Pricing,issuance volume,and design of innovative securities: The role of investor information

This study investigates the role of asymmetric information for the pricing, issuance volume, and design of innovative securities. By analyzing the information that structured product issuers provide to the investors of those products, we can identify specific sources of asymmetric information between the issuers and investors in this market. We show that issuers exploit this information friction to offer products to investors that appear more profitable for the issuer. In addition, we find that the friction induces issuers to design products with higher information asymmetry. Our results suggest that product issuers’ behavior increases information frictions in the financial system.     

The dark side of analyst coverage: The case of innovation

We examine the effects of financial analysts on the real economy in the case of innovation. Our baseline results show that firms covered by a larger number of analysts generate fewer patents and patents with lower impact. To establish causality, we use a difference-in-differences approach that relies on the variation generated by multiple exogenous shocks to analyst coverage, as well as an instrumental variable approach. Our identification strategies suggest a negative causal effect of analyst coverage on firm innovation. The evidence is consistent with the hypothesis that analysts exert too much pressure on managers to meet short-term goals, impeding firms' investment in long-term innovative projects. We further discuss possible underlying mechanisms through which analysts impede innovation and show that there is a residual effect of analysts on innovation even after controlling for these mechanisms. Our paper offers novel evidence on a previously under-explored adverse consequence of analyst coverage—its hindrance to firm innovation.     

The dark side of strengthened minority voting power: An innovation perspective

Based on the 2014 regulatory reforms aimed at strengthening the protection of legitimate rights and interests of minority investors in China, we investigate minority shareholders’ short-termism and how minority voting impacts firm innovation. We find that the 2014 reforms effectively motivate minority shareholders to attend shareholder meetings and greatly enhance their voting influence. We also find that enhanced minority voting power after the reforms lowers the number of firms’ patent applications, and this effect is more pronounced for the firms that see the greatest increase in shareholder attendance at shareholder meetings. Moreover, enhanced minority voting power boosts executive turnover-performance sensitivity, thereby undermining firm innovation. Finally, we show that different types of minority shareholders have distinct impacts on firm innovation, depending on their investment horizons. The negative effect of minority voting power is more pronounced for state-owned enterprises (SOEs) than for non-SOEs.     

结构性金融衍生产品之探讨

结构性金融衍生产品是把固定收益金融产品和金融衍生品进行组合设计出的一种新型金融产品,种类繁多、结构多样。在美洲、欧洲和亚洲都有非常大的市场规模和繁多的产品种类。结构性金融衍生产品增加了资本市场的完备性、深化了市场的风险配置功能、增强了资本的流动性以及提高了金融衍生市场的信用水平。在我国结构性金融衍生产品首先以外币结构性存款的形式出现,自2003年以来得到快速发展。借鉴国际经验,应在鼓励结构性衍生产品发展的同时,着重加速金融衍生品交易所市场的发展。     

Financial development and barriers to the cross-border diffusion of financial innovation

This paper explores the determinants of financial development by focusing on the role played by barriers to the diffusion of financial technology. These barriers are measured using human genetic distance from the technology frontier. The results based on cross-sectional data for 123 countries suggest that genetic distance to the global frontier has an economically and statistically significant effect on financial development, in that countries that are genetically far from the technology leader tend to have lower levels of financial development. Genetic distance is found to have the largest effect, even after controlling for other determinants of financial development established in the literature. These findings indicate that cultural barriers to the diffusion of financial technology across borders impact financial development by influencing the follower countries’ ability to adopt and adapt innovations from the frontier.     

The dark side of diversification: The case of US financial holding companies

Potential diversification benefits are one reason why US financial holding companies are offering a growing range of financial services. This paper examines whether the observed shift toward activities that generate fees, trading revenue, and other non-interest income has improved the performance of US financial holding companies (FHCs) from 1997 to 2002. We find evidence that diversification benefits exist between FHCs, but these gains are offset by the increased exposure to non-interest activities, which are much more volatile but not necessarily more profitable than interest-generating activities. Within FHCs, however, marginal increases in revenue diversification are not associated with better performance, while marginal increases in non-interest income are still associated with lower risk-adjusted profits. The key finding that diversification gains are more than offset by the costs of increased exposure to volatile activities represents the dark side of the search for diversification benefits and has implications for supervisors, managers, investors, and borrowers.     

