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Articles 481 - 510 of 665

Full-Text Articles in Corporate Finance

Analysts' Industry Expertise, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach Oct 2012

Analysts' Industry Expertise, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach

Research Collection Lee Kong Chian School Of Business

Industry expertise is an important aspect of sell-side research. We explore this aspect using a novel dataset of industry recommendations, which are often issued by strategy analysts. We study sell-side analysts' ability to rank industries relative to each other (across-industry expertise), and how it relates to analysts' ability to rank firms in a particular industry (within-industry expertise). We find that analysts express more optimism towards industries with higher levels of investment, past profitability, and past returns. Analysts exhibit across-industry expertise, as portfolios based on industry recommendations generate abnormal returns over both short and long horizons, beyond what would be explained …

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Social Networks And Risk Taking: Evidence From Corporate Control Activities, Yen Teik Lee Oct 2012

Social Networks And Risk Taking: Evidence From Corporate Control Activities, Yen Teik Lee

Research Collection Lee Kong Chian School Of Business

This paper investigates the impact of social ties between the Chief Executive Officer (CEO) andboard members on corporate risk-taking in mergers and acquisitions (M&As) and on shareholdervalue. Using a measure of CEO-director connections in a large sample of U.S. firms from 2000 to2010, we document that boardroom connections lower firm acquisitiveness. If connected CEOsundertake M&As, they are less likely to choose focus acquisitions, and more likely to pay in stock.CEO-board connections do not enhance firm value in M&As. Higher levels of boardroomconnection are associated with lower announcement returns and lower subsequent return on assets.Our results are robust to alternative explanations …

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The Impact Of Related Party Sales By Listed Chinese Firms On Earnings Informativeness And Analysts Forecasts, Jiwei Wang, Hongqi Yuan Sep 2012

The Impact Of Related Party Sales By Listed Chinese Firms On Earnings Informativeness And Analysts Forecasts, Jiwei Wang, Hongqi Yuan

Research Collection School Of Accountancy

Using a random sample of 140 of China's listed firms, we show an adverse impact of related party (RP) sales of goods and services on the usefulness of accounting earnings to investors and on the quality of earnings forecasts by financial analysts. Consistent with the contention that RP sales may violate the arm's-length assumption of regular transactions and consequently impair the representational faithfulness and verifiability of accounting data, we find that earnings of firms engaged in RP sales are at least 33% less informative after controlling for factors known to affect earnings informativeness. We also find that financial analysts are …

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Political Connections And Corporate Diversification In Emerging Economies: Evidence From China, Weiwen Li, Ai He, Hailin Lan, Daphne W. Yiu Sep 2012

Political Connections And Corporate Diversification In Emerging Economies: Evidence From China, Weiwen Li, Ai He, Hailin Lan, Daphne W. Yiu

Research Collection Lee Kong Chian School Of Business

Drawing upon the resource-based view, this study examines how political connections affect corporate diversification in an emerging economy. Data from a sample of 1,280 Chinese public firms over 2002-2005 show a strong positive relationship between political connections and corporate diversification. We also find that the positive relationship between political connections and corporate diversification is moderated by the level of state ownership in firms and the level of regional institutional development. Theoretical and managerial implications are discussed.

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Sell-Order Liquidity And The Cross-Section Of Expected Stock Returns, Michael Brennan, Tarun Chordia, Avanidhar Subrahmanyam, Qing Tong Sep 2012

Sell-Order Liquidity And The Cross-Section Of Expected Stock Returns, Michael Brennan, Tarun Chordia, Avanidhar Subrahmanyam, Qing Tong

Research Collection Lee Kong Chian School Of Business

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility.

