The effect of religious piety on managerial entrenchment: evidence from entrenched boards of directors

Prior research shows that religious piety is linked to honesty and risk-aversion. Religious piety alleviates the agency conflict by lessening the motivation for managers to exploit shareholders. Because of its role in mitigating the agency conflict, we argue that religious piety influences corporate governance arrangements. We exploit the variation in religious piety across U.S. counties and show that religious piety significantly influences the probability that a firm has an entrenched (staggered) board of directors. In particular, firms located in an area with stronger religious piety are significantly less likely to have a staggered board. This negative effect, however, is significant only when the degree of religiosity is higher than a certain threshold. Further analysis reveals that our results are unlikely confounded by endogeneity. Our results are especially interesting as they demonstrate that non-financial attributes, such as religious piety, has a significant influence on one of the most crucial governance mechanisms, i.e. the board of directors.     

Stock exchange mergers and return co-movement: A flexible dynamic component correlations model

The creation of a common cross-border stock trading platform is found, by use of a Flexible Dynamic Component Correlations (FDCC) model, to have increased long-run trends in conditional correlations between foreign and domestic stock market returns.     

Stock exchange mergers and weak form of market efficiency: The case of Euronext Lisbon

This exploratory paper is among the first to examine the impact of stock exchange mergers on informational market efficiency. We focus on the merger of Bolsa de Valores de Lisboa e Porto (Portuguese Stock Exchange) with Euronext in 2002 (that created Euronext Lisbon). To investigate this question we perform numerous statistical tests: serial correlation test (ACF test), runs test, unit root test (Kwiatkowski, Philips, Schmidt, & Shin, 1992), multiple variance ratio test (Chow & Denning, 1993) and ranks and signs test (Wright, 2000).The results indicate that the Portuguese Equity Market is inefficient in weak form during pre-merger period implying that investors possessed an opportunity to earn abnormal returns though small in magnitude. The results, sensitive to the methodology used, indicate a mixed evidence of improvement in market efficiency during the post-merger period. Although the findings are mixed, yet most tests show a tendency of improved efficiency.     

The Effect of Annual Earnings Announcements on the Chinese Stock Markets

This paper examines the annual earnings announcement effect of the stock markets in China. The investigation is based on events analysis and carried out by modeling the daily changes of stock returns using the M-EGARCH approach, by testing the news effects of annual earnings announcement on the conditional mean of abnormal return and the variance of the returns. It is found that a higher than expected earnings announcement leads to a rise in the conditional mean of stock returns on days before the news announcement and a fall afterwards. The conditional volatility of the changes are significantly reduced by bigger absolute values of reported earnings before the news announcement and increased afterwards, supporting the rejection of semi-strong-form efficiency.     

A Comparison of the Publications of Female and Male Economists

The publication records of female and male economists are compared. Some explanations are offered for the differences.     

Political participation and entrepreneurial initial public offerings in China

This paper examines the economic consequences of political participation by entrepreneurs in China. Using unique data on political participation and initial public offerings by entrepreneurial firms, we find that firms controlled by entrepreneurs who participate in politics exhibit superior post-IPO performance. We also find that firms characterized by political participation are subject to less underpricing. Furthermore, the superior performance is concentrated among firms that operate in an environment characterized by rich rent-seeking opportunities instead of abundant business opportunities, suggesting that political participation is facilitating rent seeking rather than serving simply as a proxy for political recognition for entrepreneurship.     

Political economy of private firms in China

The sweeping change in political economy associated with the rapid growth of the private sector in China is rarely studied empirically in the economics literature. Using four cross-sectional surveys of private firms between 1995 and 2010, we examine the dynamics of rent creation from Party membership and other political connections when the regime changed from anti-capitalistic to pro-capitalistic during the period 2002–2004. We find that entrepreneurs with political connection enjoyed significantly more rents only after the constitutional amendments. This finding sheds lights on the nature of the political economy of today’s Chinese economy. Endogeneity/causality problems are addressed.     

