listed Firms

We examine the impact of improved investor protection due to cross‐listing on foreign firms’ investment decisions and firm value. While we find that cross‐listing increases firms’ capital expenditures and mergers and acquisitions activities, cross‐listed firms also invest more in research and development, make better acquisition decisions, and have higher profitability compared to non‐cross‐listed firms. Moreover, cross‐listing is associated with better cash utilization by foreign firms for investments. These improvements in investments and cash utilization are more pronounced for firms cross‐listed on US exchanges and for firms from countries with weak investor protection laws.     

Investment Horizons and Information

We examine the relation between institutions' investment horizons on firms' financing and investment decisions. Firms with larger short‐term institutional ownership use less debt financing and invest more in corporate liquidity. In contrast, firms with larger long‐term institutional ownership use more internal funds, less external equity financing, and preserve investments in long‐term assets. These results are primarily driven by the variation in informational preferences of different institutions. We argue that short‐term (long‐term) institutions collect and use value‐neutral (value‐enhancing) information.     

Follow the Crowd: How Social Information and Social Identity Influence Investing Decisions

Increasingly, jurisdictions around the world have been enacting standards that formally allow organizations to offer equity using the crowdfunding model. Using the Internet, the crowdfunding model raises capital by soliciting from a large number of people (i.e., the crowd). A key feature of crowdfunding that has been embraced by regulators is the use of social information to inform investors as a safeguard for this type of investing. However, research has not yet explored how investors utilize this information. In this study, I investigate whether social information can shift investors away from financial maximization goals. Social identity theory predicts that people can be provoked to act as representatives of their group, setting aside individual interests. I predict, and find, that positive social information focused on an equity crowdfunding organization can activate the social identity of investors who share an identity with that organization, causing them to invest more in a relatively weak organization. In a moderated mediation analysis, I find that positive social information provokes investors who share an identity with an organization to feel a stronger connection to that organization, leading them to increase investment. In addition, I explore whether investors’ perceptions of negative social information are moderated by their social identity. I find that investors who are deeply committed to an identity shared with an organization experiencing negative social information will defensively invest in that organization. The findings of this study will be of interest to investors, regulators, and crowdfunding organizations.     

Information manipulation in equity crowdfunding markets

In digital finance markets, investors can withdraw their non-binding bids within a cooling-off period. As the bids are visible online, we argue that this option can be used to manipulate the information available to investors. Previous research indeed shows that early bids attract later investors and trigger information cascades, thereby enhancing the chances of success of the offerings. Using a dataset of 3564 investment lines, we observe frequent (10.2%) investment withdrawals before the end of the offerings. Platform members invested in 64% and later withdrew from 30% of the offerings listed in their portal, being 1.85 times more likely to withdraw than the average crowdfunding investor. We document that their investments take place predominantly in low-quality offerings and influence the campaign dynamics, increasing the number of subsequent bids.     

Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets

We empirically investigate one form of illegal investor‐level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round‐tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's ( 1968 ) economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor‐level tax evasion affecting cross‐border equity and debt investment.     

Foreign institutional investors,information asymmetries,and asset valuation in emerging markets

This study investigates the effects of information asymmetries and asset valuation model differences (investor heterogeneity) between foreign and domestic investors on their distinct portfolio holdings in an emerging market setting. I argue that information asymmetry and investor heterogeneity views significantly interact in explaining the different asset allocation decisions of foreign and domestic investors. Employing a large dataset from Turkey, the findings suggest that both information asymmetry and investor heterogeneity view play a key role in explaining the investment decisions of different investor groups. Specifically, different from domestic investors, foreign investors are more likely to invest in firms with a higher global market performance which supports the investor heterogeneity view. However, this relationship only holds for firms with high information asymmetries. The difference in valuation models between foreign and domestic investors converge when asymmetric information problems between these investor groups weaken. This study contributes to the international finance literature by providing a new explanation of why foreign and domestic investors invest in different assets.     

Investigation of investors' overconfidence, familiarity and socialization

This study, using a sample of New Zealand investors, investigates three behavioural finance theories: investor overconfidence, socialization and the familiarity effect. We find support for the investor overconfidence theory, using characteristics such as past success, optimism, confidence in one's abilities, investment experience and investment‐related knowledge. Concerning the socialization theory, we observe that the investors actively sought information regarding the stock market, 75 per cent doing this on a weekly basis. Those investors that kept themselves informed daily outperformed other investors by 8 per cent. The familiarity effect was confirmed, showing investors to hold a far too high proportion of local stocks, although the majority of investors believed international equity markets would provide returns that were either better or equal to New Zealand stocks.     

