Capital expenditures and firm performance: evidence from a cross‐sectional analysis of stock returns

Using a simple two‐period model of investment, we show that there should be a nonlinear relation between a firm's investment‐to‐capital ratio and its subsequent stock returns. This prediction finds substantial empirical support. The evidence indicates that the slope of the investment function is negative at low investment levels, close to zero at intermediate investment levels and negative at high investment levels. Our results, which are robust to the use of narrowly‐ and broadly‐defined measures of capital investment, pose a challenge to the hypothesis that the negative cross‐sectional correlation between investment and stock returns is attributable to some sort of overinvestment phenomenon.     

Cross‐listings and dividend size and stability: evidence from China

We investigate the relationship between cross‐listings and dividend policy. We find that Chinese cross‐listed firms have lower and more stable dividends than their non‐cross‐listed peers, and that dividends become more stable the longer a company has been cross‐listed. We also find the strength of the cross‐listing/dividend policy relationship varies based on the market where the shares are cross‐listed. The strength of the relationship varies from B‐shares (least strong) to Hong Kong shares (stronger) to American Depository Receipts (strongest). Our results indicate cross‐listings may influence both dividend size and stability, and that this influence can vary by the type of cross‐listing.     

Media heterogeneity and post‐earnings announcement drift: evidence from China

This paper examines how the Chinese stock market acts differently towards state‐controlled and market‐oriented media coverage. Using a setting of post‐earnings announcement drift, we find that information from state‐controlled media enters the stock price in a timelier manner, while the message from market‐oriented media needs more time to get a response from investors. The effect is also influenced by whether the type of news coverage is good or bad. Our findings suggest that the capital market underreacts when good news is reported by the market‐oriented media.     

Risk Measures for Hedge Funds: a Cross‐sectional Approach

This paper analyses the risk‐return trade‐off in the hedge fund industry. We compare semi‐deviation, value‐at‐risk (VaR), Expected Shortfall (ES) and Tail Risk (TR) with standard deviation at the individual fund level as well as the portfolio level. Using the Fama and French (1992) methodology and the combined live and defunct hedge fund data from TASS, we find that the left‐tail risk captured by Expected Shortfall (ES) and Tail Risk (TR) explains the cross‐sectional variation in hedge fund returns very well, while the other risk measures provide statistically insignificant or marginally significant results. During the period between January 1995 and December 2004, hedge funds with high ES outperform those with low ES by an annual return difference of 7%. We provide empirical evidence on the theoretical argument by Artzner et al. (1999) that ES is superior to VaR as a downside risk measure. We also find the Cornish‐Fisher (1937) expansion is superior to the nonparametric method in estimating ES and TR.     

Stock Liquidity Risk and the Cross‐sectional Earnings‐Returns Relationship

We argue that a higher sensitivity to aggregate market‐wide liquidity shocks (i.e., a higher liquidity risk) implies a tendency for a stock's price to converge to fundamentals. We test this intuition within the framework of the earnings‐returns relationship. We find a positive liquidity risk effect on the relationship between return and expected change in earnings. This effect on the earnings‐returns relationship is distinct from the negative effect observed for stock illiquidity level. Notably, the liquidity risk effect is evident (absent) during periods of neutral/low (high) aggregate market liquidity. We also show that the liquidity risk effect is dominant in firms that: (a) are of intermediate size; (b) are of intermediate book‐to‐market; and (c) are profit making.     

Cross‐sectional Tests of Conditional Asset Pricing Models: Evidence from the German Stock Market

We study the performance of conditional asset pricing models and multifactor models in explaining the German cross‐section of stock returns. We focus on several variables, which (according to previous research) are associated with market expectations on future market excess returns or business cycle conditions. Our results suggest that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved when allowing for time‐varying parameters of the stochastic discount factor. A conditional CAPM using the term spread explains the returns on our size and book‐to‐market sorted portfolios about as well as the Fama‐French three‐factor model and performs best in terms of the Hansen‐Jagannathan distance. Structural break tests do not necessarily indicate parameter instability of conditional model specifications. Another major finding of the paper is that the Fama‐French model – despite its generally good cross‐sectional performance – is subject to model instability. Unconditional models, however, do a better job than conditional ones at capturing time‐series predictability of the test portfolio returns.     

