Commissions Matter: The Trading Behavior of Institutional and Individual Active Traders

We examine how commissions influence trading behavior by analyzing a unique data set of the equity trades of both individual and institutional active traders. Individual traders pay higher trading costs than institutional traders. As a result, they engage in more risky trading behaviors in order to cover these costs. Individual traders also trade significantly less because of their higher cost of trading. Individual traders tend to trade higher-priced stocks, hold their trades longer, and they experience much larger price swings than institutional traders. This leads individual traders to realize more dramatic gains and losses on their round-trips.     

Corporate governance and research and development: Evidence from Japan

This paper investigates the effects of the ownership structure on the R&D intensity. Using the Japanese machine-manufacturing firm data from 1987 till 1998, we first found that the effects of R&D on stock market valuation and TFP growth were significantly positive in the latter half of the 1990s. Next, analyzing the determinants of the R&D intensity in 1998, we found that the shareholding ratios of large shareholders and the leverage ratios were positively correlated with R&D intensity, while the proportion of bank loans to total debt was negatively correlated with it. These results are consistent with the hypotheses that stress the disciplinary roles of large shareholders and debt. It is also consistent with a bank's holdup hypothesis. Finally, comparing the results of 1998 with those of 1989, we found that the positive roles of keiretsu affiliation and cross-shareholdings disappeared during the last decade.     

Partial vertical ownership

A backward ownership interest held by a downstream firm yields a partial rebate of the upstream margin. Input demand increases with backward ownership, and the upstream firm optimally responds by raising price. With symmetric costs, every downstream firm's equilibrium input/output choice is invariant across a class of ownership profiles, including uniform ownership. Moreover, equity trading results in uniform holdings, so partial vertical ownership may have no real effects. With asymmetric costs ex ante, equity trading amplifies the asymmetries and shifts output toward lower-cost firms. With homogeneous goods, this improves producer and total surplus. With differentiated goods, it may harm consumers.     

股权分置改革与IPO配置效率的实证研究

本文采用规范研究和实证研究相结合的方法,对股权分置改革对我国A股市场IPO效率的影响进行了深入的研究。本文发现,股权分置下新股供给限制、流通股的流动性溢价、二级市场价格控制,使得新股二级市场价格系统性偏离了发行公司的内在价值。对股权分置改革前后IPO样本的回归分析显示,股权分置改革前我国新股发行定价反映的公司内在价值信息相对有限,而股权分置改革后新股发行定价更加合理,因而股权分置改革有效地提高了IPO配置效率。     

A general equilibrium analysis of corporate control and the stock market

This paper studies a general equilibrium model with an investor-controlled firm. Shareholders can vote on the firm??s production plan in an assembly if they dislike management??s decision. Prior to that they may trade shares on the stock market. Since stock market trades determine the distribution of votes, trading is strategic. There is always an equilibrium, where share trading leads to an ownership structure that supports competitive behavior. But there may also be equilibria, where monopolistic behavior prevails.     

Manipulation and the Allocational Role of Prices

It is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources. This paper identifies a limitation inherent in this role of prices. It shows that the presence of a feedback effect from the financial market to the real value of a firm creates an incentive for an uninformed trader to sell the firm's stock. When this happens the informativeness of the stock price decreases, and the beneficial allocational role of the financial market weakens. The trader profits from this trading strategy, partly because his trading distorts the firm's investment. We therefore refer to this strategy as manipulation . We show that trading without information is profitable only with sell orders, driving a wedge between the allocational implications of buyer and seller initiated speculation, and providing justification for restrictions on short sales.     

中国上市公司第一大股东变更的实证研究

本文利用实际数据研究1999年至2001年中国上市公司第一大股东变更的发展趋势,分析第一大股东变更对促进非流通股份的流通、改进上市公司绩效以及降低第一大股东持股比例的效应.本文证明中国上市公司第一大股东变更逐年增长,这种增长增加了非流通股份的流通性,有限地降低了第一大股东持股比例,但没有带来上市公司绩效的提高.另外,国家股股权变更和法人股股权变更、横向变更与投资型变更及实业型变更、ST公司股权变更与总体变更公司的效应之间存在一定差异.     

连续竞价市场的股权结构、非对称信息与流动性

本文采用分笔交易的高频数据研究了股权结构对指令驱动的连续竞价市场中流动性和非对称信息的影响。研究表明,机构投资者对股票流动性有正的影响,且机构投资者能够显著减少交易过程的信息不对称程度,从而降低流动性成本。以国有股权和法人股权为代表的公司内部人对股票流动性没有显著影响,但能够降低交易过程的信息不对称程度,对减少流动性成本有积极作用。上市公司持股比例越分散,信息不对称程度越低,流动性成本越低。     

Keiretsu and Relationship‐Specific Investment: A Barrier To Trade?

