An empirical evaluation of analysts’ herding behavior following Regulation Fair Disclosure

This study examines whether analysts’ forecasts exhibited increased herding behavior following the adoption of Regulation Fair Disclosure. A recent model by Arya et al. [Arya, A., Glover, J., Mittendorf, B., Narayanamoorthy, G., 2005. Unintended consequences of regulating disclosures: The case of Regulation Fair Disclosure. Journal of Accounting and Public Policy 24 (3), 243–252], using a discrete-time information cascade-based model, projects that one potential consequence of Regulation Fair Disclosure might be increased herding by financial analysts, although previous studies examining the economic consequences of Regulation FD have generally not found any averse consequence for investors. We examine financial analysts forecasting behavior before and after the adoption of Regulation FD in order to determine if such herding of forecasts occurred empirically. Our general finding is that increased herding behavior cannot be detected among either the firms most directly impacted by Regulation FD (those which used to hold closed press conferences), or those least affected (i.e., firms that used to either hold open or no press conferences). However, because analysts face diverse incentives for engaging in either herding or anti-herding behavior, our results are not interpretable as an empirical test of the Arya et al. (2005) theoretical model.     

Nonlinear market liquidity: An empirical examination

We offer novel indicators of market-wide liquidity. Previous literature uses averages of individual liquidity indicators to track the evolution of market-wide liquidity. Instead, we focus on the tails of the market liquidity distribution. First, we construct aggregate liquidity indicators using low and high quantiles of six liquidity measures (total volume, number of trades, effective spread, realized spread, price impact and lambda). Our results show that market conditions have an asymmetric impact on the tails of the liquidity distribution. In the second part of the study, we test for nonlinearity of the effects of market determinants on market liquidity.     

Intertopical sequencing of examination questions: An empirical evaluation

This research examines whether the ordering of topics within an accounting examination influences either (a) the time necessary to complete the examination, or (b) examination scores. Further, these effects are examined on both introductory students (n=83) and on more advanced accounting students (n=84).Six hypotheses concerning examination time and examination score were tested via two three-factor ANOVAs. It was found that “better” students are disadvantaged by random sequencing of multiple-choice questions and score significantly lower than on an ordered format. Poorer students appear not to be affected. No differences were found relating to time necessary to complete the exam.     

Market discipline and the evaluation of Euro financial bonds—An empirical analysis

Within the context of the increasing discussion on a shift in financial regulatory philosophy from the currently prevailing rules-based approach to a more incentive-based supervisory procedure in which market discipline should play a decisive role in overcoming several moral hazard and efficiency problems of the financial system, the question regarding the evaluation of financial bonds has gained an important dimension. Such a disciplining market influence could namely be exercised if financial institutions were obliged to issue subordinated bonds on a regular basis (mandatory subordinated debt policy). However, the influence of market discipline will only be effective if the evaluation of different subordinated (and other) bonds occurs in a differentiated manner and dependent on the inherent risks. This study provides findings, on the basis of which this requirement for the Euro financial bond market can be regarded as fulfilled.     

International day-of-the-week effects: An empirical examination of iShares

Ample evidence suggests that day-of-the-week patterns exist in US and foreign equity returns. We extend the evidence on the day-of-the-week effect in equity returns by examining the return patterns of iShares for 17 countries and Standard and Poor's Depository Receipts (SPDRs) to establish whether previously observed predictabilities in equity returns are reflected in iShares' returns. We utilize a split sample to examine return patterns and develop trading rules using the initial subsample. We then test those trading rules out of sample. Empirical results reveal that iShares exhibit day-of-the-week return patterns that can be exploited by informed traders.     

Hedge funds,CDOs and the financial crisis: An empirical investigation of the “Magnetar trade”

The so called Magnetar trade (a kind of capital structure arbitrage on the US housing market, using CDS and synthetic CDOs, and exploiting rating-dependent mispricing of risk) has gained a high publicity due to a Pulitzer Prize awarded media story from two journalists of ProPublica (an online news outlet). The story essentially claimed that the mortgage investment strategy of the hedge fund Magnetar during the period between 2006 and mid 2007 was based on a desire to construct CDO deals with riskier assets so that they could place bets that portions of their own deals would fail. This paper provides several pieces of evidence in line with the argument that tranches from Magnetar-sponsored CDOs present overly risky investments. However, investors and rating agencies appear to have adjusted their required spread levels and ratings to reflect this higher riskiness, at least to some extent.     

Culture and accounting in Indonesia: An empirical examination

This study examines the relationships among the cultural characteristics of Indonesian society, reporting practices of Indonesian firms, and accounting standards promulgated by the Association of Indonesian Accountants. It is argued that an empirical relation exists between the change in cultural values, as conceived by Hofstede's theory of the five dimensions of cultural values (power distance, uncertainty avoidance, individualism, masculinity, and time horizon and the change in accounting values as captures by Gray's four dimensions (professionalism, conservatism, secrecy, and uniformity). Using LISREL to evaluate data between 1981 and 1992, three of Hofstede's five cultural values (power distance, uncertainty avoidance, and individualism) have significant relationships with one or more accounting value. This limited confirmation of the culture-accounting relationships suggest that particular historical and economic configurations must be considered in longitudinal analysis. The conflicting influences of extensive government involvement in the economy and nascent market competition are a possible explanation of the Indonesian results.     

