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Articles 61 - 90 of 213
Full-Text Articles in Corporate Finance
Overseas Listing Location And Cost Of Capital: Evidence From Chinese Firms Listed In Hong Kong, Singapore, And The United States, Warrington College Of Business, Frank Weikai Li, Central University Of Finance And Economics
Overseas Listing Location And Cost Of Capital: Evidence From Chinese Firms Listed In Hong Kong, Singapore, And The United States, Warrington College Of Business, Frank Weikai Li, Central University Of Finance And Economics
Research Collection Lee Kong Chian School Of Business
As at the end of 2012, more than 600 nonstate-owned Chinese firms were listed in overseas stock markets. We find that Chinese firms listed in the US have the lowest cost of capital when compared to those listed in Hong Kong and Singapore, and these results hold when controlling for firm characteristics and the endogeneity of listing locations. Cross-sectional tests indicate that listing in the US is more beneficial to those firms which face higher information asymmetry and agency costs. Overall, our evidence supports the view that the institutional environment has a first-order impact on a firm’s cost of capital.
Identifying Ineffective Monitors From Securities Class Action Lawsuits, Chi Shen Wei, Lei Zhang
Identifying Ineffective Monitors From Securities Class Action Lawsuits, Chi Shen Wei, Lei Zhang
Research Collection Lee Kong Chian School Of Business
We identify “ineffective” institutional monitors based on the prevalence of occurrences of securities class-action lawsuits in their overall portfolio. We find that firms with a higher representation of such institutional investors among the firms’ large shareholders have a greater likelihood of future litigation and experience more negative market reactions upon such litigation filings. These firms exhibit other unfavorable governance outcomes including poorer acquisitions and lower CEO turnover-performance sensitivity. We find suggestive evidence that ineffective monitoring may be a result of higher operational risk.
New Factors Wanted: Evidence From A Simple Specification Test, Ai He, Dashan Huang, Guofu Zhou
New Factors Wanted: Evidence From A Simple Specification Test, Ai He, Dashan Huang, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
In this paper, we examine the pricing errors (PEs) of three kinds of factor models: a) six well known ones– the CAPM, the Fama-French three-factor model, the Carhart four-factor model, the Fama-French five-factor model, the Hou-Xue-Zhang Q-factor model, and the Stambaugh-Yuan mispricing-factor model; b) principal component factors of sixty-two anomalies; c) extracted statistical factors. We find that there is a systematic PE reversal pattern. A spread portfolio that buys stocks in the bottom PE decile and sells stocks in the top PE decile earns significant abnormal returns across all the models, implying that none of them is adequate in explaining …
Warrants And Their Underlying Stocks: Microstructure Evidence From An Emerging Market, Charlie Charoenwong, David K. Ding, Nuttawat Visaltanachoti
Warrants And Their Underlying Stocks: Microstructure Evidence From An Emerging Market, Charlie Charoenwong, David K. Ding, Nuttawat Visaltanachoti
Research Collection Lee Kong Chian School Of Business
The Stock Exchange of Thailand provides an ideal platform for comparing the trading characteristics of warrants and their underlying stocks since both of them trade in the same market under identical trading rules. If their patterns diverge significantly, it may be possible for an astute trader to devise profitable arbitrage strategies during the life of the warrants. We find that both their patterns are downward-sloping for spreads, U-shaped for flow toxicity, volatility, depth concentration, and trading volume; and upward-sloping for depth and market order flow ratio. This implies that trading under identical market structures leads to similar trading characteristics. We …
Choosing The Precision Of Performance Metrics, Alan D. Crane, Andrew Koch, Chi Shen Wei
Choosing The Precision Of Performance Metrics, Alan D. Crane, Andrew Koch, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
There is a standard trade-off in contracts between the provision of incentives and insurance. We hypothesize that this trade-off influences the precision with which firm performance is measured. We find that firm outcomes are measured less precisely when chance plays a large role in these outcomes. Further, this precision is determined through the choice of shares outstanding. This has several novel implications. Nominal stock prices can remain constant over time, and firms with unpredictable cash flows should have more shares and lower stock price levels, all else equal. We find evidence consistent with these implications.