Contagion and competitive effects of plan confirmation of reorganization filings: Evidence from the Taiwan Stock Market

This paper aims to examine the intra-industry effects of confirmation of a reorganization plan. Using unique Taiwanese data on announcements of reorganization confirmation, I find evidence that such announcements elicit positive stock price reactions for the announcing firms and negative stock price reactions for other firms within the same industry. Specifically, negative competitive effects dominate positive contagion effects for industry rivals in the context of the announcement of a reorganization confirmation. Moreover, a hybrid neuro-fuzzy model is constructed, where five industry- and firm-level inputs are considered, to investigate which rivals enhance their position and which do not. Results show that my model is consistent and stable, and is good at classifying both contagion- and competitive-effect candidates.     

Money Market Uncertainty and Retail Interest Rate Fluctuations: A Cross-Country Comparison

Abstract. This paper analyzes empirically the relationship between money market uncertainty and unexpected deviations in retail interest rates in a sample of ten OECD countries. We find that, with the exception of the United States, money market uncertainty has only a modest impact on the conditional volatility of retail interest rates. Even for the United States, we find that the effects of money market uncertainty are spread out over time. Our results also indicate that money market uncertainty tends to be passed on to retail rates to a lesser extent in countries where banking relationships play a substantial role.     

Does corporate social responsibility reduce financial distress risk?

This paper examines how corporate social responsibility (CSR) affects the level of financial distress risk (FDR). Using a sample of 1201 US-listed firms during 1991–2012, our results indicate that firms with higher CSR levels have lower FDR, suggesting that a better CSR performance makes firms more creditworthy and have better access to financing, which is rewarded with less financial defaults. This finding is robust to using alternative proxies of FDR, to controlling for potential endogeneity, and is mainly driven by the community, diversity, employee relations, and environmental dimensions of CSR. Moreover, this relationship is more prevalent in firms with strong governance mechanisms and high product market competition. It is also more exacerbated for less distressed firms and during non-crisis periods. Overall, our findings suggest that the adoption of CSR practices comes with less distress and default risks, likely leading to a more attractive corporate environment, better financial stability and more crisis-resilient economies.     

Disagreement between rating agencies and bond opacity: A theoretical perspective

In this paper, we explicitly model a bond rating process under varying degrees of bond opacity and derive conditions under which disagreements between rating agencies (rating splits) can serve as a useful proxy for opacity in empirical analyses.     

Market for Information and Identity Disclosure in an Experimental Open Limit Order Book

This paper analyses the effects of pre‐trade transparency on market quality in an experimental open limit order book preceded by a market for information. The design of the trading game is akin to the system in use in an increasing number of financial markets. We find that the disclosure of traders' identities reduces the incentive to acquire information, liquidity and volatility. We also show that a positive relation exists between the proportion of traders buying information and liquidity. The results are consistent with a standard model of price formation where the number of informed traders is endogenous .     

Small investment and large returns: Terrorism, media and the economy

The study investigates the role of the media in the impact of terrorism on the economy. A unique data set of the newspaper articles that reported terrorist attacks during 2002 is used to evaluate their impact on the Tel Aviv Stock Exchange. An econometric analysis is performed in order to understand how a newspaper decides to cover a terrorist attack, i.e. the number of articles, positioning of articles, whether to include photos and the size of headlines. It was found that media coverage is an important channel through which terrorism produces economic damage. The findings also showed that the economic damage caused by terrorist attacks increases monotonically with the amount of media coverage. It was also found that the economic impact of the media coverage diminishes over time.     

Capital structure and corporate governance quality: Evidence from the Institutional Shareholder Services (ISS)

Grounded in agency theory, this study explores how capital structure is influenced by aggregate corporate governance quality. We measure governance quality using broad-based comprehensive governance metrics provided by the Institutional Shareholder Services (ISS). The empirical evidence reveals a robust inverse association between leverage and governance quality. Firms with poor governance are significantly more leveraged. It appears that leverage substitutes for corporate governance in alleviating agency conflicts. Further, we utilize empirical methods that control for endogeneity and show that poor governance quality likely brings about, and does not merely reflect, higher leverage. Our results are important as they show that the overall quality of corporate governance has a material impact on critical corporate decisions such as capital structure choices.     

