Fourth annual conference on financial economics and accounting

Announcement

Fourth annual conference on financial economics and accounting     

The Informational Role of Stock and Option Volume

This article analyzes the intraday interdependence of orderflows and price movements for actively traded NYSE stocks andtheir Chicago Board Options Exchange (CBOE)-traded options.Stock net trade volume (buyer-initiated volume minus seller-initiatedvolume) has strong predictive ability for stock and option quoterevisions, but option net trade volume has no incremental predictiveability. This suggests that informed investors initiate tradesin the stock market but not in the option market. On the otherhand, both stock and option quote revisions have predictiveability for each other. Thus, while information in the stockmarket is contained in both quote revisions and trades, informationin the option market is contained only in quote revisions.     

The Importance of Social Capital to the Management of Multinational Enterprises: Relational Networks Among Asian and Western Firms

Social capital is an important concept for multinational firms. Firms operating in global markets rarely have adequate resources to compete effectively in global markets; they access the needed resources through formal and informal relationships with other firms. The cultures in Asian countries have emphasized relationships much more strongly than Western firms. Thus, relational capital, based on guanxi (China), kankei (Japan) and inmak (Korea), provides the framework for business dealings in many Asian countries. As a result, the social capital of many Asian firms gives them a potential competitive advantage in global markets. Western firms must develop social capital and learn to manage relational networks to gain and sustain a competitive advantage in global markets. Western firms can learn how to develop and manage social capital from Asian firms. Alternatively, social capital has some disadvantages. Firms are limited by their networks and thus experience opportunity costs and path dependence. Additionally, while Asian firms often have strong network ties in their domestic markets, they have to develop many more ties globally to operate effectively in global markets. As a result, the development and management of social capital has become of critical importance for competitive advantage in global markets.     

Unit initial public offerings: Staged equity or signaling mechanism?

We investigate the use of unit (i.e., package) initial public offerings by Australian industrial firms and conclude that their use reflects their role as a signaling mechanism (Chemmanur and Fulghieri, 1997), as distinct from the agency–cost explanation offered by Schultz (1993). From a sample of 394 IPOs between 1976 and 1994, the 66 firms making unit offerings are typically riskier, use less prestigious underwriters and have a lower level of retained ownership than other IPO firms. While these results are also consistent with Schultz's agency cost explanation, other results we report are not. We find no difference in underpricing etween unit IPOs and other IPO firms, nor are there any significant differences in the planned uses of proceeds reported in the prospectus, post–listing failure rates or secondary equity offerings of the type predicted by Schultz. We do however, report evidence consistent with a prediction unique to the signaling explanation. After controlling for the level of ownership retained by insiders, the proportion of firm value sold as warrants is increasing in IPO firms' riskiness.     

Characteristics of Earnings-Leading Versus Price-Leading Firms

This study attempts to identify firm characteristics that explain the disparity between the information content of accounting earnings and stock prices. Granger's causality concept was employed to classify sample firms into four groups: price-leading firms, feedback-system firms, earnings-leading firms, and no-causation firms. The feedback-system firms were either combined with the no-causation firms or eliminated entirely to form three sample groups. The entire sample firms then were divided into two classes. The first is for estimation, and the second is for prediction. Results indicate that firm size, capital structure, R-square of regressing prices at time t against earnings at time t – 1, R-square of regressing earnings at time t against prices at time t – 1, and percentage of shares held by institutions are the significant explaining variables. The application of the coefficient estimates to the hold-out sample indicates that 76.2% of the firms can be correctly classified into the corresponding groups. These results were consistent with those from canonical discrimination and other multivariate statistical methods.     

Debt and Equity Characteristics of Mandatorily Redeemable Preferred Stock

Abstract. This study examines whether mandatorily redeemable preferred stock (MRPS) is priced more like debt or equity by (1) investigating its debt and equity characteristics and (2) specifying conditions under which one characteristic would dominate the other. Based on a sample of 113 nonconvertible MRPS issued during 1970 to 1990, our results are consistent with the view that MRPS has both debt and equity characteristics. The debt (equity) feature is more pronounced among nonutility (utility) issues. Within the utility group, we find high (low) rated MRPS issues to be more debt (equity) like. Our results appear to support current MRPS disclosure rules.     

IPO anomalies and innovation capital

Innovation capital are typically expensed and/or unrecognized as assets under current generally accepted accounting principles. This results in accounting-related information asymmetry. This paper examines the association of innovation capital (as measured here by the proxies of R&D expenditures and granted patents) and initial public offerings (IPO) anomalies. These anomalies include initial IPO underpricing, duration of honeymoon (a distinct feature of the Taiwanese IPO environment), and long-term performance. The theoretical model underlying this research is a signaling model. The results indicate that more innovative firms are more likely to be underpriced, and have longer honeymoon periods than less innovative firms. Further, the more innovative firms have positive and growing long-term market-adjusted returns. This stands in contrast to the declining long-term stock performance of initial public offering firms that is evidenced in the literature. We conclude that pre-IPO research and development expenditures disclosed in the IPO prospectus, official monthly reports of newly developed patents released to the public, and the frequency of patent citations significantly signal both underpricing and future market performance of IPO firms in Taiwan.     

New MII Circular on Telecom and Internet Firms

On July 13, 2006, the Min istry of Information Indus try of the People＇s Repub lic of China （＂MII＂） issued a new notice concerning foreign-invested telecom and internet companies in China. MII＇s ＂Notice on Strengthening Regulation of Foreign Investment in and Operations of Value-Added Telecom Services＂ （the ＂MII Circular＂）, further clarifies the existing regulatory framework governing foreign investment in internet and other value-added telecommunications （＂ VATS ＂） businesses in China.     

The effect of mandatory auditor assignment and non-audit service on audit fees: Evidence from Korea

In Korea, regulators could assign auditors to firms. We investigate the relationship among audit fees, mandatory auditor assignment, and the joint provision of non-audit and auditor services in Korea. We find that assigned auditors charge significantly higher audit fees than freely selected auditors. We also find that the joint provision of non-audit and audit services does intensify the relation between auditor assignment and audit fees. Combined with the results of other studies that have shown that firms audited by assigned auditors report smaller amounts of discretionary accruals than firms audited by freely selected auditors, our results suggest the possibility that mandatory auditor assignment may improve auditor independence.     

Social networks in the global banking sector

We show that banks with shared social connections partner more often in the global syndicated loan market and that central banks in the network play dominant roles in various interbank transactions, indicating that social connections facilitate business connections. However, more centralized banks in the network also contribute significantly to the global systemic risk. Moreover, we find the soft information generated by social networks is particularly valuable when potential partners operate under different accounting and regulatory standards. Finally, we show that the recent banking crisis significantly limited the positive soft information effects of social networks in the global banking system.