This article develops a model of informal procurement within Japanese keiretsu so as to consider effects on intermediate-good imports, such as auto parts. Parts-suppliers make relationship-specific investments that benefit the automaker and prices are determined by bargaining after investment has been sunk. Although this investment raises efficiency, it limits the range of imports to less important parts, such as tailpipes, and it is possible that no parts are imported, despite lower foreign costs. Lack of information concerning investment rents combined with counterintuitive responses of imports to changes in output and costs could create unwarranted perceptions of a trade barrier.     

Bargaining and separation costs in two-sided markets

A two-sided market is characterized by contract negotiations, bilateral exchanges between buyers and sellers. Separation costs endow trading partners with monopoly power, rendering this a market of bilateral monopolistic competition. Market equilibrium is defined by these negotiations, a matching of the two sides, and a set of prices; the costs of disagreement are endogenous. A bargaining strategy some players use is commitment to a position. Disagreements are possible and, contrary to the case of bilateral monopoly, these disagreements are not always inefficient.     

Index of Survey Articles, 1985—1996;

In a simple counter-example it is shown how financial markets can be destabilized through the trading of derivative instruments. In particular, an assessment is made of the impact on the stock market of a widely used equity option trading strategy, and it is shown that instability may arise as a consequence of option trading. Furthermore, it is suggested that potential instability is endogenous because it arises from the use of available financial instruments in a manner which is not unusual or in other ways pathological.     

Survivorship and the Economic Grim Reaper

The 10-year survival rate for firms trading on the New Yorkand American stock exchanges between 1963 and 1995 is only 61%.This article explores the process by which firms come to bedelisted. We calculate the returns of firms from 10 years beforedelisting to their delisting date and show that, on average,the economic grim reaper kills poorly performing firms. We documenttakeover and distress delisting rates through time, analyzepredelisting equity market returns for both groups, and explorehow firm characteristics and regulations governing corporatetakeovers and bankruptcy affect the friction with which theseprocesses operate. We believe this is the first analysis todocument long-term equity market and operating performance ofdelisting firms. The study builds on research from both financeand industrial organization and is consistent with a Schumpeterianview of economic development.     

Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

International carbon offset certificates were cheaper than European Union Allowances, although they were substitutes within the EU Emissions Trading System (EU ETS). Thus, firms had a strong incentive to use offset certificates. However, a considerable number of firms did not exhaust their offset quota and, by doing so, seemingly forwent profits. While most literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of trade-related fixed transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed (quantity-invariant) entry costs and estimates the size of such costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction costs result from a strongly skewed underlying distribution. For most firms, the bulk of transaction costs stems from certificate trading in general, rather than additional participation in offset trading.     

A role for preferred stock in the financing decision of a public utility

Summary We have shown that preferred stock has a unique role in the financing of public utility capital expenditures, particulary when returns allowed by regulatory commissions are perceived to be inadequate. From the firm's perspective there is no tax advantage for debt because the commission effectively passes the tax savings through the consumers. If allowed returns on common stock are inadequate and the firm has exhausted its perceived debt capacity, then preferred stock becomes the optimal financing instrument. The regulatory commissions compute the costs of debt and preferred stock so that companies can expect returns to cover payments on debt and preferred stock if the assets being financed are necessary and will be included in the rate base. During extremely bad years when revenues are much less than expected, the companies can delay or miss preferred stock dividends without running the risk of default. The data on new capital sources for the electric and gas utilities indicate that these companies made adjustments which are consistent with the implications of our model, but they did not follow the extreme policy of using only debt and preferred stock when market-to-book ratios for common stock were below one. Regulators have, on occasions, used capital structures for rate-making that differ from actual capital structures, and a utility might be penalized for using an extreme capital structure policy. The main emphasis of regulatory review of capital structure, however, has been on the debt component. One strategy would be to use a debt level that satisfies the regulatory commission and then adjust equity between preferred stock and common stock to maximize value for common stockholders.     