Executive compensation and non-financial risk: An empirical examination

Executives face potentially severe (non-financial) personal risks if firm environmental performance is below industry best practice. We examine the relation between CEO compensation and the non-financial risk associated with environmental exposure, and how use of environmental performance as an explicit determinant of compensation affects this relation. We find evidence that CEOs are compensated for exposure to environmental risk, even after controlling for financial risk. We also find that this premium is reduced when the CEO has greater opportunities to improve the firm’s environmental performance.     

An empirical examination of the benefits of international diversification

We examine the benefits of international portfolio diversification for U.K. investors between January 1985 and December 2000 using the approach of Wang [Wang, Z., 1998. Efficiency loss and constraints on portfolio holdings. Journal of Financial Economics 48, 359–375] and Li et al. [Li, K., Sarkar, A., Wang, Z., 2003. Diversification benefits of emerging markets subject to portfolio constraints. Journal of Empirical Finance 10, 57–80]. We find significant increases in the Sharpe [Sharpe, W.F., 1966. Mutual fund performance. Journal of Business 39, 119–138] and certainty equivalent return (CER) performance in moving from a domestic strategy to an international strategy that includes either global industry or country equity portfolios, even in the presence of short selling restrictions. We also find significant diversification benefits using U.K. unit trusts with international equity objectives. However, U.K. international unit trusts do not capture all the diversification benefits provided by either global industry or country equity portfolios.     

中国金融发展与产业结构升级关系的实证研究

本文在国内外研究成果的基础上,针对中国的金融发展与产业结构升级的关系问题,系统分析金融发展与产业结构转变的内在联系,采用中国1978～2006年反映金融发展和产业结构升级的指标数据,利用非平稳时间序列分析方法进行定量描述。结果表明,产业结构升级指标和金融发展指标相互之间存在着长期均衡关系,金融相关率和金融市场化率对非农产业产值比重的提高有正向促进作用,并且金融相关率对产业结构升级的影响要强于金融相关率指标。中国产业结构的变化具有自身的惯性,中国的产业结构升级与金融发展的长短期关系是不一致的。产业结构升级和金融市场化比率之间存在双向的因果关系,而产业结构升级与金融相关比率以及金融相关比率和金融市场化比率之间只有单向的因果关系。     

Liquidity and employee options: An empirical examination of the Microsoft experience

In recent years several companies have offered employees the opportunity to transfer certain out-of-the-money options to a dealer. This paper examines one such high-profile program offered by Microsoft in 2003. The program was not very transparent in that employees were forced to decide whether to tender their options before knowing how much they would be offered, and it had only a modest rate of participation. Nonetheless, the market easily absorbed intense selling pressure as the options were transferred and hedged. The dealer, JPMorgan Chase, though profiting from the transfer, apparently failed to hedge the volatility risk it accepted from the employees and lost nearly the entire value it paid for the options. The overall experience has important implications for the design of programs that are intended to solve problems of low morale and increased turnover caused by underwater options.     

The impact of terrorism on financial markets: An empirical study

The main focus of this paper is to study empirically the impact of terrorism on the behavior of stock, bond and commodity markets. We consider terrorist events that took place in 25 countries over an 11-year time period and implement our analysis using different methods: an event-study approach, a non-parametric methodology, and a filtered GARCH-EVT approach. In addition, we compare the effect of terrorist attacks on financial markets with the impact of other extreme events such as financial crashes and natural catastrophes. The results of our analysis show that a non-parametric approach is the most appropriate method among the three for analyzing the impact of terrorism on financial markets. We demonstrate the robustness of this method when interest rates, equity market integration, spillover and contemporaneous effects are controlled. We show how the results of this approach can be used for investors’ portfolio diversification strategies against terrorism risk.     

Golf courses and residential house prices: An empirical examination

The importance of location is well known in the literature on real estate valuation. Our study extends this body of literature by being the first to examine empirically the effect on the selling price of single-family residential properties when they abut a golf course. We determine the incremental effect on the sales price of houses on the golf course by fitting a standard hedonic pricing model to a sample of 717 sales transactions drawn from a sub-urban area of a large city. We employ a matched-pair research design to hold constant the price effects of other location factors on these golf course properties. Our results indicate that a golf course location adds 7.6 percent to a property's sales price. We believe this finding is of interest to developers in their design of a golf course subdivision and to appraisers who wish to make location-specific value adjustments of golf course properties.     

