Corporate Finance Commons^™

People, Planet, Profit: Benefit And B Certified Corporations - Comprehension And Outlook Of Business Students, Arlene J. Nicholas, Samuel Sacco

Faculty and Staff - Articles & Papers

This paper is an overview of the emergence of Benefit and Certified B Corporations that aim to realize a profit and make a positive impact on society as measured by some third party standard. In this way, these corporations differ in corporate purpose from traditional C corporations. Directors and managers are accountable for that defined public benefit. Considerations of sustainable business practices have existed in many industries for several years. However, the recent growth in legislation to create a legal framework for Benefit Corporations is newly emergent. An examination of recent literature explains the rise of these socially responsible organizations, …

Insider Versus Outsider Ceos, Executive Compensation, And Accounting Manipulation, Prasart Jongjaroenkamol, Volker Laux

Research Collection School Of Accountancy

This paper examines the role of the financial reporting environment in selecting a new CEO from within versus outside the organization. Weak reporting controls allow the CEO to misreport performance information, which reduces the board's ability to detect and replace poorly-performing CEOs as well as aggravates incentive contracting. We show that these adverse effects are stronger when the CEO is an outsider rather than an insider. Our model predicts that boards are more likely to recruit a CEO from the outside when the performance measures with which the new hire is assessed are harder to manipulate.

Do Politically Connected Directors Affect Accounting Quality? Evidence From China's Anti-Corruption Campaign (Rule 18), Ole-Kristian Hope, Heng Yue, Qinlin Zhong

Research Collection School Of Accountancy

We examine the impact of politically connected directors on accounting quality using a quasi experiment in China. In October 2013, “Rule 18” was issued to prohibit government and party officials, who were concurrently holding public offices or had recently retired from such positions within the last three years, from serving as directors for publicly listed firms. The regulation is part of China’s anti-corruption campaign, and it has led to a large number of politically connected directors resigning from their roles as directors involuntarily. As such, Rule 18 has effectively weakened, if not fully discontinued, the political connections of the firms …

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 …

Regulatory Pressure And Income Smoothing By Banks In Response To Anticipated Changes To The Basel Ii Accord, Chu Yeong Lim, Kevin Ow Yong

Research Collection School of Accountancy

We examine the effects of the revised Basel II rules on bank managers’ discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce risk-taking activities or increase income smoothing. Analysis of segmental reports reveals greater (less) income smoothing in the corporate banking segments of low-capital (high-capital) banks during the Basel II period, with their managers recognizing loan loss provisions in a less timely fashion. We find no such effects for retail banking. Although we document an initially negative market reaction to …

2017 Q1 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.

Public Company Health Insurers And Medical Loss Ratios: An Event Study Of Dates Associated With The Affordable Care Act, Rachelle Quinn

Doctor of Business Administration (DBA)

The Affordable Care Act (ACA) has proved to be a contentious regulatory and political topic. Although key features were established within the law the complexity of the new provisions and political opposition resulted in a series of federal and state governmental process changes, rule clarifications, and legal challenges. One component of the ACA is the introduction of a federal Medical Loss Ratio (MLR), which requires insurers to spend specified percentages of their premium revenue dollars on medical services and quality improvement actions. If thresholds are not met, insurers must refund premiums to their members, potentially removing millions of dollars from …

Voluntary Fair Value Disclosures Beyond Sfas 157’S Three-Level Estimates, Sung Gon Chung, Beng Wee Goh, Jeffrey Ng, Kevin Ow Yong

Research Collection School Of Accountancy

Some firms voluntarily make disclosures about the controls and processes in place to ensure the reliability of fair value estimates. Consistent with these disclosures being driven by management’s concerns about the reliability of their SFAS 157 estimates, we find that firms with more opaque estimates are more likely to provide such disclosures. We then examine whether these disclosures increase the reliability of fair value estimates. We find that they are associated with higher market pricing and lower information risk for Level 3 estimates. Further analyses of the contents of the reliability disclosures reveal that the following are particularly important to …

Continuous Auditing: A New Instrument In The Cfo’S Toolbox, Clarence Goh

Research Collection School Of Accountancy

In the past decade, rapid technological developments have led to the widespread adoption of enterprise resource planning systems. These ERP platforms not only allow different functional areas of a business to share data, but also enable businesses to generate financial information in real time.Such developments have fundamentally altered how businesses operate, and present both challenges and opportunities for CFOs and auditors.That’s because traditional audit methods have, to a significant extent, not kept up with these developments. Many audit procedures that are used today remain manual in nature, and are often costly in terms of both time and money. To a …

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

William & Mary Law Review

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.

