Real Investment Implications of Employee Stock Option Exercises

This paper examines a real cost of awarding employee stock options. Based on the observation that managers are extremely concerned about earnings-per-share dilution in equity related compensation, we predict and find that firms experiencing significant employee stock option (ESO) exercises shift resources away from real investments towards the repurchase of their own stocks. We further find weak evidence of a decline in subsequent firm performance (as measured by return on assets) for several years following the cut in discretionary investments as a result of stock option exercises, though this result is sensitive to the metric used to measure performance. Collectively, our findings indicate that ESO exercises potentially impose a real cost on the firm in terms of foregone investment opportunities.     

Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation

This study uses the introduction of second-generation antitakeoverlegislation as a natural experimental setting to infer the valuethat managers place on the control rights conferred by stockownership. We conjecture that managers will reduce their stockholdingsin the post-legislation period because they can ensure theirprior level of control while holding fewer risky shares. Usinga variety of specifications, we find robust evidence consistentwith this "revealed preference" hypothesis. Further demonstratingthe key role played by control considerations in managers' stockholdingdecisions, the reductions in ownership are concentrated in managementteams with higher levels of initial ownership and in firms withoutpoison pills.     

The effect of economic policy uncertainty on investor information asymmetry and management disclosures

Investor uncertainty about firm value drives investors’ information collection and trading activities, as well as managers’ disclosure choices. This study examines an important source of uncertainty that likely cannot be influenced by most managers and investors: uncertainty about government economic policy. We find that this uncertainty is associated with increased bid-ask spreads and decreased stock price reactions to earnings surprises. Managers respond to this uncertainty by increasing their voluntary disclosures, but these disclosures only partly mitigate the bid-ask spread increase. We conclude that government economic policy uncertainty is an important component of firms’ information environments and managers’ voluntary disclosure decisions.     

Regional Cooperation Toward Green Asia: Trade in Low Carbon Goods

Governments in the Asian region have been taking actions in the form of voluntary targets and policy commitments to improve the production and use of low carbon goods (LCG). However, these commitments are often challenged by many constraints, such as technological barriers and financial deficiencies. Within this context, the main objective of this study is to measure the potential of major emerging Asian economies for exports in LCG under the grand regional coalition, partial regional coalition, and standalone scenarios. The analysis indicates that emerging Asian economies will increase their export potential in LCG more under the grand coalition scenario.     

Agent-based modelling as a foundation for big data

In this article, we propose a process-based definition of big data, as opposed to the size- and technology-based definitions. We argue that big data should be perceived as a continuous, unstructured and unprocessed dynamics of primitives, rather than as points (snapshots) or summaries (aggregates) of an underlying phenomenon. Given this, we show that big data can be generated through agent-based models but not by equation-based models. Though statistical and machine learning tools can be used to analyse big data, they do not constitute a big data-generation mechanism. Furthermore, agent-based models can aid in evaluating the quality (interpreted as information aggregation efficiency) of big data. Based on this, we argue that agent-based modelling can serve as a possible foundation for big data. We substantiate this interpretation through some pioneering studies from the 1980s on swarm intelligence and several prototypical agent-based models developed around the 2000s.     

An information-based model for the differential treatment of gains and losses

This study defines reporting conservatism as a higher verification standard for probable gains compared to losses and builds a model that endogenously generates optimal behavior resembling an asymmetric preference for gains versus losses. Our model considers the setting where one party produces a resource and another tries to expropriate it. The key factor determining the extent of the gain-loss asymmetry is the level of information asymmetry or trust between the two parties. The information asymmetry-based results of our model provide a simpler explanation for the vast empirical literature on conservatism, where the bulk of the economic relationships among the parties appear to be information-based with little direct relation to explicit debt contracts, a factor that has been the focus of theoretical arguments. We also suggest new empirical analyzes.     

Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality*

This study adopts a two‐step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. This approach helps address the identification challenge noted by prior research and offers direct evidence on the role of disclosure quality. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line item disclosure in financial statements. We find that IFRS‐adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long‐term investments on the balance sheet and greater disaggregation of depreciation, amortization, and nonoperating income items on the income statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Our evidence has implications for standard setters as they evaluate cost‐benefit trade‐offs when considering disclosure changes in the future.     

Setting the right prices for the wrong reasons

Nominal price adjustment is studied in an environment with firm-specific and aggregate shocks to economic fundamentals and incomplete, dispersed information. Firms update their expectations about fundamentals based on their own cash flows (revenues and wages). We show that in a model with realistic levels of product-level price dispersion, the firms’ inference about aggregate shocks is very gradual, yet in the aggregate prices adjust rapidly in response to aggregate nominal shocks. When an aggregate shock occurs, firms mistakenly attribute it to firm-specific shocks, but adjust prices nevertheless, since the exact nature of the shock matters little for their optimal pricing decision.