Does accounting conservatism improve the corporate information environment?

This study investigates whether and how accounting conservatism improves the corporate information environment. We argue that conservatism facilitates the flow of firm-specific information from corporate insiders to outsiders and leads to a high-quality information environment. Using the Basu (1997) model to capture the extent of accounting conservatism and firm-specific return variation to proxy for the quality of information environment, we find that conservatism is positively associated with the improvement of the corporate information environment in our sample of 43 countries. We also find that the information role of conservatism is more pronounced in countries with weaker protection of private property rights, suggesting that conservatism substitutes for legal institutions in ensuring the quality of information environment.     

Do foreign investors improve stock price informativeness in emerging equity markets? Evidence from Vietnam

Most of previous studies on stock price informativeness tend to focus on the context of mature stock markets while this issue is more acute in emerging equity markets where regulatory and institutional structure are weak. This paper examines the relationship between foreign ownership and stock price informativeness in Vietnam stock market. We utilize a data set covering firm attributes of non-financial firms listed on the Ho Chi Minh City stock exchange over the period 2007–2015. Employing different estimation techniques for panel data, the empirical results indicate that foreign investors improve stock price informativeness in Vietnam stock market. The finding from this paper confirms the important role of foreign investors in emerging equity markets.     

Do foreigners facilitate information transmission in emerging markets?

Using the degree of accessibility of foreign investors to emerging stock markets, or investibility, as a proxy for the extent of foreign investments, we assess whether investibility has a significant influence on the diffusion of global market information across stocks in emerging markets. We show that greater investibility reduces price delay to global market information. We also find that returns of highly investible stocks lead those of noninvestible stocks because they incorporate global information more quickly. These results are consistent with the idea that financial liberalization in the form of greater investibility yields informationally more efficient stock prices in emerging markets.     

Do extreme returns matter in emerging markets? Evidence from the Chinese stock market

Recent evidence in the U.S. and Europe indicates that stocks with high maximum daily returns in the previous month, perform poorly in the current month. We investigate the presence of a similar effect in the emerging Chinese stock markets with portfolio-level analysis and firm-level Fama–MacBeth cross-sectional regressions. We find evidence of a MAX effect similar to the U.S. and European markets. However, contrary to U.S. and European evidence, the MAX effect in China does not weaken much less reverse the anomalous idiosyncratic volatility (IV) effect. Both the MAX and IV effects appear to independently coexist in the Chinese stock markets. Interpreted together with the strong evidence of risk-seeking behaviour among Chinese investors, our results partially support the suggestion that the negative MAX effect is driven by investor preference for stocks with lottery-like features.     

Do disclosures of selective access improve market information acquisition fairness? Evidence from company visits in China

Following an exogenous regulation change in China, we examine the impact of company visit disclosures on the fairness of market information acquisition. Before July 2012, company visits to Chinese listed firms were vaguely disclosed in annual reports long after they were conducted. After that, they were disclosed in detail within two trading days of their completion. Market reactions around visits are much stronger and more predictive of firms' future earnings if visits occurred after July 2012 and, thus, were disclosed in a timelier and more detailed manner. The timely disclosure of visit details also improves the forecast accuracy of non-visiting analysts, reduces forecast dispersion among analysts, and weakens the relative information advantages of visiting analysts. Because of this, visits are more concentrated on firms with poorer information environments, larger sizes, and manufacturing firms after July 2012, i.e., firms offering visitors larger potential benefits. In summary, the timely disclosure of visit details improves the fairness of information acquisition and decreases information asymmetry while causing information chilling effects for firms that provide fewer potential benefits to visitors.     

Who are the vectors of contagion? Evidence from emerging markets

We test whether foreign investors are the vectors of contagion to emerging markets, as various theoretical models imply. We also explore the role of local institutions and individuals during and after contagion days. To do this, we propose a novel measure of contagion and estimate its dynamic relationship with the net purchases of each of the three groups of investors, from 2007 to 2016, in seven emerging markets. We find that foreign investors bring contagion by actively selling and impacting local prices on days of large declines in the US stock market and the days following. Local institutions are also net sellers on the day of contagion, while individuals act as the main liquidity providers, but institutions become net buyers soon after.     

