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Articles 1 - 30 of 195
Full-Text Articles in Business
How Commonality Persists? (Through Investors' Sentiment And Attention), Chyng Wen Tee, Raja Velu, Zhaoque Zhou
How Commonality Persists? (Through Investors' Sentiment And Attention), Chyng Wen Tee, Raja Velu, Zhaoque Zhou
Research Collection Lee Kong Chian School Of Business
Studies on commonality generally attribute the variation in asset returns to the variation in order flows. In this research study, we show that order flows do not predict asset returns, rather their relationship have been static over time. Thus we model both returns and the order flows as endogenous variables, and use investors' sentiment and attention as exogenous factors via a reduced-rank regression. We provide empirical evidence to demonstrate that cross-sectional commonality in attention (sentiment) is linearly (nonlinearly) associated with both returns and order flows at the intraday level, while the sentiment and attention measures themselvesexhibit a nonlinear mutual relationship, …
Conflict Or Alignment? The Role Of Return-Oriented Foreign Shareholders And Domestic Relational Shareholders In Mitigating Earnings Management, Toru Yoshikawa, Ignacio P. Requejo, Asli Colpan, Daisuke Uchida
Conflict Or Alignment? The Role Of Return-Oriented Foreign Shareholders And Domestic Relational Shareholders In Mitigating Earnings Management, Toru Yoshikawa, Ignacio P. Requejo, Asli Colpan, Daisuke Uchida
Research Collection Lee Kong Chian School Of Business
This study investigates the effects of foreign return-oriented shareholders and domestic relational shareholders of Japanese companies on the earnings management behavior of their invested firms when stock option pay is adopted. We theorize that foreign shareholders seek short-term returns and do not engage in close monitoring due to an information disadvantage while domestic shareholders prevent managerial behavior that distorts information disclosure. Our findings show that managers of firms that use stock option pay engage in earnings management to increase their private financial benefits and meet capital markets’ expectations, which allows them to enhance their own reputation. However, this managerial behavior …
Is Carbon Risk Priced In The Cross-Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Is Carbon Risk Priced In The Cross-Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Research Collection Lee Kong Chian School Of Business
This paper examines the pricing of a firm's carbon risk, measured by its carbon emissions intensity, in the cross-section of corporate bond returns. Contrary to the "carbon risk premium" hypothesis, we find bonds of firms with higher carbon emissions intensity earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon premium, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to carbon risk, …
Shrinking Factor Dimension: A Reduced-Rank Approach, Ai He, Dashan Huang, Jiaen Li, Guofu Zhou
Shrinking Factor Dimension: A Reduced-Rank Approach, Ai He, Dashan Huang, Jiaen Li, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
We propose a reduced-rank approach (RRA) to reduce a large number of factors to a few parsimonious ones. In contrast to PCA and PLS, the RRA factors are designed to explain the cross section of stock returns, not to maximize factor variations or factor covariances with returns. Out of 70 factor proxies, we find that five RRA factors outperform the Fama-French (2015) five factors for pricing target portfolios, but performs similarly for pricing individual stocks. Our results suggest that existing factor proxies do not provide enough new information at the stock level beyond the Fama-French (2015) five factors.