Does operating risk affect portfolio risk? Evidence from insurers' securities holding

This study empirically examines, in the setting of insurance companies, the hypothesis that investors facing more operating risk may behave as if they were more risk averse in investment decisions. Specifically, we study how operating risk from underwriting insurance policies affects insurers' risk taking behavior in their portfolio investments. We find that insurers with higher volatilities in underwriting incomes and cash flows are more conservative in their financial investment risk taking – they have lower credit risk exposure in their bond investments, as well as lower portfolio weights on risky bonds and equities. Further, insurers' portfolio risk exposure is sensitive to the risk of permanent underwriting income shocks but insensitive to the risk of transitory shocks. Transitory operating risk, however, is significantly related to portfolio risk when insurers face tight financing constraints. Our findings suggest a substitutive effect of operating risk on investment decisions by financial institutions.     

Does favorable investor sentiment lead to costly decisions to go public?

We investigate the real effects of decisions to undertake an initial public offering of stock in periods of favorable investor sentiment. Specifically, we examine potential effects of favorable investor sentiment on investment expenditures and how effects on investment affect firm operating performance and value as well as the likelihood of survival. We find that firms going public during periods of favorable sentiment, on average, spend substantially more on investments, especially acquisitions, than firms going public in other periods. The effect of favorable investor sentiment on investment is more pronounced for younger firms. We do not find, however, that the higher investment spending in the wake of favorable sentiment leads to worse operating or stock performance. Stock returns around acquisitions announcements are also positive for firms going public in favorable sentiment periods. The preponderance of our findings indicate that decisions to go public in favorable investor sentiment periods do not lead to corporate investment decisions that harm firm performance and value.     

投资者动机对众筹投资决策的影响

基于慈善理论,投资者动机分为内源动机、外源动机和提升声誉动机,这些动机既能影响众筹投资者的投资决策,也会相互影响。本文借助"众筹网"的投资数据,对投资者进行分类,考察投资者动机对众筹决策的影响。研究结果显示外源动机投资者、提升声誉动机投资者的投资金额更高;进一步探究内源动机与声誉动机的相互影响,结果显示二者负相关,内源动机投资者更关注内心满足,而对声誉需求较少。该研究可以辅助筹资者设置项目内容吸引不同动机投资者,并帮助众筹平台优化服务,从而提高项目融资效率和成功率。     

The spillover effect of fraudulent financial reporting on peer firms' investments

We investigate how high-profile accounting frauds affect peer firms' investment. We document that peers react to the fraudulent reports by increasing investment during fraud periods. We show that this finding is not driven by frauds that have a higher ex ante likelihood of detection or by an association between fraud and investment booms. In addition, we find that peers’ investments increase in fraudulent earnings overstatements, and in industries with higher investor sentiment, lower cost of capital and higher private benefits of control. We also find evidence consistent with equity analysts potentially facilitating the spillover effect.     

Provincial preferences in private equity

This paper identifies a strong tendency for Canadian private equity investors to finance entrepreneurs that reside in the same province. For all types of investors and entrepreneurial firms, in terms of the number of investments (13,729 transactions), 84.42% of investments were intra-provincial. In terms of the total value of these transactions ($20,193,896,909 in 1997 dollars), 61.15% of the investment value was intra-provincial. We provide evidence that both agency costs and information asymmetries systematically give rise to differences in the frequency of inter- versus intra-provincial investments, and compare the importance of agency versus institutional factors leading to home bias.      

Dividend Taxes and Implied Cost of Equity Capital

We estimate firm‐level implied cost of equity capital based on recent advances in accounting and finance research and examine the effect of dividend taxes on the cost of equity capital. We investigate whether dividend taxes affect firms' cost of capital by testing the relation between the implied cost of equity capital and a measure of the tax‐penalized portion of dividend yield, which we define as the product of dividend yield and the dividend tax penalty. The results generally support the dividend tax capitalization hypothesis. We find a positive relation between the implied cost of equity capital and the tax‐penalized portion of dividend yield that is decreasing in aggregate institutional ownership, our proxy for tax‐advantaged investors. The evidence in this study adds to the understanding of the effect of investor‐level taxes on equity value.     

Heterogeneity in asset allocation decisions: Empirical evidence from Switzerland

We analyze the heterogeneity in asset allocation decisions of different investor groups in response to changes in the macroeconomic environment. Using a new data set that includes the monthly portfolio holdings of private, commercial, and institutional investors deposited with Swiss banks, we estimate the relationship between equity and bond holdings and common business cycle indicators. Regression analysis indicates that private investors do not systematically move from stocks into bonds by selling stocks to institutional investors and purchasing bonds from them in adverse macroeconomic states. A VAR-error correction framework including cointegration and error correction restrictions suggests that the investment behavior of commercial investors leads and private investors follow in their investment decisions only slowly over time. The asset allocation decisions of institutional investors are not affected by the actions of private and commercial investors. Our results refute a principle of “institutional irrelevance”.     