Reading Between The Lines: Not All Csr Is Good Csr, David K. Ding, Christo Ferreira, Udomsak Wongchoti
Reading Between The Lines: Not All Csr Is Good Csr, David K. Ding, Christo Ferreira, Udomsak Wongchoti
Research Collection Lee Kong Chian School Of Business
Purpose: This paper aims to investigate whether corporate social responsibility (CSR), as evidenced in annual financial reports, is associated with a firm’s financial performance in New Zealand. Design/methodology/approach: A word count approach of several key CSR indicators found in the audited financial reports of NZX50 constituent firms is used. Several variables are constructed that measure the presence of CSR within the annual report such as sustainability, responsibility, social, environment, diversity, employee and community, and eight other variables within the annual report that measure the penetration of stakeholder engagement. Control variables and alternative measures of CSR are also included. Descriptive statistics …
Real Estate Risk, Corporate Investment And Financing Choice, Xiaoying Deng, Seow Eng Ong, Meijun Qian
Real Estate Risk, Corporate Investment And Financing Choice, Xiaoying Deng, Seow Eng Ong, Meijun Qian
Research Collection Lee Kong Chian School Of Business
This paper empirically examines how real estate risk impacts corporate investment and financing decisions. Using a panel of United States firms from 1985 to 2013, we document that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. The results are robust to different risk measurements and in particular salient during the financial crisis period when the endogeneity between risk and investment is less of a concern. The effect on firm leverage, however, depends on risk measures. Overall, in contrast to previously documented positive effects of the real estate value, real estate …
The Competitive Landscape Of High-Frequency Trading Firms, Ekkehart Boehmer, Dan Li, Gideon Saar
The Competitive Landscape Of High-Frequency Trading Firms, Ekkehart Boehmer, Dan Li, Gideon Saar
Research Collection Lee Kong Chian School Of Business
We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there are three product categories with distinct attributes. We study how HFT competition in each product category impacts the market environment, presenting evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues.
Are Bond Ratings Informative? Evidence From Regulatory Regime Changes, Louis H. Ederington, Jeremy Goh, Yen Teik Lee, Lisa Yang
Are Bond Ratings Informative? Evidence From Regulatory Regime Changes, Louis H. Ederington, Jeremy Goh, Yen Teik Lee, Lisa Yang
Research Collection Lee Kong Chian School Of Business
The recent Dodd-Frank Act (Section 939B) enacted in 2010 repeals credit rating agencies’ (CRAs) exemption from Regulation Fair Disclosure. We test whether CRAs continue to provide new information to the market after the repeal. We find that the significant pre-repeal stock price responses to rating changes disappear after the regime change. Bond price reactions however remain significant. These results are even more significant at the investment-speculative boundary. Our evidence suggests that CRAs serve as a conduit for transmitting private information before the repeal. It also shows that regulatory constraint is a channel by which credit ratings affect cost of financing.
Option Listing And Information Asymmetry, Jianfeng Hu
Option Listing And Information Asymmetry, Jianfeng Hu
Research Collection Lee Kong Chian School Of Business
Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option listing standards. The benefits are more prominent for stocks with active options trading and opaque stocks. The reduction of information risk is larger for good news than bad news, and the stock price response to earnings surprise weakens after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading.
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 finance textbooks -- should thus have valuation effects. For instance, low beta projects should be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions and shows that takeovers of lower beta targets are accompanied by lower cumulative abnormal returns for the bidders. Specifically, our estimates imply an average net loss to bidders corresponding to 12% of the average deal value and exceeding USD 10 billion per year in aggregate.
Are Overconfident Ceos Better Leaders? Evidence From Stakeholder Commitments, Kenny Phua, T. Mandy Tham, Chi Shen Wei
Are Overconfident Ceos Better Leaders? Evidence From Stakeholder Commitments, Kenny Phua, T. Mandy Tham, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
We find evidence that the leadership of overconfident chief executive officers (CEOs) induces stakeholders to take actions that contribute to the leader's vision. By being intentionally overexposed to the idiosyncratic risk of their firms, overconfident CEOs exhibit a strong belief in their firms’ prospects. This belief attracts suppliers beyond the firm's observable expansionary corporate activities. Overconfident CEOs induce more supplier commitments including greater relationship-specific investment and longer relationship duration. Overconfident CEOs also induce stronger labor commitments as employees exhibit lower turnover rates and greater ownership of company stock in benefit plans.
