Underwriter Reputation and Initial Public Offers: The Detrimental Effects of Flippers

In this research, we examine the relationship between the reputation of investment banks and the investor clientele to whom they market initial public offers. We hypothesize that the most reputable investment banks have considerable distribution power but confine initial public offer sales to investors with long-term horizons in an effort to maintain prestige. Using the level of relative after-market trading volume to proxy for investor type, we find that as underwriter reputation increases investors with short-term trading horizons (“flippers”) tend to dominate the offerings over the lower prestige levels. For underwriters in the upper reputation tier, however, this dominance begins to decline with increasing reputation. In addition, we find a negative relation between the after-market price performance of the initial public offer firm and the first week's trading volume. The results suggest that flippers can be detrimental to the performance of initial public offer firms. While distributing power may be essential for the maintenance of the reputation of investment banks, the type of investor clientele also appears to be of major importance.     

Institutional investor type,earnings management and benchmark beaters

This paper classifies institutional investors into transient or long-term by their investment horizons to examine the association between institutional investor type and firms’ discretionary earnings management strategies in two mutually exclusive settings – firms that (do not) use accruals to meet/beat earnings targets. The results support the view that long-term institutional investors constrain accruals management among firms that manage earnings to meet/beat earnings benchmarks. This suggests long-term institutional investors can mitigate aggressive earnings management among these firms. Transient institutional ownership is not systematically associated with aggressive earnings management and is evident only among firms that manage earnings to meet/beat their earnings benchmarks. This indicates transient institution-associated managerial myopia may not be as prevalent as posited by critics. This study highlights the importance of explicitly considering the type of institutional investor and the specific setting when investigating the association between institutional ownership and corporate earnings management.     

FOREIGN INVESTOR PARTICIPATION IN PRIVATIZATIONS: DOES THE INSTITUTIONAL ENVIRONMENT MATTER?

We examine the determinants of foreign investors' participation in the privatization process of developing countries. First, we estimate the probability that foreign investors target privatized firms in a given country. We show that a favorable legal environment where investor protection is higher enhances foreign investors' participation. Foreigners also prefer large, strategic firms from high‐growth economies and socially stable countries with low political risk. Second, we restrict our analysis to privatized firms that foreign investors actually choose and show that the stakes foreigners hold are larger if the firms are privatized by private sales as opposed to public offerings.     

金融危机对公司现金股利政策的影响研究——基于股权结构的视角

论文分析了金融危机对上市公司现金股利政策的影响。研究发现,在金融危机期间,上市公司会降低现金股利支付水平,以应对未来的不确定性。但是,相比非流通股比率低的公司,非流通股比率高的公司在金融危机期间更有可能支付更多的现金股利,以满足非流通股股东对于现金的需求。研究还发现,如果公司在金融危机期间发放现金股利,则市场反应更积极,这说明公司通过股利政策向市场传递了积极的信号。但是,非流通股比率高的公司支付现金股利的市场反应要显著小于非流通股比率低的公司,这可能是市场担心非流通股股东利用现金股利侵害中小股东利益。本文研究结论为完善上市公司的现金股利政策和保护中小投资者利益提供了现实启示。     

Retail investor attention and herding behavior

In this paper, we argue that when individual investors can obtain information from public resources such as Google search, the degree of investor attention to a particular underlying company is positively linked with herding behavior for retail investors. Empirical results confirm that Google Search Volume Index can be a proxy for the information demand of uninformed individual investors. Empirical evidence also shows that reaching the price limit generates an attention-grabbing effect. Further, in general, small cap firms generate more intensive individual investor herding. In addition, we explore the asymmetric impact of abnormal search volume index on individual investor herding behavior for bull and bear markets, and confirm that the individual investor buy herding phenomenon is stronger in bull markets, especially for small capitalization firms. In bear markets, with greater price deterioration for large cap firms, we detect herding behavior on the sell side.     

Corruption and competition for resources

An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that differ from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how differences in the investors’ level of technology and differences in the host country government’s trade-off between bribes and taxes determine who wins the competition for the resource and the winning price. One finding is that competition from a bribe-willing investor may induce a bribe-averse investor to enter into corruption. Surprisingly, however, we also find that competition with a bribe-willing investor may induce the bribe-averse investor to increase its tax payments.     

Earnings Conservatism, Litigation and Contracting: The Case of Cross‐Listed Firms

Abstract:   We compare earnings conservatism of UK companies cross‐listed in the US to that of UK companies without a US‐listing. We expect that conservatism will be more pronounced for cross‐listed firms than for firms with a UK listing only, because the cross‐listed firms face a stricter enforcement regime. Furthermore, cross‐listed firms may use a listing on a US exchange to signal high‐quality reporting to investors. Using a matched‐pairs research design, we find that earnings of UK cross‐listed firms are significantly more conservative than earnings of UK firms without a US listing. Moreover, cross listed firms display particularly high levels of conservatism during the early years of their cross‐listing. This indicates that firms use earnings conservatism to commit to highly demanding reporting requirements and in doing so communicate a perception of investor care.     

