Finance editorial board membership and research productivity

The research productivity of board members of the top academic finance journals—Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Financial and Quantitative Analysis, and Financial Management—is investigated. Discipline specific benchmarks for substantial research excellence are determined and an evaluation of influential finance journals is presented. Publication in Journal of Finance is the most notable benchmark for selection to the editorial board of any of the finance journals evaluated. The results imply that publishing one article in Journal of Finance, Journal of Financial Economics or Review of Financial Studies in a 5-year period coupled with additional appearances in the broader top tier finance journals would be representative of exceptional research achievement.

One-and-a-half decades of global research output in Finance: 1990–2004

We provide a ranking of world finance research output by countries and institutions. Based upon 21 finance journals, the top five most productive countries are in the following order: U.S., U.K., Canada, Hong Kong, and Australia. We find that higher per capita GNP, English-speaking countries, and a capital market that offers her investors more protections are associated with higher level of finance literature production. New York University, the University of Pennsylvania, Harvard University, the University of Chicago, and UCLA take the top five spots among the 1,126 academic institutions with most JF-pages appeared in 21 finance journals during the 15-year period from 1990 to 2004. The share of U.S. in the top-100 institutions is overwhelming; 78 out of the top-100 institutions come from U.S. We also show some factors that help to explain the cross-institutional variations among a sub-sample of the institutions. Specifically, faculty size, catalyst effect, and per capita budget are positively associated with research output.

Sixty years of research leadership: contributing authors and institutions to the journal of finance

While corporate executives freely admit that they work in a jungle, faculty members in institutions of higher learning are supposed to pretend that they work in the relaxed atmosphere of an informal English garden (Alice Vandermeulen, 1975).

The Journal of Finance was the first pure finance journal to emphasize research, and it has been the undisputed “gold standard” in academic finance literature for the past 60 years. This study identifies the contributors to JF over these 60 years—the authors, the institutions employing the authors, and the institutions granting PhDs to the authors. The prolific authors listed in this article make it look easy, like Alice’s relaxed English garden, but the information reported herein suggests otherwise.

Director Compensation and CEO Bargaining Power in REITs

We analyze director compensation for Real Estate Investment Trusts (REITs) and investigate the relations between director compensation and other measures of the board independence and board monitoring. Using 136 REITs in 2001, we find that REITs that pay higher equity-based compensation to their board members are associated with higher financial performance. Our data indicate that board equity-based compensation is positively related to the existence of an independent nomination committee, however, it has no significant relationship with board size, proportion of outside directors, CEO duality and CEO tenure and ownership.

Why do firms repurchase stock to acquire another firm?

This study investigates firms that repurchase their stock to finance an acquisition. Since research shows that cash-financed acquisitions perform better than stock-financed acquisitions, why do firms that have available cash initiate the extra transactional step. I find these firms are well compensated for their efforts, especially in the long run. On average, these firms have negative abnormal returns prior to their repurchase announcements and thus may choose repurchasing to signal undervaluation. Furthermore, the stock acquisition step allows these firms to share risk, counteract the negative effects of dilution, and enjoy a tax advantage for their efforts.

Disclosure of fees paid to auditors and the market valuation of earnings surprises

We investigate if the SEC’s recently mandated disclosure of fees for audit and nonaudit services paid by firms to their incumbent auditors affected the market’s perception of auditor independence and earnings quality. Following the initial fee disclosures in 2001, we find that the market valuation of quarterly earnings surprises (earnings response coefficient) was significantly lower for firms with high levels of nonaudit fees than for firms with low levels of such fees. In contrast, in the year prior to the new fee disclosures, there was no reduction in earnings response coefficients for firms that subsequently reported high nonaudit fees. Our evidence suggests that mandated fee disclosures provided new information that was viewed by the market as relevant to appraising auditor independence and earnings quality.

Long-run performance following quality management certification

Public firms that seek and successfully receive certification of quality management, type ISO 9000, seem to experience different post-announcement share-price drifts depending on their size. This result is not consistent with the notion that companies seeking to implement a quality management system may be reducing agency problems between managers and shareholders, which are among corporate governance and control goals of any well management company. Otherwise, we should have observed material and positive abnormal share-price changes, following ISO 9000 registration announcements, independently of company size. Our results show that only stocks of large-size firms, experience positive average significantly abnormal returns over the post-announcement 1-, 2-, and 3-year horizons. On the other hand, stocks of small-size firms experience negative average significantly abnormal returns, and stocks of mid-size firms do not show any material gain over the same horizons. Although there is a rich finance literature that has studied the long-run abnormal stock-price returns following several major corporate events, this study seems to be the only one that have examined the potential long-run impact of this certification-event, despite the fact that those standards have been around since the middle 1980s.

CEO Involvement in Director Selection: Implications for REIT Dividend Policy

This paper examines the relationship between CEO entrenchment and dividend policy of real estate investment trusts (REITs). We develop an index for CEO entrenchment using CEO tenure and duality and find that this index has significant impact on dividend policy. We further separate our sample into two sub-groups: REITs with and without nomination committees. Our analyses show a strong positive relationship between CEO entrenchment level and dividend payout for REITs without a nomination committee. In REITs with nomination committees, CEO entrenchment has less influence on dividend policy. We conclude that dividend policy serves as a substitution for other governance mechanisms. Further, our results are consistent with the evidence for other US firms—CEO that are more entrenched pay higher dividends to avoid shareholder sanctions and the threat of takeover.

Valuing corporate securities: some effects of bond indenture provisions—a correction

This paper identifies and corrects a typographical error in Black and Cox (J Finance 31:351–367, 1976). While the typographical error is seemingly trivial, the magnitude of the pricing error that it generates can be substantial.