Does the reputation mechanism apply to independent directors in emerging markets? Evidence from China

We examine whether reputable independent directors improve firm performance and governance quality in emerging markets, using data from China. Firms with such directors, measured as the number of directorships in other listed firms, have higher profitability, operating efficiency and productivity. They suffer from fewer agency problems, pay more cash dividends and have lower likelihoods of receiving modified audit opinions and participating in financial disclosure-related irregularities than their counterparts. In China’s unique institutional context, the reputation mechanism for independent directors applies to firms in regions with weak marketization environments, non-state-owned enterprises and firms without political connections; it also applies when external governance is weak. Overall, reputable independent directors appear to occupy valuable advising and monitoring roles and compensate for weak institutions and governance in China.     

Stocks for the long run? Evidence from emerging markets

We estimate the myopic (single-period) and intertemporal hedging (long-run) demand for stocks in 20 growth-leading emerging market economies during the 1999–2012 period. We consider two types of investors: a domestic investor who invests in emerging-market assets only (with returns in local currency) and an international investor who invests in both US and emerging-market assets (with returns in US dollars). We establish economically relevant short-run and long-run demand for stocks in several emerging market economies, for both domestic and international investors. From a welfare perspective, however, the myopic demand for emerging-market stocks is much more important than the hedging demand. Further international diversification and foreign currency hedging by the international investor do not alter this conclusion. Hence, for both domestic and international investors emerging-market stocks are mainly assets for the short run.     

Do firms underreport information on cyber-attacks? Evidence from capital markets

Firms should disclose information on material cyber-attacks. However, because managers have incentives to withhold negative information, and investors cannot discover most cyber-attacks independently, firms may underreport them. Using data on cyber-attacks that firms voluntarily disclosed, and those that were withheld and later discovered by sources outside the firm, we estimate the extent to which firms withhold information on cyber-attacks. We find withheld cyber-attacks are associated with a decline of approximately 3.6% in equity values in the month the attack is discovered, and disclosed attacks with a substantially lower decline of 0.7%. The evidence is consistent with managers not disclosing negative information below a certain threshold and withholding information on the more severe attacks. Using the market reactions to withheld and disclosed attacks, we estimate that managers disclose information on cyber-attacks when investors already suspect a high likelihood (40%) of an attack.     

Do sustainability disclosure mechanisms reduce market myopia? Evidence from European sustainability companies

Market myopia is a behavioural bias that causes investors to overvalue short-term earnings and undervalue long-term profits. This anomaly should not be compatible with sustainability disclosure mechanisms, the set of tools which firms use for reporting on their sustainable practices, and which contribute towards long-term performance improvements. Our aim is to study whether market myopia, as a symptom of market inefficiency, decreases with the implementation of sustainability disclosure mechanisms. We test for the presence of market myopia in a sample of firms listed on the S&P Europe 350 Index. For this purpose, we propose to use an adaptation of the valuation model for residual income under linear information dynamics developed by Felthan and Ohlson. Using the rating provided by RobecoSAM Sustainability Yearbook, we find market myopia to be less prevalent in companies classified as high sustainability reporters. An association is also found between persistent enforcement of sustainability disclosure mechanisms and a reduction of the market myopia effect.     

Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets

In this paper we examine the impact of foreign bank penetration on the competitive structure of domestic banking sectors in host emerging economies. We focus our analysis on Asia and Latin America during the period 1997-2008. Using bank-level panel data to identify foreign banks and to estimate measures of banking competition, we are able to provide robust empirical evidence that an increase in foreign bank penetration enhances competition in these host countries’ banking sectors. We find that this positive foreign bank penetration and banking competition link is associated with a spillover effect from foreign banks to their domestic counterparts. This spillover effect becomes stronger when more efficient and less risky foreign banks enter into less concentrated host country markets. We also find that the spillover effect is greater when foreign banks enter in the form of ‘de novo penetration’ than through mergers or acquisitions of domestic banks (‘M&A penetration’).     

Does ownership concentration improve M&A outcomes in emerging markets?: Evidence from India

Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggests that while ownership concentration may reduce the manager–owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.     