Robust Financial Contracting and the Role of Venture Capitalists

We derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information, and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed-fraction contract, where he always receives a fixed fraction of the project's payoff and finances that same fraction of future investments. This contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds.     

Do Analysts and Auditors Use Information in Accruals?

Existing research indicates that firms with high accruals are more likely to experience future earnings problems, but that investors' expectations, as reflected in stock prices, do not appear to anticipate these problems. In this paper, we directly examine the published opinions of two types of professional investor intermediaries to see if they provide investors with information concerning the future earnings problems experienced by firms with high accruals. First, we examine the earnings forecasts of sell-side analysts. We show that analysts' earnings forecasts do not incorporate the predictable future earnings declines associated with high accruals. Second, we examine the behavior of independent auditors. We find no evidence that auditors signal the future earnings problems associated with high accruals through either their audit opinions or through auditor changes. Overall, our evidence indicates that analysts and auditors do not alert investors to the future earnings problems associated with high accruals, thus corroborating previous findings that investors do not appear to anticipate these problems.     

An analysis of private versus public firm valuations and the contribution of financial experts

This study investigates differences in expert valuations of private versus public firms conducted for transactions outside the exchange. First, we provide evidence for extreme reliance of the experts on private firms' reported earnings, despite a possible manipulation of these earnings. In contrast, experts valuing public firms seem to rely on other, non-financial statement information sources, even if the quality of pre-acquisition earnings is higher in these firms. Second, we present evidence that the contribution of experts to investors in private firms is questionable at best. Our findings indicate that a private firm valuation performed by a potential investor based on available information provides results similar to those of the expert. Third, we show that inconclusive results regarding the existence of a discount in private firm valuations may be explained by experts' compliance with the interests of the commissioner of the valuation. This finding provides at least a partial explanation for the private company discount, one that adds to prior standard explanations (e.g., liquidity) offered in the finance literature.     

The diffusion of corporate governance to emerging markets: Evaluating two dimensions of investor heterogeneity

This study investigates whether foreign institutional investors can enhance shareholder value in emerging markets. We pay special attention to two dimensions of investor heterogeneity: whether investors declare themselves to be activists, and whether activists come from countries with strong traditions of investor activism (identified by the incidence of hostile takeovers in their respective home countries). First, using an event study approach with regard to announcements of block purchases by foreign institutional investors in Korea, we find that stock prices increase only when foreign institutional investors declare themselves to be activists (increasing on average by 3% over a 20-day window). Second, we find that positive stock price reactions are more pronounced when the activist investors come from source countries with strong traditions of investor activism (increasing on average by 7% over a 20-day window). Third, we find that target firms are more likely to reduce cash holdings, raise leverage ratios, and peg dividend payouts, stock repurchases, and CEO turnover more closely to changes in earnings, but only if foreign activists come from countries with strong traditions of activism. We address possible selection bias by propensity score matching.     

Is the Average Investor Smarter than the Average Euro?

In this study, we collect a unique data set of Spanish domestic equity funds for the period 1999–2006 to test the existence of the well-known “smart money” effect. Our focus is to test whether superior performance follows fund flows, demonstrating investor skills, and whether the results are robust for aggregate portfolio analysis and for individual fund analysis. Empirical evidence shows that investor abilities reported by aggregate portfolio analysis are not very evident from a fund-level perspective. This study provides two major contributions to the literature: the separate consideration of purchases and redemptions, and the proposal of a “smart investor” effect which considers investor movements instead of traditional money flows. Results show that investors’ selling decisions are less smart than their buying decisions and that investors, as individuals, are not significantly smarter than money.     

Do firms use dividend changes to signal future profitability? A simultaneous equation analysis

This paper retests the signaling hypothesis of dividends by examining whether managers change dividends to signal their expectation of earnings prospects using a simultaneous-equation approach. This approach allows us to more clearly test the earnings prospects signaling hypothesis and facilitates the control of several alternative motives that managers may have for changing dividends. We also examine the information content of dividend changes with respect to future earnings changes in the same model system. Our results show that managers change dividends to signal equity-scaled rather than asset-scaled earnings prospects. In addition, we find evidence that managers also change dividends for signaling previous earnings changes and for catering to dividend clienteles. As for the information content of dividend changes, we find that dividend changes have significant and negative impact on ROA changes. The findings suggest that if investors consistently cannot recognize the signaling purpose and find that dividend increases (decreases) are not useful in predicting favorable (unfavorable) future earnings, managers may someday give up using dividend changes to signal the earnings prospects of their firms because they cannot obtain the expected market benefits anymore.     