Screening equilibria in experimental markets

We conduct an experimental test of a screening model of an insurance market with asymmetric information. We first conduct three sessions in which the proportion of high risk buyers is such that a separating equilibrium should exist. We then conduct three more sessions in which the only change we make is decreasing the proportion of high risks such that the equilibrium is now a pooling equilibrium. In both treatments, the observed behavior converges to the equilibrium prediction.

Domino Effects Within a Housing Market: The Transmission of House Price Changes Across Quality Tiers

We argue that shocks to a housing market are transmitted through the hierarchy of quality tiers within a housing market. The result is the prediction of waves of house price changes accompanied by changes in transaction volume. Our study is related to existing models of spatial ripple effects across housing markets. The data are from the Hong Kong housing market. The findings from Granger causality tests strongly support the argument that domino effects within a single housing market occur in response to external shocks.

Firm valuation, abnormal earnings, and mutual funds flow

We examine the valuation effects of overall demand for corporate equities combined with the influence of abnormal earnings and unexpected funds flow. Our results indicate that the expected and unexpected net new total flow of funds into all stock mutual funds do not by themselves have a meaningful effect on firm equity valuation. However, we find the combination of unexpected funds flow and realized abnormal earnings have significant and important valuation effects. Importantly, the valuation impact is greatest for those firms with high earnings growth potential that also operate in an environment characterized by high information asymmetry.

Not all call auctions are created equal: evidence from Hong Kong

On 25 March 2002, the Hong Kong Exchanges and Clearing Ltd (HKEx) introduced an opening call auction. This trading mechanism is designed to facilitate price discovery in the presence of asymmetric information at the market open, increasing opening price efficiency. The design of the HKEx differs significantly from opening auctions in other markets. Contrary to previous research, the results indicate a decrease in market quality following the introduction of the opening call auction. This decline is largest in the less actively traded stocks.

Are candlestick technical trading strategies profitable in the Japanese equity market?

We show that candlestick charting, the oldest known form of technical analysis, is not profitable in the Japanese equity market over the 1975–2004 period. Candlestick technical analysis, which was developed in Japan in the 1600s, is deeply intertwined with Japanese culture and is very popular in Japan. However, there is no evidence candlestick technical trading strategies add value in either the entire 30 year period, in three 10 year sub-periods or in bull or bear markets.

Spectral Risk Measures: Properties and Limitations

Spectral risk measures (SRMs) are risk measures that take account of user risk-aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.

Japanese Housing Tenure Choice and Welfare Implications after the Revision of the Tenant Protection Law

A new mode of housing tenure in Japan, rental housing with fixed rental terms, was introduced in March 2000 with the revision of the Japanese Tenant Protection Law. This paper examines the implications of this new system by analyzing the determinants of the choices by households among the three types of housing tenure in Japan: owned housing, general rental housing, and rental housing with fixed rental terms, and calculates the estimated compensating variation. Our micro-data is based on the three waves of Japanese household longitudinal data (Keio Household Panel Survey, KHPS) covering all of Japan. The difference between general rental housing and rental housing with fixed rental terms is reflected in the length of the contract term and the level of rent. We carefully eliminate potential sample selection bias introduced to the conditional logit housing tenure choice model through the estimation of the hedonic price regression of each housing tenure alternative. We find that households with a smaller number of family members, those who moved from outside the local housing market, those headed by an unmarried household head, and those with plans to own a house in the near future tend to select rental housing with fixed rental terms. The estimated mean compensating variation by introducing rental housing with fixed rental terms for all households selecting that tenure is 1,205 JPY per month or 1.96% of their monthly rent. Moreover, younger and/or lower income households derived the greatest benefit from the revised law in the form of lower rents.

Introduction to <Emphasis Type="Italic">JREFE</Emphasis> Special Issue on the 2007 MCM International Symposium

This article introduces the 2007 Maastricht-Cambridge-MIT Symposium articles in this special issue. The introduction not only briefly describes each of the four articles from that symposium included in this special issue, but also describes the symposium including links to other papers and presentations of the symposium not published in this issue.

Stock Market Anomalies: What Can We Learn from Repurchases and Insider Trading?

We examine whether managers’ trading decisions (both at a firm and personal level) are correlated with trading strategies suggested by the operating accruals and the post-earnings announcement drift (SUE) anomalies. We discuss advantages and disadvantages of the use of managerial trading activity to infer managers’ private valuation about their own securities. Our results provide corroborative evidence for the accruals anomaly, i.e., managers’ repurchase and insider trading behavior varies consistently with the information underlying the operating accruals trading strategy. On the other hand, we do not find corroborative evidence for the SUE anomaly.

School Quality, House Prices and Liquidity

This paper develops an empirical framework for taking into account the effects of endogenous liquidity on price capitalization estimates. Changes in school attendance zones in the East Baton Rouge Parish public school district provide a natural experiment for studying how changes in school characteristics affect house prices and liquidity. House price and selling time, or liquidity, are simultaneously determined in search markets. The empirical model exploits variation in the surrounding neighborhood market conditions pertinent to each house to identify the system of price and liquidity equations. The estimates are consistent with search-market theory in that liquidity absorbs part of the capitalization of school quality.

The effect of controlling shareholders’ excess board seats control on financial restatements: evidence from Taiwan

This study examines the relation between controlling shareholders’ excess board seats control and financial restatements. An analysis of a sample comprising 106 Taiwanese listed firms (53 restating firms vs. 53 non-restating control firms) shows that financial restatements are more likely to occur when there is a greater divergence between controlling shareholders’ board seats control rights and ownership rights. We also find that the excess board seats control of controlling shareholders is positively associated with the materiality and pervasiveness of financial restatements. Overall, these results suggest that the entrenchment incentive from controlling shareholders’ excess control motivates firms to adopt aggressive accounting policies.