Desired attributes of public accounting firms in the job selection process: an empirical examination of accounting graduates' perceptions

The purpose of this study is to identify attributes of public accounting firms that accounting graduates find most desirable in their job selection decisions, and the impacts of individual differences on these perceptions. Factor analysis performed on the responses of 167 final-year accounting students in Hong Kong to a 30-item questionnaire identified seven factors. The results indicate that accounting graduates considered help in finishing their professional accounting examinations and good staff relationships as the most important criteria in their choice of employers. In addition, female accounting graduates were more concerned about the possibility of being required to travel or be transferred, but were less concerned about the reputation and profile (such as the client base and the size) of the firms than their male counterparts. Accounting graduates with a higher grade point average (GPA) were less concerned about the working environment, but more concerned about a firms' reputation and profile than those with a lower GPA. The implications of these results are discussed.     

An investigation into the measurement of graph distortion in financial reports

The Graph Discrepancy Index (GDI), which originates from the lie factor introduced by Tufte (1983), is the mechanism commonly used in the financial graphics literature to determine whether graphs are distorted and to quantify the extent of such distortion. Although the GDI is critical to the financial graphics literature, little or no attention has been paid to its robustness and accuracy. We critically examine the mathematical characteristics of the GDI and show its limitations as a measure of graph distortion. We review a number of cases to demonstrate these limitations and present an alternative measure of graph distortion—the Relative Graph Discrepancy index (RGD). Numerous simulations suggest that the RGD overcomes the problems associated with the GDI. The RGD is also tested on data presented in earlier research and the results are compared to those obtained using the GDI. In comparison with the GDI, we find that the RGD is more consistent and produces slightly stronger results. We stress, however, that this is not a best or definitive measure but is intended to start a research process that leads to a generally accepted measure.     

An empirical examination of stress in public accounting

This paper presents the results of an investigation of stress in public accounting, using a national sample of certified public accountants. The relationship between a set of predictor variables (organizational stressors and work/home conflict) and a set of criterion variables (job-related tension, job dissatisfaction, and propensity to leave public accounting) was analyzed using canonical correlation analysis. Job-related tension was associated with heavy work demands; job dissatisfaction and intension to leave were associated with slow career progress, unfulfilling jobs, and unclear job objectives.     

An empirical examination of the implications of arbitrage pricing theory

This paper presents a comprehensive set of tests of the implications of the Arbitrage Pricing Theory. We find, unlike previously reported results, a very limited relationship between the expected returns and the covariance (factor loadings) measures of risk. Furthermore, unique variance measures of risk, while generally making only small contributions to the explanation of asset returns, turn out to be significant about as frequently as the coveriance measures of risk — which is inconsistent with the Arbitrage Pricing Theory model. The intercept tests are more mixed but provide only limited support to the model.     

An empirical examination of capital expenditure in the health sector

This empirical study in the nursing home industry attempts to delineate factors, and thus acquire insights, as to capital expenditures, and address a critical issue regarding governmental reimbursement policy and the economic viability of health care institutions. Combinations of financial performance, financial structure, and institutional context associated with high capital investment nursing homes differ from combinations associated with low capital investment homes. A multivariate analysis of data obtained from 185 nursing homes shows that although there was some difference between the two groups of nursing homes in basic financial and institutional characteristics, only a small subset of the variables were statistically significant discriminators. The hypothesis was then examined within each of the three major nursing home segments—for-profit, not-for-profit, and country homes. Neither financial performance, financial structure, nor institutional context alone is sufficient to explain differences in capital investment behavior. Perhaps more importantly, the extent to which these combination of factors do contribute to explaining capital investment strategies differs within each of the major segments of the industry. Also, these combinations of factors generally differ across the major industry segments as they relate to capital investment strategies.     

An empirical and institutional examination of post-crisis capital flows—Thailand case

In this paper, we developed and estimated a model of the Thai firm during the crisis. Our results indicate that firms with the highest debt-equity ratios suffered the steepest declines in earnings per share during the crisis from the financial distressed costs. We take this result as strong evidence for the credit channel. Surprisingly, firms with the largest market capitalizations suffered more than the smaller firms owing to their capital structure and financial leverage effect. We also witness asymmetric impact between the industries—exporters, importers and intermediate. We take this as evidence of different scale-effects on different industries, a feature that we do not explicitly model. In other words, the production effect is more pronouncing in import related industries than the export-oriented one. Note that firms that import intermediate goods also suffered greatly from the crisis from both credit and production channels. Taken together, our overall results indicate that the crisis damaged the earnings per share of firms more on credit channels than the production channels. There exists a peculiar tradeoff between benefits from currency devaluation to promote exports and severe adverse impact on both credit channel and asymmetric impact on production channel.     

A macro-analysis of financial decisions: An examination of special dividend announcements

This paper investigates macro-level explanations for why firms pay special dividends. We find both the business cycle and market condition affect the propensity and abnormal returns of special dividends. Firms are more likely to announce special dividends in market or economic downturns than upturns. They tend to use additional cash for business growth in expansions and distribute it to reduce agency costs in contractions. The signaling effect of special dividends is stronger and companies with these announcements are better performers in recessions than in expansions. This research sheds light on and enhances the understanding of why firms disburse extra cash dividends at the aggregate level.