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Full-Text Articles in Business
Who Profits From Trading Options?, Jianfeng Hu, Antonia Kirilova, Gilbert Seongkyu Park, Doojin. Ryu
Who Profits From Trading Options?, Jianfeng Hu, Antonia Kirilova, Gilbert Seongkyu Park, Doojin. Ryu
Research Collection Lee Kong Chian School Of Business
We use account-level transaction data to examine trading styles and profitability in a leading derivatives market. Approximately 66% of active retail investors predominantly hold simple, one-sided positions in only one class of options, whereas institutional investors are more likely to use complex strategies. Hypothesizing that the complexity of trading styles reflects investors' skills, we examine the effect of options trading styles on investment performance. We find that retail investors using simple strategies lose to the rest of the market. For both retail and institutional investors, selling volatility is the most successful strategy. We conclude that these style effects are persistent …
Institutional Cross-Ownership Of Peer Firms And Investment Sensitivity To Stock Price, Young Jun Cho, Holly I. Yang
Institutional Cross-Ownership Of Peer Firms And Investment Sensitivity To Stock Price, Young Jun Cho, Holly I. Yang
Research Collection School Of Accountancy
Theory suggests that stock price guides managers in corporate decisions as managers learn from price. We reason that cross-ownership lowers information processing costs and increases industry specialization, improving revelatory price efficiency (Bond, Edmans, and Goldstein 2012). Consistent with our expectations, we find that a firm’s investment-q sensitivity increases as its cross-ownership increases, suggesting that cross-ownership facilitates managerial learning from price and thus investment efficiency. We strengthen the causal inference by conducting a difference-in-differences analysis using financial institution mergers as an identification strategy. We also find that the increase in the investment-q sensitivity associated with cross-ownership is more pronounced for firms …
Delegated Gender Diversity, Hao Liang, Cara Vansteenkiste
Delegated Gender Diversity, Hao Liang, Cara Vansteenkiste
Research Collection Lee Kong Chian School Of Business
We revisit the value implications of female representation on boards by exploiting the board diversity campaign announcement by Norges Bank Investment Management (NBIM)—the world’s largest sovereign wealth fund. In February 2021, NBIM required its portfolio firms to have at least 30% female directors. Using NBIM’s announcement as a shock to investor expectations about female board representation, we document significantly positive returns for firms with a female director shortfall, concentrated in firms with low institutional ownership. Consistent with an investor demand view of board gender diversity, we find that these firms experienced a greater increase in ownership by socially responsible institutional …
Trading Regularity And Fund Performance: Evidence In Uncertain Markets, Lin Tong, Zhe Zhang
Trading Regularity And Fund Performance: Evidence In Uncertain Markets, Lin Tong, Zhe Zhang
Research Collection Lee Kong Chian School Of Business
High trading regularity funds outperform low trading regularity funds more during periods of low market returns and greater market and economic uncertainty. Their trading also has strong return predictability on stock returns during periods of greater uncertainty. They trade more around news events, and their news related trading predicts stock return stronger during periods of greater uncertainty. They also profit from liquidity provision in highly uncertain market environment. Overall our evidence suggests that high trading regularity funds trade more frequently during periods of high uncertainty when information production and processing skill is more valuable and when the demand for liquidity …
The Information In Asset Fire Sales, Sheng Huang, Matthew C. Ringgenberg, Zhe Zhang
The Information In Asset Fire Sales, Sheng Huang, Matthew C. Ringgenberg, Zhe Zhang
Research Collection Lee Kong Chian School Of Business
Duplicate record, see https://ink.library.smu.edu.sg/lkcsb_research/5894/. Asset prices remain depressed for several years following mutual fund fire sales. We show that price pressure from fire sales is partly due to asymmetric information which leads to an adverse selection problem for arbitrageurs. After a flow shock, fund managers do not scale down their portfolio, rather, they choose to sell a subset of low-quality stocks that subsequently underperform. In other words, fund managers have selling skill. Our findings suggest an explanation for the tendency of asset prices to remain depressed following fire sales: information asymmetries make it difficult for arbitrageurs to disentangle pure …
Identifying Ineffective Monitors From Securities Class Action Lawsuits, Chi Shen Wei, Lei Zhang
Identifying Ineffective Monitors From Securities Class Action Lawsuits, Chi Shen Wei, Lei Zhang
Research Collection Lee Kong Chian School Of Business
We identify “ineffective” institutional monitors based on the prevalence of occurrences of securities class-action lawsuits in their overall portfolio. We find that firms with a higher representation of such institutional investors among the firms’ large shareholders have a greater likelihood of future litigation and experience more negative market reactions upon such litigation filings. These firms exhibit other unfavorable governance outcomes including poorer acquisitions and lower CEO turnover-performance sensitivity. We find suggestive evidence that ineffective monitoring may be a result of higher operational risk.
