Block Share Purchases and Corporate Performance

This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and employee stock ownership plans. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry-adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations.     

Accruals Management to Avoid Losses

This study examines whether firms engage in accruals management to beat the zero earnings benchmark from the perspective of earnings per share (EPS). Based on net income scaled by lagged market value of equity (E/MV) to define just‐miss and just‐beat test bins, previous studies provide no or inconclusive evidence of accruals management to beat the zero earnings benchmark. I conjecture that because managers focus on shares scaled earnings performance rather than market value scaled earnings performance, forming test bins based on EPS instead of E/MV is a better approach to detect accruals management. As expected, I find evidence of accruals management to beat the zero EPS benchmark. I also find that firms are more likely to manipulate accruals when managers have stronger incentives to beat the zero EPS benchmark. In addition, accruals of firms just beating the zero EPS benchmark are more likely to reverse the next year, resulting in relatively lower future earnings for firms just beating the benchmark compared with firms just missing the benchmark.     

FOREIGN OWNERSHIP RESTRICTIONS AND MARKET SEGMENTATION IN CHINA'S STOCK MARKETS

We study market segmentation in China's stock markets, in which local firms issue two classes of shares: class A shares available only to Chinese citizens and class B shares available only to foreign citizens. Significant stock price discounts are documented for class B shares. We find that the price difference is primarily due to illiquid B‐share markets. Relatively illiquid B‐share stocks have a higher expected return and are priced lower to compensate investors for increased trading costs. However, between the two classes of shares, B‐share prices tend to move more closely with market fundamentals than do A‐share prices. Therefore, we find A‐share premiums rather than B‐share discounts in China's markets. JEL classification: G15     

AN EMPIRICAL ASSESSMENT OF THE “FIT”BETWEEN STRATEGY AND MANAGEMENT INFORMATION SYSTEM DESIGN

This paper was motivated by the limited understanding of the role of accounting vis a vis other information in supporting the needs of management. The paper reports the findings of a study which examined differences in the design parameters of management information systems in firms adopting different strategic priorities. Based on a sample of 49 business unit general managers, the findings indicate that the effectiveness of business units is dependent on a match between the design of the information system and the firm's strategic posture. Information systems which have the characteristics of a broad scope system were found to be more effective in firms employing a strategy of continuous product/market development and innovation (Prospectors) than in firms which were protecting a comparatively narrow and stable product-market (Defenders). The results have important implications for management accountants involved in the design and implementation of management information systems, especially in firms adopting a more innovative strategic posture. In particular, the study sheds light on the role of accounting as part of the “mosaic” of information provided to managers for decision making.     

Increasing Market Share as a Rationale for Corporate Acquisitions

This study examines the relative importance of market share in acquisitions because anecdotal evidence and economic theory suggest that merging firms benefit from larger market share. Firms might focus on market share to improve shareholder value through improved efficiency, which benefits consumers. Alternatively, higher market share could generate greater market power, which adversely affects consumers. I find that market share of merging firms increases by more than 30%, relative to the pre‐acquisition level, and the increase is even larger after I account for industry changes. Abnormal returns are positively correlated with changes in market share around acquisitions, but not with changes in industry concentration, which suggests stock market's expectation of future benefits from efficiency rather than market power. More directly, I find that merging firms' long‐run profitability increases with market share, and the increase in profitability primarily results from better asset management.     

Restricted Voting Stock, Acquisition Premiums, and the Market Value of Corporate Control

This paper examines the valuation and financial histories of 152 British firms that have two or more common share classes with differential voting rights outstanding at some time between 1955 and 1982. Over 16,000 monthly price pairs are examined, and on average, the superior voting (SV) shares market prices exceed those of the otherwise equivalent class of restricted voting (RV) shares by 13.3 percent. Liquidity factors, if anything, attenuate this result since RV shares trade much more frequently than SV shares. Forty-three of the sample companies are acquired while they have multiple share classes outstanding, and a higher price is paid for the SV share class than for the RV share class in 37 cases. The SV share price premium is found to be positively related to insider holdings of SV shares and negatively related to insider holdings of RV shares.     