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
Asset prices remain depressed for years following mutual fund fire sales, but little is known about the causes of these price drops. We show that asymmetric information generates price pressure during fire sales. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain fundamental information, whereas expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell, and information asymmetries make it difficult for arbitrageurs …
Insider Trading And Corporate Spinoffs, Charlie Charoenwong, Kuan Yong David Ding, Jing Pan
Insider Trading And Corporate Spinoffs, Charlie Charoenwong, Kuan Yong David Ding, Jing Pan
Research Collection Lee Kong Chian School Of Business
This paper studies insider trading to examine undervaluation as a motive behind corporate spinoffs. We show an unmistakable increase (decrease) in the number of insider purchases (sales) and net purchases (sales) in the four quarters prior to a spinoff announcement. In addition, relative to a benchmark period, insider selling is significantly lower, and their net purchases significantly higher, in the three quarters prior to a spinoff announcement compared to other periods. We find that announcement period excess returns for abnormal net insider purchases are significantly higher than excess returns for abnormal net insider sales. Moreover, only firms with abnormal net …
Growing Up Under Mao And Deng: On The Ideological Determinants Of Corporate Policies, Hao Liang, Rong Wang, Haikun Zhu
Growing Up Under Mao And Deng: On The Ideological Determinants Of Corporate Policies, Hao Liang, Rong Wang, Haikun Zhu
Research Collection Lee Kong Chian School Of Business
Historically, economic activities have been organized around certain ideologies. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change—China from Mao to Deng around the 1978 economic reform—in a regression discontinuity framework. We find that the age discontinuity of politicians around 18 years old in 1978, who had already joined the Chinese Communist Party (CCP) or joined soon thereafter and later became municipal paramount leaders, has had a lasting effect on contemporary firm- and city-level policies. In particular, firms in cities with mayors that joined the CCP under the ideological regime of …
Is Carbon Risk Priced In The Cross Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Is Carbon Risk Priced In The Cross Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Research Collection Lee Kong Chian School Of Business
This article examines the pricing of a firm’s carbon risk in the corporate bond market. Contrary to the “carbon risk premium” hypothesis, bonds of more carbon-intensive firms earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon alpha, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to the predictability of carbon intensity for firm cash-flow news, creditworthiness, and environmental incidents.
Does Disclosure Of Advertising Spending Help Investors And Analysts?, Sungkyun Moon, Kapil R. Tuli, Anirban Mukherjee
Does Disclosure Of Advertising Spending Help Investors And Analysts?, Sungkyun Moon, Kapil R. Tuli, Anirban Mukherjee
Research Collection Lee Kong Chian School Of Business
Publicly listed firms have the discretion to disclose (or not) advertising spending in their annual (10-K) reports. The disclosure of advertising spending can provide valuable information because advertising is a leading indicator of future performance. However, estimates of advertising spending are available from data providers, arguably mitigating the need for its formal disclosure. This study argues that firms’ disclosure of advertising spending provides more complete and public information and therefore lowers investor uncertainty about future firm performance (idiosyncratic risk). Empirical analyses show this effect is largely driven by the negative effect of disclosure of advertising spending on analyst uncertainty. Consistent …
Loan Spreads And Credit Cycles: The Role Of Lenders' Personal Economic Experiences, Daniel Carvalho, Janet Gao, Pengfei Ma
Loan Spreads And Credit Cycles: The Role Of Lenders' Personal Economic Experiences, Daniel Carvalho, Janet Gao, Pengfei Ma
Research Collection Lee Kong Chian School Of Business
We provide evidence that changes in lender optimism can lead to excessive fluctuations in credit spreads across the credit cycle. Using data on the real estate properties of loan officers originating large corporate loans, we find that credit spreads overreact to sophisticated lenders' recent local economic experiences, captured by local housing price growth. These effects are only present when borrowers own real estate assets and during times of greater uncertainty about real estate values, i.e., boom-and-bust cycles in housing prices. Our analysis suggests that recent personal experiences shape sophisticated lenders' beliefs about real estate values, which affect their pricing decisions.
Strategic Financial Management Part Iii: Debt Maturity And Priority And Corporate Liquidity, Fangjian Fu, Clifford W. Smith
Strategic Financial Management Part Iii: Debt Maturity And Priority And Corporate Liquidity, Fangjian Fu, Clifford W. Smith
Research Collection Lee Kong Chian School Of Business
This is the third in our series ofJACFarticles that explores thecorporate motives for and consequences of seasoned equity offer-ings (SEOs) by U.S. public companies over the past 50 years. Likeits two predecessors, this article begins by examining each of thethree standard theories (or “models”) of corporate capital structureand financing policy that continue to receive serious considerationin academic discussions: (1) the Tradeoff Model;(2)thePeckingOrder Model, and (3) theMarket Timing Model.Aswealsobeganby noting in our two previous articles, each of these three modelshas implications that do not fit comfortably with the findings ofour analysis of over 8500 SEOs by U.S. companies between 1970and 2019.
Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong
Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong
Research Collection Lee Kong Chian School Of Business
This article analyzes the effect of geographical diversification on global private equity (PE) fund returns. We find that there is a negative correlation between geographical diversification and PE fund returns. To establish the causality between geographical diversification and PE fund returns, we employ an instrumental variable analysis where the instrument used is the stock market capitalization of the host country where the PE fund is based. Our results apply to Net IRR, TVPI and DPI as dependent variables used to proxy for PE fund returns in the main regression model. A one standard deviation increase in geographical diversification results in …
Information Spillover And Corporate Policies: The Case Of Listed Options, Gennaro Bernile, Jianfeng Hu, Guangzhong Li, Roni Michaely
Information Spillover And Corporate Policies: The Case Of Listed Options, Gennaro Bernile, Jianfeng Hu, Guangzhong Li, Roni Michaely
Research Collection Lee Kong Chian School Of Business
Information production associated with derivatives markets is not a sideshow; rather, it has significantly positive spillover effects on an array of corporate decisions of underlying firms. Using a regression-discontinuity design based on exogenous variation in options availability as an instrument for changes in the information environment, we show that options introductions have causal effects on corporate policies on both sides of the balance sheet. Through improved information efficiency, options availability reduces the need for debt and payout, increases efficient investment, and yields superior innovation. We conduct two independent experiments demonstrating that our instrument s impact is not derived from alternative …
Cds Channels Of Influence On Discretionary Accruals, Hao Cheng, Kian Guan Lim
Cds Channels Of Influence On Discretionary Accruals, Hao Cheng, Kian Guan Lim
Research Collection Lee Kong Chian School Of Business
Existing studies indicated that firm debt holders can use the credit default swap (CDS) market to hedge their credit risk, and thus they would reduce their monitoring of the firms, leading to largely distressed firms shirking and increasing positive abnormal earnings accruals. Besides providing insurance, however, the CDS spreads also perform price discovery of credit risk information sought by trade creditors and potential lenders who are not protected. High absolute abnormal discretionary accruals or bad earnings quality, especially negative abnormal accruals, would lead adverse CDS price signals that are very costly to the firm. This compels the firm under nondistressed …
Conditional Relationship Between Distress Risk And Stock Returns, Su Hee Yun, Jung Min Kim
Conditional Relationship Between Distress Risk And Stock Returns, Su Hee Yun, Jung Min Kim
Research Collection Lee Kong Chian School Of Business
Purpose: Previous research on the relationship between a firm’s distress risk and future stock returns produces inconsistent results. This study attempts to explain the conflicting results of earlier studies by showing that systematic distress risk leads to positive rewards, while unsystematic distress risk leads to low stock returns. In addition, this study intends to elucidate the factors of systematic distress risk and unsystematic distress risk, respectively. In this way, this study informs the rational investor what kind of distress risk they should take. Design/methodology/approach: This study considers two distress-predictor sets to show a possibility between distress risk and stock returns …
Outsourcing Climate Change, Rui Dai, Rui Duan, Hao Liang, Lilian Ng
Outsourcing Climate Change, Rui Dai, Rui Duan, Hao Liang, Lilian Ng
Research Collection Lee Kong Chian School Of Business
This paper examines whether and how firms combat climate change. Our study provides robust evidence that firms outsource part of their carbon emissions to foreign suppliers and shows how internal and external stakeholders significantly shape firms' environmental policies. Furthermore, firms tend to seek a foreign supplier and decrease their emission abatement efforts as pressure to reduce domestic emissions intensifies. These firms are also less incentivized to develop green technologies. Finally, we find that outsourcing emissions has real and economic consequences, with investors demanding a higher carbon premium for their exposures to carbon risks associated with increased outsourced emissions.