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Productivity, Return-On-Capital And Stock Price Performance, Andrew Lee, Tracey Zhang Aug 2012

Productivity, Return-On-Capital And Stock Price Performance, Andrew Lee, Tracey Zhang

Research Collection School Of Accountancy

Productivity improvements in businesses are invariably championed as value-enhancing propositions. Whether the improvements are labour-related or asset-related, the value of a business is arguably enhanced when its employees are more productive, its assets are utilised more productively, and its operations are conducted more efficiently.

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Does Earnings Quality Affect Information Asymmetry? Evidence From Trading Costs, Nilabhra Bhattacharya, Hemang Desai, Kumar Venkataraman Aug 2012

Does Earnings Quality Affect Information Asymmetry? Evidence From Trading Costs, Nilabhra Bhattacharya, Hemang Desai, Kumar Venkataraman

Research Collection School Of Accountancy

Information asymmetry in financial markets relates to the idea that one party to a transaction has better information than the other. Since financial reporting involves the transmission of value-relevant enterprise information, we investigate whether the quality of reported earnings can contribute to differentially informed financial market participants. Higher information asymmetry is costly as it increases the adverse selection risk for market participants and lowers liquidity. For a large sample of NYSE and NASDAQ firms, we show that (i) poor earnings quality is significantly and incrementally associated with higher information asymmetry, (ii) earnings quality disproportionately affects information asymmetry for firms with …

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Executive Compensation And Regulation Imposed Governance: Evidence From The California Non-Profit Integrity Act (2004), Tharindra Ranasinghe, S. Khumawala, S. Mishra, S. Dhole Jul 2012

Executive Compensation And Regulation Imposed Governance: Evidence From The California Non-Profit Integrity Act (2004), Tharindra Ranasinghe, S. Khumawala, S. Mishra, S. Dhole

Research Collection School Of Accountancy

No abstract provided.

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Disciplinary Effect Of Internal Control Provisions Of Sox On Corporate Governance Structures, Beng Wee Goh Jun 2012

Disciplinary Effect Of Internal Control Provisions Of Sox On Corporate Governance Structures, Beng Wee Goh

Research Collection School Of Accountancy

This study examines whether the internal control provisions under the Sarbanes–Oxley Act (SOX) have a disciplining effect on the governance structures of firms. We find that audit committee members and outside directors of firms that disclose material weaknesses (MWs) under Section 302 of SOX are more likely to leave the firms compared to their counterparts in a matched sample of control firms without such weaknesses, and they lose more outside directorships than their counterparts in the control firms. These results are consistent with the notion that the labor market imposes reputational penalties for internal control failures. Although the MW firms …

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Client Conservatism And Auditor-Client Contracting, Yoonseok Zang, Chee Yeow Lim, Mark Defond Jun 2012

Client Conservatism And Auditor-Client Contracting, Yoonseok Zang, Chee Yeow Lim, Mark Defond

Research Collection School Of Accountancy

Auditors risk costly litigation and loss of reputation when they are associated with clients that engage in substandard financial reporting, and prior research argues that accounting conservatism reduces managements‟ tendency to misreport. Thus, we predict that client conservatism affects auditor-client contracting by reducing auditor litigation and reputation risk. Consistent with our predictions, we find that conservative audit clients are less likely to trigger auditor litigation or issue accounting restatements; and that auditors of conservative clients charge lower audit fees, issue fewer going concern opinions, and resign less frequently. Taken together, these findings are consistent with client accounting conservatism playing an …

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R&D Reporting Rule And Firm Efficiency, Nilabhra Bhattacharya, Yoshie Saito, Ram Venkataraman, Jeff Jiwei Yu Jun 2012

R&D Reporting Rule And Firm Efficiency, Nilabhra Bhattacharya, Yoshie Saito, Ram Venkataraman, Jeff Jiwei Yu

Research Collection School Of Accountancy

US GAAP (SFAS 2) requires immediate expensing of research and development (R&D) expenditure. Critics of this rule contend that the current treatment incentivizes managers to cut essential investments in R&D to manage short-term profits, and such actions could lead to longer-term adverse consequences for firms and investors. While other observers argue that there is little rigorous research that suggests that the current accounting treatment has harmful consequences. In this study, we exploit a setting in Germany when the accounting rule for R&D reporting changed from immediate expensing (as in the U.S.) to partial capitalization when Germany adopted International Financial Reporting …