Small Firm Capital Structure and the Syndicated Loan Market

We show that small firms using syndicated loans for their mid- and long-term financial needs have significantly higher leverage than firms that do not borrow in this market. This difference cannot be attributed to firm characteristics like the availability of growth opportunities, asset tangibility, R&D spending, profitability and net sales that are known to influence capital structure. We also find that the capital structure of other firms that borrow in the syndicated loan market is not different from those that do not. We show that already highly leveraged small firms are more likely to borrow in the syndicated loan market than other firms. The higher debt in the capital structure of small firms that rely on syndicated loans consequently can be attributed to the availability of capital rather than demand for capital, as shown more generally by Faulkender and Petersen (Rev Financ Stud 19(1):45?C79, 2006).     

Growth opportunities,short-term market pressure,and dual-class share structure

We test the hypothesis that dual-class shares can help managers focus on the implementation of long-term projects while avoiding short-term market pressure. Consistent with this idea, we find that dual-class firms face lower short-term market pressure (fewer transient or short-term institutional holdings, a lower probability of being taken over, and lower analyst coverage) than propensity-matched single-class firms. Dual-class firms also tend to have more growth opportunities (higher sales growth and R&D intensity). The dual-class share structure increases the market valuation of high growth firms, in contrast to the finding in the literature that dual-class firms trade at lower valuations. To address endogeneity concerns, we evaluate a sample of dual-class share unifications and find that growth opportunities decline while short-term market pressure increases after share unifications.     

Information disclosure,CEO overconfidence,and share buyback completion rates

An open market share buyback is not a firm commitment, and there is limited evidence on whether firms repurchase the intended shares. Unlike US studies, we use data from unique UK regulatory and disclosure environment that allows to accurately measure the share buyback completion rates. We show that information disclosure and CEO overconfidence are significant determinants of the share buyback completion rate. In addition, we find that large and widely held firms that conduct subsequent buyback programs and have a past buyback completion reputation exhibit higher completion rates. Finally, we assess whether other CEO characteristics affect buyback completion rates and find that firms with senior CEOs who hold external directorships and have a longer tenure as CEO are more likely to complete the buyback programs. In sum, our results suggest there is a clear relationship between information disclosure, CEO overconfidence, and buyback completion rates.     

The impact of state ownership on share price informativeness: The case of the Split Share Structure Reform in China

This study examines the impact of state ownership on share price informativeness using the unique setting of the Split Share Structure Reform in China. This reform abolishes the trading restriction on shares held mainly by state shareholders. In doing so, it renders state shareholders' wealth more sensitive to share price movements and decreases their conflict of interests with private shareholders. This change is expected to strengthen the corporate governance incentives of state shareholders and reduce the information asymmetry in Chinese listed firms. This prediction is confirmed through empirical evidence of increased share price informativeness among firms that are more sensitive to the impact of this reform, i.e. those with more state ownership or restricted shares. These findings imply that this reform benefits the information environment and minority shareholders in the Chinese stock market.     

Share price performance following actual share repurchases

Using unique actual daily share repurchase data from Hong Kong, this paper investigates share price performance surrounding and following actual share repurchases. It is found that repurchasing firms buy back shares following price drops, suggesting that they behave opportunistically when implementing actual share repurchases. On average, the initial 3-day market response to actual repurchases is about 0.43%. Repurchasing firms do not seem to exhibit superior abnormal performance over long horizons when they make actual share repurchases. However, the price performance of repurchasing firms varies across firm size and market–book value ratios, and shows a clear and consistent pattern. The market responds the most favorably to repurchases that are made by small and value (high book-to-market value) firms. Over a long horizon, there is some evidence that repurchases made by value firms show superior performance. The three-year buy-and-hold abnormal return, which is measured against a portfolio of control firms that are matched by size and book-to-market value ratios, is over 20%. At least, repurchases made by high book-to-market value firms, for which undervaluation is more likely to occur, can benefit long-term shareholders.     