Conditional Conservatism And Debt Versus Equity Financing, Beng Wee Goh, Chee Yeow Lim, Gerald J. Lobo, Yen H. Tong

Research Collection School Of Accountancy

Extant research suggests that conditional conservatism reduces information asymmetry between a firm and its shareholders as well as its debtholders. However, there is little evidence on whether conditional conservatism reduces information asymmetry differentially for shareholders and debtholders. We use the setting of a firm's choice between equity versus debt when it seeks a significant amount of external financing to examine this research question. We find that when firms raise a significant amount of external financing, the use of equity (versus debt) increases with the level of conservatism. We also find that the reduction in cost of equity associated with conservatism …

Corporate Investment And Stock Liquidity: Evidence On The Price Impact Of Trade, Moonsoo Kang, Wei Wang, Chanyoung Eom

Business Faculty Publications

We document that corporate investment contributes to stock liquidity. This study demonstrates a positive relationship between abnormal corporate investment and stock liquidity in the cross-section.Moreover, stock liquidity
improves more apparently for firms with financial constraints. Our robustness check confirms that the
existing regularities cannot explain the current finding. This analysis suggests that corporate investment decreases
the risk of a firm and that a change in the risk affects the behavior of a market maker, leading to an increase
in stock liquidity.

You Can’T Stop What You Can’T See: Complementary Risk Mitigation Through Compensation Disclosure, Matt Reeder

William & Mary Business Law Review

Section 956 of the Dodd-Frank Act requires regulators to help prevent the next financial crisis by monitoring executive compensation arrangements to prevent them from becoming excessive or leading to “material financial loss.” A now-pending rule seeks to do just this. This Article argues that the rule is well-conceived inasmuch as it limits the total portion of compensation that can be based on risk-inducing incentives, ties incentive-based compensation to longer-term performance, places a ceiling on potential incentivebased earnings, provides for downward adjustment and clawbacks, prohibits many hedging behaviors, and institutionalizes governance mechanisms and oversight policies. But, by placing a number of …

Subprime Mortgage Lending As It Relates To The 2007-2009 Financial Crisis, Josiah Bardy

The Kabod

The 2007-2009 financial crisis was the worst recession in recent economic history. The financial crisis has been the subject of much academic scrutiny, and many authors have arrived at different conclusions concerning the cause of the crisis and the effects. One of the most interesting real estate investments occurred during the crisis: certain investors and organizations predicted the bursting of the housing bubble and shorted real-estate backed securities, yielding huge profit. This paper will explore the financial crisis as well as the concurrent short selling to gain better understanding of financial markets, economic bubbles and recessions, and real-estate backed securities.

Auditing Organizational Governance: Internal Audit Has An Integral Role To Play In Improving The Organization's Strategic Performance, Sridhar Ramamoorti, Alan N. Siegfried, P. Alan White

Accounting Faculty Publications

Organizational governance is a broad concept that ensures superior strategy formulation, development, and execution in ways that balance performance, conformance, and accountability. It includes systems, controls, and associated processes that promote ethics and values, performance and accountability, and risk communication and coordination among the board, external and internal auditors, and management in meeting and exceeding stakeholder expectations. Internal audit’s role in organizational governance has always been recognized and valued, but it has become increasingly important in the wake of governance failures in financial and public sectors throughout the world. As a result, more and more boards as well as executive …

News Management Around Equity Private Placements, Hsiao-Chen Liang, Woan-Yuh Jang

The Journal of Entrepreneurial Finance

Private placement is the sale of securities to a limited number of qualified institutions or high-wealth investors. Although private placement is favorable for firms raising capital, it is relatively easy for managers to exploit it to benefit specific investors. Using a sample of Taiwanese private placements covering 2006 to 2010, we use both quantitative and qualitative variables to examine the determinants of the valence and tenor of media coverage around private placement announcements and study whether managers strategically perform news management. The results show that issuers will engage in news management around private placement announcements to facilitate the issue process. …

When The Going Gets Tough, The Tough Get Going, Antti Fredriksson, Daniela Maresch, Matthias Fink, Andrea Moro

The Journal of Entrepreneurial Finance

A bank’s lending decision is affected by the amount of information it can access and by its capability to manage this information. The latter aspect implies that the bank has to decide whether borrowers should be managed in a local branch of the bank or in its headquarters. By looking at a sample of Finnish banks, the present research investigates a bank’s capability to extract profitability from both locally and centrally managed firms. We find that banks are able to properly discriminate between firms: those which should be managed by loan managers with expert knowledge in the bank’s headquarters due …

Essays In Corporate Responsibility And Finance, Mert Demir

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters:

Chapter 1: The Effects of Corporate Social Performance and Social Norms on Market Valuation of Nonfinancial Disclosures Using a novel measure of the quality of corporate social responsibility (CSR) disclosures by global companies, this paper analyzes how CSR report quality affects firm value when mediating roles of social pressure and CSR performance are considered. I find that firms operating in socially controversial industries enjoy higher valuations when they issue high-quality CSR reports. I also find that for firms with poor CSR performance, higher-quality CSR disclosure is associated with a decline in firm value, while …

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 …

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.

The Importance Of Being An Ethical Company, Singapore Management University

Research@SMU: Connecting the Dots

Firms must fine-tune their corporate governance mechanisms to prevent unethical behaviour and take quick action once they are found, says Professor Cheng Qiang.

