Do firm characteristics matter in explaining the herding effect on returns?

This paper explores whether firm characteristics matter in determining the effect of investor herding on asset returns. We find that the level of herding alone does not command a significant effect on industry returns, implied by insignificant return spreads between industries that experience high and low degrees of herding. On the other hand, we observe that herding has a significant interaction with size and past returns. We find that small firms with high level of herding significantly underperform small firms that experience low herding. Similarly, past loser industries with high level of herding significantly outperform loser industries with low herding. No significant interactions between book‐to‐market and market beta with herding are observed. Overall, the findings suggest that the herding effect presents itself via size and momentum channels with significant investment implications.     

Do CFOs matter? Evidence from the M&A process

This study examines the effect of Chief Financial Officers (CFOs) on mergers and acquisitions using a newly constructed CFO Influence Index. Because the perceived influence of CFOs is high in U.K. firms, we use that market for our analysis. We find that influential CFOs as measured by experience, stature, and pay are associated with more deal completions and the pursuit of smaller, domestic targets. High influence CFOs require less time to complete a deal and are able to identify higher quality targets for which they pay less. We also discover that firms with high influence CFOs enjoy greater long-term operating and financial performance post-merger. We conclude that influential CFOs are effective in creating shareholder value during M&A.     

What is the effect of unconventional monetary policy on bank performance?

This paper examines the relationship between unconventional monetary policy and the US banking performance. Unconventional monetary policy is captured through the central bank's assets and excess reserves. Results show that unconventional monetary policy has a negative relationship with bank performance. Further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding. We also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions. Finally, we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value.     

Does educational diversity of managers matter for the performance of team‐managed funds?

We study the effect of the educational diversity of managers on the performance of team‐managed mutual funds using a large sample of U.S. equity funds from 1994 to 2013. We consider diversity in terms of both final educational degree and field of educational specialisation. We find that, in general, both types of diversity have a positive impact on fund performance, and our results are robust over a wide range of performance metrics and changes in market conditions.     

The time‐varying performance of UK analyst recommendation revisions: Do market conditions matter?

This study examines the time‐varying performance of investment strategies following analyst recommendation revisions in the UK stock market, with specific emphasis on the impact of changing market conditions. We find a negative relationship between the recommendation performance and market conditions as measured in terms of past market return and market volatility. In particular, the upgrade (downgrade) portfolio generates significantly positive (negative) net abnormal returns in bad market conditions (e.g., the dot‐com bubble burst in 2000 and the credit crisis in 2007), but not in other periods of time. Moreover, our non‐temporal threshold regression analysis shows that the reported negative relationship disappears when market conditions become better, i.e., when the past market return (market volatility) is higher (lower) than a certain level, indicating the importance of taking non‐linearity into account in the long sample period as examined in this study. Our time‐series bootstrap simulations further confirm that the superior recommendation performance in bad market conditions is not due to random chance; analysts have certain skills in making valuable up/downward revisions in bad markets.     

SME internationalisation: Do the types of innovation matter?

Existing evidence suggest that innovative Small and Medium-sized Enterprises (or SMEs) are more likely to internationalise (i.e. have a greater propensity to export) than non-innovative SMEs. However, it is not yet clear whether and to what extent different types of innovation (i.e. product, service, and process) affect SME internationalisation. To address this issue, this study uses a research model that integrates the resource and institutional perspectives and empirically test it using data from the United Kingdom (UK) Longitudinal Small Business Survey. Our results confirm that SME internationalisation is more likely to occur in firms undertaking product innovation than process and/or service innovation, and a specific configuration of resource and institutional drivers influence SME internationalisation depending on the innovation type. These results lead to major policy and managerial implications in relation to promoting SME internationalisation through different types of innovation, given the UK withdrawal from the European Union.     

Do shareholders really matter for firm performance? Evidence from the ownership characteristics of Italian listed companies

This paper studies the impact of the features of the shareholder base on the performance of a large sample of Italian listed firms between 2007 and 2019, both within and across firms. We expand the empirical evidence on the relation between shareholder type and different dimensions of firm performance by dividing shareholders into six categories, and further differentiating between domestic and foreign investors. We provide extensive evidence on the relation between firm performance and different types of shareholders, showing how diverse performance metrics are correlated with the voting rights of specific types of shareholders. Consistent with previous studies, the picture that emerges from our analysis shows that the ownership structure of Italian listed companies is characterized by a high degree of concentration. In this context, we find that ownership concentration or the presence of a controlling shareholder is in general associated with better performance. Moreover, a positive relation exists between diverse firm performance metrics and the voting rights of family shareholders, founders and foreign investors, while government ownership is detrimental in the short-term.     