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Aspirations, Innovation, And Corporate Venture Capital: A Behavioral Perspective, Vibha Gaba, Shantanu Bhattacharya Jun 2012

Aspirations, Innovation, And Corporate Venture Capital: A Behavioral Perspective, Vibha Gaba, Shantanu Bhattacharya

Research Collection Lee Kong Chian School Of Business

This study takes an organizational decision-making perspective to examine when firms are likely to utilize CVC units as a mechanism for externalizing R&D. We draw insights from the behavioral theory of the firm to argue that managerial aspirations for innovation-related goals are an important driver of CVC initiatives within firms. We test our argument by examining both the adoption and termination of CVC units for a sample of information technology firms from 1992 to 2003. Results show that a firm is more likely to adopt and less likely to terminate a CVC unit when its innovation performance is closest to …

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Geographic Proximity Between Auditor And Client: How Does It Impact Audit Quality?, Jong-Hag Choi, Jeong-Bon Kim, Aini Qiu, Yoonseok Zang May 2012

Geographic Proximity Between Auditor And Client: How Does It Impact Audit Quality?, Jong-Hag Choi, Jeong-Bon Kim, Aini Qiu, Yoonseok Zang

Research Collection School Of Accountancy

Using a large sample of audit client firms, this paper investigates whether and how the geographic proximity between auditor and client affects audit quality proxied by accrual-based earnings quality. We define an auditor as a local auditor (1) if the auditor’s practicing office is located in the same metropolitan statistical area (MSA) as the client's headquarters and (2) if the geographic distance between the two cities where the auditor’s practicing office and the client’s headquarters are located is within 100 kilometers or they are in the same MSA. As predicted, our empirical results are consistent with local auditors providing higher-quality …

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Out Of Sight, Out Of Mind: The Value Of Political Connections In Social Networks, Quoc-Anh Do, Yen Teik Lee, Bang Dang Nguyen, Kieu-Trang Nguyen May 2012

Out Of Sight, Out Of Mind: The Value Of Political Connections In Social Networks, Quoc-Anh Do, Yen Teik Lee, Bang Dang Nguyen, Kieu-Trang Nguyen

Research Collection School Of Economics

This paper investigates the impact of social-network based political connections on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Comparing firms connected to elected versus defeated politicians in the Regression Discontinuity Design of close elections from 2000 to 2008, we provide evidence that political connections enhance firm value. However, the value of political connections varies in a more complex way than expected. While connections to powerful members of the Senate generate strong positive impact on firm value, connections to newly elected congressmen are less valuable to firms than …

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Auditor Reporting Under Section 404: The Association Between The Internal Control And Going Concern Audit Opinions, Beng Wee Goh Apr 2012

Auditor Reporting Under Section 404: The Association Between The Internal Control And Going Concern Audit Opinions, Beng Wee Goh

Research Collection School Of Accountancy

Section 404 of the Sarbanes-Oxley Act introduced integrated audits of internal control over financial reporting and the financial statements. Since the internal control and audit reports are joint products of the audit process, we examine whether the issuance of an internal control material weakness opinion (MWO) influences, other things equal, the issuance of a going concern audit opinion (GCO). Using a sample of financially stressed companies, we find that the issuance of a MWO increases the likelihood of a GCO, suggesting that auditors respond to the uncertainty surrounding a MWO by issuing a GCO. Further, the positive association between MWO …

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Spin-Offs And Operating Performance, Gary L. Caton, Jeremy C. Goh, Frank Kerins Mar 2012