On the optimal use of loose monitoring in agencies

We study the governance implications of firms being privately informed of their potential productivity before contracting with an agent to supply unobservable effort. We show that it can be optimal for high potential firms to have “loose monitoring” in the sense that the monitoring system is less perfect than what is implied by a standard agency model a la Holmstrom (The Bell J Econ 10:74–91, 1979). Loose monitoring is used to achieve separation among different types of firms such that firms with low potential do not have incentives to imitate contracts offered by high potential firms. Our findings imply that although loose monitoring may be a symptom of firms squandering scarce resources provided by investors, it can also arise as an optimal contracting arrangement.     

Foreign institutional investors,information asymmetries,and asset valuation in emerging markets

This study investigates the effects of information asymmetries and asset valuation model differences (investor heterogeneity) between foreign and domestic investors on their distinct portfolio holdings in an emerging market setting. I argue that information asymmetry and investor heterogeneity views significantly interact in explaining the different asset allocation decisions of foreign and domestic investors. Employing a large dataset from Turkey, the findings suggest that both information asymmetry and investor heterogeneity view play a key role in explaining the investment decisions of different investor groups. Specifically, different from domestic investors, foreign investors are more likely to invest in firms with a higher global market performance which supports the investor heterogeneity view. However, this relationship only holds for firms with high information asymmetries. The difference in valuation models between foreign and domestic investors converge when asymmetric information problems between these investor groups weaken. This study contributes to the international finance literature by providing a new explanation of why foreign and domestic investors invest in different assets.     

Information asymmetry,east–west cultural differences,and divergence in investor reactions

This paper investigates the divergence in investor behaviour between the United States and China following the abolition of the Chinese presidential term limit in 2018, which may, in part, have reflected the heterogeneous opinions expressed in public online media regarding this event. Compared with Chinese investors, the sentiment among US investors was considerably more pessimistic. Accordingly, we find that Chinese companies listed in the United States significantly underperformed relative to a sample of propensity score-matched firms listed in China. Additionally, we find that the political connectedness of firms to the Chinese government strongly influenced the stock prices of US-listed Chinese firms.     

Attracting Early‐Stage Investors: Evidence from a Randomized Field Experiment

This paper uses a randomized field experiment to identify which start‐up characteristics are most important to investors in early‐stage firms. The experiment randomizes investors’ information sets of fund‐raising start‐ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. We provide evidence that the team is not merely a signal of quality, and that investing based on team information is a rational strategy. Together, our results indicate that information about human assets is causally important for the funding of early‐stage firms and hence for entrepreneurial success.     

The usefulness of firm risk disclosures under different firm riskiness,investor-interest,and market conditions: New evidence from Finland

To date, there is only meager research evidence on the usefulness of mandatory annual report risk disclosures to investors. Although it has been argued that corporate disclosure decreases information asymmetry between management and shareholders, we do not know whether investors benefit from high-quality risk reporting in a highly regulated risk disclosure environment. In this paper, we performed association tests to examine whether the quality of firms' mandatory risk disclosures relate to information asymmetry in the Finnish stock markets. In addition, we analyzed whether the usefulness of risk disclosures depends on contingency factors such as firm riskiness, investor interest, and market condition. We demonstrate that the quality of risk disclosure has a direct negative influence on information asymmetry. We also document that risk disclosures are more useful if they are provided by small firms, high tech firms, and firms with low analyst coverage. We also found that momentum in stock markets affects the relevance of firms' risk reports.     

Investor Conferences,Firm Visibility,and Stock Liquidity

We examine the influence of investor conferences on firms’ stock liquidity. We find that firms participating in conferences experience a 1.4% to 2.8% increase in stock liquidity compared to nonconference firms. Consistent with investor conferences improving firm visibility, the increase in liquidity is larger for firms with low pre‐conference visibility and varies predictably with conference characteristics that affect the ability of investors to revise their beliefs about the firm. However, for firms with a large investor base and high visibility, conference participation is associated with a decline in stock liquidity, consistent with investor conferences exacerbating the information asymmetry among investors.     

Corporate misconduct,media coverage,and stock returns

This study examines the impact of increased investor attention to corporate misconduct (CM) on stock returns. We show that media coverage provides an important channel through which investor awareness of corporate wrongdoings can be enhanced. Using a unique research setting in Korea based on text analysis during the 2008–2020 period, we find that investors exhibit short-term adverse reactions to CM events. More importantly, the increased social awareness of CM issues through media coverage leads investors to penalize firms more severely. We also find that the adverse reaction to CM events is more prominent for firms with a greater negative media tone and surprise. The combined evidence supports the investor attention theory. Furthermore, the negative effects of CM on stock returns are smaller for firms with positive Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) reputations, consistent with the insurance theory.