Institutional Trading During A Wave Of Corporate Scandals: 'Perfect Payday'?, Gennaro Bernile, Johan Sulaeman, Qin Wang
Institutional Trading During A Wave Of Corporate Scandals: 'Perfect Payday'?, Gennaro Bernile, Johan Sulaeman, Qin Wang
Research Collection Lee Kong Chian School Of Business
This paper examines the role of institutional trading during the option backdating scandal of 2006-2007. Unlike their inability to anticipate other corporate events, institutional investors as a group display negative abnormal trading imbalances (i.e., buy minus sell volumes) in anticipation of firm-specific backdating exposures. Consistent with informed trading, the underlying trades earn positive abnormal short- and long-term profits. Moreover, the negative abnormal imbalances are larger in magnitude when backdating is likely a more severe issue. Local institutions, in particular, display negative trading imbalances earlier in event-time and earn consistently higher trading profits than non-local institutions. Although we find some evidence …
Local Business Cycles And Local Liquidity, Gennaro Bernile, George Korniotis, Alok Kumar, Qin Wang
Local Business Cycles And Local Liquidity, Gennaro Bernile, George Korniotis, Alok Kumar, Qin Wang
Research Collection Lee Kong Chian School Of Business
This study examines whether state-level economic conditions affect the liquidity of local firms. We find that liquidity levels of local stocks are higher (lower) when the local economy has performed well (poorly). This relation is stronger when local financing constraints are more binding, the local information environment is more opaque, and local institutional ownership levels and trading intensity are higher. Overall the evidence supports the notion that the geographical segmentation of U.S. capital markets generates predictable patterns in local liquidity.
Substitutes Or Complements? A Configurational Examination Of Corporate Governance Mechanisms, Vilmos Misangyi, Abhijith G. Acharya
Substitutes Or Complements? A Configurational Examination Of Corporate Governance Mechanisms, Vilmos Misangyi, Abhijith G. Acharya
Research Collection Lee Kong Chian School Of Business
We conduct an exploratory qualitative comparative case analysis of the S&P 1500 firms with the aim of elaborating theory on how corporate governance mechanisms work together effectively. To do so, we integrate extant theory and research to specify the bundle of mechanisms that operate to mitigate the agency problem among publicly traded corporations and review what previous research has said about how these mechanisms combine. We then use the fuzzy-set approach to qualitative comparitive analysis (QCA) to explore the combinations of governance mechanisms that exist among the S&P 1500 firms that achieve high (and not-high) profitability. Our findings suggest that …
Institutional Presence, Johan Sulaeman, Chi Shen Wei
Institutional Presence, Johan Sulaeman, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
We propose an Institutional Presence (IP) measure to capture the latent role of non-owner institutional investors who nevertheless may be observing a firm. We employ this measure to examine whether the ‘presence’ of institutional investors reduces information asymmetry in the market. Firms in areas with high institutional presence experience higher liquidity, faster information incorporation, lower costs of equity capital, and less financing frictions relative to firms in low IP areas. The results hold after controlling for firm and geographical characteristics including institutional ownership and urban locality. Our findings indicate that being in the presence of institutional investors brings tangible benefits.