Spin-Offs And Operating Performance, Gary L. Caton, Jeremy C. Goh, Frank Kerins

Research Collection Lee Kong Chian School Of Business

This study examines the relation between changes in industry-adjusted operating performance associated with corporate spin-offs and the market’s assessment of the spin-off as either a value increasing or value decreasing activity. I find that the average change in industry-adjusted operating performance associated with my sample of spin-offs is not significantly different from zero. However, I also present evidence suggesting that this average result is misleading because some spin-offs appear to be value increasing while others are value decreasing. I establish that a positive and significant relation exists between parent company revaluation and a) the change in industry-adjusted operating performance of …

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Capital Market Consequences Of Managers' Voluntary Disclosure Styles, Holly I. Yang Feb 2012

Capital Market Consequences Of Managers' Voluntary Disclosure Styles, Holly I. Yang

Research Collection School Of Accountancy

This paper studies the capital market consequences of managers establishing an individual forecasting style. Using a manager-firm matched panel dataset, I examine whether and when manager-specific credibility matters. If managers' forecasting styles affect their perceived credibility, then the stock price reaction to forecast news should increase with managers' prior forecasting accuracy. Consistent with this prediction, I find that the stock price reaction to management forecast news is stronger when information uncertainty is high and when the manager has a history of issuing more accurate forecasts, indicating that individual managers benefit from establishing a personal disclosure reputation.

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The Party's Over: The Role Of Earnings Guidance In Resolving Sentiment-Driven Overvaluation, Nicholas Seybert, Holly I. Yang Feb 2012

The Party's Over: The Role Of Earnings Guidance In Resolving Sentiment-Driven Overvaluation, Nicholas Seybert, Holly I. Yang

Research Collection School Of Accountancy

This paper shows that an important link between investor sentiment and firm over valuation is optimistic earnings expectations, and that management earnings guidance helps resolve sentiment-driven overvaluation. Using previously identified firm characteristics, we find that most of the negative returns to uncertain firms in months following high-sentiment periods fall within the three-day window around the issuance of management earnings guidance. Comparisons of guidance months to nonguidance months show that guidance issuance affects the magnitude and not just the daily distribution of negative returns. There is also some evidence of negative returns around earnings announcements for firms that previously issued guidance, …

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An Improved Test For Statistical Arbitrage, Robert Jarrow, Melvyn Teo, Yiu Kuen Tse, Mitch Warachka Feb 2012

An Improved Test For Statistical Arbitrage, Robert Jarrow, Melvyn Teo, Yiu Kuen Tse, Mitch Warachka

Research Collection Lee Kong Chian School Of Business

We improve upon the power of the statistical arbitrage test in Hogan, Jarrow, Teo, and Warachka (2004). Our methodology also allows for the evaluation of return anomalies under weaker assumptions. We then compare strategies based on their convergence rates to arbitrage and identify strategies whose probability of a loss declines to zero most rapidly. These strategies are preferred by investors with finite horizons or limited capital. After controlling for market frictions and examining convergence rates to arbitrage, we find that momentum and value strategies offer the most desirable trading opportunities.

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Financial Literacy And Numerical Ability: Keys To Better Mortgage Outcomes, Singapore Management University Jan 2012

Financial Literacy And Numerical Ability: Keys To Better Mortgage Outcomes, Singapore Management University

Perspectives@SMU

While mortgage credit expansion had lead to a rapid increase of home ownership in the US, the reversal of home prices beginning in 2006 resulted in a substantial increase in mortgage delinquencies and an explosion in outright defaults. Its devastating impact on the associated mortgage backed securities led the US and the world to its worst financial and macroeconomic crisis since the Great Depression, with its deleterious effects still felt today.

