Debt maturity structure and the 1997 Asian financial crisis

The paper investigates the effects of firm-specific and country-specific characteristics, and the 1997 Asian financial crisis on the debt maturity structure of firms in the Asia Pacific region. The results indicate that firms in this region have a target optimal debt maturity structure, and the maturity structure decision of a firm is driven by both its own characteristics and the economic environment. They also reveal that the crisis had significant effect on firm's debt maturity structure and their determinants.     

Are financial spillovers stable across regimes?: Evidence from the 1997 Asian crisis

We investigate breaks in financial spillovers between the US and eight South-East Asian capital markets before and during the 1997 Asian crisis. We construct threshold vector autoregressive models and apply novel techniques to test whether causality patterns between markets are characterized by one or two regimes. Linkages between the US and Asian markets are shown to follow the threshold model with two regimes, turmoil and tranquility, pointing to differences in cross-border return spillovers in stable and crisis periods. The causality analysis shows that spillovers between US and Asian markets become stronger in the turmoil regime.     

Ownership structure and the pricing of discretionary accruals in Japan

This paper examines the valuation effect of discretionary accruals for Japanese firms, taking into account the book value of equity. Consistent with US evidence, the Japanese market prices discretionary accruals, indicating that discretionary accruals enhance the value relevance of reported earnings. This value relevance is lower for cross-held firms, consistent with the view that cross-business shareholding aggravates tunneling or managerial opportunism through discretionary accounting choices. On the other hand, foreign shareholding and bond financing provide effective monitoring on managerial discretion of profit firms to enhance the valuation of discretionary accruals.     

Pricing of innate and discretionary accruals in Australian debt

This paper addresses the conflicting evidence on the role of accruals in debt pricing. We show that the two subcomponents of accruals quality, innate and discretionary accruals, both impact the debt pricing. Higher innate accruals increases cost of debt, consistent with the prior evidence ( Francis et al., 2005 ; Gray et al., 2009 ). However, we also find that higher discretionary accruals reduce the cost of debt. This contrasts with the prior evidence of a positive association between discretionary accruals and cost and debt ( Francis et al., 2005 ), and no association ( Gray et al., 2009 ). We show that noisy measurement of cost of debt reconciles these results.     

Hierarchy of earnings thresholds based on discretionary accruals

Prior studies identify hierarchies of earnings thresholds based on distributions of earnings (e.g., Degeorge et al., 1999) and survey opinions of CFOs (Graham, Harvey, & Rajgopal, 2005). We complement extant literature by investigating a threshold hierarchy in the context of accounting discretion exercised by managers. We examine the relative extent of discretionary accruals used to achieve three earnings thresholds—avoiding losses, avoiding earnings declines, and avoiding negative earnings surprises. Our empirical findings suggest that managers are likely to use the largest amount of discretionary accruals to avoid earnings declines, and the least amount of discretionary accruals to avoid negative earnings surprises. Thus, this study identifies the hierarchy of the earnings thresholds based on accounting discretion used in financial reporting. We also find that the hierarchy remains stable over the last two decades during our sample period. Then, we provide several explanations for why managers are likely to exercise more accounting discretion to avoid earnings declines. These explanations include earnings smoothing, reduction of stock returns volatility, and signaling of future growth potential. Overall, this study provides new insights into accruals management behavior.     

The role of industry classification in estimating discretionary accruals

This study compares the properties of the Global Industry Classification Standard (GICS) with three alternatives: Standard Industrial Classification, North American Industry Classification System, and Fama–French classification. First, we demonstrate that GICS results in more reliable industry groupings for financial analysis and research; in particular, we find that estimations of performance-adjusted discretionary accruals (PADA) based on GICS significantly outperform estimates derived using each of the three alternative classifications systems in capturing discretionary accruals. Second, we show that the difference between GICS and the other systems can provide significantly different results, and hence different inferences, in empirical studies that rely on industry classification. Specifically, we revisit findings by Teoh et al. (J Financ 53[6]:1935–1970, 1998a) and assess the conclusion that initial public offering (IPO) issuers with high abnormal accruals during the IPO year experience subsequent poorer long-term stock performance than issuers with low discretionary accruals do. We find that this result disappears when PADA estimates are based on GICS. Our results call for serious consideration of using GICS classifications in research, either in the primary analysis or as a necessary corroboration.     

Environmental uncertainty and managers’ use of discretionary accruals

Although an organization’s environmental uncertainty may induce greater variability in reported earnings, managers have incentives to reduce this variability. The flexibility accorded by generally accepted accounting principles (GAAP) provides managers the means to accomplish this via exercising discretion in recognizing accounting accruals. Thus, we examine the relation between managers’ use of discretionary accruals and environmental uncertainty. Overall, evidence suggests managers use discretionary accruals to reduce the variability in reported earnings more when firms operate in high uncertainty.     