Do Underwriters Compete In Ipo Pricing?, Evgeny Lyandres, Fangjian Fu, Erica X. N. Li
Do Underwriters Compete In Ipo Pricing?, Evgeny Lyandres, Fangjian Fu, Erica X. N. Li
Research Collection Lee Kong Chian School Of Business
We propose and implement a direct test of the hypothesis of oligopolistic competition in the U.S. underwriting market against the alternative of implicit collusion among underwriters. We construct a simple model of interaction between heterogenous underwriters and heterogenous firms and solve it under two alternative assumptions: oligopolistic competition among underwriters and implicit collusion among them. The two solutions lead to different equilibrium relations between the compensation of underwriters of different quality on one hand and the time-varying demand for public incorporation on the other hand. Our empirical results, obtained using 39 years of IPO data, are generally consistent with the …
Future-Time Framing: The Effect Of Language On Corporate Future Orientation, Hao Liang, Christopher Marquis, Luc Renneboog, Sunny Li Sun
Future-Time Framing: The Effect Of Language On Corporate Future Orientation, Hao Liang, Christopher Marquis, Luc Renneboog, Sunny Li Sun
Research Collection Lee Kong Chian School Of Business
We examine how international variation in corporate future-oriented behavior, such as corporate social responsibility and research and development investment, could partially stem from characteristics of the languages spoken at firms. We develop a future-time framing perspective rooted in the literatures on organizational categorization and framing. Our theory and hypotheses focus on how companies with working languages that obligatorily separate the future tense and the present tense engage less in future-oriented behaviors, and this effect is attenuated by exposure to multilingual environments. The results based on a large global sample of firms from 39 countries support our theory, highlighting the importance …
Is Corporate Social Responsibility An Agency Problem?, Hao Liang, Luc Renneboog
Is Corporate Social Responsibility An Agency Problem?, Hao Liang, Luc Renneboog
Research Collection Lee Kong Chian School Of Business
This chapter examines whether CSR investments occur mostly in firms with severe agency problems, which suggests that CSR is an agency issue. We demonstrate that this is not the case: CSR investments and performance are higher when dividends are high, leverage is high, cash flows and cash holdings are low, and when there is a high managerial pay-for-performance sensitivity. All these variables combined represent managerial discipline in terms of corporate investing. We also document that better legal protection of shareholder rights is positively related to CSR performance. This implies that when shareholders are more powerful relative to the management, the …
The Flow Of Funds In Asean, Philip C. Zerrillo
The Flow Of Funds In Asean, Philip C. Zerrillo
Research Collection Lee Kong Chian School Of Business
In his novel, Memoirs of a Geisha, Arthur Golden wrote, “Water can carve its way even through stone. And when trapped, water makes a new path.” Something similar seems to be happening with the flow of funds in ASEAN.
Public Hedge Funds, Lin Sun, Song Wee Melvyn Teo
Public Hedge Funds, Lin Sun, Song Wee Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Hedge funds managed by listed firms significantly underperform funds managed by unlisted firms. The underperformance is more severe for funds with low manager deltas, poor governance, and no manager co-investment, or managed by firms whose prices are sensitive to earnings news. Notwithstanding the underperformance, listed asset management firms raise more capital, by growing existing funds and launching new funds post listing, and harvest greater fee revenues than do comparable unlisted firms. The results are consistent with the view that, for asset management firms, going public weakens the alignment between ownership, control, and investment capital, thereby engendering conflicts of interest.
Public Hedge Funds, Lin Sun, Song Wee Melvyn Teo
Public Hedge Funds, Lin Sun, Song Wee Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Hedge funds managed by listed firms significantly underperform funds managed by unlisted firms. The underperformance is more severe for funds with low manager deltas, poor governance, and no manager co-investment, or managed by firms whose prices are sensitive to earnings news. Notwithstanding the underperformance, listed asset management firms raise more capital, by growing existing funds and launching new funds post listing, and harvest greater fee revenues than do comparable unlisted firms. The results are consistent with the view that, for asset management firms, going public weakens the alignment between ownership, control, and investment capital, thereby engendering conflicts of interest.
Powerful Blockholders And Ceo Turnover, Chi Shen Wei, Lei Zhang
Powerful Blockholders And Ceo Turnover, Chi Shen Wei, Lei Zhang
Research Collection Lee Kong Chian School Of Business
We identify the power of institutional blockholders to influence management using previous occurrences of forced CEO turnover at other firms in the blockholders’ overall portfolio. We create a “powerful blockholder linkage” measure that strongly predicts future forced CEO turnover. These effects are larger when “powerful” blockholders are more motivated to monitor and when they have had valuable monitoring experience. Moreover, firms with powerful blockholders display higher CEO turnover-performance sensitivity, pursue more value-increasing mergers, and have higher firm value. Overall, our results suggest that an identifiable group of powerful blockholders play an important role in corporate governance.
