Underwriter warrants,underwriter reputation,and growth signaling

We present an alternative explanation of warrant use for underwriter compensation. We consider underwriter warrants as a signaling device to convey an issuing firm’s future growth potential and test this signaling role of warrant use by taking a direct approach in a seasoned equity offering (SEO) environment. Employing a matched-sample approach, we find that the use of warrants mitigates the negative price effects of SEOs. Specifically, the issuance of SEOs with warrant-based compensation has a significantly less negative impact on abnormal return performance than the issuance of SEOs with cash-based compensation. The results of logit regressions confirm this linkage. We further find that this less negative impact on firm value is attributable to the signaling value representing the issuing firm’s future growth prospects through warrant compensation even in the presence of underwriter reputation variables. These results suggest that firms with greater growth prospects benefit more by issuing SEOs with warrant compensation than with cash compensation. Overall, our results support the growth signaling effect of warrant compensation as an additional role of underwriter warrants in the SEO market.

Underpricing and long-run performance of Chinese IPOs: the role of underwriter reputation

This study examines the impact of underwriter reputation on IPO underpricing and long-run performance in the China stock market over the period 2001 to 2006. This sample period is notable for the implementation of a verification and approval system that occurred during it, which provided underwriters more freedom to price IPOs. We develop two alternative proxies to measure underwriter reputation based on either the ratio of the total gross proceeds raised or the number of IPOs managed by each underwriter. We find that underwriter reputation does not affect the level of underpricing, but that the level of long-run underperformance is significantly mitigated when IPOs are managed by more prestigious underwriters.     

The role of underwriter peer networks in IPOs

This study examines how various aspects of underwriter peer network affect IPOs. We use different network measures to capture underwriter centrality in the global network, cohesion and diversity within network, and prior industry experience of network partners. Our results show that IPOs underwritten by book managers with more central and cohesive networks and partners with previous industry experience are associated with a higher likelihood of an offer price revision and larger price revisions. We also find book managers with more central networks and partners with previous industry experience are associated with higher short-run stock returns, while book managers that maintain more reciprocated peer relationships tend to underprice more. These results indicate that underwriters use peer networks to produce information and place securities, and network structure and characteristics have implications for the quantity and quality of information and the level of cooperative efforts shared among underwriters.     

The influence of loan officers on loan contract design and performance

We investigate the extent to which loan officers generate independent, individual effects on the design and performance of syndicated loans. We construct a large database containing the identities of loan officers involved in structuring syndicated loan deals, allowing us to systematically disentangle borrower, bank, and loan officer fixed effects. We find that loan officers have significant influence on interest spreads, loan covenant design, and loan performance. Inclusion of borrower fixed effects increases our power to rule out the alternative that loan officer fixed effects reflect the matching of officerds to borrowers based on time-invariant borrower characteristics. We document heterogeneity in loan officers’ influence across loan contract terms, with loan officers exerting stronger influence over covenant package design than over interest spreads, but marginal influence on loan maturity. Lead officers have greater influence than participant officers over covenant package design and loan performance, but less robust differential influence on interest spreads.     

Conflict of interest and the credibility of underwriter analyst recommendations

Brokerage analysts frequently comment on and sometimes recommendcompanies that their firms have recently taken public. We showthat stocks that underwriter analysts recommend perform morepoorly than 'buy' recommendations by unaffiliated brokers priorto, at the time of, and subsequent to the recommendation date.We conclude that the recommendations by underwriter analystsshow significant evidence of bias. We show also that the marketdoes not recognize the full extent of this bias. The resultssuggest a potential conflict of interest inherent in the differentfunctions that investment bankers perform.     

Bought deals: The value of underwriter certification in seasoned equity offerings

The bought deal is the predominant method of underwriting SEOs in Canada. Offer prices are set and underwriters commit to purchase offerings several days earlier for bought deals than for firm commitment issues, implying stronger underwriter certification for bought deal issues. Consistent with the certification hypothesis, this study finds a significantly smaller negative stock price reaction around the announcement of bought deals compared to firm commitment issues. Bought deals are further shown to have smaller offer price discounts and smaller underwriting fees, implying superior pricing and thus, higher quality offerings. These findings suggest that investment banks’ underwriting method of choice is informative of issue quality.     

Fixed versus variable rate financing: The influence of borrower,lender, and market characteristics

Previous research has analyzed the problem faced by borrowers who must choose between fixed rate and variable rate loans when each loan carries different cost and risk characteristics and the borrowers face various income and employment prospects. In addition, the existing literature contains theoretical and empirical studies of how lenders react when given the ability to offer both fixed and variable rate financing. This article unifies the two strands of research to develop and test a model of the equilibrium proportion of variable rate lending. Results indicate that factors related to borrower, lender, and market characteristics are significant determinants of the equilibrium proportion of variable rate credit originated.     