Do green bond and green stock markets boom and bust together? Evidence from China

This paper investigates the green bond-stock correlation in China, as well as the influence of economic policy uncertainty (EPU) on that correlation, through cross-quantilogram and partial cross-quantilogram approaches. Directional spillovers are detected at different quantile levels across various investment horizons, and the findings reveal that the green bond and green stock markets are more connected in extreme market conditions than in normal conditions. The results indicate that the dependence structure between these markets exhibits distinct sector variation; only the green stocks (GS) in the water environment treatment (WT) and atmospheric protection (AP) sectors and green bonds (GB) boom together. Besides providing considerable diversification benefits, GB can act as a safe-haven asset for GS. Moreover, we find that spillover effects tend to be medium- and long-term. The uncertainty variable (EPU) is not a significant determinant of the cross-asset relation. The empirical results have significant implications for the formulation of ESG (Environment, Social and Governance) portfolio strategies and carbon neutral-oriented policymaking.     

Do specialized board committees impact the transparency of corporate political disclosure? Evidence from S&P 500 companies

This study examines how the specific attributes of one type of voluntary corporate governance mechanism, a specialized political contribution committee, improves the transparency of corporate political disclosure (CPD). The results demonstrate that the existence of a committee that establishes and reviews key political activities and disclosure policies, particularly one composed entirely of outside directors, significantly enhances the transparency of corporate political disclosure, and reveal that an under-studied board committee, the political contribution committee, effectively improves CPD transparency. The results are consistent with agency theory and further support the more generalizable idea that specialized governance mechanisms (e.g., a political contribution committee) and fully independent committees lead to more transparent disclosure. Finally, the results suggest that the existence of a political contribution committee and committee independence are channels to improve CPD transparency. Public-policy makers and regulators seeking to enhance CPD transparency might consider implementing regulations that mandate or recommend these governance mechanisms as best practice.     

Does stock market index adjustment affect environmental information disclosure? Evidence from China

This study empirically investigated the effect of adjustment of the China Securities Index 300 (CSI 300) on environmental information disclosure (EID) by index constituents, based on propensity score matching and difference-in-difference approaches. The results showed that the inclusion in the CSI 300 significantly improved the quality of EID by firms. Moreover, this positive impact was more pronounced among firms with lower agency costs and those located in regions with a stronger legal environment. Further testing of the mediating mechanism revealed that becoming an index constituent served to curb opportunistic behavior by managers arising from shortsightedness. Our results were valid after addressing the potential endogeneity between index adjustment and EID and remained unchanged in various other robustness tests. The findings provide support for the positive impact of stock market index adjustment on non-financial information disclosure and have practical implications for decision-making regarding EID in China and other emerging markets.     

On the prediction of financial distress in developed and emerging markets: Does the choice of accounting and market information matter? A comparison of UK and Indian Firms

We examine differences in price delay for a sample of real estate investment trust (REIT) and non-REIT matched pairs. Results suggest an economically and statistically higher level of price delay for REIT securities, which implies heightened frictions that increase the time needed for new information to be impounded into the prices of REIT shares. The primary drivers for the observed delay differential include differences in idiosyncratic volatility, market risk, and the number of days traded. Within-REIT determinants of delay confirm findings for the pooled sample of matched pairs. Importantly, we infer find that REIT investors are not compensated for restricted information flow, as excess returns are unrelated to the price delay.     

Do star analysts know more firm-specific information? Evidence from China

Using a unique database in China, we extend the literature to further distinguish the information production role of star vs. non-star analysts. We confirm the general conclusion of a positive association between analyst coverage and stock return synchronicity measured by a firm’s R² in China. The findings from star analysts, however, show that star analyst coverage actually decreases stock return synchronicity. We contend that the firm-specific human capital in star analysts helps the analysts overcome the challenges of information production in an emerging market. The superior firm-specific human capital argument of star analysts is further supported by the negative association of star analysts’ firm-specific experiences and stock return synchronicity. Our conclusions are robust to different specifications of star analyst presence and different definitions of analysts’ firm-specific experiences. We also find that star analysts exhibit a more accurate earnings forecast than non-star analysts.     

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Studying 70 Chinese equity exchange‐traded funds (ETFs), we show that daily ETF flows significantly increase both the total volatility and the fundamental volatility of the underlying index on the next trading day. More specifically, it is the forward‐looking flow component which captures APs’ share creation/redemption activities beyond their role of market makers that can significantly predict the two types of volatility. Moreover, ETF arbitrage (ETF's information share) enhances the effect of forward‐looking flows on the total volatility (fundamental volatility) of the index. Furthermore, the relationships between forward‐looking flows and the two types of index volatility show a two‐way contagion.