Analyst Effort Allocation And Firms' Information Environment, Rong Wang, Jarrad Harford, Feng Jiang, Fei Xie
Analyst Effort Allocation And Firms' Information Environment, Rong Wang, Jarrad Harford, Feng Jiang, Fei Xie
Research Collection Lee Kong Chian School Of Business
We show that a firm’s information environment is significantly impacted by the characteristics of the other firms its analysts cover. Analysts strategically allocate effort among portfolio firms by devoting more effort to firms that are relatively more important for their career concerns. Specifically, controlling for analyst and firm characteristics, we find that within each analyst’s portfolio, firms ranked relatively higher based on market capitalization, trading volume, or institutional ownership receive more accurate, frequent, and informative earnings forecast revisions and stock recommendation changes that contain greater information content from that analyst. Firms’ relative rank across analysts varies widely, so this is …
Are Capital Market Anomalies Common To Equity And Corporate Bond Markets?, Tarun Chordia, Amit Goyal, Yoshio Nozowa, Avanidhar Subrahmanyam, Qing Tong
Are Capital Market Anomalies Common To Equity And Corporate Bond Markets?, Tarun Chordia, Amit Goyal, Yoshio Nozowa, Avanidhar Subrahmanyam, Qing Tong
Research Collection Lee Kong Chian School Of Business
This paper studies whether the commonly analyzed equity return predictors also predict corporate bond returns. Bond markets do price risk, but are also susceptible to delayed information transmission relative to equities. Firm size and profitability are negatively priced while idiosyncratic volatility is positively priced, suggesting that large firms, more profitable firms and relatively less volatile firms are more attractive to bond investors, thus requiring lower returns. Consistent with a relatively sophisticated institutional clientele, bonds are efficiently priced in that none of the behaviorally-motivated variables provide profitable trading strategies after accounting for transactions costs, though some risk-based variables continue to do …
Short Interest, Returns, And Unfavorable Fundamental Information, Ferhat Akbas, Ekkehart Boehmer, Bilal Erturk, Sorin Sorescu
Short Interest, Returns, And Unfavorable Fundamental Information, Ferhat Akbas, Ekkehart Boehmer, Bilal Erturk, Sorin Sorescu
Research Collection Lee Kong Chian School Of Business
Several months before information becomes public, the level of short interest contains value-relevant information about publicly traded corporations. Short interest predicts future bad news, negative earnings surprises, and downward revisions in analyst earnings forecasts. This informational content is stronger for stocks that are harder to short. We also find that nearly half of the well-known cross-sectional relation between short interest and future stock returns is related to future changes in firms’ value-relevant information. Our results suggest that short interest predicts future returns, in part, due to short sellers’ ability to uncover unfavorable information about firms.
On The Foundations Of Corporate Social Responsibility, Hao Liang, Luc Renneboog
On The Foundations Of Corporate Social Responsibility, Hao Liang, Luc Renneboog
Research Collection Lee Kong Chian School Of Business
A firm’s corporate social responsibility (CSR) practice and its country’s legal origin are strongly correlated. This relation is valid for various CSR ratings coming from several large datasets that comprise more than 23,000 large companies from 114 countries. We find that CSR is more strongly and consistently related to legal origins than to “doing good by doing well”-factors, and most firm and country characteristics such as ownership concentration, political institutions, and degree of globalization. In particular, companies from common law countries have lower level of CSR than companies from civil law countries, and Scandinavian civil law firms assume highest level …
Multinational Firms And Cash Holdings: Evidence From China, Weijun Wu, Yang Yang, Sili Zhou
Multinational Firms And Cash Holdings: Evidence From China, Weijun Wu, Yang Yang, Sili Zhou
Research Collection Lee Kong Chian School Of Business
To adapt to globalization, Chinese multinational firms have more exploitation of cash. This paper shows that Chinese multinational corporations (MNCs) do not hold significantly more cash relative to domestic firms unless these multinationals heavily relay on the foreign sales. In addition, the multinationals of non-State-Owned Enterprises (Non-SOEs) exhibit the insignificant difference in cash holdings for non-multinationals. We also find that Chinese MNCs invest more but are less profitable, especially in non-SOE subsample. Overall, we conclude that the need of cash liquidity of multinational corporations in China is different from those in U.S.
