Corporate Finance Commons^™

Economic Consequences Of Public Pension Accounting Regulation Changes: Evidence From Housing Markets And Local Economies, Grace Haoqing Fan

Research Collection School Of Accountancy

I examine whether, and through which channels, government pension accounting regulations affect local housing markets and economies. Using both a contiguous border-county approach across multiple states and a single-state study in California, I find that regions exposed to more severe state-level pension underfunding experience lower housing market growth after the introduction of Government Accounting Standards Board (GASB) regulations 67 and 68, which significantly enhance the transparency of public pension underfunding. The effect is more pronounced in states heavily impacted by the new regulations and in counties more reliant on state funding. Further analyses suggest that the observed effect is driven …

Information Production By Institutions And Information Extraction By Underwriters In Hybrid Ipo Auctions, Thomas J. Chemmanur, Pengfei Ma, Qianqian Yu

Research Collection Lee Kong Chian School Of Business

We analyze the informational properties of hybrid IPO auctions using a large and unique database of institutional bids from Chinese IPO auctions. We find strong evidence of information production by institutions about the intrinsic values of IPO firms and of underwriters extracting and using this information in IPO pricing. The IPO offer price is more sensitive to bids from institutions able to produce more precise information. In particular, the offer price is more sensitive to bids from domestic institutions, compared to bids from foreign institutions who likely have less knowledge or experience about the Chinese firms and financial market due …

Misinformation Regulations: Early Evidence On Corporate Social Media Strategy, Richard M. Crowley, Yun Lou, Samuel T. Tan, Liandong Zhang

Research Collection School Of Accountancy

Against the backdrop of an increasing threat of misinformation on social media, several countries have enacted regulations to curb the spread of misinformation. This study examines how corporate social media strategy responds to misinformation regulations. Using a large cross-country dataset of corporate tweets and a stacked regression analysis, we show that misinformation regulations lead to less corporate social media disclosure. This result suggests that by deterring misinformation, these regulations reduce firms’ need to use social media to counteract its adverse effects. Additional analyses show that the effect is more pronounced among countries with higher social media usage and countries with …

Individual Or Team Analyst Reports? The Organization Of Analyst Research Activities, Xia Chen, Ning Jia, Dan Wang

Research Collection School Of Accountancy

Given the importance of research resource allocation within brokerage firms, we examine key factors that influence the issuance of individual vs. team analyst reports. Using a comprehensive sample of analyst reports from China for the 2008-2021 period, we find that this decision is influenced by (1) the brokerage firm's client interests, whereby firms held by the brokerage firm's mutual fund clients and firms that are the brokerage firm's underwriting clients receive more team than individual reports from the brokerage firm, and (2) the nature of corporate events, whereby routine events receive more team reports and nonroutine events receive more individual …

Bogging Down Investors: An Unintended Consequence Of Litigation Risk, Siwen Fu, Ke Wang, Liandong Zhang, Liu Zheng

Research Collection School Of Accountancy

Securities litigation risk is a well-recognized yet underexplored source of financial reporting complexity or unreadability. This study examines the effect of litigation risk on the readability of corporate financial reports. The 1999 Silicon Graphics Inc. (SGI) court ruling unexpectedly reduced litigation risk for firms within the Ninth Circuit Court's jurisdiction. Using a difference-in-differences design centered on the SGI court ruling, we find that, while the readability of financial reports generally declines over the sample period, treated firms in the Ninth Circuit experience a comparatively smaller decline in readability than control firms in other states after the ruling. Put differently, treated …

Institutional Dual-Holders And Corporate Disclosures: A Natural Experiment, Lin Cheng, Qiang Cheng, Liwei Weng, Mark Yuzhi Yan

Research Collection School Of Accountancy

This study examines the impact of the presence of institutional dual-holders, whose portfolios hold both loans and equity securities of the same firms, on those firms' voluntary disclosures. Using mergers between institutional shareholders and lenders to the same firms as exogenous shocks to identify firms with institutional dual-holders that have high relative equity ownership, we document that such firms are less likely to provide management forecasts and disclose fewer voluntary 8-K items. In cross-sectional analyses, we find that the reduction in voluntary disclosures is more pronounced when institutional dual-holders have higher board representation and when firms have lower litigation risk. …

Exploring How The High Or Low Of Firm Transparency And Speed Of Adjustment In Its Capital Structure Relates To The Implied Cost Of Capital Of A Firm, Yung Chee Leong

Dissertations and Theses Collection (Open Access)

This dissertation tackles a core challenge in corporate finance — how firms can optimise both their capital structure decisions and the way those decisions are communicated to investors. It shows that while financial responsiveness (SOA) and transparency each help lower a firm’s implied cost of capital (ICC), the most meaningful reduction occurs when both are present and working together. For CFOs, the research offers a practical way to connect capital structure planning with communication strategy to improve market understanding and reduce financing costs. For investors and analysts, it introduces the idea of a transparency–SOA alignment measure to better assess firm …