Information spillovers around seasoned equity offerings

We examine information spillovers in the context of seasoned equity offerings (SEOs). Rival firms react significantly positively (0.26%) to primary SEO announcements, indicative of a competitive effect, but negatively (− 0.35%) to secondary share announcements, which is evidence of a contagion effect. Consistent with the view that primary equity offerings signal favorable industry prospects because firms presumably issue new shares to invest in profitable projects, we find that the rival response is positively related to analysts' EPS growth forecasts. However, when insiders are selling their shares through a secondary offer, this may suggest overvaluation and thus negatively impacts rival firms. Consistent with this view, we find when VCs sell through a secondary offerings, rivals experience a more significant negative reaction. We find rival firms are more likely to follow their peers and conduct a primary SEO if the market reacts favorably to their peer's SEO announcement. Finally, rival firms outperform secondary share issuers of equity, but not primary share issuers. Collectively, the findings support the view that insiders take advantage of windows of opportunity when they sell their own shares, but not when they raise capital for investing purposes.     

股权质押、风险管理与大股东增持

基于2004-2016年A股上市公司样本,本文发现,股权质押会影响上市公司大股东的增持行为,而质押风险管理是股权质押影响大股东增持的潜在渠道。相较于未面临质押预警压力的大股东,面临质押预警压力的大股东更有可能去增持;此外,相较于国有企业,民营企业的大股东在面临质押预警压力时更有可能去增持。在经济后果方面,对于同样面临质押预警压力的大股东而言,选择增持会让上市公司股价在之后有更好的表现。本文认为,除了传统的财务动机等之外,缓解自身质押风险是上市公司大股东增持的另一动机;而除了盈余管理、税收规避等管理质押风险的事前措施外,增持是上市公司大股东管理质押风险的另一有效手段。     

Share pledges,tone of earnings communication conferences,and market reaction: evidence from China

We investigate how share pledging affects firms’ disclosures and influences investors in Chinese stock market. The tone of firm disclosures when there are shares pledged by controlling shareholders is more positive than that of firms without them. Considering tone inflation motivation and ability simultaneously, we find share pledge risk has an inverted U‐shaped relation with tone. Investors react positively to tone in short‐run windows, and firms with controlling shareholders’ pledges have higher stock returns for earnings communication conferences. We identify an inverted U‐shaped link between margin distance of controlling shareholders and stock returns for earnings communication conferences.     

The Effects of Firm-Level Investability Sizes on Foreign Ownership in Indonesian Public Firms

This study investigates whether foreign investors investing in Indonesian public firms are basing their holdings on investability size, given other firms’ attributes such as dividend, liquidity, leverage, profitability, firm size, growth opportunity, and inter-industry factors. The analysis on this study is conducted using multiple regression analysis on the data that consists of free-float foreign ownership share in non-financial companies listed in the Indonesia Stock Exchange over the period 2014–2015. It is found that foreigners prefer holding stocks in larger investability and firm sizes, higher dividends, and the consumer goods industry sector. Aside from well-established firm-specific determinants of the degree of foreign ownerships in the literature that foreigner invest more in shares of large firms in a particular industry sector with higher dividends, this study also provides evidence that foreign investors require widely available shares for their investment in a foreign country. Understanding the determinants of foreign investors’ preferences may provide valuable insights for policy makers and Indonesian firms in attempts to attract foreign investment to the stock market.     