Can financial innovation help to explain the reduced volatility of economic activity?

The stabilization of economic activity in the mid 1980s has received considerable attention. Research has focused primarily on the role played by milder economic shocks, improved inventory management, and better monetary policy. This paper explores another potential explanation: financial innovation. Examples of such innovation include developments in lending practices and loan markets that have enhanced the ability of households and firms to borrow and changes in government policy such as the demise of Regulation Q. We employ a variety of simple empirical techniques to identify links between the observed moderation in economic activity and the influence of financial innovation on consumer spending, housing investment, and business fixed investment. Our results suggest that financial innovation should be added to the list of likely contributors to the mid-1980s stabilization.     

Real effects of financial reporting and disclosure on innovation

This paper reviews the literature on the real effects of financial reporting and disclosure on corporate innovation, highlighting both the possible channels of influence and the potential challenges that researchers face when attributing causal effects. We discuss the concept of innovation, emphasising the specific characteristics that make investments in innovation difficult to report. We then provide a review of the nascent work relating disclosure to innovation, which we organise around three channels: financing, compensation and learning. Finally, we discuss recent efforts aimed at increasing the quality of corporate disclosures, including disclosures of firms’ innovative activities. Throughout the paper, we highlight the trade-offs of disclosure (reduced information asymmetry and increased proprietary costs), which are particularly exacerbated in the context of corporate innovation.     

Product innovation, budgetary control, and the financial performance of firms

Organizations are increasingly calling for greater budgetary oversight of the product innovation process. A major focus of their concern is the costs associated with product innovation together with their need to enhance their financial performance through these endeavours. However, the literature has raised a number of issues arising from such budgetary proposals, suggesting that the creativity of those involved in product innovation should not be constrained by cost concerns, that the use of management control systems is incompatible with product innovation, and that budgets may stifle innovation. It is argued in this paper that the extent to which product innovation has a positive impact on the financial performance of firms is dependent on the manner in which budgets are used in organizations. If budgets are used predominantly as a planning mechanism, then such budget planning facilitates product innovation resulting in enhanced performance. In contrast, if budgets are used primarily as a control mechanism, then it is unlikely that product innovation will contribute to financial performance. The results of the study are consistent with these expectations. This paper makes a contribution to the literature by providing empirical evidence of the impact of budgets in the context of product innovation.     

A shared boundary object: Financial innovation and engineering in Islamic financial institutions

This paper explores the way in which ethico-faith-based rules act as a boundary object in constraining the process of financial innovation and engineering (FIE) in Islamic Financial Institutions (IFIs). The paper examines how this faith-based approach is enacted in the FIE process amid different social worlds and groups that cooperate without consensus within IFIs. We contribute to studies of governance in faith-based organizations, by identifying the plasticity of faith-based rules that act as boundary objects in the governance of the FIE process. The plasticity of ethico-faith based rules allows coordination among local and global actors with intersecting faith-based values, logics, and interests. IFIs ensure that the products of FIE become an integral part of and as compatible as possible with the logics of global financial markets.     

The dark side of audit market competition

This paper examines the relation between audit market competition and audit quality. We use the staggered introduction of bullet trains in different Chinese cities as shocks to travel time between audit clients and prospective audit firms, which increases the threat of competition for incumbent audit firms. The inception of bullet train connectivity leads to a 4.5 percentage point (pp) increase in the probability of GAAP violations and a 1.7 pp decrease in the probability of modified audit opinions for clients headquartered in connected cities. Bullet train connectivity is also followed by a 1.6 pp decrease in income-decreasing audit adjustments but no change in income-increasing audit adjustments. The negative relation between bullet train connectivity and audit quality is 1) stronger when bullet trains put greater competitive pressure on incumbent auditors and 2) weaker when clients demand high audit quality. Our paper provides plausibly causal evidence that competition lowers audit quality.     

Assessing financial instability: The case of Brazil

In this paper we use the arbitrage pricing theory to infer the probability of financial institution failure for banks in Brazil. We build an index of financial stability for Brazilian banks. Empirical results seem to provide evidence that after the Russian crisis in 1998, systemic risk has increased in the country but this risk has decreased over time through 2002. Furthermore, for individual major banks the probability of failure has decreased monotonically after the Russian crisis with the adoption of a floating exchange rate regime, an inflation-targeting framework and the introduction of the new payment system.     