A Rating System To Evaluate Non-Gaap Exclusion Quality, Patricia M. Dechow, Wei Ting Loh, Annika Yu Wang

Research Collection School Of Accountancy

We develop a rating system to evaluate the quality of individual non-GAAP exclusions. Our perspective is that high-quality exclusions reflect nonrecurring economic transactions, are transitory accounting adjustments, or have little usefulness in forecasting cash flows. We use four approaches to rate exclusions. We evaluate the serial correlation of the exclusion, survey accounting academics’ views, obtain practitioner ratings from the CFA Institute, and identify the exclusions approved by the Chinese securities regulator. A firm’s exclusion quality score is the weighted average rating of its individual exclusions. For our sample of S&P 500 firms, we document that exclusion quality varies by industry, …

How Do Institutional Investors Facilitate Reporting Comparability? Evidence From Common Institutional Ownership In The United States, Xuanbo Li, Yun Lou, Rencheng Wang, Kaitang Zhou

Research Collection School Of Accountancy

We examine how common institutional investors (CIIs) facilitate the financial reporting comparability (FRC) of US firms. Common ownership increases FRC of firms that are directly owned by CIIs (via a direct effect) and has positive spillover effects on other firms in the same industry. We find spillover effects in two types of firms: (1) those that are commonly owned by different institutional investors but are connected through common firms, and (2) those that do not have any common ownership. These results suggest that the effect of common ownership goes beyond commonly owned firms and extends to non-commonly owned firms. Furthermore, …

Capacity Investment In The Presence Of Correlated Demand And Production Resource Uncertainties And Its Implications For Financial Hedging, Onur Boyabatli, Guiyun Feng

Research Collection Lee Kong Chian School Of Business

In manufacturing firms, besides demand uncertainty, capacity investment decisions may also be subject to uncertainty in the availability of a production resource (e.g., budget or commodity component) which may become constraining for manufacturing. When the production resource uncertainty is tied to a financial index (e.g., asset or commodity price), the firm can enter into financial hedging contracts at the time of capacity investment to engineer this uncertainty. Our paper characterizes the optimal capacity investment and hedging decisions and examines how production resource uncertainty impacts the firm’s decisions, profitability, and the value of hedging. We identify three key drivers of these …

Major Customers And Carbon Footprints Along The Supply Chain, Saiying Deng, Tinghua Duan, Frank Weikai Li, Xiaoling Pu

Research Collection Lee Kong Chian School Of Business

This paper examines whether major corporate customers curb corporate carbon emissions along the supply chain. We show that suppliers with a more concentrated customer base have significantly lower carbon emissions. The results are robust to alternative measures of carbon emissions and customer concentration, alternative sample, alternative explanation, and various approaches to mitigate endogeneity concerns. The effect is more pronounced when major customers have made emission-reduction commitment, when they are exposed to greater climate regulatory shocks and risks, and when they become more concerned about regulatory scrutiny. Moreover, the curbing effect of major customers on supplier carbon emissions is stronger when …

Government Guidance Funds And Corporate Innovation: An Empirical Examination Based On Hangzhou, Huaping Wang

Dissertations and Theses Collection (Open Access)

Since the establishment of China's first market-oriented government guidance fund in 2002, these funds have actively played a supportive role in addressing market failures and promoting the innovative development of technology enterprises by reducing information asymmetry in the primary equity market, releasing positive signals, and alleviating financing constraints. With the establishment and development of China's multi-tiered government guidance fund system, related research has gradually emerged. However, current studies primarily explore whether government guidance funds have fulfilled their role in fostering innovation from a macro perspective, with limited in-depth discussion from a micro-level on how these funds should conduct their investment …

Corporate Environmental (Ir)Responsibility Of Chinese Construction Companies, Bin Zhang

Dissertations and Theses Collection (Open Access)

Grounded in a multi-stakeholder perspective, this study delves into the impact of Corporate Environmental Responsibility (CER) on the performance of firms in the Chinese construction industry. Utilizing a panel dataset of listed companies in the Chinese construction sector from 2008 to 2023, the research conducts empirical analysis by incorporating key stakeholder relationship indicators (customer concentration, government support, and bank loan costs) while controlling for firm characteristics, aiming to assess the effect of corporate environmental information disclosure on financial performance. The findings reveal that CER significantly positively affects financial performance. More crucially, this relationship is partly attributed to the strengthening of …

The Impact Of Eva Performance Evaluation System On Market Value Management Of State-Owned Listed Companies, Xiaohua Cai

Dissertations and Theses Collection (Open Access)