AN EMPIRICAL EXAMINATION OF THE HANGOVER EFFECT OF IRREVERSIBILITY ON INVESTMENT

Irreversibility does not only raise the user cost of capital and discourage new investment but also hinders disinvestment because of the hangover effect. This paper derives a theoretical model that separates the impact of conventional convex adjustment costs from the impact of irreversibility, based on which we test the hangover effect of irreversibility by using a panel of Dutch listed firms during 1985–2000. We find that the sample firms cut both the capital stock and the inventory stock facing shocks to sales and cash flow, but they cut the inventory stock by a larger magnitude than they cut the capital stock. Given that fixed investment is more irreversible than inventory investment, the result suggests that the diminished impact of irreversibility provides the firm with more flexibility in responding to uncertainty, which lends support for the hangover effect of irreversibility on investment.     

Does a firm’s supplier concentration affect its cash holding?

High supplier concentration (SC) of a firm can weaken the firm’s bargaining power, which reduces its profitability and internal funds. Also, high SC likely increases the firm’s exposure to supply shocks, which results in high costs of external financing. Consequently, high-SC firms will incline to hold more cash due to the precautionary concern. However, there is little research into the effect of SC on cash holdings. This paper investigates how SC affects cash holdings with Chinese firms over 2009–2016. We find that a firm’s cash holding increases with its SC. Further investigations show that this positive relation stems from the unfavorable impact of SC on trade credit and equity financing. Our results are robust to different tests including the instrumental variable approach and the propensity score matching. Our findings are new to the literature and help to explain the cash holding puzzle. Our study also indicates that choosing supplier concentration adequately is important in maintaining a firm’s financial health.     

CORPORATE GOVERNANCE AND CAPITAL ACCUMULATION: FIRM-LEVEL EVIDENCE FROM ITALY

This study investigates the impact of investor protection on firm ownership and capital growth in a model where investor protection is allowed to vary between firms. Using panel data for Italy, we construct firm-level variables to capture the degree of investor protection, which is observable to all shareholders. Empirical evidence indicates that the stronger the investor protection the lower the fraction of equity that is owned by insiders. Results show that higher insider equity ownership is linked to larger risk premiums and higher costs of capital. Implications suggest that the magnitude of capital stock distortions is particularly important when shareholder protection is weak and ownership concentration is high.     

Estimating the value of political connections in China: Evidence from sudden deaths of politically connected independent directors

This paper estimates the value of political connections by examining stock price reactions to sudden deaths of retired government officials who were acting as independent directors of private firms in China from 2003 to 2012. Employing an event study, we find that, if a private firm loses political connections because of the sudden death of an independent director who was previously a government official, its stock price drops 3.61% on average within ten trading days. After the loss of political connections, we find that it is possible but infeasible for a private firm to reestablish political connections with the government in a short period of time. Moreover, the sudden death of a retired government official leads to a reduction in the economic benefits (e.g., bank loans, tax preference, and government subsidies) obtained by a private firm, which provides a reasonable explanation for the negative stock price reaction after losing political connections.     

Long-run equity risk and dynamic trading strategies: a simulation exercise for the Italian stock market

The paper develops a simulation approach capable of reproducing the high frequency characteristics of Italian stock market prices, without assuming any specific form for their stochastic process. The approach is then used to verify the capability of dynamic trading strategies to protect against downside risk in the long run. Because a fully funded capitalized retirement system will develop in Italy in the near future, dynamic trading strategies might become a widely used tool among Italian portfolio managers to hedge long-run equity risk, especially in view of the poor risk –return trade off that the stock market has historically provided. Both option replicating strategies and constant proportion strategies are simulated. The impact of transaction costs, non stationary return variances, alternative portfolio rebalancing schemes and various implementation constraints on the strategies cost are examined. For the option replicating strategies,ex posteffective costs turn out to be close toex antetheoretical expected cost. The crucial element in the strategy appears the decisions about the length of the option strategy and the rule to reset the floor at the end of it. Constant proportion strategies are cheaper and easier to implement, but their effectiveness depends too on the way in which the floor is adjusted as a function of the stock price movements. Broadly speaking, the simulations confirm that dynamic strategies are capable of delivering what they are supposed to achieve. All types of strategies are relatively straightforward and can be used with an acceptable margin of uncertainty.     

Prices, Delay, and the Dynamics of Trade

We characterize the dynamics of trading patterns and market composition when trade is bilateral, finding a trading partner is costly, prices are determined by bargaining, and preferences are private information. We show that equilibrium is inefficient and exhibits delay as sellers price discriminate between buyers with different values. As frictions vanish, transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches zero, even though the trading patterns continue to be inefficient and delay persists. Journal of Economic Literature Classification Numbers: D40, D50.