Stock Market Anomalies: What Can We Learn from Repurchases and Insider Trading?

We examine whether managers’ trading decisions (both at a firm and personal level) are correlated with trading strategies suggested by the operating accruals and the post-earnings announcement drift (SUE) anomalies. We discuss advantages and disadvantages of the use of managerial trading activity to infer managers’ private valuation about their own securities. Our results provide corroborative evidence for the accruals anomaly, i.e., managers’ repurchase and insider trading behavior varies consistently with the information underlying the operating accruals trading strategy. On the other hand, we do not find corroborative evidence for the SUE anomaly.

Assessing multi-dimensional performance: environmental and economic outcomes

This study examines economic performance, environmental performance, and regulatory activity for plants in three industries: pulp and paper, oil, and steel. Stochastic frontier production function models show significant deviations from production efficiency. Older plants are less efficient in production, but perform no worse on emissions. Plants spending more on pollution abatement tend to do worse on both production efficiency and emissions. Stricter local regulatory pressure is associated with somewhat lower emissions, but has mixed effects on production efficiency. Positive correlations between SUR residuals for emissions and production efficiency suggest unmeasured plant-level characteristics that drive both economic and environmental performance.

Preference for a career in retailing: a question of personality

Drawing on previous findings from the field of brand personality research and employer branding, this paper aims to explore the symbolic attributes of the retail industry image in South Africa and to identify those personality traits that distinguish preferred industries from the retail industry. The research provides a contemporary overview of the current image of the retail industry in South Africa from the perspective of young university students and allows retailers to strengthen their joint communication effort accordingly. Therefore, a quantitative survey study with 1426 participants from five South African universities was conducted. Participants assessed personality characteristics of the retail industry as well as their most preferred industry. The main results suggest that retail and non-retail students hold different personality perceptions of the retail industry and that prior retail involvement accounts for this difference to some extent. Moreover, the analysis shows that retailing performs significantly worse on those personality attributes that are of major importance for future job seekers. Additionally, the study identifies those attributes that exert a strong effect on students’ preferences for the retail industry. The findings provide useful communication themes for educational institutions, retail companies, and industry associations in order to foster positive personality perceptions associated with the retail industry.     

Blockholder Exit Threats and Financial Reporting Quality

Recent theoretical and empirical studies suggest that blockholders (shareholders with ownership ≥ 5 percent) exert governance through the threat of exit. Blockholders have strong incentives to gather private information and sell their shares when managers are perceived to underperform. To prevent blockholders from selling their shares and the firm from suffering a stock price decline, managers align their actions with the interests of shareholders. As a result of the greater manager‐shareholder alignment, managers' actions are more likely to be in shareholders' best interest, and consequently there is less need for managers to manipulate earnings. Consistent with these predictions from economic theory, we find evidence that as exit threat increases, firms have higher financial reporting quality. Theory also predicts that the impact of blockholders' exit threat on financial reporting quality (FRQ) should increase as the manager's wealth is tied more closely to the stock price, and this is what we find. Our study contributes to the research on the impact of shareholders on FRQ and to an emerging literature on the impact of blockholders in financial markets. Blockholders play an important role in managers' reporting outcomes through their actions as informed investors.     

It’s About Time: An Examination of Loss Reserve Development Time Horizons

A rich body of academic research has addressed the question of earnings management in the property-casualty insurance industry via manipulation of loss reserve estimates. This study analyzes the variability of reserve estimates at different development horizons to determine whether the predominant practice of relying on five years of development is appropriate. We examine two common measures of reserve estimation error, calendar year development and accident year development, and compare and contrast the two approaches. We also consider the appropriateness of the common practice of aggregating lines of business. After examining reserve development patterns for each of the major lines of business, we conclude that the appropriate development horizon to adequately establish ultimate liability may be longer than the current maximum reported horizon of 10 years found in Schedule P for most lines of business, including the aggregate reserves. Although longer-term development horizons are necessary to establish insurers’ ultimate liability, relatively short-term development horizons may be more appropriate when attempting to identify deliberate manipulations or to assess solvency risk, where the short-term variations are the primary object of interest. Ultimately, this article investigates the degree to which methodology originally developed for estimating loss reserve errors is appropriate today, in particular, relative to current data availability.