Against the backdrop of intensifying global economic competition and the deepening reform of state-owned enterprises (SOEs), improving the operational efficiency of central state-owned enterprises has become a core issue in China’s pursuit of high-quality economic development. Meanwhile, as market-oriented reforms advance and capital markets open further in both directions, central state-owned enterprises’ market value management has increasingly emerged as a pivotal mechanism connecting national strategies with market value, necessitating the establishment of an institutional framework that balances value creation and value realization. In 2009, the State-owned Assets Supervision and Administration Commission of the State Council introduced the Economic Value Added …

Institutional Cross-Ownership Of Peer Firms And Revelatory Price Efficiency, Young Jun Cho, Holly I. Yang, Yue Zhao

Research Collection School Of Accountancy

We argue that cross-ownership increases the amount of private information in stock price, enhancing the ability of stock price to provide feedback to managers. Consistent with this argument, we find greater cross-ownership heightens a firm’s investment-q sensitivity. This effect is stronger for firms with a lower propensity for voluntary disclosure and for firms whose managers hold less private information. Furthermore, we find that cross-ownership is negatively associated with the sensitivity of a firm’s investment to its peers’ stock prices. Additionally, cross-ownership has a stronger impact on the investment-q sensitivity when measured among investors who trade more actively the …

Family Succession And Corporate Investment Policy, Weiting Lin

Dissertations and Theses Collection (Open Access)

Family firms play a significant role in economic and social development, making substantial contributions to wealth creation, employment generation, and the enhancement of social welfare. However, the development of family firms faces numerous challenges, among which intergenerational succession stands out as one of the most critical. The intergenerational succession of family firms is crucial for their long-term sustainable development. In China, since the reform and opening up, private enterprises have experienced rapid growth, with most family firms still under the control of their first-generation founders. These firms are now entering a critical period of succession. The unique political, business, and …

How Do Firms Respond To Reduced Private Equity Buyout Activity?, Yi-Hsin Lo

Dissertations and Theses Collection (Open Access)

I investigate how firms respond to reduced private equity buyout activity in their home states by exploiting the state-by-state adoption of laws that increase the cost of buyouts. I find evidence suggestive of reduced firm efficiency. The firms also become less likely to go bankrupt or to relocate to other states. These findings suggest that the firms' managers may be starting to enjoy the quiet life. I also find a reduction in layoffs. Overall, the results indicate a trade-off: Whereas reduced private equity buyout activity increases managerial entrenchment, it also lowers firm exits and strengthens employees' job security.

Beyond The Disaster Zone: How Disruptive Climate Event Shape Epa Oversight And Firm Behavior, Grace Fan

Research Collection School Of Accountancy

We examine how experiences with disruptive climate events impact the Environmental Protection Agency’s (EPA) monitoring activities and subsequent firm behaviors. Using plausibly exogenous variation in the exposure of EPA regional offices to major hurricanes, we find that exposed EPA regulators increase their monitoring efforts, measured by both inspection frequency and length, at facilities located in their jurisdictions but outside the disaster zone. This effect diminishes over time and is stronger for regulators located closer to the disaster area or experiencing the disaster for the first time. Importantly, the heightened regulatory monitoring following disasters has real effects on regulated facilities–they face …

Unexpected Defaults: The Role Of Information Opacity, Aytekin Ertan, Yun Lee, Regina Wittenberg-Moerman

Research Collection School Of Accountancy

Bond defaults are undesirable yet natural outcomes of risky investments. What is also crucial but hitherto underexplored is the unexpectedness of defaults. We develop a parsimonious measure of default unexpectedness and highlight its economic importance by demonstrating that unexpected defaults are associated with unfavorable recovery outcomes and adverse price changes in peer firm bonds. We then examine how default unexpectedness relates to information opacity. We find that firms with opaque financial reporting and weak voluntary disclosure experience more unexpected defaults. Defaults also occur more unexpectedly when the external information environment is opaque—when rating agencies disagree on a firm’s credit risk …

Venture Capital, Marketization, And Corporate Innovation Performance, Jia Dong

Dissertations and Theses Collection (Open Access)

The paper explores the impact of venture capital (VC) on the innovation performance of companies listed on the ChiNext and STAR markets of China’s A-share market. By examining the effect of VC involvement on the number of patent applications and patents granted to listed companies, the study reveals the role of VC in promoting corporate innovation and its potential mechanisms. The research finds that venture capital significantly enhances firms’ innovation performance through increased R&D investment and management incentives. Additionally, the degree of marketisation, as an important external factor, significantly amplifies the positive impact of VC on corporate innovation.

The paper …

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.