Non-Audit Fees, Institutional Monitoring, And Audit Quality, Chee Yeow Lim, David K. Ding, Charlie Charoenwong
Non-Audit Fees, Institutional Monitoring, And Audit Quality, Chee Yeow Lim, David K. Ding, Charlie Charoenwong
Research Collection School Of Accountancy
We posit that the effect of non-audit fees on audit quality is conditional on the extent of institutional monitoring. We suggest that institutional investors have incentives and the ability to monitor financial reporting quality. Because of the reputation concerns and potential litigation exposure, auditors are likely to provide high audit quality, when they also provide non-audit services to clients, particularly when clients are subject to high institutional monitoring. We find evidence that, as non-audit fees increase, audit quality (measured by performance-adjusted discretionary current accruals and earnings-response coefficients) reduces only for clients with low institutional ownership but not for clients with …
Investor Diversification And The Pricing Of Idiosyncratic Risk, Fangjian Fu
Investor Diversification And The Pricing Of Idiosyncratic Risk, Fangjian Fu
Research Collection Lee Kong Chian School Of Business
Theories predict that, due to investor under-diversification, idiosyncratic risk is positively priced in expected stock returns. Empirical studies based on various methodologies yield mixed evidence. This study circumvents the debate on methodological issues and traces the pricing of idiosyncratic risk to its economic source – investor under-diversification. Assuming that institutional investors tend to hold more diversified portfolios and thus care little about idiosyncratic risk relative to individual investors, we find that the positive relation between idiosyncratic risk and stock returns is significantly stronger (weaker) in stocks that are held and traded more by individual (institutional) investors. In addition, the pricing …
Reference Point Adaptation And Disposition Effect: Evidence From Institutional Trading, Chiraphol N. Chiyachantana, Zongfei Yang
Reference Point Adaptation And Disposition Effect: Evidence From Institutional Trading, Chiraphol N. Chiyachantana, Zongfei Yang
Research Collection Lee Kong Chian School Of Business
Using a large proprietary database of institutional trades, we investigate whether, and to what extent, the dynamic adaptation of reference point translates into variations in the disposition effect, and establish three key results. First, the propensity to realize losses declines sharply with the magnitude of prior losses due to insufficient adaptation of reference point. Second, recent adverse information accelerates investors’ adaptation to price depreciation and increases investors’ willingness to realize losses. Finally, a priori of losing money in highly speculative investments decreases investors’ aversion to realize losses. Collectively, the findings suggest that both prior outcomes and recent expectations contribute to …
Institutional Investors And The Informational Efficiency Of Prices, Ekkehart Boehmer, Eric K. Kelley
Institutional Investors And The Informational Efficiency Of Prices, Ekkehart Boehmer, Eric K. Kelley
Research Collection Lee Kong Chian School Of Business
Using a broad panel of NYSE-listed stocks between 1983 and 2004, we study the relation between institutional shareholdings and the relative informational efficiency of prices, measured as deviations from a random walk. Stocks with greater institutional ownership are priced more efficiently, and we show that variation in liquidity does not drive this result. One mechanism through which prices become more efficient is institutional trading activity, even when institutions trade passively. But efficiency is also directly related to institutional holdings, even after controlling for institutional trading, analyst coverage, short selling, variation in liquidity, and firm characteristics.
The Long-Term Effects Of Cross-Listing, Investor Recognition, And Ownership Structure On Valuation, Michael R. King, Dan Segal
The Long-Term Effects Of Cross-Listing, Investor Recognition, And Ownership Structure On Valuation, Michael R. King, Dan Segal
Research Collection School Of Accountancy
We show that investor recognition and bonding associated with a U.S. cross-listing are distinct effects using a sample of Canadian firms. In contrast to the post-listing decline documented in the literature, we find that cross-listed firms with a single class of shares enjoy a permanent increase in valuation if they attract and maintain investor recognition over time. Valuations of firms that fail to widen their U.S. shareholder base return to pre-listing levels within two years. Cross-listed firms with dual-class shares exhibit a permanent increase in valuation regardless of the level of U.S. investor holdings, consistent with firm-level bonding.
The Implications Of Debt Heterogeneity For R&D Investment And Firm Performance, Parthiban David, Jonathan P. O'Brien, Toru Yoshikawa
The Implications Of Debt Heterogeneity For R&D Investment And Firm Performance, Parthiban David, Jonathan P. O'Brien, Toru Yoshikawa
Research Collection Lee Kong Chian School Of Business
An assumption in prior research is that debt is homogeneous and provides inappropriate governance for R&D investments. We argue that debt is heterogeneous: although transactional debt does indeed impose strict contractual constraints that provide inappropriate governance for R&D investments, relational debt has very different characteristics that provide more appropriate governance. Using a sample of Japanese firms, we find that firms that align their debt structures with their R&D investments perform better than those that are misaligned. Furthermore, firms tend to align their debt structure with R&D investments, but only after deregulation permits relatively free access to various types of debt.