Socially Responsible Corporate Customers, Rui Dai, Hao Liang, Lilian Ng
Socially Responsible Corporate Customers, Rui Dai, Hao Liang, Lilian Ng
Research Collection Lee Kong Chian School Of Business
Corporate customers are an important stakeholder in global supply chains. We employ several unique international databases to test whether socially responsible corporate customers can infuse similar socially responsible business behavior in suppliers. Our findings suggest a unilateral effect on corporate social responsibility (CSR) only from customers to suppliers, an evidence further supported by exogenous variation in customers’ close-call CSR proposals and by product scandals. Customers exert influence on suppliers’ CSR through positive assortative matching and their decision-making process. Enhanced collaborative CSR efforts help improve operational efficiency and firm valuation of both customers and suppliers but increase only the customers’ future …
Board Composition, Board Diversity And Stock Performance, Chiyachantana N. Chiraphol, Siripen Pattanawihok, Pattarawan Prrasarnphanich
Board Composition, Board Diversity And Stock Performance, Chiyachantana N. Chiraphol, Siripen Pattanawihok, Pattarawan Prrasarnphanich
Research Collection Lee Kong Chian School Of Business
The study investigates the relationship between six board compositions and stock returns. The results indicate a significant association between various board compositions and stock returns. Specifically, board size and executive directors have a negative impact, whereas independent directors enhance stock returns. Busy directors positively impact the abnormal stock returns for the companies in the non-financial industry, which implies that busy directors who serve on more boards tend to be well connected. More importantly, the results indicate a significant positive relationship between board tenure and stock returns. Board service time is perceived as the board quality of knowledge and experience from …
The Profitability Of Warrant Issuers: An Empirical Investigation Of Single Stock And Index Warrants, Ichaya Wongnapakarn, Arnat Leemakdej, Chiyachantana N. Chiraphol, Pattarawan Prasarnphanich, Eakapat Manitkajornkit
The Profitability Of Warrant Issuers: An Empirical Investigation Of Single Stock And Index Warrants, Ichaya Wongnapakarn, Arnat Leemakdej, Chiyachantana N. Chiraphol, Pattarawan Prasarnphanich, Eakapat Manitkajornkit
Research Collection Lee Kong Chian School Of Business
This study examines the derivative warrant's profit of issuers compensated with the risk from issuing call and put derivative warrants because they have commitments in risk management and managing risk by hedging the underlying exposure. The average profit of issuers is a cumulative profit from the first trading day until the last trading day. Consistent with the imperfect competition for issuing put derivative warrants on single stock from different securities borrowing and lending advantages, the profit margin of a put warrant is higher than the call warrant. However, the profit margin from a put warrant is not necessarily higher than …
Inside Brokers, Frank Weikai Li, Abhiroop Mukherjee, Rik Sen
Inside Brokers, Frank Weikai Li, Abhiroop Mukherjee, Rik Sen
Research Collection Lee Kong Chian School Of Business
We identify the broker each corporate insider trades through, and find that analysts and mutual fund managers affiliated with such “inside brokers” have a substantial information advantage on the insider’s firm. Affiliated analysts issue more accurate earnings forecasts, and affiliated mutual funds trade the insider’s stock more profitably than their peers, following insider trades through their brokerage. Notably, this advantage persists well after these insider trades are publicly disclosed. Our results challenge the prevalent perception that information asymmetry arising from insider trading is acute only before trade disclosure, and suggest that brokers facilitating these trades are in a position to …
The Old Boys Club In New Zealand Listed Companies, Chen Chen, David K. Ding, William R. Wilson
The Old Boys Club In New Zealand Listed Companies, Chen Chen, David K. Ding, William R. Wilson
Research Collection Lee Kong Chian School Of Business
The board of directors plays an important role in implementing corporate governance in the firm, as directors have a fiduciary duty to the firm’s shareholders. The effectiveness of directors is a key determinant of corporate value and they need to bring a range of skills and experience to the boardroom. This skill and experience cannot be developed solely within the firm, and most boards incorporate non-executive directors who are or have been directors of other firms. Current research on the benefits of interlocking directorships is mixed between the claim that they bring outside feedback to the table and open decision …
