Does institutional ownership increase stock return volatility? Evidence from Vietnam

The literature on institutional ownership and stock return volatility often ignores small emerging countries. However, this issue is more profound, due to the large size of institutional investors and small stock market size, in emerging equity markets. This paper examines the effects of the institutional ownership on the firm-level volatility of stock returns in Vietnam. Our data cover most of non-financial firms listed on the Ho Chi Minh City stock exchange for the period 2006–2012. Employing different analysis techniques for panel data and controlling for possible endogeneity problems, our empirical results suggest that institutional investors stabilize the stock return volatility. Moreover, we document that: i) the stabilizing effect of institutional investor ownership is higher in dividend paying firms, and ii) if firms are paying out more dividends, this stabilizing effect is greater. Our results outline the important role of institutional investors in maintaining the stability in emerging stock markets.     

Does foreign institutional ownership increase return volatility? Evidence from China

This paper investigates the impact of foreign institutional ownership on firm-level stock return volatility in China, based on our study of a sample of 1458 firms between 1998 and 2008. The empirical results show that share ownership by foreign institutions (both financial and non-financial) increases firm-level stock return volatility, even after controlling for a complete ownership structure, firm size, turnover, and leverage, and correcting for potential endogeneity problems. However, the results also show that foreign individual shareholdings reduce volatility. Furthermore, we document a positive relationship between domestic shareholdings (individual, institutional, and governmental) and firm-level stock return volatility. Empirical results with interaction terms show that foreign institutional ownership increases firm-level return volatility by strengthening the positive impact of liquidity on volatility. The volatility reduction effect of foreign individual ownership is attenuated by government ownership suggests a poor governance environment as a result of the involvement of the Chinese government.     

Does shareholder coordination matter? Evidence from private placements

We propose a new role for private investments in public equity (PIPEs) as a mechanism to reduce coordination frictions among existing equity holders. We establish a causal link between the coordination ability of incumbent shareholders and PIPE issuance. This result obtains even after controlling for alternative explanations such as information asymmetry and access to public markets. Improved equity coordination following a private placement leads to favorable debt renegotiations within one year of issuance. Mitigating coordination frictions among shareholders ultimately decreases the odds of firm default in half.     

Does cross-listing in the US foster mergers and acquisitions and increase target shareholder wealth?

We examine the role of cross-listing in alleviating domestic market constraints and facilitating mergers and acquisitions. Our results show that cross-listing allows shareholders of target firms to extract higher takeover premiums relative to their non-cross-listed peers. Moreover, shareholders of Sarbanes–Oxley-compliant targets seem to benefit from a higher premium. We also find that cross-listed firms are more likely to be acquisition targets, consistent with the belief that cross-listing increases firms’ attractiveness and visibility on the market for corporate control. Our results are robust to various specifications and to the self-selection bias arising from the decision to cross-list.     

Does accounting choice influence US investment in non‐US companies? Evidence from US institutional investment in Australian companies

Previous research asserts that companies that choose accounting methods more familiar to investors reduce information asymmetry and increase credibility of their financial statements to those investors, thereby attracting higher levels of foreign investment. This study examines the variation in accounting policies associated with institutional investment in Australian equity. The results suggest that large US institutional holdings in Australian companies are associated with American Depositary Receipt listing and, incrementally, choice of accounting methods that conform to US Generally Accepted Accounting Principles (GAAP). Although making accounting choices in compliance with US GAAP is significantly associated with higher levels of institutional ownership in a statistical sense, examination of the specific differences in accounting choices suggests that the differences in informational content are relatively minor.     

Does governance travel around the world? Evidence from institutional investors

We examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003–2008. We find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Foreign institutions and institutions from countries with strong shareholder protection play a role in promoting governance improvements outside of the U.S. Institutional investors affect not only which corporate governance mechanisms are in place, but also outcomes. Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promotes good corporate governance practices around the world.     

Does foreign institutional ownership motivate firms in an emerging market to increase voluntary disclosure? Evidence from Taiwan

This study examines the relationship between foreign institutional ownership and voluntary disclosure in an emerging market. By exploiting a unique dataset of daily foreign investment flow and ownership data from Taiwan, this paper examines whether foreign ownership is associated with the likelihood of holding conference calls and investigates whether conference calls are informative to foreign market participants. After controlling for other characteristics of a firm??s information environment, we find that the decision to hold conference calls is positively associated with foreign institutional ownership. We also provide evidence that the trading turnover by foreign institutional investors immediately increases after the conference calls, indicating that conference calls are informative for foreign institutional investors. Our results are robust, after controlling for endogeneity.     

Does corporate social responsibility protect shareholder value from the shock of COVID-19? Evidence from China

Our study examines whether and how increased engagement in social responsibility activities by a firm affects movements in its stock prices during the COVID-19 public health crisis, which is regarded as an exogenous shock to economic ties between focal firms and their customers, employees, and suppliers. We find that corporate social responsibility has an inverted U-shaped relationship with shareholder value. The nonlinear relationship is more dominant at firms with higher cash-flow constraints and weaker cost-adjustment capabilities. Our research also generates meaningful implications for business practices.     

Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk

This study examines whether and how labor unionization influences firm-specific stock price crash risk. Using a regression discontinuity design that leverages locally exogenous variation in unionization generated by close union elections, we find that unionization leads to a significant decline in crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that unions limit risk-taking, constrain overinvestment, and improve information flow, which in turn reduces crash risk. Overall, our study resolves some of the current debate over the implications of unions and sheds new light on their net impact on shareholder welfare.     

