News from the U.S. and Japan: Which moves the yen/dollar exchange rate?

Intra-daily movements in the yen/dollar exchange rate are examined in four non-overlapping segments within each business day from January 1980 to September 1985. The results indicate that the dollar tended to appreciate in the New York segment and depreciate in the European segment. In three of the four subsamples considered, the Tokyo segment made virtually no contribution to annual yen/dollar rate movements. The volatility of the exchange rate also differed across markets. Finally, in examining the relative effects of news from the U.S. and Japan explicitly, U.S. money announcement surprises had the most consistent effects.     

How local is local? Evidence from bank competition and corporate innovation in U.S.

Review of Quantitative Finance and Accounting - This paper aims to fill in a research gap in the effects of bank competition on corporate innovation. In addition to the evidence on the favorable...     

Does risk management matter? Evidence from the U.S. agricultural industry

This article constructs triple-difference tests around shifts in the supply of risk management instruments available to agricultural producers to reveal a positive relation between risk management and productivity. This relation is more robust when producers adopt instruments with payoffs linked to group performance and weaker when payoffs are linked to individual performance. Additionally, productivity is particularly high among risk-managing producers in counties containing high levels of bank deposits, a proxy for access to finance. Overall, this article illuminates the relation between hedging and real firm outcomes as well as the interaction between access to finance and firms' risk management choices.     

The U.S. left behind? Financial globalization and the rise of IPOs outside the U.S.

From 1990 to 2011, the share of world IPO activity by non-U.S. firms increased because of financial globalization and because of a decrease in U.S. IPO activity. Financial globalization reduces the impact of national institutions on domestic IPO activity and enables more non-U.S. firms from countries with weak institutions to go public with a global IPO. U.S. IPO activity does not benefit from financial globalization. Compared to other countries, the rate of small-firm IPO activity in the U.S. is abnormally low in the 2000s. This abnormally low rate cannot be explained by the regulatory changes of the early 2000s.     

Financial development and household portfolios – Evidence from Spain,the U.K. and the U.S.

We examine the impact of financial development on the composition of household portfolios in Spain, the U.K. and the U.S., three countries whose financial systems underwent profound changes over the past two decades and for which relevant data exist for sufficiently long time periods. We find a ‘division of labour’ between the indices measuring financial development and asset returns, the first affecting mainly the long-run dynamics of household portfolios and the second the short-run dynamics; both, however, in an economically reasonable way. Among the notable results pertaining to long-run dynamics, more competitive financial intermediaries are associated with a higher share of currency and deposits and a lower share of equity. For the short-run dynamics, the most important driver is stock market returns.     

How do corporate websites contribute to the information environment? Evidence from the U.S. and Taiwan

We study corporate website disclosures in the U.S. and Taiwan, two countries with different regulatory and market environments, to provide insights into the uniformity of website content and its contribution to the information environment. We observe significant variation in content both within and between the two countries. U.S. firms with higher analyst following tend to create more transparent financial information environments and provide disclosures that are complementary to analysts’ analyses through their corporate websites. They also tend to provide easier access to investor relations (IR) services if analyst coverage is light or nonexistent. However, neither effect is true in Taiwan where the securities analysis industry is less mature. Individual investors have greater ownership share in U.S. firms with more information about IR services on their websites; however, their ownership share drops as financial disclosure on the firm’s website increases, consistent with institutions diluting individual ownership in firms with more transparency in financial reporting. In Taiwan, however, institutions dilute individual ownership share in firms with less financial information and more trading information on their websites. These results are consistent with Barber et al.’s (2009) findings that institutions find Taiwan firms that attract the aggressive, speculative trading of individuals to be extremely profitable investments. Website disclosures in both countries have some effect on the stock-price response to mandatory earnings releases, but their impact is greater in the U.S. Our findings indicate that website disclosures contribute to the information environment and are related to the degree of interest in the firm by sophisticated market participants. Thus, they provide insights to regulators of both countries as they seek to improve disclosure and “level the information playing field.”     