Industry Peer Information And The Equity Valuation Accuracy Of Firms Emerging From Chapter 11, Bingxu Fang, Sasan Saiy, Dushyantkumar Vyas

Research Collection School Of Accountancy

Valuation plays a central role in determining Chapter 11 reorganization outcomes. However, obtaining accurate valuation estimates of reorganized firms is challenging because of limited firm-specific market-based information and the oft-conflicting incentives of claimholders. We examine the role of industry peer information in reducing misvaluations and its implications for unintended interclaimant wealth transfers and postreorganization performance. First, we find that the availability of relevant industry peer information is negatively associated with equity valuation errors for firms emerging from Chapter 11. Cross-sectional results suggest that the relation between industry peer information and valuation errors varies substantially with debtors’ information environment and case …

Green Innovation And Firms’ Financial And Environmental Performance: The Roles Of Pollution Prevention Versus Control, Qiang Cheng, An-Ping Lin, Mengjie Yang

Research Collection School Of Accountancy

This study examines the effects of firms' green innovation on their future financial and environmental performance. If pollution is primarily a manifestation of wasted resources, then investments in pollution prevention technologies can both reduce the environmental impact of production and improve financial performance. In contrast, investments in pollution control technologies likely reduce the environmental impact of production without improving financial performance. Using green patents to capture firms' investments in these two types of technologies, we find that the value of a firm's pollution prevention patents is positively associated with its future financial and environmental performance, and that the positive impact …

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 …

The Boundaries Of The Law: Can Us Private Enforcement Discipline Foreign Firms?, Massimo Massa, Xiaoqiao Wang, Bohui Zhang, Hong Zhang

Research Collection Lee Kong Chian School Of Business

Existing studies tend to focus on how a legal system reinforces the efficiency of its domestic firms or foreign companies that are subject to its domestic jurisdiction (e.g., via cross-listing). Our study provides critical normative implications in the era of financial globalization by showing that the influence of a country’s legal institutions extend beyond its territorial boundaries. We examine whether US shareholder-initiated class action lawsuits can discipline non-US firms. Using an international sample of firms over the period 1994–2019, we find that a US class action lawsuit against a non-US firm cross-listed in the US negatively affects the value of …

Merchant Guild Culture And Companies’ Sustainable Development: An Empirical Investigation Based On Esg Performance, Yi Wang

Dissertations and Theses Collection (Open Access)

In the context of global economic growth and growing emphasis on sustainable development, this study focuses on the impact of merchant guild culture, an important part of traditional Chinese culture, on the sustainable development of enterprises. Through an in-depth exploration of the historical evolution and cultural connotations of merchant guild culture, this paper systematically analyzes its potential influence on corporate behavior and sustainable development. Using a sample of A-share listed companies and applying regression analysis and other empirical research methods, this study finds that merchant guild culture facilitates the sustainable development of enterprises. Mechanism analysis reveals that merchant guild culture …

Partner Performance Evaluation, Disclosure Of Key Audit Matters, And Audit Quality, Shenghua Chen

Dissertations and Theses Collection (Open Access)

Transparency of information and audit quality are crucial for the efficiency and stability of the market. The disclosure of key audit matters has become an essential part of audit reports, yet there remains widespread debate regarding the role of key audit matters. This study finds a significant positive correlation between the extent of key audit matter disclosures and audit quality. Detailed disclosures can enhance information transparency, strengthen auditors’ sense of responsibility, and reduce information asymmetry. However, over-templating may have negative effects on audit quality, leading to a lack of personalized judgment by auditors. Additionally, this paper suggests that the partner …

Does Social Capital Mitigate Managerial Self-Dealing? Evidence From Insider Trading, Sung Gon Chung, Jimmy Lee, Sang Hyun Park

Research Collection School Of Accountancy

In this study, we examine whether the social capital surrounding the firm’s corporate headquarters mitigates managerial self-dealing in the form of opportunistic insider trading. We find strong evidence that the level of social capital in the region surrounding the firm’s headquarters is negatively and significantly associated with insider trading profitability. We also find that the negative association between social capital and insider trading profitability is more pronounced when governance is weaker and corporate opacity is higher, instances where insiders have greater opportunities to trade on their private information. Further analyses on the potential mechanisms suggest that the negative association is …

Audit Firms' Entry Into H-Share Audit Market And Mainland Audit Pricing: Evidence From China, Rui Zhang, Gaoliang Tian, Zichen Tian, Liuchuang Li

Research Collection School Of Accountancy

Purpose: This study aims to investigate whether mainland Chinese audit firms’ entry into the H-share market to provide audit services affects their mainland audit pricing. Design/methodology/approach: Using data on A-share listed companies in China from 2008 to 2018, a difference-in-differences model to test the research question is designed. Robustness tests are conducted to rule out alternative explanations and additional tests to shed light on the extent and inner workings of the main effect. Findings: The entry of mainland audit firms into the H-share audit market leads to a significant decrease in mainland audit pricing. Moreover, this main effect is (i) …

Do Commercial Ties Influence Esg Ratings? Evidence From Moody's And S&P, Xuanbo Li, Yun Lou, Liandong Zhang

Research Collection School Of Accountancy

We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher …