Blockholder Exit Threats and Financial Reporting Quality

Recent theoretical and empirical studies suggest that blockholders (shareholders with ownership ≥ 5 percent) exert governance through the threat of exit. Blockholders have strong incentives to gather private information and sell their shares when managers are perceived to underperform. To prevent blockholders from selling their shares and the firm from suffering a stock price decline, managers align their actions with the interests of shareholders. As a result of the greater manager‐shareholder alignment, managers' actions are more likely to be in shareholders' best interest, and consequently there is less need for managers to manipulate earnings. Consistent with these predictions from economic theory, we find evidence that as exit threat increases, firms have higher financial reporting quality. Theory also predicts that the impact of blockholders' exit threat on financial reporting quality (FRQ) should increase as the manager's wealth is tied more closely to the stock price, and this is what we find. Our study contributes to the research on the impact of shareholders on FRQ and to an emerging literature on the impact of blockholders in financial markets. Blockholders play an important role in managers' reporting outcomes through their actions as informed investors.     

Reliability and relevance of fair values: private equity investments and investee fundamentals

Review of Accounting Studies - We directly test the reliability and relevance of investee fair values reported by listed private equity funds (LPEs). In our setting, disaggregated fair value...     

The Persistence of IPO Mispricing and the Predictive Power of Flipping

This paper examines underwriters' pricing errors and the information content of first-day trading activity in IPOs. We show that first-day winners continue to be winners over the first year, and first-day dogs continue to be relative dogs. Exceptions are "extra-hot" IPOs, which provide the worst future performance. We also demonstrate that large, supposedly informed, traders "flip" IPOs that perform the worst in the future. IPOs with low flipping generate abnormal returns of 1.5 percentage points per month over the first six months beginning on the third day. We show that flipping is predictable and conclude that underwriters' pricing errors are intentional.     

Accruals,Cash Flows,and Equity Values

We find, as predicted, that the differential ability of accrual and cash flow components of earnings to help forecast future abnormal earnings and the persistence of the components result in the components having different valuation implications. We base our tests on Ohlson (1999) applied to fourteen industries. We find: (1) Accruals and cash flows aid in forecasting future abnormal earnings incremental to abnormal earnings and equity book value. (2) Accruals and cash flows provide explanatory power for equity market value incremental to equity book value and abnormal earnings. (3) There is evidence that accruals and cash flows valuation coefficients are consistent with the Ohlson model.     

Ownership Duration in the Residential Housing Market: The Influence of Structure,Tenure, Household and Neighborhood Factors

Turnover rates are important as determinants of the level of activity in housing related industries, in effecting housing market adjustments, and in revealing prices in illiquid, highly segmented, informationally inefficient housing markets. This study examines the relative influence of structure features, tenure, household characteristics and neighborhood factors on ownership turnover rates. The study exploits a Chicago database of just under 50,000 paired sales of attached housing units, with at least one of the sales occurring between 1992 and June of 2002. Within the framework of a Cox proportional hazard model, we focus on a number of factors affecting turnover rates, including whether the housing unit is owner-occupied or rented at the time of sale, price at the time of sale, unit size, age, location in a tax increment financing district, housing density, structure size, year of sale, and neighborhood within Chicago (by Community Area). Finding strong spatial segmentation in turnover (hazard) rates, we further examine the capacity of four sets of Census-derived variables to explain the spatial variation. The household characteristics offer decidedly the strongest power in explaining the segmentation. Results from the hazard model, combined with results from the analysis of spatial variation suggest a household life cycle model of variation in turnover rates.     

Dynamic strategic groups: deriving spatial evolutionary paths

Recent theoretical developments in the domain of strategic groups, specifically those related to cognitive groups and strategic group identity, seem to suggest that strategic group membership is likely to be relatively stable over time and that firms in a strategic group co‐evolve. Yet appropriate data analytic approaches that use information about firms over time to identify stable strategic groups and their evolutionary paths have been lacking. To overcome such limitations, this research proposes a new clusterwise bilinear multidimensional scaling model that can simultaneously identify (1) the number of strategic groups, (2) the dimensions on which the strategic groups are based, and (3) the evolution of the strategy of these groups over time. Our discussion encompasses various alternative model specifications, together with model selection heuristics based on statistical information criteria. An illustration of the proposed methodology using data pertaining to strategic variables for a sample of public banks in the tristate area of New York, Ohio, and Pennsylvania across three time periods (1995, 1999, and 2003) identifies two underlying dimensions with five strategic groups that display very different evolutionary paths over time. Post hoc analysis shows pronounced differences in firm performance across the five derived strategic groups. This article concludes with a discussion of the implications of the findings, as well as potential future research directions. John Wiley & Sons, Ltd. Copyright © 2009 John Wiley & Sons, Ltd.     

Corporate spinoffs and executive compensation

This paper investigates the impact of corporate spinoffs on executive compensation. We find no significant association between executive compensation and stock returns prior to spinoffs, but a significant positive association between the two afterwards. We also find evidence that corporate governance generally improves after the spinoff. In addition, the positive association between executive compensation and stock returns is more pronounced for firms with greater improvements in their corporate governance. Overall, our findings support the notion that spinoffs create value by reducing agency costs.     

Fear, guilt, and shame appeals in social marketing

This paper presents the results from a qualitative study of income support recipients with regard to how they feel about advertising which overtly appeals to their sense of fear, guilt and shame. The motivation of the study was to provide formative research for a social marketing campaign designed to increase compliance with income reporting requirements. This study shows that negative appeals with this group of people are more likely to invoke self-protection and inaction rather than an active response such as volunteering to comply. Social marketers need to consider the use of fear, guilt and shame to gain voluntary compliance as the study suggests an overuse of these negative appeals. While more formative research is required, the future research direction aim would be to develop an instrument to measure the impact of shame on pro-social decision-making; particularly in the context of close social networks rather than the wider society.