Speed Acquisition, Shiyang Huang, Bart Zhou Yueshen
Speed Acquisition, Shiyang Huang, Bart Zhou Yueshen
Research Collection Lee Kong Chian School Of Business
Speed is a salient feature of modern financial markets. This paper studies investors' speed acquisition together with their information acquisition. Speed heterogeneity arises in equilibrium, fragmenting the information aggregation process with a nonmonotone impact on price informativeness. Various competition effects drive speed and information to be either substitutes or complements. The model cautions the possible dysfunction of price discovery: An improving information technology might complement speed acquisition, which shifts the concentration of price discovery over time, possibly hurting price informativeness. Novel predictions are discussed regarding investor composition and their investment performance.
Internal Capital Markets And Return Predictability In Complex Ownership Firms, Angelica Gonzalez, Sergei Sarkissian, Jun Tu, Ran Zhang
Internal Capital Markets And Return Predictability In Complex Ownership Firms, Angelica Gonzalez, Sergei Sarkissian, Jun Tu, Ran Zhang
Research Collection Lee Kong Chian School Of Business
Using global cross-ownership data, we find return predictability for four possible cases in ownership-linked firms (OLFs): subsidiary−parent, parent−subsidiary, subsidiary−subsidiary, and parent−parent. A long/short portfolio strategy sorted by the lagged monthly returns of OLFs yields the monthly Fama-French six-factor alpha of 79−113 bps. These results, which are observed only after the establishment of ownership links, are not subsumed by industry or cross-country momentums or by alternative inter-firm relations, including customer−supplier links, strategic alliances, common boards, and shared analyst coverage. The OLF return predictability is best explained by active internal capital markets—a mechanism unique to firms with a complex ownership network.
Seasoned Equity Offerings And Corporate Financial Management, Michael J. Barclay, Fangjian Fu, Clifford W. Smith
Seasoned Equity Offerings And Corporate Financial Management, Michael J. Barclay, Fangjian Fu, Clifford W. Smith
Research Collection Lee Kong Chian School Of Business
We assume executives managing corporate financial policy consider the firm's current and target leverage, investment plans, anticipated cash flows, and consequences of alternative sequences of financing transactions, operating within efficient markets. Our analysis yields time-series and cross-sectional predictions for management of investment spending and leverage; use of maturity, priority, and convertibility covenants; and management of dividends, share repurchases, cash balances, and credit lines. Our evidence from 8608 SEOs covering 1970–2015 is consistent with implications of our theory, helps to resolve an array of issues in corporate finance, and offers a step toward a more unified analysis of rational corporate financial …
Executive Compensation And Firm Performance In New Zealand: The Role Of Employee Stock Option Plans, David K. Ding, Ya Eem Chea
Executive Compensation And Firm Performance In New Zealand: The Role Of Employee Stock Option Plans, David K. Ding, Ya Eem Chea
Research Collection Lee Kong Chian School Of Business
We examine the role of employee stock option plans (ESOPs) in mitigating agency problems in New Zealand firms. We find that ESOPs have a significant and positive effect on firm performance relative to their non-ESOP counterparts. This relation appears within a year from the first ESOP announcement, and for two to four years after the announcement. Our results show that ESOPs improve corporate performance by 10 times the cost of the ESOPs’ adoption in the first year of issue. The improvement persists for four years after the first issuance. These findings confirm the effectiveness of employee stock option plans for …
Capm-Based Company (Mis)Valuations, Olivier Dessaint, Jacques Olivier, Clemens A. Otto, David Thesmar
Capm-Based Company (Mis)Valuations, Olivier Dessaint, Jacques Olivier, Clemens A. Otto, David Thesmar
Research Collection Lee Kong Chian School Of Business
There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting -- as recommended in textbooks -- should thus have real effects. For instance, low beta projects should be valued more by CAPM-users than by the market. We test this hypothesis using M&A data and show that bids for low-beta private targets entail lower bidder returns. We provide further support by testing several ancillary predictions. Our analyses suggest that using the CAPM when valuing targets leads to valuation errors (relative to the market's view) corresponding on average to 12% to 33% of the deal values.
