Exogenous and Endogenous Attention and the Convergence of Analysts’ Forecasts

The propensity of the forecasts of sell-side financial analysts to converge (or diverge) is a function of their exogenous and endogenous selective attention and overconfidence. When returns are negative, the endogenous form of selective attention—a static measure of analysts’ goal-driven attention at a particular point in time—has a positive association with convergence. The exogenous form of selective attention—a relatively involuntary dynamic process of exogenous attentional shift driven by external changes in the market over time—is associated with a tendency for forecasts to diverge.     

Fixed Investment and Economic Growth in China

This paper attempts to investigate empirically the investment-growth relationship in China. Using the exogeneity framework pioneered by Engle et al. (1983) and Engle and Hendry (1993), we find that fixed investment is a key determinant of China's economic growth, which, surprisingly, has not been rigorously examined in the literature. The super exogeneity test results suggest that there exists a robust (or structurally invariant) relationship between capital formation and income growth, thereby giving credence to policy evaluation.     

Covered interest arbitrage profits: The role of liquidity and credit risk

We study the profitability of Covered Interest Parity (CIP) arbitrage violations and their relationship with market liquidity and credit risk using a novel and unique dataset of tick-by-tick firm quotes for all financial instruments involved in the arbitrage strategy. The empirical analysis shows that positive CIP arbitrage deviations include a compensation for liquidity and credit risk. Once these risk premia are taken into account, small arbitrage profits only accrue to traders who are able to negotiate low trading costs. The results are robust to stale pricing and the nonsynchronous trading occurring in the markets involved in the arbitrage strategy.     

Assessing financial market integration in Asia – Equity markets

Financial integration has strong implications for financial stability. On the one hand, financial integration among economies helps to improve their capacity to absorb shocks and foster development. On the other hand, intensified financial linkages in a world of increasing capital mobility may also harbour the risk of cross-border financial contagion. This paper provides a survey of high-frequency indicators to monitor the development of equity market integration in Asia. The results show that after slowing down between 2002 and 2006, the equity market integration process picked up again in 2007–08. Nevertheless, the process is not complete and the degrees of integration between mature and emerging equity markets are different. The divergence may be attributed to the difference in the political, economic and institutional aspects across jurisdictions in Asia.     

Family Business Succession in Hong Kong: The Case of Yung Kee

This case study examines the succession of Chinese family business in Hong Kong, drawing upon theories of the firm. More specifically, it utilizes capabilities theories, property rights economics and Neo-Confucianism to understand management disputes and infighting among the members in a Chinese family business in Hong Kong. This paper will argue that the founder of a Chinese business firm in Hong Kong is able to lead his or her offspring to create a dynamic enterprise via charismatic leadership and family rules embedded in traditional Chinese values. However, these two strategic assets disappear following the passing away of the founder as well as the emergence of new social values. When the founder passes on the enterprise to his or her offspring using more or less the equal inheritance system, the traditional Chinese value is unable to enforce the leader’s will to consolidate the strengths of the second generation family members to maintain the founder’s business. Furthermore, when the business is owned by all family members, property rights of the firm become unclear. Without effective enforcement of traditional Chinese values and with collective ownership rights, some family members will have the incentive to capture the economic rent that is shared by all members. In other words, some family members behave opportunistically or even cheat in order to capture economic gains in the public domain. High monitoring and enforcement costs in the form of court battle and endless disputes will occur. Rent dissipation occurs in the form of deterioration of the quality of the family business. This case study is based on Yung Kee, an internationally well-known roast goose restaurant in Hong Kong as an illustration.     

Impact of operational innovations on customer loyalty in the healthcare sector

This study investigates the effects of operational innovations, such as application of advanced information technology (IT) systems and supported knowledge and skills (SKSs), on care quality and customer loyalty in the healthcare industry. A research model is proposed based on previous studies and examined the relationships among the constructs using the structural equation modeling approach. Research data were collected through a survey of patients and employees of participating hospitals in Korea, with a patient and an employee as one set. The results of the study indicate that operational innovations result in improved customer closeness, which is associated with IT systems usage and SKSs for delivery of quality care, which have a positive impact on patient satisfaction and customer loyalty. Thus, hospital managers should encourage employees to generate new ideas for work efficiency, care quality, customer loyalty, and organizational performance.     

Investor legal protection and earnings management: A study of Chinese H-shares and Hong Kong shares

Under the unique “one country, two systems” arrangement, the more stringent investor protection rules in Hong Kong are not enforceable in firms that are incorporated in China but listed on the Hong Kong stock exchange (H-shares). As such, H-shares and other local Hong Kong firms are subject to different investor protection regimes in the same stock market. We find that H-shares are associated with higher earnings management than local Hong Kong firms after controlling for disparity in economic development, types of controlling shareholders and other factors. More importantly, this relationship is weaker after China implemented the Securities Law in 1999. The results are robust after considering the dual-listing status of H-shares and board characteristics. These results provide direct evidence showing the effect of investor legal protection on financial reporting quality.     

Stock market-driven investment: new evidence on information,financing and agency effects

This study provides a theoretical model and empirical analysis to jointly examine the information, financing and agency effects, the three channels through which the stock market can actively influence corporate investment decisions and firm performance. First, stock market affects corporate investments, and such impact varies with different market valuation measures, types of investments and firm characteristics. Second, stock market valuation affects investments through the channel of corporate financing, supporting the financing hypothesis. Third, stock market-driven investments have differential impacts on the future operating performance of firms. Investments driven by market valuation of firm-specific information have a positive effect on future performance. In contrast, investments driven by market-wide sentiment have a negative effect on future performance. Fourth, consistent with the information hypothesis, market-driven investments are value-enhancing for firms with better external monitoring by analysts and institutional investors. Lastly, consistent with the agency hypothesis, market-driven investments are value-destroying when firms lack external monitoring, proper managerial incentives and independent board of directors.     

Conflict and Innovation in International Joint Ventures: Toward a New Sinified Corporate Culture or ‘Alternative Globalization’ in China

Deng Xiaoping's open-door economic policy provides an opportunity for international economic cooperation and development. Our study attempts to investigate how conflicts between Chinese workers and foreign investors as manifested in human resources management arise, evolve and get resolved in Sino–foreign joint ventures. It hypothesizes that conflicts as such can be functional or dysfunctional and that both partners believe that it is in their best interest to resolve the conflicts. The conflict resolution process witnesses all parties engaging in a process of purposeful learning and unlearning and creating a new sinified corporate culture that best suits the evolving business culture and social milieu in China today – as China experiments with the idea of developing socialism with Chinese characteristics. The guiding conceptual framework of our study is that of convergence theory. We argue that the socio-economic and cultural convergence between China and the West has produced a common hybrid of cross-cultural innovations in China or, in a global perspective, ‘alternative cultural globalization’. This hybridizing convergence is best exemplified by the gradual localization and sinification of the Western corporate culture in Sino–foreign enterprises in China today.     

Trade liberalization and the environment: The case of intra-industry trade

Abstract

While a large body of literature examines the environmental impact of trade on the environment, this discussion focuses largely on the context of inter-industry trade. Empirical evidence has long suggested that an increasing share of international trade takes the form of intra- rather than inter-industry trade. In an attempt to fill this gap, the present paper uses a price-setting duopoly model of intra-industry trade to highlight the environmental consequences of trade liberalization when oligopolistic rivalry rather than comparative advantage drives international trade. We find that the environmental impact of trade liberalization depends mostly on two factors, namely, on the nature of pollution (i.e. whether it is local, transboundary or global) and on which country liberalizes trade (i.e. whether it is the ‘clean’ country or the ‘dirty’ country).