Finance and Financial Management Commons^™

Endogenous Market Choice, Listing Regulations, And Ipo Spread: Evidence From The London Stock Exchange, Hafiz Hoque, John Doukas

Finance Faculty Publications

This study examines the endogenous market choice and its impact on underwriter spread if Alternative Investment Market (AIM) IPOs that meet Main Market (MM) listing requirements had issued equity in the MM during the 1995–2021 period. We find that the spread is 1.33% higher in the AIM than the MM for IPO listings that meet the MM listing requirements. This finding suggests that AIM companies, meeting the MM listing requirements, could have saved more than £100 million by going public through the MM than the AIM market. We also find that this spread differential is attributed to the issuing firms' …

The Way Digitalization Is Impacting International Financial Markets: Stock Price Synchronicity, Chen Chen, M. Mahdi Moeini Gharagozloo, Layla Darougar, Lei Shi

Finance Faculty Publications

This paper investigates whether and how the development level of a country's digital economy affects stock price synchronicity. The results indicate that countries with high levels of digital economy development exhibit low stock price synchronicity. Additionally, by decomposing stock price synchronicity into systematic and firm‐specific stock return variations, we find that systematic (firm‐specific) variations of stock returns decrease (increase) with the level of a country's digitalization. These findings shed light on the future trend of stock price synchronicity in financial markets around the world and support the information‐based interpretation of stock price synchronicity.

Are Ceos To Blame For Corporate Failure? Evidence From Chapter 11 Filings, Rajib Chowdhury, John A. Doukas

Finance Faculty Publications

This study examines whether chief executive officers (CEOs) are to blame for corporate failures. Using alternative CEO managerial ability measures, we document that high-ability (low-ability) CEOs are less (more) likely to be associated with bankruptcy. We also find that reorganized firms run by high-ability incumbent CEOs experience improved financial performance after filing for Chapter 11. Firms that hire high-ability CEOs with bankruptcy experience also realize improved financial performance. Our evidence indicates that the likelihood of corporate bankruptcy is unrelated to the presence of high-ability managers and that bankruptcy does not adversely affect the post-bankruptcy careers of high-ability CEOs.

Sentiment-Scaled Capm And Market Mispricing, John A. Doukas, Xiao Han

Finance Faculty Publications

This study explores the conditional version of the capital asset pricing model on sentiment to provide a behavioural intuition behind the value premium and market mispricing. We find betas (β) and the market risk premium to vary over time across different sentiment indices and portfolios. More importantly, the state β derived from this sentiment-scaled model provides a behavioural explanation of the value premium and a set of anomalies driven by mispricing. Different from the static β-return relation that gives a flat security market line, we document upward security market lines when plotting portfolio returns against their state βs and portfolios …

When Fund Management Skill Is More Valuable?, Feng Dong, John A. Doukas

Finance Faculty Publications

Does fund management skill allow managers to identify mispriced securities more accurately and thereby make better portfolio choices resulting in superior fund performance when noise trading- a natural setting to detect skill - is more prevalent? We find skilled-fund managers with superior past performance to generate persistent excess risk-adjusted returns and experience significant capital inflows, especially in high sentiment times, high stock dispersion and economic expansion states when price signals are noisier. This pattern persists after we control for lucky bias, using the "false discovery rate" approach, which permits to disentangle manager "skill" from "luck".

How Ceo Wealth Affects The Riskiness Of A Firm, Sonik Mandal, Charlie Swartz, Sanjib Guha, Carl B. Mcgowan Jr.

Finance Faculty Publications

The objective of this paper is to analyze the relationship between the ownership level of managers and the risk averse behavior of the firm. We measure the ownership level of the managers by the ratio of their ownership of the company relative to their total wealth for a sample of 69 individuals from the Forbes 400 list of the wealthiest individuals in the world for the period from 2001-11 using an unbalanced panel data analysis. The dependent variable is the Altman Z-score of each firm and we further test these relationships using financial leverage. The independent variables are delta and …

Does The Market Believe White Knights And Hostile Bidders Are Acting In Their Shareholders' Interest?, John M. Griffith, Mohammad Najand, Jiancheng Shen

Finance Faculty Publications

This study examines why white knights suffer significant losses while their rival hostile bidders experience significant abnormal gains. We address two research questions: 1) Does the market believe that white knights and hostile bidders are acting in their shareholders' interest? 2) Does Tobin's q explain why white knights suffer significant losses and hostile bidders experience significant gains upon the announcement of their bids? The results show that hostile bidders are value-maximizing investors and white knights are not acting in their shareholders' interest. Instead, white knights suffered significant reductions in value and historically have not maximized the wealth of investors

Risk Allocation Across The Enterprise: Evidence From The Insurance Industry, Michael K. Mcshane, Tao Zhang, Larry A. Cox

Finance Faculty Publications

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in …

Creditor Rights And R&D Expenditures, Bruce Seifert, Halit Gonenc

Finance Faculty Publications

Manuscript Type: Empirical

Research Question?Issue: This study examines the impact of creditor rights on R&D intensity (R&D/total assets). We argue that managers in countries with strong creditor rights have more incentives to reduce cash flow risk and therefore limit expenditures on R&D more than managers located in countries with weak creditor rights.

Research Findings/Insights: Using a sample of over 21,000 firms from 41 countries, our research is one of the first to document that strong creditor rights are indeed associated with reduced R&D intensity. This negative relationship is observed in market‐based countries, but not in bank‐based countries. Moreover, the results …