The influence of voice and explanation on performance in a participative budgeting setting

This paper examines the relationship between the use of a fair budgeting process and subordinate performance. Organizational justice theory is used to define a fair budgeting process as having two components: the subordinate’s involvement in the budgeting process, voice; and the communication of a rationale for the subordinate’s lack of influence over the final budget target the superior sets, explanation. Results indicate significant performance improvements when voice and explanation are combined as compared to voice alone.     

Eco-control: The influence of management control systems on environmental and economic performance

Eco-control is the application of financial and strategic control methods to environmental management. In this study, we investigate to what extent eco-control influences environmental and economic performance. Using survey-data from a sample of Canadian manufacturing firms, the results suggest that eco-control has no direct effect on economic performance. A mediating effect of environmental performance on the link between eco-control and economic performance is observed in different contexts. More specifically, eco-control indirectly influences economic performance in the context of (i) higher environmental exposure, (ii) higher public visibility, (iii) higher environmental concern, and (iv) larger size. This study contributes to the management accounting literature by providing insight into the roles and contributions of management accounting in the context of sustainable development.     

股权私有化与银行绩效正相关

本文通过选取位于堪萨斯联储区内的、总资产不超过10亿美元的若干银行为样本,分析了股权结构以及管理层、董事的财富配置与银行绩效之间的关系。作者分别供职于堪萨斯联储银行银行业组织结构研究中心和银行支付系统研究所。文章为本刊美国特约编辑杰姆斯·巴茨(James Barth)博士推荐。     

Subjective adjustments to objective performance measures: The influence of prior performance

This field study examines whether and how supervisors’ subjective adjustments to objective performance measures are influenced by their prior subjective evaluations of employees. Evaluations were determined entirely subjectively in the sample internal audit organization in 2005. In 2006, the organization introduced a pay-for-performance incentive plan that established four objective measures of audit manager performance. Then, knowing the challenges of objectively measuring manager performance, the organization gave supervisors the discretion, mandate, and training to subjectively adjust each of the objective measures when performance as indicated on the individual measures misrepresented managers’ true performance.     

The influence of firm financial position and industry characteristics on capital structure adjustment

We extend Byoun's (2008) modelling of the relationship between deficits and surpluses and adjustment speed, to demonstrate how industry characteristics identified by Kayo and Kimura (2011), including industry concentration, industry munificence and industry dynamism, impact on speed of adjustment. Using New Zealand firms as a case study, we find significant evidence that, as well as firm financial position, industry characteristics also impact on adjustment speed. The firm financial position results are the most robust, and we recommend further research to confirm the nature of the relationship between industry characteristics and the speed at which firms adjust towards target capital structures.     

Investment manager characteristics, strategy, top management changes and fund performance

The present study examines the performance of Australian investment management organisations with direct reference to their specific characteristics and strategies employed. Using a unique information source, performance is evaluated for actively managed institutional balanced funds, Australian share funds and Australian bond funds. For balanced mandates, performance is evaluated with respect to the investment strategy adopted, the experience and qualifications held by investment professionals, and the tenure of the key investment professionals. The present study examines the performance of top management and the impact on returns when turnover arises. The research documents that a significant number of active Australian equity managers earned superior risk-adjusted returns in the period, however, active managers perform in line with market indices for balanced funds and Australian bond funds. A number of manager characteristics are also found to predict risk-adjusted returns, systematic risk and investment expenses for balanced funds.     

Board characteristics and Chinese bank performance

Using a sample of 50 largest Chinese banks during the period of 2003–2010, we explore a comprehensive set of board characteristics (size, composition and functioning of the board) and analyze their impacts on bank performance and bank asset quality in China. We find that the number of board meetings and the proportion of independent directors have significantly positive impacts on both bank performance and asset quality while board size has a significantly negative impact on bank performance. We find new evidence that the degree of bank boards’ political connection is negatively correlated with bank performance and asset quality. The findings suggest that the board of directors plays a significant role in bank governance in China.     