质量信号、投资人参与、项目经济性对农产品众筹融资达成率的影响——基于众筹网884个农业众筹项目的数据

使用众筹网884个农业众筹项目的数据，基于投资者需求的角度，结合农产品特色，从质量信号、投资人参与、项目经济性三个维度对农产品众筹融资达成率进行分析。结果表明：相比质量信号，农产品众筹中的“羊群效应”显著；目标融资额反向影响农业众筹融资达成率。进一步研究发现：发起人有项目经验时，投资人更加注重时间成本，发起人无项目经验时，投资人更加注重货币成本；目标融资额显著负向调节管理质量（项目更新次数）对农业众筹融资达成率的影响。因此，为提高农业众筹融资达成率，发起人应当积累项目经验与社会资本，提高项目经济性；平台方应建立健全优质项目筛选机制，提高平台知名度，引导正向“羊群效应”。     

The role of accounting in high-technology investments

We present new qualitative empirical evidence from a series of interviews with representatives of venture capital support organisations, which discusses the role of accounting in high-technology investments. Our discussion is framed around three propositions on: whether or not the stewardship role of accounting still holds; the usefulness, or otherwise, of accounting information in the valuation of high-technology investments; and assessing the value of intangible assets in the investment decision. We find that accounting no longer plays such a strong stewardship role, certainly for the venture capital investor. Further, its role in enabling investors to make decisions on how, when and how much to invest is limited. We propose that standard setters take this on board in revising reporting requirements.     

Do academic investment insights benefit society?

Sound investment decisions are crucial for retirement savings and the financing of education. The impact of investment mistakes on the general welfare in society can be tremendous. This paper reviews the implications of finance research for sound investment decision making and contrasts these with the evidence on actual investment practice which is infused with conflicts of interest and may damage investor welfare by promoting returns chasing, hiding bad performance and overcharging for services. The objective of this paper is to assess the current impact that academic research findings have on investment practice and social welfare, and discuss how researchers can contribute to improve the situation.     

Bridging Sustainability and Finance: The Value Driver Adjustment Approach

Even though most large corporations view sustainability considerations and concerns as having the potential to affect their revenue and profits, and studies have shown that sustainability can affect stock returns, investors and corporate managers continue to struggle to incorporate such concerns into their financial decision‐making. As a consequence, the valuation effects of sustainability issues are not fully reflected in either the valuation of companies by investors or in capital investment decisions by corporate managers. The author argues that sustainability can be integrated into both of these kinds of financial decision‐making by linking it to business models, competitive positions, and value drivers using what the author calls a “value‐driver adjustment” (VDA) approach. The basic idea is simple: material sustainability issues affect business models and competitive positions, which in turn affect the company's value drivers—notably, sales, margins, and capital. The VDA approach explicitly considers these linkages by taking three steps: (1) identifying a company's material sustainability issues; (2) analyzing how these issues are expected to affect the company's business model and competitive position; and (3) quantifying the effects of such changes in business model and competitive position on the company's value drivers, including its cost of capital. In the first part of the article, the author provides an investor perspective that shows how sustainability can be integrated into investment decisions by asset managers. There he explains how and why ESG integration has so far failed to become mainstream, and what needs to be done to make it successful. The second part of this article takes the corporate perspective and shows how sustainability can be linked to value drivers using much the same ingredients as in asset management, but slightly different tools that can help corporate managers incorporate sustainability concerns into strategy and operations, including the finance function. And in closing, the author brings together corporate and investor perspectives while showing how sustainability programs can be used to make the relationship between companies and their shareholders both stronger and longer‐lasting.     

Institutional Investors and Private Equity

Entrepreneurial finance literature has highlighted that institutionalinvestors are the main contributors to private equity funds.This paper complements these findings by documenting that institutionalinvestors also invest directly in private equity. A major concernfor such investments is the higher agency costs associated withprivate equity. We show that institutions invest in privatefirms with governance mechanisms that tend to reduce the expectedagency costs and risk of minority expropriation. Good governancemechanisms further allow institutional investors to enjoy thebenefits of syndication and thereby reduce idiosyncratic risk.In addition, we show that institutional investments tend tobe followed by further improvements in corporate governanceand tend to occur in high-growth firms within research and developmentintensive industries.