Commercial corporate governance ratings: an alternative view of their use and impact

The rise in the popularity of commercial corporate governance ratings is at once a source of dismay and a cause for alarm: the former because they do not appear to give accurate predictions of corporate performance and the latter because they add to the pressure on corporations to adapt their governance structures to a benchmark model that takes no account of the conditions in which they operate. This paper gives an alternative view of the potential use and impact of the commercially marketed governance ratings. It argues that their importance to institutional investors lies in providing them with information that accurately summarises corporate loyalty to shareholders rather than accurately predicts corporate performance. It goes on to argue that the commercial governance ratings can bring benefits to an economy by contributing to a new type of managerial control mechanism that is not only more efficient than hostile takeovers and stock options but also helps to reduce the governance role of these instruments.     

THE ABSENCE OF THE BOOK‐TO‐MARKET EFFECT IN THE TAIWAN STOCK MARKET: A DECOMPOSITION APPROACH

This paper examines the absence of the book‐to‐market equity (BM) effect in the Taiwan stock market, applying the BM decomposition proposed by Daniel and Titman (2006 ). First, we do not observe a significantly negative correlation between future stock return and intangible return on research‐and‐development‐intensive firms in Taiwan, which is inconsistent with the US evidence documented by Daniel and Titman. Second, undervaluation of research‐and‐development‐intensive firms possibly leads to the absence of the BM effect. Those firms, most of which have low BM, perform well not only in the past, but also in the future, thereby obscuring the BM effect.     

Global financial crisis,corporate governance,and firm survival:: The Russian experience

Using a unique dataset obtained from large-scale panel enterprise surveys conducted in 2005 and 2009, we clarify the survival status of Russian industrial firms before and after the global financial crisis and empirically examine the determinants of firm survival. The estimation of the Cox proportional hazard model provided evidence that the independence of company’s governance bodies, their human resource abundance, and influence over corporate management are statistically significant factors affecting the survival probability of the surveyed firms. In particular, the board of directors and the audit committee are likely to play a vital role in reducing the potential exit risk. We also found that there is a significant difference in the viewpoints of economic logic for firm survival held by independent firms and group companies.     

The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence

Empirical research has shown that inexperienced fund managers yield significantly higher returns than their more experienced colleagues. If the portfolios of inexperienced are not more risky, this result would contradict the hypothesis of market efficiency. Therefore, it is an important question whether inexperienced fund managers tend to taker higher risks. Higher risk taking may be explained by a higher degree of overconfidence, less herding behavior, or a lower degree of risk aversion. Since the results concerning the relationship between experience and risk taking in previous studies are rather contradictory we provide complementary survey evidence of 117 German fund managers which can improve our understanding in this field. In line with the results of previous studies, we find that herding is decreasing with experience while the evidence concerning risk taking and overconfidence is mixed. Nevertheless, our results provide some support for the hypothesis that inexperienced managers do indeed take higher risks.     

Taxation, agency conflicts, and the choice between callable and convertible debt

We analyze debt choice in light of taxes and moral hazard. The model features an infinite sequence of nonzero-sum stochastic differential games between equity and debt. Closed-form expressions are derived for all contingent-claims. If equity can increase volatility without reducing asset drift, callable bonds with call premia are optimal. Although callable bonds induce risk shifting, call premia precommit equity to less frequent restructuring and are tax-advantaged. Convertible bonds mitigate risk shifting, but only induce hedging if assets are far from the default threshold. Convertibles are optimal only if risk shifting reduces asset drift sufficiently.     

Sukuk vs. conventional bonds: A stock market perspective

The last decade witnessed a wide expansion of Islamic finance in Middle Eastern and Southeast Asian countries. Sukuk issues, which are Islamic financial instruments structured to replicate the cash flows of conventional bonds, have notably proliferated, fuelling the debate on the similarity between Islamic and conventional finance. Using an event study methodology on a sample of Malaysian listed companies, we investigate whether stock market investors react differently to the announcements of sukuk and conventional bond issues. We find that the stock market is neutral to announcements of conventional bond issues, but it reacts negatively to announcements of sukuk issues. We attribute this finding to the excess demand for Islamic investment certificates and to an adverse selection mechanism that favors sukuk issuance by lower-quality debtor companies.