Does group affiliation increase firm value for diversified groups?: New evidence from Indian companies

This article studies the impact of group affiliation on the performance of firms in India during 1996–2001, with the goal of determining whether the positive valuation effects of group affiliation depend on the degree of group diversification. The results from this study indicate that prior support for that hypothesis actually is fragile and highly influenced by extreme outliers. The authors also provide preliminary evidence for the hypothesis that group affiliation is particularly beneficial for firms that suffer financial constraints.     

Does Regulation FD work? Evidence from analysts' reliance on public disclosure

We examine how Regulation FD changed analysts' reliance on firms' public disclosure. Regulation FD is associated with a stronger analyst response to earnings announcements, management forecasts and conference calls—that is, analysts respond to these events more quickly, more frequently and with larger forecast revisions after FD. Further, following public disclosure, the decline in analyst forecast dispersion and forecast error accelerates after FD. We find no such changes either for foreign ADR firms or around several confounding events. Overall, Regulation FD levels the playing field between the analysts and individual investors, thereby promoting “fair game” property of the market.     

Does compliance with corporate governance increase profitability? Evidence from an emerging economy: Pakistan

Corporate governance reforms have evolved over time, but few studies have addressed firm compliance with corporate governance standards in the context of an emerging market like Pakistan. We build a Corporate Governance Compliance Index for public firms in Pakistan for 2008–2018. Our index consists of six subindices based on the key parameters of governance outlined by the Code of Corporate Governance of Pakistan. Our analysis shows that increased compliance predicts higher firm performance but entails greater compliance costs. Board Structure and Functions & Responsibilities of Audit Committee drive the compliance-performance relationship, which is affected by levels of managerial ownership and ownership concentration.     

Does gender diversity on banks' boards matter? Evidence from public bailouts

We are the first to examine the impact of gender diversity on banks' boards on the probability and size of public bailouts. Our findings, based on a sample of listed European banks over the period 2005–2017, suggest that banks with more gender-diverse boards are less likely to receive a public bailout and receive a lower amount of bailout funds as a percentage of total assets than banks with less gender-diverse boards. Specifically, an increase by one standard deviation in gender diversity decreases the probability of a bailout by at least 2.44%, a significant reduction considering that the unconditional probability is 18.7%. Gender diversity is also positively related to bank performance, as proxied by ROA and Tobin's Q and with dividend payout ratios, consistent with the hypothesis that female directors are better monitors than male directors. These results are robust to a variety of econometric approaches and provide support for recent reforms in several EU countries regarding gender quotas.     

Do political connection disruptions increase labor costs in a government-dominated market? Evidence from publicly listed companies in China

This paper investigates whether the disruption of political connections increases labor costs among Chinese listed firms. Using the Communist Party of China's Rule No. 18 as an exogenous shock that forces firms to lose their politically connected independent directors, we find that the disruption of political connections is associated with an increase in labor costs (both in terms of aggregate labor costs per firm and average labor costs per employee) and an increase in employee turnover. Such increases do not lead to labor productivity improvements, and cannot be attributed to changes in corporate policies or the composition of labor forces after Rule No. 18. We also find that firms with higher unemployment risk and skilled labor risk increase their labor costs to a larger extent. Our results are robust to alternative labor cost measures, controlling for potential confounding events, and alternative political connection channels. Our study shows an unintended labor market consequence—increases in labor costs—of political connection disruptions for firms that are adversely affected by such disruptions.     

Does supply chain network centrality affect stock price crash risk? Evidence from Chinese listed manufacturing companies

This study develops a social network analysis to examine the influence mechanisms of supply chain network position on stock price crash risk. With a panel of 2115 Chinese A-share listed manufacturing companies from 2013 to 2019, we construct a large-sample weighted supply chain network. By shedding light on the centrality of this supply chain network, this article finds that network centrality has a significantly negative effect on stock price crash risk. Further influence channel examinations reveal that higher network centrality reduces information asymmetry and improves investor sentiment, thus decreasing stock price crash risk. However, the operational risk is not a significant channel for the effect of network centrality on stock price crash risk. This study provides theoretical and empirical evidence for the influencing factors of stock price crash risk at the supply chain network level.     

Can mergers increase output? Evidence from the lodging industry

We find that hotel mergers increase occupancy. In some specifications, price also rises. Because these effects occur only in markets with high capacity utilization and high uncertainty, we reject simple models of price or quantity competition in favor of models of “revenue management,” where firms price to fill available capacity in the face of uncertain demand.     

Do ETF flows increase market efficiency? Evidence from China

Focusing on the equity exchange traded funds (ETFs) in China, we demonstrate the significant effect of ETF flows on the informativeness of the ETF index. Following the novel approach proposed by Xu et al (2019a). to identify different driving forces for ETF flows, we explore whether the forward-looking ETF flows at a day’s closing substantially improve the index’s efficiency on the next day. The mechanism behind it is inter-market information spread: the efficiency effect of the forward-looking ETF flows strengthens when ETFs share more new information; and the forward-looking ETF flows increase the information flow to the ETF index on the next day.     

How do staggered boards affect shareholder value? Evidence from a natural experiment

The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings—separated by several weeks and going in opposite directions—that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.     

Do shareholder agreements affect market valuation?: Evidence from Brazilian listed firms

Shareholder agreements are contracts that govern the relationship among different shareholders in a firm. This article uses a unique dataset to analyze shareholder agreements in listed companies and shows how they affect firm valuation. While shareholder agreements may be used to expropriate value from non-controlling investors, they can also mitigate conflicts of interest and protect minority shareholders. The analysis of a broad time-series and cross-section of Brazilian listed firms provides evidence that the latter effect dominates. We build a shareholder agreement index in order to measure on a firm-level basis the degree of investor protection granted by shareholder agreements. Companies with shareholder agreements have higher valuation and the degree of investor protection granted by shareholder agreements is positively related to firm value, even after controlling for the endogeneity of the firm's decision to adopt shareholder agreements.