What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters And Ceo Behavior, Gennaro Bernile, Vineet Bhagwat, P. Raghavendra Rau
What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters And Ceo Behavior, Gennaro Bernile, Vineet Bhagwat, P. Raghavendra Rau
Research Collection Lee Kong Chian School Of Business
The literature on managerial style posits a linear relation between a chief executive officer's (CEOs) past experiences and firm risk. We show that there is a nonmonotonic relation between the intensity of CEOs’ early-life exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs’ disaster experience and corporate policies has real economic consequences on firm riskiness and …
Socially Responsible Firms, Allen Ferrell, Hao Liang, Luc Renneboog
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 and Means (1932), corporations should generally be run to maximize shareholder value. The agency view of corporate social responsibility (CSR) considers CSR an agency problem and a waste of corporate resources. Given our identification strategy by means of an instrumental variable approach, we find that well-governed firms that 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 that a positive relation exists between CSR and value and that CSR attenuates the negative relation between managerial entrenchment and value.
Decimalization, Ipo Aftermath, And Liquidity, Charlie Charoenwong, David K. Ding, Tiong Yang Thong
Decimalization, Ipo Aftermath, And Liquidity, Charlie Charoenwong, David K. Ding, Tiong Yang Thong
Research Collection Lee Kong Chian School Of Business
We investigate the effect of decimalization on the aftermarket trading of NYSE-listed IPOs. We find that the relation between bid–ask spread and underpricing becomes negative post-decimalization, suggesting that benefits from the increased price competition accrue more to hot IPOs. The quoted depth is generally smaller post-decimalization due to a higher probability of front running, which aggravates the cost of adverse selection and limit order submission. We show that underwriters continue to provide price support but are only willing to cover the initial short position, if profitable to do so. Decimal pricing does not affect the flipping strategy of institutions for …
Valuation Uncertainty, Market Sentiment And The Informativeness Of Institutional Trades, Lisa Yang, Jeremy Goh, Chiraphol N. Chiyachantana
Valuation Uncertainty, Market Sentiment And The Informativeness Of Institutional Trades, Lisa Yang, Jeremy Goh, Chiraphol N. Chiyachantana
Research Collection Lee Kong Chian School Of Business
Prior studies indicate that institutional investors are informed, in the sense that their trades predict price changes. In this study we show that return predictive ability of institutions arises (after controlling for size, book-to-market, and momentum) mainly from institutional sales of hard-to-value stocks during periods of positive market sentiment. These results support the notion that these stocks tend to be overvalued during periods of bullish market sentiment, and institutions contribute to market efficiency by identifying and trading on these overpriced stocks.
Does It Pay To Be Different? Relative Csr And Its Impact On Firm Value, David K. Ding, Christo Ferreira, Udomsak Wongchoti
Does It Pay To Be Different? Relative Csr And Its Impact On Firm Value, David K. Ding, Christo Ferreira, Udomsak Wongchoti
Research Collection Lee Kong Chian School Of Business
Conventional aggregation of Corporate Social Responsibility (CSR) raw scores and its interpreted impact on firm value have provided mixed evidence in the literature. We show that the value impact of CSR activities relies heavily on the industry-specific relative position of the firm. Only firms that distinguish themselves over their peers are associated with increased firm value. This finding is robust and holds for both responsible and irresponsible behaviors. Information concerns and portfolio construction can allude to a possible CSR clientele, suggesting the existence of an optimal CSR level. Our peer-effect results are robust to unobserved heterogeneity along the lines of …
Sociability, Golf Courses, And The Performance Of Institutional Investors, Chi Shen Wei, Lei Zhang
Sociability, Golf Courses, And The Performance Of Institutional Investors, Chi Shen Wei, Lei Zhang
Research Collection Lee Kong Chian School Of Business
We hypothesize that prestigious golf courses attract golfers and visitors from across the country, providing greater opportunities for nearby investors to build social connections. Our evidence suggests that institutional investors located near prestigious golf courses earn significantly better benchmark- and risk-adjusted returns. This reflects the benefits of sociability as our findings are stronger for golf courses with reciprocal guest policies that allow wider participation and increase when major golf championships rotate to the state. Their portfolios reveal hallmarks of active trading – higher concentration, greater selectivity, more frequent turnover – and include more distant stocks. To establish a causal link, …