Do locals know better? A comparison of the performance of local and foreign institutional investors

We compare the performance of local versus foreign institutional investors using a comprehensive data set of equity holdings in 32 countries during the 2000–2010 period. We find that foreign institutions perform as well as local institutions on average, but only domestic institutions show a trading pattern consistent with an information advantage. Our results suggest a smart-money effect of local institutions in countries subject to higher information asymmetry, non-English speaking countries, countries with less efficient stock markets, with poor investor protection, or high levels of corruption. The local advantage is more pronounced in periods of market turmoil and in illiquid stocks.     

The effect of bank capital on lending: Does liquidity matter?

This paper uses a sample of quarterly observations of insured US commercial banks to examine whether the effect of bank capital on lending differs depending upon the level of bank liquidity. We find that the effect of an increase in bank capital on credit growth, defined as growth rate of net loans and unused commitments, is positively associated with the level of bank liquidity only for large banks and that this positive relationship has been more substantial during the recent financial crisis period. This result suggests that bank capital exerts a significantly positive effect on lending only after large banks retain sufficient liquid assets.     

Do Family Firms’ Specific Governance Mechanisms Moderate the Cost of Debt?

This study considers whether the specific governance mechanisms of Spanish family firms decrease their debt cost. We explore the idea of reducing debt costs through specific governance mechanisms of family firms, such as the business succession plan, the family council, as well as other traditional mechanisms like the board of directors. Because most corporate governance research has focused on larger firms, more research on smaller privately held family firms is necessary. For this empirical research, we used a sample of 281 small and medium‐sized family firms. The results show that the implementation of a business succession plan not only serves to solve family conflicts and to plan the business succession but also moderates the cost of financing. Our results confirm that credit institutions receive a positive signal when family firms implement business succession plans as governance mechanisms, reducing both family opportunism and asymmetries of information, influencing risk analysts in their decision‐making processes.     

Do Fund Flow‐Return Relations Depend on the Type of Investor? A Research Note

This study investigates whether the relation between aggregate fund flow and market returns differs between retail and institutional funds. For the retail fund sample, we document a contemporaneous relation between flow and market returns and also find evidence of feedback trading. In contrast, there is little evidence of a relation between flow and market returns for the institutional fund sample. Consequently, it appears that retail and institutional fund investors use different investment strategies, with retail investors following a more naive strategy. We find no evidence of flow inducing price pressure for either type of fund.     

A new family of equity style indices and mutual fund performance: Do liquidity and idiosyncratic risk matter?

We propose and test novel multifactor models of daily mutual fund performance. To this aim, we set up equity style indices and derive risk factors, which nest the established Fama and French (1992) and Carhart (1997) factors. We add two additional risk factors, namely idiosyncratic risk and Amihud (2002) liquidity. Our sample contains 528 actively managed mutual funds with European stock market focus during 2002 to 2009. Model estimation reveals that—while market excess return and size appear significant for the cross-section of all funds—the remainder factors explain the performance of subsets of funds. About one third of the funds exhibit significant factor sensitivities not only with respect to valuation or momentum, but also with respect to liquidity or idiosyncratic risk. No single risk factor is dominated and hence our six factor model may serve as a valid performance benchmark. In a four factor model setting, the Carhart model and a model with valuation replaced by liquidity perform best. Our results remain stable under various robustness checks. We further document that managers on average prefer liquid stocks, show no aggregate idiosyncratic risk preference and deliver results that are consistent with equilibrium models of fund performance.     

Do powerful chief executives influence the financial performance of UK firms?

Drawing on a framework from agency theory, we examine the relation between the decision-making power of Chief Executive Officers (CEOs) and the financial performance of 468 United Kingdom (UK) publicly listed companies (plcs) using a dynamic panel data estimation method for the six years 2003–2008. We measure CEO power using a ‘power index’ which captures the extent to which the autonomy of the CEO to make unilateral decisions could influence firms' financial performance. To test for robustness, our analysis is conducted using different measures of financial performance. Our results reveal that, consistent with previous UK research, CEO power, as defined by CEO-Chair duality, CEO-tenure and CEO share ownership, is negatively related to financial performance. We also find that concentrated ownership is inversely related to the performance of UK plcs. CEO's compensation and board structure, however, do not appear to be related to the financial performance of the UK plcs.     