East Asia and Europe during the 1997 Asian collapse: a clinical study of a financial crisis

Asian stock markets are compared with European markets before and during the 1997 Asian crisis. The clinical issue is whether regional inter-dependence became larger around the crisis, fomenting investor fears of contagion and reducing asset values because of lower diversification potential. Statistical measures are developed to aid in this inquiry. We find that European and East Asian countries were not susceptible to volatility contagion in the pre-crisis era but that susceptibility increased significantly with the onset of the crisis. Covariances, correlations, and volatilities increased from the pre-crisis to the crisis period in both regions, but the percentage increases were much larger in Asia. Diversification potential was better in Asia than in Europe before the crisis; this was reversed during the crisis. The observed decline in diversification potency in Asia is reason enough for large declines in asset values though one cannot prove, of course, that it was the cause rather than the effect of the crisis. Exchange rate volatility played a major role.     

亚洲金融危机十年:总结与反思

研究那场危机背后的触发点的生成和累积过程,能够帮助我们今后在新的危机来临时,不致深陷其中。十年前发生在东南亚国家的那场金融危机尽管已经逝去多时,但危机带来的巨大负面影响和场景似乎仍历历在目。亚洲金融危机爆发后的十年来,全球经济形势发生了巨大变化,贸易与金融的自由化、创新活动的开展,以及IT技术的发展推动     

亚洲金融危机检讨与启示

为了比较准确判断中国当前的经济形势和金融形势,本文将中国9个重要经济指数与亚洲其他国家1997年金融危机前的表征进行了对比分析,并对中国目前流动性过剩做了初步研究。发现：1．中国经济和金融形势总体是健康的,但通货膨胀呈上窜之势,国际收支不平衡矛盾加剧,流动性风险隐患不可忽视;2．GDP、产业结构、中央财政盈余等指标与亚洲国家金融风暴前的表征比较,除有相似之处,还隐存更为复杂的问题;3．贸易顺差偏高,对经济稳定发展的影响越来越大;4．市场资金严重泛滥,房地产投资和证券投资规模继续扩大,房价和股价持续高涨过快;5．上市公司交叉持股严重,股市目前尚未起到合理配置资源的作用,刺激市民投机心理,加剧收入差距,增添了不稳定因素,值得高度重视。建议政府有关部门加强区域金融合作,建立金融风险预警系统,进一步完善人民币汇率机制,适当控制IPO上市速度,优化投资结构,大力促进产业结构调整和发展方式转变,加强外资流向管理,加强金融知识宣介,引导资金流向,积极防范金融风险     

Korean bank governance reform after the Asian financial crisis

We discuss corporate governance reforms in the Korean banking sector, which include reforms in board composition and executive compensation, implemented after the Asian financial crisis in 1997 and examine the stock market's response to the reforms. We find that the banking returns and volatilities became more Granger-causally prior to both KOSPI and finance sector returns after 1998. The announcements of banking governance reforms are generally associated with significant increases in banking sector stock returns. The KIF survey finds that board governance is considered essential in assessing the value of the firm. The participants in the McKinsey survey indicate that they are willing to pay a premium of 24% on average for firms with outstanding corporate governance systems.     

Nonlinear dynamics in discretionary accruals: An analysis of bank loan-loss provisions

Several studies have analyzed discretionary accruals to address earnings-smoothing behaviors in the banking industry. We argue that the characteristic link between accruals and earnings may be nonlinear, since both the incentives to manipulate income and the practical way to do so depend partially on the relative size of earnings. Given a sample of 15,268 US banks over the period 1996–2011, the main results in this paper suggest that, depending on the size of earnings, bank managers tend to engage in earnings-decreasing strategies when earnings are negative (“big-bath”), use earnings-increasing strategies when earnings are positive, and use provisions as a smoothing device when earnings are positive and substantial (“cookie-jar” accounting). This evidence, which cannot be explained by the earnings-smoothing hypothesis, is consistent with the compensation theory. Neglecting nonlinear patterns in the econometric modeling of these accruals may lead to misleading conclusions regarding the characteristic strategies used in earnings management.     

Market perceptions of discretionary accruals by debt renegotiating firms during economic downturn

This study addresses how a stock market prices earnings components around a sudden and severe economic downturn. In particular, the study examines the market valuation of discretionary accruals for debt renegotiating Malaysian firms during the Asian financial crisis. Our analysis shows that negative discretionary accruals for debt renegotiating firms are associated with higher market values of equity and are not related to the firms' future earnings. These findings are consistent with investors placing a positive value on the probability that negative accruals increase the likelihood that concessions can be extracted from lenders during renegotiation. In contrast, discretionary accruals for a control sample of non-debt renegotiating firms are not significantly associated with stock prices but are positively associated with future earnings.     

Crisis transmission: Some evidence from the Asian financial crisis

We used a crisis measure of financial market as defined by Sexena (1998) to study the nature of crisis transmission and the channels through which the 1997 crisis was transmitted among Asian financial markets. Estimated with a vector autoregression (VAR) and an OLS model on Asian financial markets from January 1990 to December 1998, we found that:

1.

During the crisis period, crisis transmission was more significant than during other noncrisis periods;

2.

Comparing the crisis transmission within the industrialized countries (Taiwan, Korea, and Japan), within the emerging countries (Thailand, Malaysia, The Philippines, and Indonesia), and between the industrialized and emerging groups, it is shown that

2.1.

