Corporate Finance Commons^™

Does The Relation Between Information Quality And Capital Structure Vary With Cross-Country Institutional Differences?, Jeff Zeyun Chen, Chee Yeow Lim, Gerald J. Lobo

Research Collection School Of Accountancy

Prior research based on U.S. data finds that firms with better information quality raise more equity whereas firms with poorer information quality prefer to issue debt when they seek external financing. Little is known about whether the same conclusion holds outside the U.S. and how the country-level institutional environment influences the relation between information quality and capital structure choices. We examine the relation between accounting information quality (measured by earnings precision, accruals quality, and analyst consensus) and financial leverage across 24 countries and whether that relation varies systematically with country-level investor protection and financial orientation. We document a lower financial …

Feats And Failures Of Corporate Credit Risk, Stock Returns, And The Interdependencies Of Sovereign Credit Risk, Uche C. Isiugo

LSU New Orleans Theses and Dissertations

This dissertation comprises two essays; the first of which investigates sovereign credit risk interdependencies, while the second examines the reaction of corporate credit risk to sovereign credit risk events. The first essay titled, Characterizing Sovereign Credit Risk Interdependencies: Evidence from the Credit Default Swap Market, investigates the relationships that exist among disparate sovereign credit default swaps (CDS) and the implications on sovereign creditworthiness. We exploit emerging market sovereign CDS spreads to examine the reaction of sovereign credit risk to changes in country-specific and global financial factors. Utilizing aVAR model fitted with DCC GARCH, we find that comovements of spreads …

Two Essays In Corporate Finance, Youngha Ki

LSU New Orleans Theses and Dissertations

For more than a decade, to reduce the agency problem, various ways have been examined on how to align the interest of manager with shareholders. Evidence and empirical findings are conflicting on the agency problem. Recently, deferred compensation as one incentive compensation draws the attention as a means to incentivize CEOs to make them work for the firm. However, it is still not evident if deferred compensation has effect on aligning CEOs with the firm’s goal possibly due to the issue on data. Therefore, the first essay investigates if deferred compensation has the effect on the agency problem and on …

2016 Q3 Private Capital Access Index Report, Craig R. Everett

Pepperdine Private Capital Access Report

The Pepperdine Private Capital Access Index (PCA) is a quarterly indicator produced by the Graziadio School of Business and Management at Pepperdine University, and with the support of Dun & Bradstreet. The index is designed to measure the demand for, activity, and health of the private capital markets. The purpose of the PCA Index is to gauge the demand of small and medium sized businesses for financing needs, the level of accessibility of private capital, and the transparency and efficiency of private financing markets.

Aggregate Earnings Surprises, Monetary Policy, And Stock Returns, Lindsey A. Gallao, Rebecca N. Hann, Congcong Li

Research Collection School Of Accountancy

This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed׳s policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which …

Socially Responsible Firms, Allen Ferrell, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) considers CSR as an agency problem and a waste of corporate resources. Given our identification strategy by means of an IV approach, we find that well-governed firms who suffer less from agency concerns (less cash abundance, positive pay-for-performance, small control wedge, strong minority protection) engage more in CSR. We also find a positive relation between CSR and value and that CSR attenuates the negative relation between managerial entrenchment and value.

Governance And Post-Repurchase Performance, Gary Caton, Jeremy Goh, Yen Teik Lee, Scott Linn

Research Collection Lee Kong Chian School Of Business

Payout policies based on share repurchase programs provide greater flexibility than do those based on cash dividends. We develop and test an empirical model in which strongly governed companies outperform weakly governed companies after announcing share repurchase programs. Our findings include positive associations between strong governance and both post-announcement adjusted operating performance and abnormal stock returns. The results are robust to sample selection bias, different sample criteria, governance measurement, and various control variables. In addition, governance strength is associated with larger post-announcement changes in CEO incentive compensation and merger and acquisition activity, both of which we argue are consistent with …

"Other Information" In An Audit (Part 2), Foo S.L.

Research Collection School Of Accountancy

In light of the new reporting requirements, SSA 720 (Revised) articulates a systematic approach on Other Information (OI) work. It comprises five key elements. These are Obtaining, Reading and Considering, Responding, Reporting and Documentation of OI (Figure 1). Invariably, these enhancements provide useful guidance to the auditors. With additional prescribed work efforts, it also calls for a greater integration of OI work scope with the overall audit planning.