Are Risk Management Disclosures Informative or Tautological? Evidence from the U.S. Banking Sector

Banks experienced increasing risk levels during the latest financial crisis. Investors’ confidence was shaken by the effectiveness of bank risk management practices, which has opened new challenges for bank management in approaching its risk. Understanding and communicating adopted risk management mechanisms is likely to provide insights and enable diagnosis on firm risk exposure. Conveying data that reduces information asymmetry might be reflected on stock performance. Investigating the impact of risk management disclosures content on stock price change and return volatility, using a sample of U.S. national commercial banks during 2009–2010, shows that informative risk management disclosures seems to be valued by investors. This is reflected on current‐year stock prices and reduces the subsequent‐year return variances.     

Does Operational and Financial Hedging Reduce Exposure? Evidence from the U.S. Airline Industry

We examine the effects of both financial and operational hedging on jet fuel exposure in the U.S. airline industry. Specifically, we investigate two operational hedging strategies: the extent to which airlines operate different aircraft types and the degree to which airlines operate fuel‐efficient fleets. We find that both financial and operational hedging are important tools in reducing airline exposure to jet fuel price risk. However, operational hedging strategies appear to be more economically important, which suggests that hedging with derivatives is more likely to be used to “fine‐tune” risk exposure, whereas operational choices have a higher order effect on risk exposure.     

What drives delistings of foreign firms from U.S. Exchanges?

We examine time dependency in the factors motivating delistings of foreign firms from major U.S. Exchanges over the period 1962–2006. For firms listing before Sarbanes-Oxley (SOX), we find that governance has no significant effect on delisting but after SOX, it becomes one of the main forces driving delisting. For firms whose delisting decision is most likely attributable to SOX, we find they realize low benefits from listing – they originate from countries with strong home market governance, and from listing onward realize low trading volume, analyst coverage, and make little use of capital raising. Our results suggest that SOX has had a large influence on the benefits seek from a U.S. listing, leading firms from well governed countries and low capital raising needs to delist.     

Did the U.S. Treasury’s capital purchase program (CPP) help bank lending and business activity?

The 2008 financial crisis led the U.S. Treasury to implement the capital purchase program (CPP) to revive commercial bank lending and hence stimulate business activity. Employing dynamic panel techniques and methodologies from the bank lending channel literature we find that after controlling for asset size, bank capital, and macroeconomic variables (real GDP growth rate and interest rate spreads), the impact of the CPP program is statistically significant only for money center banks. However, over our sample period from 2008Q3 to 2009Q4 we find a very modest impact on lending by only the largest banks. Overall, our results suggest that CPP’s business objective to boost loan growth and hence business activity during the crisis remained unfulfilled.     

Does eliminating the Form 20-F reconciliation from IFRS to U.S. GAAP have capital market consequences?

This paper investigates the capital market consequences of the SEC's decision to eliminate the reconciliation requirement for cross-listed companies following International Financial Reporting Standards (IFRS). We find no evidence that the elimination has a negative impact on firms' market liquidity or probability of informed trading (PIN). We also find no evidence of a significant impact on cost of equity, analyst forecasts, institutional ownership, stock price efficiency and synchronicity. Moreover, IFRS users do not increase disclosure frequency nor supply the reconciliation voluntarily. Our results do not support the argument that eliminating the reconciliation results in information loss or greater information asymmetry.     

Can we trust the accounting discretion of firms with political money contributions? Evidence from U.S. IPOs

Using hand-collected data from the U.S., we examine the influence of political money contributions (PMC) on IPO financial reporting. Unraveling the conflicting managerial incentives, we develop and test three distinct hypotheses whereby accounting discretion is utilized to downplay, embellish, or truthfully impart the PMC firm’s prospects. Consistent with the last two hypotheses, we document income-increasing reporting. The effects are strongest for firms sensitive to policy outcomes, and least affected by contemporaneous political events. Post-issue analysis shows that at-issue discretionary accruals systematically predict future accounting performance but are unrelated to stock returns. Survival analysis indicates a lower probability of IPO failure. Robust to a battery of checks, our results support the value-relevance of financial information and a novel use of accounting discretion as a means of signaling expected political gains.     

