Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex-dividend day: the case of Australia

Using a sample of Australian stocks during the 1996–2014 period, this study examines how tax heterogeneity between domestic and foreign investors affects trading behaviour and stock prices around the ex-dividend day. Domestic investors prefer dividends and tend to buy stocks cum-dividend and sell them ex-dividend whereas foreign investors tend to trade in the opposite direction. Abnormal trading turnover increases with tax heterogeneity. Moreover, stocks with a larger domestic investor base are associated with a higher price drop-off ratio on the ex-dividend day and higher market value of franking credits. Overall, our findings support the dynamic dividend clientele hypothesis.     

Anticipating independence,no premonition of partition. The lessons of bank branch expansion on the Indian subcontinent, 1939 to 1946

We examine investment in bank branches on the Indian subcontinent in 1939 and 1946. In 1947, the states of India and Pakistan were created from the erstwhile colony of British India. Partition was destabilizing to both economies. We use branch expansion as a proxy for entrepreneur's pre‐partition predictions of the future of these regions. Our results indicate there were no premonitions of economic dislocation. Banks tended to deepen their presence in regions which were already developed. But controlling for the level of 1931 development, branch placement was highest in exactly those regions, Bengal and the Punjab, which were to experience the greatest negative consequences from political division. After 1947, multiple banks failed; most failing banks were registered in the Punjab or Bengal region. In United India, businessmen saw as much promise in regions which were to become Pakistan as in regions which were to become India. After partition, the Pakistan regions were immediately more economically fragile. This event provides a general lesson. Economic integration had intensified over the years of British rule. The abrupt stop to integration harmed especially the smaller, less diversified region. Politicians should be wary of politically dividing regions which have evolved to function as integrated economic units.     

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

We survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non‐GAAP (non‐Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short‐term incentives plans. Our evidence also highlights the increasing use of peer group‐adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer‐run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non‐GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non‐GAAP earnings restatements, with around 25% of non‐GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non‐GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.     

Foreign versus local investors: Who knows more? Who makes more?

This paper examines the nature of information asymmetry between foreign and local investors on the Helsinki stock exchange (HEX) for the period 1999–2004. We take into account the differences in informational characteristics by partitioning stocks into single-listed, cross-listed and internationally well-known stock categories, after which we compare foreign and local investors’ performance and trading advantages. Local investors have trading advantages in the short term in all stock categories. However, such local advantages diminish for Nokia, the only internationally well-known stock on HEX.     

Measurement of Formal Convergence of Vietnamese Accounting Standards with IFRS

Convergence refers to the process of narrowing the differences between International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) and country‐specific accounting standards. The purpose of this study is to measure the formal convergence between Vietnamese Accounting Standards (VAS) and IAS/IFRS using a fuzzy‐based approach. We assess the extent of convergence between VAS and IAS/IFRS from the perspective of a single standard, clusters of standards and the standards as a whole. The levels of standards convergence are clustered into four categories: full convergence, substantial convergence, substantial difference and complete difference. Our results indicate that the level of convergence between the two sets of standards only achieves mid‐level convergence. The findings of this study should help policy makers improve VAS to meet international standards.     

The Impact of Sovereign Credit Ratings on Corporations: A Literature Review and Research Recommendations

During the financial crisis, sovereign ratings have come under increased public scrutiny due to their strong impact on sovereign borrowing costs and hence financial stability of countries. However, their influence on corporations within and outside the respective nations has so far attracted only limited attention, although several academics have provided intriguing insights in this regard. In order to obtain a structured overview of this relatively young strand of research, this paper reviews key insights and conclusions that the extant literature offers on the role of sovereign creditworthiness for corporations. Herein, it focuses on the effects that have been observed for the corporate business environment, access to capital, and foreign investment activities. Different research issues providing fertile ground for future studies are identified.     

Clawbacks,Holdbacks, and CEO Contracting

“Clawbacks” are much discussed in the context of senior executive compensation, yet the discussion has largely ignored the presence of holdbacks that are already in place in many firms. Holdbacks are deferred compensation that is potentially foregone in the event that the CEO leaves the firm without good reason or they are dismissed for wrong‐doing. They are explicit or written features of a CEOs employment contract. Holdbacks are already in use at 70% of S&P 500 firms and average $18.4 million each. Firms with higher CEO replacement costs, greater information asymmetry, a recent bad experience (fraud, lawsuit, or restatement), or in more certain environments are more likely to have a holdback. In contrast, clawback adoptions are mainly driven by firms' bad experiences and external pressure from shareholders. Holdbacks and incentive‐based compensation are substitutes, as termination incentives can reduce the need for incentive compensation. As managers reasonably demand a premium for accepting risky compensation, a measure of abnormal compensation is positively associated with holdbacks, but there is no significant association between clawbacks and holdbacks. These findings suggest that the holdbacks many firms already have in place could help an “ex‐post settling up” in the event of financial misconduct, or even simply misstated financials. As companies have more control over the amounts held back ex‐ante, holdbacks are potentially more efficient.     

Herding behaviour in the Australian loan market and its impact on bank loan quality

We examine the effect of herding behaviour on the credit quality of bank loans in Australia. We find that bank herding varies with different types of loans. It tends to be more prevalent in owner‐occupied housing loans and credit cards than other types of loans. During the global financial crisis period, herding in owner‐occupied housing loans was most pronounced due to the flight‐to‐quality phenomenon in the housing sector. Furthermore, we find that the big four banks tend to herd more than smaller and regional banks. Bank herding behaviour is countercyclical, as it is negatively related to real GDP growth and the cost of funding but is positively related to market risk. Regulatory capital requirements may also encourage herding as banks are required to hold less risk‐weighted capital for residential loans. Most importantly, bank herding is related to higher impaired assets and therefore lower loan quality. Our findings may have implications for policymakers and bank regulators.     

Forecasting high-frequency excess stock returns via data analytics and machine learning

Borsa Istanbul introduced data analytics to present additional information about its market conditions. We examine whether this product can be utilized via various machine learning methods to predict intraday excess returns. Accordingly, these analytics provide significant prediction ratios above 50% with ideal profit ratios that can reach up to 33%. Among all the methods considered, XGBoost (logistic regression) performs better in predicting excess returns in the long-term analysis (short-term analysis). Results provide evidence for the benefits of both the analytics and the machine learning methods and raise further discussion on the semistrong market efficiency.