当前农村金融发展存在的问题及对策：基于山东省的案例研究

农村金融问题一直是理论界和实务界广为关注的问题。本文基于对山东省农村经济和金融发展协调性的实证分析,通过深入的调查研究,探求农村金融发展中存在的问题及深层次的原因,并系统提出了以农业产业化龙头企业主导设立村镇银行的解决方案。     

韩国KIKO案件的交易结构分析

企业因金融衍生交易遭遇重大损失能否得到法律救济,是当前的热点问题。近年来韩国地方法院以情势变更原则裁决终止尚未履行完毕的KIKO合同,在国际衍生交易市场引发强烈反响,因其可能危及金融衍生交易的合法存续。KIKO合约与中信泰富、深南电的期权合约很相似,分析这类合约有助于我国企业熟悉金融衍生产品游戏规则。梳理KIKO裁决及其国际层面的法律争议,也给我国法律界以诸多启示。     

Are structured products ‘fairly’ priced? An analysis of the German market for equity-linked instruments

Based on a unique data set, this paper examines the pricing of equity-linked structured products in the German market. The daily closing prices of a large variety of structured products are compared to theoretical values derived from the prices of options traded on the Eurex (European Exchange). For the majority of products, the study reveals large implicit premiums charged by the issuing banks in the primary market. A set of driving factors behind the issuers’ pricing policies is identified, for example, underlying and type of implicit derivative(s). For the secondary market, the product life cycle is found to be an important pricing parameter.     

The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness

In conventional accounting literature, ‘transfer pricing’ is portrayed as a technique for optimal allocation of costs and revenues among divisions, subsidiaries and joint ventures within a group of related entities. Such representations of transfer pricing simultaneously acknowledge and occlude how it is deeply implicated in processes of wealth retentiveness that enable companies to avoid taxes and facilitate the flight of capital. A purely technical conception of transfer pricing calculations abstracts them from the politico-economic contexts of their development and use. The context is the modern corporation in an era of globalized trade and its relationship to state tax authorities, shareholders and other possible stakeholders. Transfer pricing practices are responsive to opportunities for determining values in ways that are consequential for enhancing private gains, and thereby contributing to relative social impoverishment, by avoiding the payment of public taxes. Evidence is provided by examining some of the transfer prices practices used by corporations to avoid taxes in developing and developed economies.     

The bright side of market power in Asian banking: Implications of bank capitalization and financial freedom

Using a sample of listed banks in the Asia-Pacific region from 2000 to 2016, this paper documents that higher market power reduces risk taking but increases loan growth and performance in banking. This highlights the "bright side" of bank market power in general. However, the positive effect of market power on bank stability is more pronounced for well-capitalized banks, although their performance tends to decline, and loan growth is unaffected by market power. Hence, bank capitalization plays an important role in strengthening financial stability due to an increase in bank market power. Moreover, banks with higher market power located in countries with a lower degree of financial freedom exhibit lower riskiness, higher loan growth, and better performance. Greater control by authorities in the financial sector is essential, not only to enhance financial stability, but also to boost financial intermediation and bank performance following an increase in bank market power.     

The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry

This paper examines the determinants of financial derivatives use in the United Kingdom life insurance industry. We estimate a probit regression model and a Heckman two-stage sample selection regression model using a sample of eighty-eight U.K. life insurers in 1995. Our results indicate that the propensity to use derivative instruments is positively related to a firm's size, leverage and international links, and negatively related to the extent of reinsurance. We also find that mutual life insurance firms have a greater propensity than stock firms to use derivatives. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that U.K. life insurers use derivatives to offset risk, rather than as a speculative means of income generation. Firm size and organizational form are the main influences on the extent of financial derivatives use.     

The effect of foreign currency hedging on the probability of financial distress

This paper investigates the effect of foreign currency hedging with derivatives on the probability of financial distress. I use Merton’s (1974) structural default model to compute firms’ distance to default as a proxy for their probability of financial distress. Using an instrumental variables approach to control for endogenous hedging and leverage, I find that the extent of foreign currency hedging is associated with a lower probability of financial distress. Whereas previous research finds that the probability of financial distress is a determinant of a firm’s hedging policy, this paper provides direct evidence supporting the hypothesis that the extent of hedging reduces a firm’s probability of financial distress.