Auditor Market Share,Product Differentiation and Audit Fees

This study examines the effects of auditor market share and product differentiation on audit fees. Previous studies have attributed the price premium charged by the Big Eight (the Big Six in the present study) to Big Eight product differentiation. However, such a price premium could be partly due to monopoly pricing. In the present study, the Hong Kong audit market provides a unique setting in which a non-Big Six local auditor has a market share comparable to those of the third and fourth largest Big Six firms. This makes it feasible to control for the effects of market share via matching. Also, the wide disparity among the Big Six firms ‘market shares in Hong Kong makes it feasible to test for the effects of market power on audit fees. The results show that, consistent with prior studies, the Big Six audit firms charge higher audit fees than non-Big Six firms in the small auditee, but not the big auditee, market. This suggests that similar economic forces to those other audit markets are also at work in Hong Kong. Despite the Big Six firms’ widely different market shares, there was no price differentiation among them. Yet there was a Big Six price premium over the large local firm with a similar market share to those of two of the Big Six. Together, these results suggest that the Big Six price premium is a result of product differentiation rather than monopoly pricing.     

Split Share Structure Reform,corporate governance,and the foreign share discount puzzle in China

We examine the impact of the Split Share Structure Reform on the well-known foreign share discount puzzle in China. Existing literature confirms that foreign investors are more concerned about insider expropriation because of their information disadvantage relative to domestic investors. The split share structure of the ownership of Chinese listed firms created a conflict of interests between state and private shareholders. Since, before the reform, state shareholders held restricted shares that denied them any wealth effect from share price movements, they had a limited incentive to work with private shareholders to ensure that managers maximized the stock market value of the firm. By abolishing the trading restrictions for state shareholders, this reform has increased the incentive alignment between state and private shareholders, encouraging them to monitor managers. If foreign investors’ concerns over the corporate governance implications of the split share structure at least partly contributed to their discounting of Chinese listed firms, then this discount should be reduced following the reform. Indeed, our evidence confirms this prediction, especially among Chinese listed firms with more state ownership or restricted shares. Our findings imply that this significant institutional reform of the Chinese stock market has benefitted minority investors.     

Common stock repurchases and market signalling: An empirical study

This paper examines the pricing behavior of securities of firms which repurchase their own shares. The results are consistent with a market in which investors price securities such that expected arbitrage profits are precluded. The results are also consistent with the hypothesis that firms offer premia for their own shares mainly in order to signal positive information, and that the market uses the premium, the target fraction and the fraction of insider holdings as signals in order to price securities around the announcement date. The observation that repurchases via tender offer are followed by abnormal increases in earnings per share and that mainly small firms engage in repurchase tender offers, provides further support for the signalling hypothesis.     

OPEN MARKET REPURCHASES: THE VALUE FROM BUYING SHARES AT A DISCOUNT

This article shows that share repurchase announcements create value for shareholders when the shares of the industrial firm sell at a discount from the value of the underlying assets, even when shareholders and managers share full information about the firm's prospects and the firm's operating performance is not expected to improve. The value created by capturing the discount on the repurchased shares is a function of only two variables: the percentage discount prior to the announcement and the proportion of shares to be repurchased.
For a sample of 100 companies selling below net asset value, the authors report that the excess stock returns surrounding their announcements of open market repurchases are (significantly) positively associated with the authors' estimates of the value captured from buying shares at a discount. Moreover, the stock market's response to repurchase announcements by companies that are selling at a discount is considerably more positive than to announcements by firms selling at a premium.     

Controlling Shareholders’ Incentive and Corporate Tax Avoidance: A Natural Experiment in China

The split share structure reform removes a significant market friction in China's capital market by allowing previously non‐tradable shares to be freely tradable at market prices. Such a reform reduces the agency conflict between controlling shareholders and minority shareholders as the former now care more about stock prices. We find that state‐owned firms, but not non‐state‐owned firms, significantly increased their tax avoidance activities after the reform. We attribute this differential effect to the dual role of the government as state‐owned firms’ controlling shareholder as well as the tax claimant. Further, this effect is more pronounced for state‐owned firms that are more likely to be influenced by the government prior to the reform. Finally, the reform reinforces a positive association between tax avoidance and firm value. Overall, our study suggests that when controlling shareholders are more concerned about stock prices, state‐owned firms engage more in tax avoidance activities to enhance firm value.