Social Media Information And Analyst Forecasts, Mahfuja Malik, Rajib Hasan, Abu S. Amin

WCBT Faculty Publications

In the past decade, social networking has changed the landscape of information dissemination. The rapid diffusion of social media services such as Facebook and Twitter is unprecedented and offers immense possibilities for corporations to communicate with, and engage core stakeholders in, various business decisions. In this study, we investigate whether social media play any role as a source of information for financial analysts. We specifically focus on information revealed on the official Facebook pages of S&P 500 firms. We define information content on a Facebook page as the total number of posts by the corporations and the comments, likes and …

Does Assurance Matter? Evidence From U.S. Financial Institutions, Ashley Warwick Douglass

Graduate Theses and Dissertations

In this paper, I explore the determinants and consequences of the level of assurance that a bank selects. Using a sample of small, privately held U.S. (United States) financial institutions (banks), I find that two differing types of banks are more likely to purchase more assurance. First, larger banks that are experiencing growth purchase relatively more assurance than other banks. Second, more complex banks with lower returns on assets, losses, and higher leverage are more likely to purchase an audit than a lower level of assurance. This may indicate the influence of regulators on banks’ assurance purchasing decisions. I also …

Governance Matter: Morningstar Stewardship Grades And Mutual Fund Performance, Jerry X. Cao, Aurobindo Ghosh, Jeremy Goh, Wee Seng Ng

Research Collection Lee Kong Chian School Of Business

Mutual fund investors have the arduous task of disentangling luck from ability of mutual fund managers’ performance. In this paper we investigate the role of mutual fund corporate governance (measured by Morningstar Stewardship grade) in mutual fund performance. We propose an objective data-driven corporate governance score based on principal components of Morningstar Stewardship Grades. Furthermore, we establish corporate governance scores have Granger Causality on long-term risk-adjusted returns. The findings suggest that corporate governance grades of mutual funds carry information content beyond the usual star rating measures for predicting long-term mutual fund performance and provide an effective tool for selecting funds.

Have We Solved The Idiosyncratic Volatility Puzzle?, Kewei Hou, Roger Loh

Research Collection Lee Kong Chian School Of Business

We propose a simple methodology to evaluate a large number of potential explanations for the negative relation between idiosyncratic volatility and subsequent stock returns (the idiosyncratic volatility puzzle). We find that surprisingly many existing explanations explain less than 10% of the puzzle. On the other hand, explanations based on investors’ lottery preferences, short-term return reversal, and earnings shocks show greater promise in explaining the puzzle. Together they account for 60-80% of the negative idiosyncratic volatility-return relation. Our methodology can be applied to evaluate competing explanations for a broad range of topics in asset pricing and corporate finance.

Data Mining Journal Entries For Fraud Detection: A Replication Of Debreceny And Gray's (2010) Techniques, Poh Sun Seow, Pan, Gary, Themin Suwardy

Research Collection School Of Accountancy

The alarming frequency of fraud occurrences suggests that corporations continue to face persistent threat of fraud (Cecchini et al., 2010a; Summers and Sweeney, 1998). According to Association of Certified Fraud Examiner (ACFE)’s 2014 Report, a typical organization may lose five percent of its revenue to fraud every year. As such, the consequences of fraud may impact the shareholders, creditors, auditors and the public’s confidence in the integrity of corporations’ financial systems (Rezaee, 2005).

The Effect Of Statement Of Financial Accounting Standards No. 157 Fair Value Measurements On Analysts' Information Environment, Orie E. Barron, Sung Gon Chung, Kevin Ow Yong

Research Collection School Of Accountancy

This study examines the effect of the adoption of Statement of Financial Accounting Standards No. 157 Fair Value Measurements (hereafter FAS 157) on analysts’ information environment. A major controversy surrounding FAS 157 disclosures is whether Level 3 measurements provide useful information to financial statement readers. We provide evidence suggesting that FAS 157 disclosures regarding Level 3 measurements are able to reduce uncertainty in analysts’ information environment. Our results reveal that the provision of such fair value disclosures is associated with reduced uncertainty regarding future earnings and lower forecast errors. We also find that unrealized gains and losses from fair value …

