The impact of surprise offer-share adjustments on offer-day returns: evidence from seasoned equity offers

Using a sample of seasoned equity offerings (SEOs), we examine the eleventh-hour information carried by the final offer-share adjustment. We argue that if market participants interpret the final offer-share adjustment as a new information signal regarding the demand for the stocks issued, a greater final offer-share adjustment will affect the offer-day return positively (demand information hypothesis). Alternatively, if investors interpret the final offer-share adjustment as increasing the supply of stocks issued and/or as diluting the value of existing shares, a greater final offer-share adjustment will affect the offer-day returns negatively (price-pressure and dilution hypothesis). We provide empirical evidence that the offer-day returns are positively related to the final offer-share adjustment after controlling for confounding factors, supporting the demand information hypothesis. Our results also remain intact even after controlling for the endogeneity. Overall, our findings suggest that the final offer-share adjustment is another important determinant of offer-day returns, in addition to the final offer-price adjustment that Altinkiliç and Hansen [J Financ Econ 69(2):285–323 (2003)] report.     

Globalization, Financial Crisis, and Industrial Relations: The Case of South Korea

The South Korean case shows that the globalization trend in the 1990s and the 1997–1998 financial crisis had two contrasting effects on labor rights. First, these developments resulted in negative labor market outcomes: increased unemployment, greater use of contingent workers, and widened income inequalities. On the other hand, they led international organizations such as the Organization for Economic Co-operation and Development (OECD) and the International Labor Organization (ILO) to play important roles in improving labor standards in Korea. Also, continued restructuring drives prompted unions to merge into industrial unions and wage strikes with increased frequency and intensity. Contrary to the common belief, the Korean case shows that globalization and intensified competition resulted in stronger and strategic responses from labor by stimulating employees' interest in and reliance on trade unionism.     

Risk Shift Following Dividend Change Announcement: The Role of Trading Volume

This study investigates the role of the trading volume in explaining the shift of firm's total and systematic risk when a dividend change is announced. We compared the differential interpretation hypothesis and pre-announcement disagreement hypothesis with more than 20,000 samples collected for 30 years. We found that the total risk generally increases regardless of the level of abnormal trading volume, which supports the differential interpretation hypothesis. We also found a positive relationship between announcement-period abnormal trading volume and post-announcement changes in beta, which is only consistent with the differential interpretation hypothesis. However, the decrease in beta for the majority of sample firms is only consistent with the pre-announcement disagreement hypothesis.     

Tick size,market structure,and market quality

Large tick sizes imposed on high-priced stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size and more than 87% of quoted spreads are equal to the tick size for stocks in the largest size portfolio. We also show that the average spread of KSE stocks with large tick sizes is greater than that of matched NYSE stocks, whereas the average spread of KSE stocks with the smallest tick size is smaller than the corresponding figure for the matched NYSE stocks. We interpret these results as evidence that traders on the KSE are paying large trading costs because of the artificially imposed large tick sizes.     

Insiders’ incentives for asymmetric disclosure and firm-specific information flows

Recent research suggests that insiders’ incentives for capturing cash flows affect price formation process in which insiders are inclined to withhold good news and to accelerate the release of bad news (Jin and Myers, 2006). We investigate whether insiders’ incentives for private control benefit, proxied by control-ownership wedge, affect firm-specific return characteristics. We find that control-ownership wedge is negatively related to the likelihood of positive return jumps and positively related to the extent of asymmetric market reaction to good news rather than to bad news. Overall, our results support the notion that corporate insiders increase opaqueness and withhold good news in order to capture unexpected cash flow.     