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Assessing The Valuation And Risk Implications Of Fair Value Accounting For Liabilities: Evidence From Fas 159'S Reported Gains And Losses, Sung Gon Chung, Gerald Lobo, Kevin Ow Yong Jan 2012

Assessing The Valuation And Risk Implications Of Fair Value Accounting For Liabilities: Evidence From Fas 159'S Reported Gains And Losses, Sung Gon Chung, Gerald Lobo, Kevin Ow Yong

Research Collection School Of Accountancy

This study examines the implications of fair value liability gains and losses arising from the adoption of Statement of Financial Accounting Standards No. 159 (hereafter FAS 159). We find a positive correspondence between a firm’s FAS 159 fair value liability gains and losses and stock returns. Further analysis indicates that fair value gains and losses from liabilities attributable to the change in a firm’s own credit risk, which are considered counter-intuitive by critics of fair value accounting for liabilities, are also positively related to returns. Lastly, we document that the volatility of earnings that incorporate FAS 159 liability fair value …

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An Analytical And Empirical Measure Of The Degree Of Conditional Conservatism, Dan Segal, Jeffrey L. Callen Jan 2012

An Analytical And Empirical Measure Of The Degree Of Conditional Conservatism, Dan Segal, Jeffrey L. Callen

Research Collection School Of Accountancy

There is a profound gap between models of accounting conservatism and the proxies for conditional conservatism currently used by the empirical literature. Not one of the proxies employed by the empirical literature to date obtains from a rigorous definition of conditional conservatism. In contrast, this study defines conditional conservatism in terms of truncated distributions and derives analytically a nonlinear relation between revisions to returns and earnings news for the conservative firm. This nonlinear relation is shown to be mathematically equivalent to two linear relations conditioned on the firm's degree of conservatism. From these relations, we derive a model-based proxy of …

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Accounting Flexibility And Managers’ Forecast Behavior Prior To Seasoned Equity Offerings, Jae Bum Kim Jan 2012

Accounting Flexibility And Managers’ Forecast Behavior Prior To Seasoned Equity Offerings, Jae Bum Kim

Research Collection School Of Accountancy

This study examines the effect of accounting flexibility on managers’ forecasting behavior prior to seasoned equity offerings(SEO). While SEO firms have strong incentives to convey optimistic information to boost the pre-SEO stock price, they also face enhanced litigation risk arising from SEO-related regulations. Thus, I hypothesize that managers of SEO firms will release optimistic forecasts prior to an SEO only if they have the accounting flexibility to manage subsequent reported earnings to meet or exceed their forecasts. I find that managers with greater accounting flexibility are more likely to issue a forecast prior to the SEO and their forecasts are …

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Independent Financial Advisers’ Opinions For Public Takeovers And Related Party Transactions In Singapore, Wai Yee Wan Jan 2012

Independent Financial Advisers’ Opinions For Public Takeovers And Related Party Transactions In Singapore, Wai Yee Wan

Research Collection Yong Pung How School Of Law

This article examines the role and utility of opinions (IFA opinions) rendered by independent financial advisers (IFAs), who are required to be appointed in connection with takeovers of, and related party transactions entered into by, companies which are listed in Singapore. Three main problems are identified: (1) data from 122 IFA opinions issued between 2008 and 2010 in connection with takeover offers of Singapore-listed companies show that there are a significant number of IFAs who do not use the standard of “fair and reasonable” in assessing offers and instead use tests that are more equivocal, rendering the opinions less helpful; …

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The Role Of Accounting Conservatism In Firms' Financial Decisions, Jimmy Kiat Bee Lee Jan 2012

The Role Of Accounting Conservatism In Firms' Financial Decisions, Jimmy Kiat Bee Lee

Research Collection School Of Accountancy

This paper investigates whether financial reporting conservatism is related to firms’ financial flexibility and their access to capital. If conservatism facilitates monitoring and governance by capital providers, they should be more willing to extend financing and increase firms’ access to capital. However, because conservatism leads to systematic understatement of net worth and weakens the appearance of firms’ balance sheet strength, it could also reduce firms’ access to capital. This study tests these two opposing views of the relationship between conservatism and firms’ financial flexibility. Results indicate that firms with greater reporting conservatism exhibit less flexibility in their corporate liquidity management, …