Seeing Is Believing: Analysts' Corporate Site Visits, Qiang Cheng, Fei Du, Xin Wang, Yutao Wang

Research Collection School Of Accountancy

This study examines the impact of corporate site visits on analysts’ forecast accuracy based on a sample of such visits to Chinese listed firms during 2009–2012. We find that analysts who conduct visits (“visiting analysts”) have a greater increase in forecast accuracy than other analysts. Consistent with the notion that site visits facilitate analysts’ information acquisition through observing firms’ operations, we find that the results are stronger for manufacturing firms, firms with more tangible assets, and firms with more concentrated business lines. Moreover, we find that the effect of a site visit is greater when the site visit is an …

A Case Study In The Use And Potential Misuse Of Non-Gaap Financial Measures, Benoit Boyer, Ralph Lim, Bridget M. Lyons

WCBT Faculty Publications

Firms reporting under US GAAP are allowed to supplement financial information with non-GAAP measures. We examined 6 Firms in the chemical industry and looked at what information was presented (Dow, Du Pont, Monsanto, FMC, PPG, Praxair). We use the 2014 Annual Report so that we would have comparable data for all companies. For 2 firms we looked at numbers presented in Cap IQ and in Bloomberg and compared them to the numbers presented by the company (Dow and Du Pont). The numbers reported by the firms and the analysts differed greatly.

Internal Governance And Real Earnings Management, Qiang Cheng, Jimmy Lee, Terry J. Shevlin

Research Collection School Of Accountancy

We examine whether internal governance affects the extent of real earnings management in U.S. corporations. Internal governance refers to the process through which key subordinate executives provide checks and balances in the organization and affect corporate decisions. Using the number of years to retirement to capture key subordinate executives’ horizon incentives and using their compensation relative to CEO compensation to capture their influence within the firm, we find that the extent of real earnings management decreases with key subordinate executives’ horizon and influence. The results are robust to alternative measures of internal governance and to various approaches used to address …

Leveraging Foreign Institutional Logic In The Adoption Of Stock Option Pay Among Japanese Firms, Xuesong Geng, Toru Yoshikawa, Asli M. Colpan

Research Collection Lee Kong Chian School Of Business

We investigate why Japanese firms have adopted executive stock option pay, which was developed with shareholder-oriented institutional logic that was inconsistent with Japanese stakeholder-oriented institutional logic. We argue that Japanese managers have self-serving incentives to leverage stock ownership of foreign investors and their associated institutional logic to legitimize the adoption of stock option pay. Our empirical analyses with a large sample of Japanese firms between 1997 and 2007 show that when managers have elite education, high pay inequality with ordinary employees, and when firms experience poor sales growth, foreign ownership is more likely associated with the adoption of stock option …

Do Government Linked Companies Hold More Cash?, Chenxi Liu, Kian Leong Nelson Yap, Sili Zhou

Research Collection Yong Pung How School Of Law

In this paper, we investigate the cash holings of government linked corporations (GLCs) in Singapore, with different levels of Temasek Holdings ownership. We find evidence that Temasek owned public firms hold on average substantially more cash than otherwise similar public firms listed on SGX. This result is robust to different measures of Temasek ownership. We also show that when GLCs have excess cash, they do not spend it on capital expenditure, acquisition, dividends or share repurchase. Instead, they hoard these excess cash leading to an accumulation of cash. In addition, we show that Temasek firms are on average more profitable, …

Is Corporate Integration A Good Idea?, Reuven S. Avi-Yonah, David Burton, Curtis Dubay, David S. Miller, Steven T. Miller, Stuart L. Rosow, Eric Toder, Alan D. Viard, Richard A. Westin

Other Publications

In general, I believe that integration is advisable as a way of addressing the biases of the classical system against using the corporate form, in favor of retaining earnings, and in favor of debt financing.

In terms of the bias against the corporate form, dividend deduction is as good as dividend exemption or imputation. In all three cases, there is only one level of tax imposed, at the shareholder level for dividend deduction or imputation, and at the corporate level for dividend exemption. If the top shareholder tax rate is higher than the corporate tax rate, both imputation and dividend …