See the papers:

• Is the decline in the information content of earnings following restatements short-lived?
• CEO contractual protection and managerial short-termism

Exploring The World Of Corporate Finance, Singapore Management University

Research@SMU: Connecting the Dots

Professor Wang Rong delves deep into the complex world of international corporations to understand how they and their investors make decisions about money.

See the papers:

• Corporate financial policy and the value of cash
• Analysts' industry expertise

Who’S Watching The Auditors?, Singapore Management University

Research@SMU: Connecting the Dots

Professor Lim Chee Yeow is studying whether the provision of non-audit services affects the independence of auditors and the quality of their audit work.

See the papers:

• Non-audit service fees and audit quality: The impact of auditor specialization
• Effects of national culture on earnings quality of banks
• The price contagion effects of financial reporting fraud and reputational losses: Evidence from the individual audit partner level

The Importance Of Internal Controls, Singapore Management University

Research@SMU: Connecting the Dots

Professor Goh Beng Wee investigates the benefits and consequences of internal controls to corporate organisations.

See the papers:

• Internal controls and conditional conservatism
• Internal control and operational efficiency

The Paradoxes Of Risk Management In The Banking Sector, Chu Yeong Lim, Margaret Woods, Christopher Humphrey, Jean Lin Seow

Research Collection School of Accountancy

This paper uses empirical evidence to examine the operational dynamics and paradoxical nature of risk management systems in the banking sector. It demonstrates how a core paradox of market versus regulatory demands and an accompanying variety of performance, learning and belonging paradoxes underlie evident tensions in the interaction between front and back office staff in banks. Organisational responses to such paradoxes are found to range from passive to proactive, reflecting differing organisational, departmental and individual risk culture(s), and performance management systems. Nonetheless, a common feature of regulatory initiatives designed to secure a more structurally independent risk management function is that …

"What Would Peace In Vietnam Mean For You As An Investor?" Business Executives And The Antiwar Movement, 1967-75, Eric Smith

Faculty Publications & Research

On May 21, 1968, while the warring parties in Vietnam held peace talks in Paris, twenty-four business executives engaged in a heated exchange with Republican Illinois senator Everett Dirksen in his Washington, D.C., office. As described by the Chicago Daily News reporter Betty Flynn, the fifteenminute meeting began with a plea by the business delegation to a "Republican candidate not persisting in hawkish attitudes" to push for a military withdrawal from Vietnam. The delegation misjudged Dirksen's outlook. Although he was arguably a press favorite, Dirksen was also critical of congressional doves. Insisting that "whether we like it or not, this …

Why Audit Teams Need The Confidence To Speak Up, Susan Lightle, Joseph F. Castellano, Bud Baker

Accounting Faculty Publications

A climate of psychological safety is an important prerequisite for effective interpersonal relationships among audit team members and for audit teams to properly meet their fiduciary responsibilities. Audit processes can be more effective and the quality of audits can be improved if auditors understand the concept of psychological safety and its application for audit teams. The failure to create a climate of psychological safety among audit team members can have harmful effects on audit quality, but fortunately CPA firms can take steps to enhance psychological safety and enable more effective audit processes and audit work.

Marital Status Of Executives And Company Performance, Ilona Day

Honors Undergraduate Theses

This research paper explores differences in company performance levels, as measured by selected company fundamentals and annual return, with regard to the marital status of top executives, specifically the chief executive officer and the chief financial officer. It examines whether the differences in firm performance are determined by the marital status of the respective business executive. Groups of never married, married, and divorced executives are compared against each other to establish if and how the company performance changes between these groups. Summary statistics of the examined variables in conjunction with the results of the simple and multiple regression analyses indicate …

Too Big To Fool: Moral Hazard, Bailouts, And Corporate Responsibility, Steven L. Schwarcz

Faculty Scholarship

Domestic and international regulatory efforts to prevent another financial crisis have been converging on the idea of trying to end the problem of “too big to fail”—that systemically important financial firms take excessive risks because they profit from success and are (or at least, expect to be) bailed out by government money to avoid failure. The legal solutions being advanced to control this morally hazardous behavior tend, however, to be inefficient, ineffective, or even dangerous—such as breaking up firms and limiting their size, which can reduce economies of scale and scope; or restricting central bank authority to bail out failing …

Controlling Systemic Risk Through Corporate Governance, Steven L. Schwarcz

Faculty Scholarship

Most of the regulatory measures to control excessive risk taking by systemically important firms are designed to reduce moral hazard and to align the interests of managers and investors. These measures may be flawed because they are based on questionable assumptions. Excessive corporate risk taking is, at its core, a corporate governance problem. Shareholder primacy requires managers to view the consequences of their firm’s risk taking only from the standpoint of the firm and its shareholders, ignoring harm to the public. In governing, managers of systemically important firms should also consider public harm. This proposal engages the long-standing debate whether …