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Investor Competition Over Information And The Pricing Of Information Asymmetry, Brian K. Atkins, Jeffrey Ng, Rodrigo Verdi Jan 2012

Investor Competition Over Information And The Pricing Of Information Asymmetry, Brian K. Atkins, Jeffrey Ng, Rodrigo Verdi

Research Collection School Of Accountancy

Whether the information environment affects the cost of capital is a fundamental question in accounting and finance research. Relying on theories about competition between informed investors as well as the pricing of information asymmetry, we hypothesize a cross-sectional variation in the pricing of information asymmetry that is conditional on competition. We develop and validate empirical proxies for competition using the number and concentration of institutional investor ownership. Using these proxies, we find a lower pricing of information asymmetry when there is more competition. Overall, our results suggest that competition between informed investors has an important effect on how the information …

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Direct And Mediated Associations Among Earnings Quality, Information Asymmetry And The Cost Of Equity, Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper Jan 2012

Direct And Mediated Associations Among Earnings Quality, Information Asymmetry And The Cost Of Equity, Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper

Research Collection School Of Accountancy

Using path analysis, we investigate the direct and indirect links between three measures of earnings quality and the cost of equity. Our investigation is motivated by analytical models that specify both a direct link and an indirect link that is mediated by information asymmetry, but do not suggest which link would be more important empirically. We measure information asymmetry as both the adverse selection component of the bid-ask spread and the probability of informed trading (PIN). For a large sample of Value Line firms during 1993–2005, we find statistically reliable evidence of both a direct path from earnings quality to …

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Corporate Philanthropy And Corporate Financial Performance: The Roles Of Social Response And Political Access, Heli Wang, Cuili Qian Dec 2011

Corporate Philanthropy And Corporate Financial Performance: The Roles Of Social Response And Political Access, Heli Wang, Cuili Qian

Research Collection Lee Kong Chian School Of Business

Corporate philanthropy is expected to positively affect firm financial performance because it helps firms gain sociopolitical legitimacy, which enables them to elicit positive stakeholder responses and to gain political access. The positive philanthropy-performance relationship is stronger for firms with greater public visibility and for those with better past performance, as philanthropy by these firms gains more positive stakeholder responses. Firms that are not government-owned or politically well connected were shown to benefit more from philanthropy, as gaining political resources is more critical for such firms. Empirical analyses using data on Chinese firms listed on stock exchanges from 2001 to 2006 …

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Forecasting Bond Risk Premia Using Technical Analysis, Choo Yong, Jeremy Goh, Fuwei Jiang, Jun Tu, Guofu Zhou Nov 2011

Forecasting Bond Risk Premia Using Technical Analysis, Choo Yong, Jeremy Goh, Fuwei Jiang, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

While economic variables have been used extensively to forecast the U.S. bond risk premia, little attention has been paid to the use of technical indicators which are widely employed by practitioners. In this paper, we fill this gap by studying the predictive ability of using a variety of technical indicators vis-a-vis the economic variables. We find that the technical indicators have statistically and economically significant in- and out-of-sample forecasting power. Moreover, we find that utilizing information from both technical indicators and economic variables substantially increases the forecasting performances relative to using just economic variables.

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Board Reputation And Financial Reporting Quality, Dan Segal Oct 2011

Board Reputation And Financial Reporting Quality, Dan Segal

Research Collection School Of Accountancy

This study uses a new measure of board reputation that is based on the market value of other companies on which board members serve, and examines whether board reputation has a causal effect on monitoring as reflected in financial statement reporting quality. A negative causal effect is expected if reputable directors are ineffective monitors because they are too busy or they choose to cater to management, whereas a positive causal effect is expected if reputable directors are more experienced and subject to significant reputation penalties in the case of a financial reporting failure. An alternative explanation is that reputation does …

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