Escape from New York: The market impact of loosening disclosure requirements

We examine the first significant deregulation of U.S. disclosure requirements since the passage of the 1933/1934 Exchange and Securities Acts: the 2007 Securities and Exchange Commission (SEC) Rule 12h-6. Rule 12h-6 has made it easier for foreign firms to deregister with the SEC and thereby terminate their U.S. disclosure obligations. We show that the market reacted negatively to the announcement by the SEC that firms from countries with weak disclosure and governance regimes could more easily opt out of the stringent U.S. reporting and legal environment. We also find that since the rule's passage, an unprecedented number of firms have deregistered, and these firms often had been previous targets of U.S. class action securities lawsuits or SEC enforcement actions. Our findings suggest that shareholders of non-U.S firms place significant value on U.S. securities regulations, especially when the home country investor protections are weak.     

The dividend–price ratio does predict dividend growth: International evidence

Unpredictable dividend growth by the dividend–price ratio is considered a ‘stylized fact’ in post war US data. Using long-term annual data from the US and three European countries, we revisit this stylized fact, and we also report results on return predictability. We make two main contributions. First, we document that for the US, results for long-horizon predictability are crucially dependent on whether returns and dividend growth are measured in nominal or real terms, and this difference is due to long-term inflation being strongly negatively predictable by the dividend–price ratio. The impact of inflation is to reinforce real return predictability and to reduce – or change direction of – real dividend growth predictability. This provides an explanation for the strong predictability of long-horizon real returns in the ‘right’ direction, and the strong predictability of long-horizon real dividend growth in the ‘wrong’ direction, that we see in US post war data. Second, we find that predictability patterns in three European stock markets are in many ways different from what characterize the US stock market. In particular, in Sweden and Denmark dividend growth is strongly predictable by the dividend–price ratio in the ‘right’ direction while returns are not predictable. The results for the UK are mixed. Our results are robust to a number of changes in the modeling framework. We discuss the results for dividend growth predictability in terms of the ‘dividend smoothing hypothesis’.     

The Effects of Ambiguous Information on Initial and Subsequent IPO Returns

Newly public companies must disclose significant risk factors in the offering prospectus. These disclosures are examples of “soft” or ambiguous information. Ambiguity models predict that investors will alter their portfolio weights and react to subsequent signals about such information. We test for these effects in a sample of 1,398 initial public offerings (IPOs) using word count ratios between soft and hard information as measures of ambiguity. We find a significant relationship between the soft information on risk and both initial and ex post measures of returns. These results support the view that soft information embeds ambiguity and that it influences investors’ portfolio choices.     

Your Governance or Mine?

In response to criticism directed at the resource sector's corporate governance, this paper examines the corporate governance and underlying firm characteristics of resource development stage entities (DSEs) relative to a size‐matched sample of non‐resource firms. We find that resource DSEs have different governance characteristics in the measures of board independence, chair/CEO duality and CEO cash bonuses. Furthermore, there are differences in the information environment measures of analyst following, debt levels, stock market return and stock turnover. Considering we document substantial differences in underlying firm characteristics, corporate governance differences are likely appropriate to the mining industry and should not be uniformly labelled as ‘bad’. Our results suggest that media rankings based on corporate governance scores may not accurately portray the resource sector. Overall, our results are of interest to Australian investors and regulators and contribute to a broader understanding of contextually contingent corporate governance.     

Analyst forecast characteristics and the cost of debt

We examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view that the information contained in analysts’ forecasts is economically significant across asset classes, we find that analyst activity reduces bond yield spreads. We also find that the economic impact of analysts is most pronounced when uncertainty about firm value is highest (that is, when firms have high idiosyncratic risk). Our findings are robust to controls for private information in equity prices and level of corporate disclosures. Overall, the results indicate that the information contained in analyst forecasts is valued outside the equity market and provide an additional channel in which better information is associated with a lower cost of capital.     

Firms cash management,adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis

Review of Quantitative Finance and Accounting - We investigate the firms’ specific attributes that determine the difference in speed of adjustment (SOA) towards the cash holdings target in...     

In pursuit of quality - the volume control for fabric goods is getting out of hand

Abstract The paper discusses the application of quality control in determining the make-up of textile goods as a result of the increase in production rates designed to meet the consumer demand for change. The downsizing and reskilling of manufacturing plants, coupled with the outsourcing and use of unskilled labour in the international marketplace, is replacing subjective skills. The impact of management practices associated with Quick Response, Just-in-Time and BS EN ISO 9000 are affecting the response rate of the manufacturer and the retailer to the consumer. In assessing suitability, technology is also progressively taking over in the prediction of the end use of a cloth and thus in the determination of production runs. The extent to which the unseen hand of the FAST and Kawabata systems of measurement are used most effectively is discussed.     

SHORT‐MATURITY OPTIONS AND JUMP MEMORY

We investigate jump memory using an extensive database of short‐term S&P 500 index options. Jump memory refers to the attenuation of the implied jump intensity and magnitude parameters following a crash event. We use a genetic algorithm to obtain a time series of implied parameter estimates and posit behavioral and rational explanations for parameter attenuation following a crash event. We find that a nested form of the jump‐diffusion model sharpens the remaining parameter estimates and has a negligible effect on pricing accuracy.