Option-implied correlation between iTraxx Europe Financials and Non-Financials Indexes: A measure of spillover effect in European debt crisis

This paper proposes an analytic method to estimate the option-implied correlation embedded in options on the iTraxx Europe CDS indexes. The option-implied correlation is suggested as a measure of the spillover effect of default risk between the financial and corporate sectors in Europe. In particular, the correlation between the iTraxx Financials and Non-Financials sub-indexes is estimated from options on the iTraxx Main Index, which is considered as a basket option with the two sub-indexes being its underlyings. The abrupt changes of the realized correlation anticipated information of the corresponding option prices. The sovereign default risk, funding liquidity risk, level of risk aversion, and equity market performance are identified to be significant determinants of the option-implied correlation, implying inter-dependence amongst various markets during the European debt crisis.     

Internal Control and Operational Efficiency

In this study, we examine whether internal control over financial reporting affects firm operational efficiency. We find that operational efficiency, derived from frontier analysis, is significantly lower among firms with material weaknesses in internal control relative to firms without such weaknesses. We also find that the remediation of material weaknesses leads to an improvement in operational efficiency. Additional analyses indicate that the negative effect of material weaknesses on operational efficiency is stronger for firms with a greater demand for higher quality information for decision making, for weaknesses that are deemed to be more severe, and to a certain extent, for smaller firms. Overall, our study extends the literature by presenting systematic evidence on the effect of effective internal control on operational efficiency and informs the debate over the costs and benefits of the internal control reporting requirements under the Sarbanes‐Oxley Act of 2002.     

Voluntary fair value disclosures beyond SFAS 157’s three-level estimates

Some firms voluntarily make disclosures about the controls and processes in place to ensure the reliability of fair value estimates. Consistent with these disclosures being driven by investors’ concerns about the reliability of their SFAS 157 estimates, we find that firms with more opaque estimates are more likely to provide such disclosures. We then examine whether these disclosures improve investors’ perception about the reliability of fair value estimates. We find that they are associated with higher market pricing and lower information risk for Level 3 estimates. Further analyses of the disclosures reveal that the following types of information are particularly important to investors: discussion of the external and independent pricing of fair value estimates and their proper classification according to the SFAS 157 hierarchy. Overall, our results suggest that the voluntary reliability disclosures that firms provide beyond SFAS 157’s three-level estimates help reduce investors’ uncertainty toward the more opaque fair value estimates.     

Strategic orientation of high-technology firms in a transitional economy

Strategic orientation is a critical factor for a firm's competitiveness in a transitional economy context but it is understudied in the current literature. This article examines the antecedents of strategic orientation from both the socio-cognitive and resource-based view perspectives. The study posits that the strategic orientations of firms in a transitional economy context are influenced by the top managers’ cognitions and organizational resources. Based on a national survey of high-technology firms in China, the study finds that a stronger market-focused strategic orientation was facilitated by managerial cognitions about the future of the industry and current operation and performance of the firm, as well as organizational resources including an R&D infrastructure, technological alliance, and top managers' foreign experience. The study confirms that strategic orientations should be examined from multiple theoretical perspectives.     

A review of research on regulation changes in the Asia‐Pacific region

In this study, we review the financial research on regulation in the Asia‐Pacific region. We do this by analysing six leading regional accounting and finance journals – Abacus, Accounting & Finance, Australian Accounting Review, Australian Journal of Management, International Review of Finance and the Pacific‐Basin Finance Journal. We identify five main themes of regulation research relating to: (i) banking and financial institutions, (ii) markets and trading, (iii) corporate governance, (iv) disclosure and (v) accounting standard setting. Our paper synthesises the regional literature in these areas and provide some suggestions for future directions.     

Effective teamwork at the top: the evidence from China

Effective teamwork is an important topic of human resource management, and how top-level managers work effectively as a team is critical to business success. Prior research indicates that the diverse background of top managers influences the effectiveness of their teamwork, and the effects of top management team (TMT) diversity on organizational innovation varies. In this study, we propose that functional team dynamics plays a crucial role in facilitating TMT effectiveness. On the basis of a sample of Chinese firms, our findings support the distinction between demographic and network diversities and the moderating effect of functional team dynamics on TMT diversity–firm innovation relationships.