The crisis transmission among the three industrialized countries was not significant.

2.2.

The crises originated from Thailand and Malaysia were transmitted to other emerging countries.

2.3.

The crisis transmission between industrialized and emerging countries was not found to be significant. There was evidence showing that Singapore served as an intermediary transmitting crisis between industrialized and emerging countries during this particular crisis.

3.

The transmission through the wake-up call effect was found to be more significant than other transmission channels. Trade relationship and cash-in effects only existed in Korea, Thailand, and Malaysia.

     

The value relevance of cash flows, current accruals, and non-current accruals in the UK

Cash flow statements have a longstanding history as mandated financial statement disclosures, having replaced funds flow statements. The usefulness of such disclosures with respect to one of the main purposes of financial statements—providing information relevant to the assessment of future cash flows and their uncertainty, and the market value of firms—is still subject to debate. This study investigates whether various partitions of earnings involving combinations of a cash flow measure of performance and measures of current accruals and non-current accruals improve the ability to explain market values in the UK relative to using earnings alone. Using a valuation model-based methodology, and employing a UK sample of non-financial firms for the years 1993 to 2007, our results suggest strong support for the assertion that cash flows can have incremental value relevance relative to either earnings or funds flows. By implication, cash flows can have separate value relevance from total and, in particular, current accruals. There is slightly less consistent evidence that current and non-current accruals can have separate value relevance but, nonetheless, the results are still strongly in favour in this respect. Generally, the main source of increase in explanatory power for market values is the separate inclusion of our cash flow measure in the estimated regressions. As a consequence, we conclude that the statement of cash flows in the UK provides information useful to UK investors in valuing firms. Further, requiring a cash flow statement, as opposed to a funds flow statement, improves the information content of financial statements in the UK.     

Reforms in Thai bank governance: The aftermath of the Asian financial crisis

This paper provides an empirical analysis of Thailand's bank governance reforms after the 1997 Asian financial crisis and then examines the stock market's response. Unlike the pre-crisis period, we find that the bank sector returns (or return volatilities) have become more Granger causal to the overall stock market in the post-crisis period. Announcements of bank governance reforms are also generally associated with significant change in bank sector returns. This adds to the proposition that improved bank governance is related to improved bank performance as measured by their bank stock returns.     

A cospectral analysis of exchange rate comovements during Asian financial crisis

Comovements of exchange rates before and during Asian financial crisis are examined using cross-spectral methodology. The paper proposes and implements a simple frequency-domain-based test for contagion that avoids biases of the correlation breakdown tests used in the extant literature. The Asian crisis is found to be manifest in greater comovements along high-frequency components. Calculated changes in the high-frequency portion of the covariance indicate a contagion for 48 out of the possible 66 pairs of countries in the sample.     

The behavior of financial analysts during the Asian financial crisis in Indonesia,Korea, Malaysia,and Thailand

This study investigates the behavior of a potentially influential class of market participants, the stock analysts, around the period of market crashes in four Asian countries. We find that analysts not only failed to anticipate the weaknesses in the firms they covered before the crash, they also failed to sufficiently adjust their forecasts after these markets crashed. Throughout the entire period of the study, the magnitudes of forecast errors were several times to that observed in the pre-crash period. However, we also do not find evidence of panic or herding on a large scale. Other issues investigated in this paper include the changes in coverage, changes in forecasts accuracy, the extent analysts agree and the patterns of their convergence for the sample. We also compare analyst forecasts for large versus small firms, and for high- versus low-growth/quality firms. A contribution to the literature is the cataloguing of models that may provide explanations for investors' expectations during a market crash.     

Capital movements,banking insolvency,and silent runs in the Asian financial crisis

This paper supplies an agency-cost and contestable-markets perspective on the financial policies that triggered the Asian financial crisis. The agency-cost analysis hypothesizes that individual-country regulators knew that politically directed loans had made their banks insolvent, but purposefully gambled that deregulation could allow the insolvent banks to grow their way out of trouble.The contestable-markets paradigm sets this gamble in the context of offshore innovations in financial technology and regulatory systems that made it progressively easier for worried Asian citizens to move funds to foreign institutions. These perspectives portray the simultaneous breakdown of repressive financial systems as a technology-led victory of market forces over longstanding government efforts to wall out foreign financial competition.     

IMF programs, financial and real sector performance, and the Asian crisis

This paper has three objectives. First, using a richer and more comprehensive set of IMF-related news than previous studies, we examine the impact of IMF-related news on both financial and real stock sector returns in Indonesia during the Asian crisis. Second, we draw lessons about financial and real sectoral patterns of adjustment in crisis countries, including whether and how IMF programs facilitate this adjustment. Third, we explore the interplay between IMF actions in crisis countries and the actions and responses of local authorities. To do so, not only do we account for the impact of news regarding IMF policy actions but also the government’s reaction to them and willingness to implement such policies, and the public sentiment about the implemented IMF programs and government policies. We discuss the policy implications of the findings.