On the characteristics and performance of long-short, market-neutral and bear mutual funds

We evaluate the return performance of long-short, market-neutral and bear mutual funds using multi-factor models and a conditional CAPM that allows for time-varying risk. Differences in the bearish posture of these mutual funds result in different performance characteristics. Returns to long-short mutual funds vary with the market, returns to market-neutral mutual funds are uncorrelated with the market and returns to bear mutual funds are negatively correlated. Using the conditional CAPM we document significant changes in the market-risk exposure of the most bearish of these funds during different economic climates. We then assess the flow-performance relationship for up to 60 months following up and down markets and find that investors direct flows towards market-neutral and bearish funds for several months after down markets. Market-neutral funds provide a down market hedge, but bear funds do not generate the returns that investors hope for.     

The influence of institutional contexts on the relationship between voluntary carbon disclosure and carbon emission performance

This article examines the relationship between the level of voluntary carbon disclosure (VCD) and carbon emission performance and how the institutional context influences this relationship. Using a sample of Global 500 firms participating in the Carbon Disclosure Project (CDP) over the period 2008–2015, the evidence shows a negative relationship between voluntary carbon disclosure and carbon emission performance, which is consistent with the legitimacy theory that VCD may be undertaken for the purposes of legitimation. However, stringent carbon institutions appear to restrict legitimation attempts and help better reflect underlying performance.     

The relative influence of competitive intensity and business strategy on the relationship between financial leverage and performance

This study empirically investigates the effects of competitive intensity and business strategy on the relationship between financial leverage and the performance of firms. Based on a sample of US manufacturing firms, this study confirms the hypothesis that the cost of debt is higher for product differentiation firms than cost leadership firms. Furthermore, the results indicate that competitive intensity has a negative effect on the leverage-performance relationship, suggesting that competition acts as a substitute for debt in limiting manager's opportunistic behavior. These findings reinforce the need to consider moderating factors such as strategic choice and the environment in which a firm operates when investigating the effects of leverage on performance.     

A path model examining the relations among strategic performance measurement system characteristics,organizational justice,and extra- and in-role performance

Economic theory suggests that multiple financial and non-financial measures (i.e., a strategic performance measurement system “SPMS”) be used in compensation contracting to properly direct employees’ attention and motivate behavior aligned with organizational goals. Conversely, linking incentives to the SPMS can result in various dysfunctional behaviors, including game playing by employees, the achievement of unbalanced performance, and the potential of basing compensation on an incomplete performance measurement system. Prior literature has investigated the use of subjectivity in compensation contracting as a means of potentially mitigating these problems; however, subjectivity can introduce other problems including claims of favoritism and bias. Economic theorists have recently begun expanding the traditional agency model to include the notion of fairness or justice. In this study, we obtain data from an organization that uses an SPMS as the basis for the allocation of bonuses and investigate whether characteristics of the SPMS are associated with perceived organizational fairness. Specifically, we hypothesize and show that the extent to which employees perceive that the SPMS reflects a strategic causal model and the degree to which it is technically valid are positively associated with their perceptions of organizational justice. We also provide evidence that heightened levels of organizational justice are the mechanism though which the perceived characteristics of the SPMS are associated with employee performance. The implication is that firms do not necessarily need to introduce subjectivity into the incentive contracting system, but can enhance performance by linking incentive contracts to their SPMS if the system contains characteristics that enhance employees’ perceptions of justice.     

The effect of investor sophistication on the influence of nonfinancial performance indicators on investors’ judgments

This paper presents an experiment that examines how enhanced disclosure of nonfinancial performance indicators affects the stock‐price estimates of nonprofessional and professional investors. Participants were provided with a case study containing excerpts from a hypothetical company’s annual report. The experiment was a 2 (nonprofessional and professional) × 3 (positive nonfinancial performance indicators, negative nonfinancial performance indicators, and financial information only) between‐subjects design. Consistent with conservatism, the nonprofessional investors underreacted in their stock‐price estimates to the positive nonfinancial disclosures, compared with professional investors with task‐specific knowledge. The results from this study suggest that the value of enhanced disclosure of this type may not flow equally to all users of financial reports, if conservatism, and lack of task‐specific knowledge, adversely affect their decision‐making.     

The effect of comprehensive performance measurement systems on role clarity,psychological empowerment and managerial performance

This study examines how comprehensive performance measurement systems (PMS) affect managerial performance. It is proposed that the effect of comprehensive PMS on managerial performance is indirect through the mediating variables of role clarity and psychological empowerment. Data collected from a survey of 83 strategic business unit managers are used to test the model. Results from a structural model tested using Partial Least Squares regression indicate that comprehensive PMS is indirectly related to managerial performance through the intervening variables of role clarity and psychological empowerment. This result highlights the role of cognitive and motivational mechanisms in explaining the effect of management accounting systems on managerial performance. In particular, the results indicate that comprehensive PMS influences managers’ cognition and motivation, which, in turn, influence managerial performance.