Unraveling yields inefficient matchings: evidence from post‐season college football bowls

Many markets have “unraveled” and experienced inefficient, early, dispersed transactions, and subsequently developed institutions to delay transaction timing. It has previously proved difficult, however, to measure and identify the resulting efficiency gains. Prior to 1992, college football teams were matched for post‐season play up to several weeks before the end of the regular season. Since 1992, the market has reorganized to postpone this matching. We show that the matching of teams affects efficiency as measured by the resulting television viewership, and that the reorganization promoted more efficient matching, chiefly as a result of the increased ability of later matching to produce “championship” games.     

Idiosyncratic volatility and cross‐sectional stock returns in Southeast Asian stock markets

We examine the role of idiosyncratic risk in five ASEAN markets of Malaysia, Singapore, Thailand, Indonesia, and the Philippines. Our research was motivated by the findings of Ang et al. (2006, 2009) of a ‘puzzling’ negative relation between idiosyncratic volatility and 1‐month ahead stock returns in developed markets and the suggestion of the ubiquity of these results in other markets. In contrast, we find no evidence of an idiosyncratic volatility puzzle in these Asian stock markets; instead, we document a positive relationship between idiosyncratic volatility and returns in Malaysia, Singapore, Thailand, and Indonesia and no relationship in the Philippines. The idiosyncratic volatility trading strategy could result in significant trading profits in Malaysia, Singapore, Thailand, and to some extent in Indonesia. Our study underscores the fact that generalizing empirical results obtained in developed stock markets to new and emerging markets could potentially be misleading.     

Accounting conservatism and IPO underpricing: China evidence

This study examines how accounting conservatism impacts underpricing of initial public offerings (IPOs) in the Chinese stock market. In addition, we investigate how information asymmetry affects the association of accounting conservatism with IPO underpricing. Based on regression analysis of 674 A-shares companies that went public through IPOs at both Shanghai and Shenzhen Stock Exchanges in China during 2001–2009, we find that (1) accounting conservatism is negatively associated with the magnitude of IPO underpricing; and (2) the relationship between accounting conservatism and IPO underpricing is more pronounced when information asymmetry is high. The findings should shed a light on what drives IPO underpricing and how it could be affected by accounting conservatism in an emerging economy.     

Managerial characteristics and stock market investment: evidence from China

We examine the effect of managerial characteristics on investment in the stock market by listed firms in China. Our empirical findings suggest that higher levels of cash‐based compensation may increase both the propensity of investing in the stock market and the total amount of investment. On the other hand, managerial holdings discourage managers from investing in stock markets and also lead to a decrease in the amount of investment. This study sheds light on managerial risk‐taking incentives. Moreover, this study fills the gap in the literature by providing evidence for the determinants of listed firms’ stock market investment.     

Option prices and stock market momentum: evidence from China

Option prices tend to be correlated to past stock market returns due to market imperfections. We unprecedentedly examine this issue on the SSE 50 ETF option in the Chinese derivatives market. To measure the price pressure in the options market, we construct an implied volatility spread based on pairs of the SSE 50 ETF option with identical expiration dates and strike prices. By regressing the implied volatility spread on past stock returns, we find that past stock returns exert a strong influence on the pricing of index options. Specifically, we find that SSE 50 ETF calls are significantly overvalued relative to SSE 50 ETF puts after stock price increases and the reverse is also true after the stock price decreases. Moreover, we validate the momentum effects in the underlying stock market to be responsible for the price pressure. These findings are both economically and statistically significant and have important implications.     

Institutional investors,controlling shareholders and CEO pay‐performance relationship: evidence from China

Using a large sample of China’s listed firms between 2005 and 2015, we find that domestic mutual funds have a positive effect on the CEO pay‐performance relationship, and this effect becomes stronger when their ownership is higher and closer to the controlling shareholder’s ownership. This effect is stronger in non‐state‐owned enterprises (non‐SOEs), firms facing weaker industry competition incentives, and firms located in more developed regions. However, Qualified Foreign Institutional Investors (QFIIs) do not have such an influence. Overall, our study contends that the effectiveness of institutional investors’ monitoring role is subject to their identity, controlling shareholders and institutional environments.     

The effect on stock performance of executives' emotions during IPO roadshows

This paper describes the correlation between executives' emotions expressed at IPO online roadshows and post-IPO stock performance in the Chinese stock market. The executives' emotion is quantified by face recognition models used for analyzing facial expressions during the IPO roadshows. Our results show that the more negative emotions are expressed by executives at the roadshow, the lower the short-term stock returns after IPO, and this finding is stronger for firms with limited information disclosure. These results are robust to the implementation of an instrumental variable strategy using Air Quality Index or Comfort Index of Human Body as the instrumental variable, various measures of management emotions, and the subsample analysis in which the financial firms and industries has the limited number of firms are excluded.     

