Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

Due to the paucity of sources of negative firm‐specific information, US capital markets have more difficulty identifying and incorporating bad news into stock prices than they do good news. Even though insider selling is a potentially important proxy for undisclosed bad news, researchers have difficulty ex ante identifying information‐based sales due to an inability to separate liquidity‐motivated from information‐based insider trades. We hypothesize that when insiders in multiple firms sell shares of one firm in which they are insiders and at the same time buy shares of other insider portfolio firms, the sale is more likely to be information‐based, since the proceeds are reinvested. Conversely, when an insider sells one firm without purchasing others or sells multiple insider firms the sale is likely liquidity‐motivated. We find that insider sales identified as information‐based using this algorithm are followed by significant negative abnormal returns. Information‐based sales are also more likely to be associated with delistings, earnings declines and earnings restatements. Analysts are also more likely to revise their earnings forecasts downwards for these firms. It is thus possible to ex ante identify insider sales with information content. Our results will be of interest to investors and also to regulators designing insider trading rules.     

A Conceptual Model of the Household's Housing Decision–Making Process: The Economic Perspective

At some stage in every household's family life cycle, the household is likely to make certain decisions with regard to its housing environment. Although the household's housing decisions essentially comprise the decision to move, and the selection of a new residence, the process from which these decisions are derived is very complex because varying circumstances could produce a multitude of different housing decisions. Due to the sheer complexity of the household's housing decision–making process, researchers have generally focused on individual decision–making stages rather than on the process as a whole. This paper therefore attempts to conceptualize the entire household housing decision–making process using theoretical concepts from the economic perspective, and then tests the conceptual model with empirical evidence drawn from the moving population within the multi–racial society in Singapore.     

Time Series Concepts for Conditional Distributions*

The paper asks the question – as time series analysis moves from consideration of conditional mean values and variances to unconditional distributions, do some of the familiar concepts devised for the first two moments continue to be helpful in the more general area? Most seem to generalize fairly easy, such as the concepts of breaks, seasonality, trends and regime switching. Forecasting is more difficult, as forecasts become distributions, as do forecast errors. Persistence can be defined and also common factors by using the idea of a copula. Aggregation is more difficult but causality and controllability can be defined. The study of the time series of quantiles becomes more relevant.     

Updating the Determinants of Firm Performance: Estimation using the 1998 UK Workplace Employee Relations Survey

We examine the determinants of establishment performance in the UK, using cross‐sectional data from the 1998 Workplace Employee Relations Survey to replicate research by Fernie and Metcalf (1995) who used data from the 1990 Workplace Employee Relations Survey; specifically, we test whether employee representation, contingent pay and efforts to boost employee participation affect a set of economic and industrial relations outcome indicators in the manner they suggest. We also re‐estimate the influential WERS90‐based study of Machin and Stewart (1996) on the links between union status and financial performance. In both cases we report very different results.     

Pandemic risk disclosure in integrated reports: after COVID-19 is hindsight 2020?

We examine whether, and to what extent companies disclosed pandemic risk and likely impact as part of their key risks or material matters immediately prior to 2020. The integrated/annual reports of 489 companies from six global regions were examined, finding that despite clear warnings from multiple fronts that highlighted the inevitability and imminence of a global pandemic, only 15.5 percent of companies disclosed anything related to pandemic risk. Of these, 71.1 percent were boilerplate in nature, providing minimal useful information to stakeholders. This study contributes to our understanding of integrated reporting, specifically regarding the adequacy of the disclosure of material risks.     

Risk and Capital Structure in the Regulated Firm

This paper studies the role of capital structure in a regulated firm. We show that it affects the prices set by the regulator, the expected price being lower the higher the proportion of debt finance. However, when debt is increased beyond a certain level, the benefit of lower expected prices is offset by their increased variability. We also study the socially preferred capital structure. This is such that consumers carry some risk, in the form of higher prices in adverse economic conditions.     

Corrigendum to “When is efficiency separable from distribution in the provision of club goods?” [Journal of Economic Theory 90 (2000) 204-221]

This note corrects a slip in Fraser's (J. Econ. Theory 90 (2000) 204-221) treatment of the necessary condition for partial separation of efficiency from distribution in providing a club good. His corrected Theorem 1 shows that many families of utility function can generate partial (and total) separation, thereby considerably extending the scope of his analysis.     

Balance sheet conservatism and audit reporting conservatism

Financial reports are prepared on a going‐concern (GC) basis rather than a liquidation basis even when companies are highly distressed. This allows distressed companies to report book values of assets that greatly exceed their liquidation values, implying a lack of conservatism in the balance sheet. We argue that auditors issue going‐concern opinions in order to warn investors about this lack of balance sheet conservatism. This argument leads to two testable hypotheses. First, for companies that are at risk of bankruptcy, auditors are more likely to issue GC opinions when the book values of assets under the GC assumption are high relative to the expected liquidation values of assets (i.e., when the GC assumption causes the balance sheet to lack conservatism). Second, for companies that enter bankruptcy, the issuance of a prior GC opinion has predictive information content with respect to the wedge between the book values of assets and the future liquidation values of those same assets. Our results strongly support both hypotheses. The findings are important because they indicate that conservative audit reporting helps to compensate for a lack of conservatism in the balance sheet, which arises because the GC assumption permits the book values of assets to exceed their liquidation values.