Monitoring: Which Institutions Matter?, Xia Chen, Jarrad Harford, Kai Li
Monitoring: Which Institutions Matter?, Xia Chen, Jarrad Harford, Kai Li
Research Collection School Of Accountancy
Within a cost–benefit framework, we hypothesize that independent institutions with long-term investments will specialize in monitoring and influencing efforts rather than trading. Other institutions will not monitor. Using acquisition decisions to reveal monitoring, we show that only concentrated holdings by independent long-term institutions are related to post-merger performance. Further, the presence of these institutions makes withdrawal of bad bids more likely. These institutions make long-term portfolio adjustments rather than trading for short-term gain and only sell in advance of very bad outcomes. Examining total institutional holdings or even concentrated holdings by other types of institutions masks important variation in the …
Firm Ownership Structure And Intellectual Capital Disclosures, Stephen Firer, S. M. Williamson
Firm Ownership Structure And Intellectual Capital Disclosures, Stephen Firer, S. M. Williamson
Research Collection School Of Accountancy
The primary purpose of this study is to investigate the association between three ownership structure characteristics and voluntary intellectual capital (IC) disclosure practices. Data for this study is hand collected from the 2000 annual reports of 390 Singapore publicly traded firms. Empirical results indicate Singapore publicly traded firms more closely owned were less likely to voluntarily disclose IC related information than were those where executive directors had smaller holdings in the entity. Finally, findings indicate government linked corporations (GLCs) will likely make more voluntary IC disclosures than non-GLCs. Overall, this study makes several unique contributions to the literature. First, the …
Ownership Structure, Investment Behaviour And Firm Performance In Japanese Manufacturing Industries, Eric Gedajlovic, Toru Yoshikawa, Motomi Hashimoto
Ownership Structure, Investment Behaviour And Firm Performance In Japanese Manufacturing Industries, Eric Gedajlovic, Toru Yoshikawa, Motomi Hashimoto
Research Collection Lee Kong Chian School Of Business
Using data spanning the 1996-98 fiscal years of 247 of Japan's largest manufacturers, we empirically evaluate the extent to which a firm's investment behaviour and financial performance are influenced by its ownership structure. To do so, we examine six distinct categories of Japanese shareholders: foreign investors, investment funds, pension funds, banks and insurance companies, affiliated companies and insiders. Our findings strongly indicate that the relationship between the equity stakes of a particular category of investor and a firm' s financial performance and investment behaviour is considerably more complex than is depicted in simple principal-agent representations. Such a result emphasizes the …
How Do Institutional Investors Trade, Paul G. J. O'Connell, Melvyn Teo
How Do Institutional Investors Trade, Paul G. J. O'Connell, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Using a novel and detailed custody trades dataset, this paper analyzes the trading behavior of institutions. Extant studies have examined the effects of past performance on trading by retail investors, day traders, and futures floor traders. Yet very little work has been done on institutions. We find that unlike other investors, institutions take on more risk following an increase in net profit and loss. However, the responses to a gain and loss are highly asymmetric. Institutions aggressively reduce risk in the wake of losses, but only mildly increase risk in the wake of gains. This asymmetry is more pronounced for …
Prospect Theory And Institutional Investors, Melvyn Teo, Paul G. J. O'Connell
Prospect Theory And Institutional Investors, Melvyn Teo, Paul G. J. O'Connell
Research Collection Lee Kong Chian School Of Business
There is ample evidence that past performance affects the trading decisions of individual investors. This paper looks at this issue using a detailed database of currency trading decisions of institutional investors. Past performance manifestly affects currency risk-taking in this group, but the sign and magnitude of the effect runs counter to much of the existing theory and evidence. There is no evidence whatsoever of disposition effects; rather, the dominant characteristic is aggressive risk reduction in the wake of losses. This effect is more prominent later in the year, and among older and more experienced funds. A modified version of the …