Management earnings forecasts and IPO performance: evidence of a regime change

Companies undertaking initial public offerings (IPOs) in Greece were obliged to include next-year profit forecast in their prospectuses, until the regulation changed in 2001 to voluntary forecasting. Drawing evidence from IPOs issued in the period 1993–2015, this is the first study to investigate the effect of disclosure regime on management earnings forecasts and IPO long-term performance. The findings show mainly positive forecast errors (forecasts are lower than actual earnings) and higher long-term returns during the mandatory period, suggesting that the mandatory disclosure requirement causes issuers to systematically bias profit forecasts downwards as they opt for the safety of accounting conservatism. The mandatory disclosure requirement artificially improves IPO share performance. Overall, our results show that mandatory disclosure of earnings forecasts can impede capital market efficiency once it goes beyond historical financial information to involve compulsory projections of future performance.     

Asymmetric effects of voluntary disclosure on stock liquidity: evidence from 8‐K filings

This paper examines whether the change in stock liquidity subsequent to voluntary disclosure is different between good news and bad news. Using voluntary 8‐K filings, we find that the increase in stock liquidity is more pronounced for firms with good news disclosure than for firms with bad news disclosure. In addition, such findings are stronger when a firm is less visible and when the short‐selling costs are high, suggesting that these two factors play an important role in increasing stock liquidity. Overall, this paper provides evidence that the tone of voluntary 8‐K news is an important determinant of stock liquidity.     

2010中国企业将成为全球IPO热点

安永在2009年底前发表的《全球IPO最新信息》预计：2010年香港证交所的IPO融资额将达历史新高,而上海证交所的IPO融资总额将增加两倍以上     

Black economic empowerment,legitimacy and the value added statement: evidence from post‐apartheid South Africa

We examine why companies in South Africa voluntarily provide a value added statement (VAS). The VAS can be used by management to communicate with employees and thereby establish a record of legitimacy. Since we want to establish if the VAS is used to establish symbolic or substantive legitimacy, we examine whether production of a VAS is associated with actual performance in labour‐related areas. To measure labour‐related performance, we use an independent Black Economic Empowerment (BEE) rating. We find that BEE performance is significantly and positively related to the voluntary publication of a VAS. Our results suggest that BEE performance and disclosure of a VAS are two elements of a strategy used by South African companies to establish their substantive legitimacy with labour.     

Underwriter Reputation,Issuer Ownership,and Pre‐IPO Earnings Management: Evidence from China

This paper investigates the correlation between pre‐initial public offering (pre‐IPO) earnings management and underwriter reputation for issuers with different ownership structures in China. We document a significantly inverse relationship between underwriter reputation and pre‐IPO earnings management for non‐state‐owned enterprises (NSOE) issuers only, while no significant association is found for state‐owned enterprises (SOE) issuers. We also find that for the NSOE new issue market, underwriter reputation is positively correlated with issuer post‐IPO performance indicating that prestigious underwriters can incrementally improve issuer post‐IPO performance.     

Cross‐Country Spillovers from Fiscal Consolidations

In the aftermath of the global financial crisis, many OECD countries adopted fiscal consolidation strategies to reduce their debt‐to‐GDP ratios. This paper investigates the effects of fiscal consolidation on trading partners’ growth through trade linkages. Using a measure of exogenous fiscal shocks in export markets, fiscal consolidation spillovers are found to slow down domestic growth and decrease employment. To the extent that fiscal consolidations are synchronised, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger between countries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with lower bilateral exports, higher bilateral imports and relative increases in unit labour costs in currency unions. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets.     

Momentum in stock returns: evidence from an emerging stock market

This study examines the presence and sources of momentum profits in the Dhaka stock exchange (DSE). Although the short-term reversal and intermediate-term momentum are found to be evident, short-term reversal is not as consistent and significant as intermediate-term momentum. Further examination shows that momentum profits in the DSE cannot be explained by the rational source like market factor but can be explained by the size factor. We argue that presence of large number of small stocks and lack of arbitrage opportunity could be the possible causes of momentum effect in the DSE.