The impact of company type and corporate social responsibility messaging on consumer perceptions

Consumer distrust is particularly salient in the context of the current mortgage crisis, and mortgage companies are looking for ways to change their image and regain consumer confidence. This study examines whether advertisements portraying a message of corporate social responsibility (CSR) might help financial institutions in enhancing consumer perceptions of the company. One hundred subjects were randomly selected from among the faculty and staff of a large American university. Subjects were exposed to advertisements, with or without a CSR message, for two well-known service organizations (JP Morgan Chase and Verizon). Results suggest that consumers harbor negative attitudes toward mortgage companies and skepticism about advertising from these companies, but that the inclusion of a CSR message can mitigate these effects, resulting in improved attitudes toward the company. Managerial implications are discussed.     

Tempered stable structural model in pricing credit spread and credit default swap

In this paper, we explore the features of a structural credit risk model wherein the firm value is driven by normal tempered stable (NTS) process belonging to the larger class of Lévy processes. For the purpose of comparability, the calibration to the term structure of a corporate bond credit spread is conducted under both NTS structural model and Merton structural model. We find that NTS structural model provides better fit for all credit ratings than Merton structural model. However, it is noticed that probabilities of default derived from the calibration of the term structure of a bond credit spread might be overestimated since the bond credit spread could contain non-default components such as illiquidity risk or asymmetric tax treatment. Hence, considering CDS spread as a reflection of the pure credit risk for the reference entity, we calibrate it in order to obtain more reasonable probability of default and obtain valid results in calibration of the market CDS spread with NTS structural model.     

Underwriter choice and earnings management: evidence from seasoned equity offerings

Using a sample of seasoned equity offerings (SEOs), this paper examines the association between the choice of financial intermediary and earnings management. We contend that with more stringent standards for certification and intense monitoring, highly prestigious underwriters restrict firms’ incentives for earnings management to protect their reputation and to avoid potential litigation risks, while firms with greater incentives for earnings management avoid strict monitoring by choosing low-quality underwriters. Consistent with our predictions, we find an inverse association between underwriter quality and issuers’ earnings management. In addition, we find that underwriter quality is positively related to SEOs’ post-issue performance, even after controlling for the effect of earnings management. We also find that firms with low-underwriter prestige and high levels of earnings management under-perform the most. However, the effect of underwriter choice on post-issue performance does not last long.

The Contributions of Firm Innovativeness to Customer Value in Purchasing Behavior

The purpose of this research is to examine the influence of firm innovativeness and product innovativeness on the components of customer value mediated by instrumental and symbolic brand benefits. Over the last 10 years, the mobile phone industry in Korea has grown rapidly, with the introduction of several innovative phone features. The research context therefore is mobile phones with Internet access and their users in Korea. A major research finding is that the firm innovativeness affects product innovativeness, and hence, the instrumental brand benefits. A firm's innovativeness also has a significant effect on the symbolic brand benefits and the partnership value. Our key academic contribution is to expand the previous fragmentary studies of customer value, by classifying customer value into four components: expectation, partnership, transaction, and relationship customer values, rather than just focusing on benefits and sacrifices. Implications for managers include the verification that firm innovativeness is a source of ability for mobile phone firms to create value for customers. Instrumental and symbolic brand benefits through innovation should be the focus area for marketers and new product development (NPD) managers in mobile phone firms to communicate with consumers to increase expectation values in the prepurchase step.     

What factors of early-stage innovative projects are likely to drive projects’ success? A longitudinal analysis of Korean entrepreneurial firms

Previous studies have identified the factors affecting successful technology commercialization as outcomes of R&D projects. However, most of them have used cross-sectional data, whereas there is a dearth of literature using longitudinal data analysis. Longitudinal analysis is essential for investigating the characteristics of early-stage innovative projects due to the inherent time lag between project evaluation and commercialization. Therefore, this study examines the early-stage project characteristics that can be used as meaningful evaluation criteria for predicting success, particularly in technology commercialization. We collected data on the ex-ante evaluation results and ex-post commercialization results of R&D projects pursued by entrepreneurial firms. We then conducted a logistic regression analysis and identified three market-related factors as significant in driving technology commercialization success in the early stages of technology development: market potential, commercialization plan, and market condition.