Conglomerates on the rise again? A cross-regional study on the impact of the 2008–2009 financial crisis on the diversification discount

This paper investigates how the 2008–2009 financial crisis affected the value of diversification in different regions of the world, thereby emphasizing the role of the institutional context. We show that the effect of the credit crunch upon the diversification discount varied with the regions' level of capital market maturity and legal environment. In developed Asia Pacific, the British Isles, and North America, we find that the discount on conglomerates fell significantly during the crisis years; however, in Continental Europe – the region possessing the least developed capital markets and lowest legal investor protection in our sample – the impact of the financial meltdown upon the relative value of diversified firms was insignificant. Our study provides additional evidence on factors influencing the relative costs and benefits of diversified firms and highlights in particular the importance of accounting for different institutional settings.     

Board diversity reforms: Do they matter for EU bank performance?

We examine the impact of governance reforms related to board diversity on the performance of European Union banks. Using a difference‐in‐difference approach, we document that reforms increase bank stock returns and their volatility within the first 3 years after their enactment. The type of reform matters, with quotas increasing return volatility. The effectiveness of reforms depends on a country's institutional environment. The impact of reforms on return volatility is found to be beneficial in countries more open to diversity, with common law system and with greater economic freedom. Finally, reforms play a bigger role in banks that have ex ante less heterogeneous boards.     

Do accounting standards matter to financial analysts? An empirical analysis of the effect of cross-listing from different accounting standards regimes on analyst following and forecast error

This paper explores whether the effects of cross-listing on analyst following and forecast error differ among firms with different accounting standards. The results reveal a higher increase in the number of analysts for cross-listed firms that follow their home country's GAAP prior to cross-listing and reconcile or switch to IAS/US GAAP or UK GAAP after cross-listing, compared to those that adopt IAS or US GAAP prior to cross-listing. We find that firms that switch to IAS/US GAAP have a higher increase in analyst following after cross-listing compared to firms that reconcile to IAS/US GAAP. In addition, we find a higher increase in analyst following after cross-listing for firms from low-level accounting standards environments compared to firms from high-level accounting standards environments. Our results show evidence of an increase in the magnitude of analysts’ forecast error after cross-listing for firms that follow their home country's GAAP pre-cross-listing but reconcile post-cross-listing to IAS/US GAAP or UK GAAP. On the other hand, we report a decrease in forecast error for firms that switch to IAS/US GAAP.     

Value or Glamour? An empirical investigation of the effect of celebrity CEOs on financial reporting practices and firm performance

In this study, I investigate the impact of managerial reputation, as proxied by high‐profile awards to CEOs, on financial reporting practices and firm performance. Using a sample of 269 awards given to 189 celebrity CEOs (CEOs who win awards) from 1987 to 2003, I compare within‐firm changes in financial reporting practices and firm performance before and after each CEO wins their first award. I find that celebrity CEOs engage in more conservative accounting practices and are less likely to engage in opportunistic earnings management to meet short‐term earnings benchmarks. In addition, firm performance improves after celebrity CEOs win awards.     

Does emotional intelligence matter to academic work performance? Evidence from business faculties in Australia

Using data collected through survey questionnaire across 15 universities, we examine the effect of emotional intelligence on academic work performance (in research, teaching and service) in Australian business faculties. We find academics’ ability to use emotion enhances performance across research, teaching and service, while ability to regulate emotion enhances performance for teaching and service only. We also find support for a process‐based model of emotional intelligence in which appraisal of emotion is a necessary antecedent to emotion’s use and regulation. The results have implications for management in appointment decisions and professional development programmes in business/accounting faculties.     

Does the location of stock exchange matter? A within-country analysis

The current study documents an interesting phenomenon that retail investors prefer to invest in stocks listed at the stock exchange that is geographically close to them in China. This pattern is robust when we control for the well-documented local bias within a country. Among companies with similar distances to both stock exchanges and companies headquartered locally, investors still display a strong tendency to invest in locally-listed stocks. Among stocks with similar distances to both stock exchanges, those listed in Shanghai (Shenzhen) co-move more in returns and trading volumes, with the benchmark at the Shanghai (Shenzhen) stock exchange. Such a preference for local exchange seems not to be motivated by information advantage, because investors do not obtain abnormal returns from their trades on stocks listed nearby. Our findings provide additional evidence that non-information-based familiarity bias induces investment and that such investor bias and exchange-level sentiment influence asset price formation.