Value Creating Drivers For Effective Human Capital Management, Ser Keng Ang
Value Creating Drivers For Effective Human Capital Management, Ser Keng Ang
Research Collection Lee Kong Chian School Of Business
It is common for modern-day corporate leaders and academic writers to make claim that human resources is one of the most important assets in their organization (Guest, 2001). If that were the case, effective management of human capital would be a critical factor in the success of any organization. As an important organizational resource, human capital is expected to generate significant economic benefits from its deployment, development and retention (Flamholtz, 1999). There is widespread evidence that the effective use of human capital can also create durable competitive advantage for an organization (Barney, 1991; Becker & Gerhart, 1996; Lado & Wilson, …
The Effect Of Green Announcements On Stock Returns Of New Zealand Listed Companies, David K. Ding
The Effect Of Green Announcements On Stock Returns Of New Zealand Listed Companies, David K. Ding
Research Collection Lee Kong Chian School Of Business
The purpose of this paper is to investigate the effect of corporate green announcements on the stock performance of listed companies in New Zealand. We find that the market has a positive, though not significant, reaction to the announcements. New Zealand companies are largely viewed to be already quite green at the onset and the market is not very much surprised by such announcements but expect them to continue being green. Our results are consistent with the view that to be green is costly, especially so in a developed economy where the cost of doing business is high. Our findings …
Algorithmic Trading And Market Quality: International Evidence, Ekkehart Boehmer, Kingsley Fong, Juan Julie Wu
Algorithmic Trading And Market Quality: International Evidence, Ekkehart Boehmer, Kingsley Fong, Juan Julie Wu
Research Collection Lee Kong Chian School Of Business
We study the effect of algorithmic trading (AT) on market quality between 2001 and 2011 in 42 equity markets around the world. We use an exchange colocation service that increases AT as an exogenous instrument to draw causal inferences about AT on market quality. On average, AT improves liquidity and informational efficiency but increases short-term volatility. Importantly, AT also lowers execution shortfalls for buy-side institutional investors. Our results are surprisingly consistent across markets and thus across a wide range of AT environments. We further document that the beneficial effect of AT is stronger in large stocks than in small stocks.
The Innovation Effect Of Dual-Class Shares: New Evidence From Us Firms, Xiaping Cao, Tiecheng Leng, Jeremy C. Goh, Paul Malatesta
The Innovation Effect Of Dual-Class Shares: New Evidence From Us Firms, Xiaping Cao, Tiecheng Leng, Jeremy C. Goh, Paul Malatesta
Research Collection Lee Kong Chian School Of Business
The proliferation of dual-class structures in the US stock market presents a controversial trend since such shares are traditionally deemed to damage governance quality. We study the relationship between 362 firms with dual-class shares and their innovativeness using patent citations from Google Patents over the 1976 through 2006 period. We find dual-class shares have significant innovation effect in high-tech sectors, hard-to-innovate industries, firms with higher external takeover threat and firms heavily dependent on external equity financing. We also document a positive causality relationship between dual-class structures and the quality of innovation. The channel for this causal relationship is the protection …