How did the financial crisis alter the correlations of U.S. yield spreads?

We investigate the pairwise correlations of eleven U.S. fixed income yield spreads over a sample that includes the Great Financial Crisis of 2007–09. Using cross-sectional methods and nonparametric bootstrap breakpoint tests, we characterize the crisis as a period in which pairwise correlations between yield spreads were systematically and significantly altered in the sense that spreads comoved with one another much more than in normal times. We find evidence that, for almost half of the fifty-five pairs under investigation, the crisis has left spreads much more correlated than they were previously. This evidence is particularly strong for liquidity- and default-risk-related spreads, long-term spreads, and the spreads that were most likely directly affected by policy interventions.     

What Accounts for the Changes in U.S. Fiscal Policy Transmission?

Using vector autoregressions on U.S. time series for 1957–79 and 1983–2004, we find government spending shocks to have stronger effects on output, consumption, and wages in the earlier period. We try to account for this observation within a DSGE model featuring price rigidities and limited asset market participation. Specifically, we estimate the structural parameters of the model for both periods by matching impulse responses. Model‐based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the Volcker–Greenspan period.     

Did capital infusions enhance bank recovery from the great recession?

This paper investigates the long-run recovery experience of US banks that received capital infusions under the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP). Based on a dynamic recovery model, our results show that recovering CPP banks tended to be in better financial condition than other CPP banks. Long-run event study analyses of common stock prices reveal that, in the quarter after repayment of TARP funds, CPP banks experienced economically large and significant buy-and-hold wealth gains of 14%, equivalent to approximately $329 billion. We conclude that TARP was successful in fostering bank financial and stock price recovery.     

Does accounting quality change following a switch from U.S. GAAP to IFRS? Evidence from Germany

This study examines whether accounting quality changed following a switch from U.S. GAAP to IFRS. Using a sample of German high tech firms that transitioned to IFRS from U.S. GAAP in 2005, we find that accounting numbers under IFRS generally exhibit more earnings management, less timely loss recognition, and less value relevance compared to those under U.S. GAAP. In addition, after analyzing the accounting quality of firms that applied IFRS throughout the entire sample period, we find that, for the metrics suggesting a decline in accounting quality for both groups of firms, the change is significantly more pronounced for firms switching to IFRS from U.S. GAAP. Overall, our findings indicate that the application of U.S. GAAP generally resulted in higher accounting quality than application of IFRS, and a transition from U.S. GAAP to IFRS reduced accounting quality. Our findings provide the first evidence on the potential consequences of a switch from U.S. GAAP to IFRS.     

Did the financial crisis affect the market valuation of large systemic U.S. banks?

We examine the impact of the financial crisis on the stock market valuation of large and systemic U.S. bank holding companies (BHCs). Using the Bertsatos and Sakellaris (2016) model of fundamental valuation of bank equity, we provide evidence that the financial crisis has not altered investors’ attitudes towards bank characteristics. In particular, before, during, and after the crisis, investors in large and systemic U.S. BHCs seemed to penalize leverage, albeit temporarily. Both before and after the crisis, they reward size in the short run. This pattern is appearing only briefly during the crisis. We also show that bank opacity plays no role in market valuation either in the short run or in the long run. Last but not least, we find evidence that stress testing has been informative to the market and that those BHCs that failed at the post-crisis stress tests were not subsequently valued differently by the market.     

Why Are U.S. Stocks More Volatile?

U.S. stocks are more volatile than stocks of similar foreign firms. A firm's stock return volatility can be higher for reasons that contribute positively (good volatility) or negatively (bad volatility) to shareholder wealth and economic growth. We find that the volatility of U.S. firms is higher mostly because of good volatility. Specifically, stock volatility is higher in the United States because it increases with investor protection, stock market development, new patents, and firm‐level investment in R&D. Each of these factors is related to better growth opportunities for firms and better ability to take advantage of these opportunities.