Corporate Finance Commons^™

Risk Allocation Across The Enterprise: Evidence From The Insurance Industry, Michael K. Mcshane, Tao Zhang, Larry A. Cox

Finance Faculty Publications

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in …

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, …

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 …

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 …

Agency And The Ontology Of The Corporation, Christopher M. Bruner

Scholarly Works

No abstract provided.

Financial Reforms And Corporate Finance In Emerging Markets: An Analysis Of Dividend Policy Among Public Listed Firms In Pakistan, Mohammed Nishat, Wali Ullah

Business Review

This paper analyzes the dividend behavior of 535 Pakistani listed companies during 1988 to 2005 using the Probit regression model. The findings validate the theoretical prediction for positive and significant impact of last year dividend on the current year dividend decision. More profitable and liquid firms have a higher probability to declare the dividends. Furthermore, firm size, ownership, equity and tax are positively related to the dividend declaration decision. The firms' dividend behavior differs significantly across Industries. The secondary market development has a significant effect on dividend decision and financial liberalization has been associated with shift of firms from debt …

Discordant Regimes : The Interplay Between Mortgage And Bareboat Charter Registration, Ryan Acosta Federo

World Maritime University Dissertations

This dissertation discusses the implications of mortgage on bareboat charter registration with respect to the parties involved, hence, the Mortgagor, the Mortgagee, the Charterer and the Flag state. There are no certain international laws establishing the treatment of the rights of the parties to a defaulted mortgage on a bareboat charter registration. This paper provides an analysis of the current international conventions available for reference and of the application of laws by different jurisdictions on how such issues have been tackled. This paper provides an update on the current status of bareboat charter registration in the Philippines having its international …

Analyzing Earnings Management For Cross-Listed Firms And Interaction Between Two Futures Exchanges, Chia-Sheng Chen

LSU New Orleans Theses and Dissertations

The first essay examines the impact of investor protection, market monitoring, and liquidity on the firm-level and country-level earnings management using a sample of 432 firms from 34 countries cross-listed in the U.S. The major findings are as follows: First, cross-listed firms from countries with strong legal system, strong outside investor rights, more institutional investors, and higher financial transparency are less likely to engage in earnings management. In addition, in countries with strong investor protection or market monitoring, the level of earnings management is more pronounced for illiquid firms as compared to liquid firms. Second, cross-listed firms following IFRS have …

Fund-Management Gender Composition: The Impact On Risk And Performance Of Mutual Funds And Hedge Funds, Angela Luongo

Fordham Business Student Research Journal

This paper examines gender differences in fund managers’ risk tolerance and performance. We explore these differences in both the universe of U.S. mutual funds and hedge funds using risk and performance metrics that cover one-year, three-year, and five-year horizons. We find that funds managed by women outperform those managed by men with less risky portfolios. The outperformance persists after adjusting for risk. Overall, the results indicate that female fund managers are severely underrepresented despite their quality performance. A workgroup comprised more equally of male and female managers is likely to lead to greater stability in the financial markets due to …

A Network Based Theory Of Foreign Market Entry Mode And Post-Entry Performance, Jing'an Tang, Ben S. Liu

WCBT Faculty Publications

Foreign market entry through equity investment has been extensively studied and various theoretical lenses have been used. Most previous research also focuses attention on either the entry mode selection decision or the topic of post-entry performance, but rarely both. We build on existing research by developing a model of foreign market entry and post-entry performance that uses network theory and organizational ecology to provide a fuller explanation of this complex and critical multinational enterprise strategic behaviour. Four pairs of total eight propositions were developed and justified based on extent literature and sound logical reasoning. By focusing on both entry mode …

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 …

How To Navigate Public Accounting Recruitment, Jill Heather Aoki

Undergraduate Honors Capstone Projects

For many accounting graduates, public accounting is an excellent place to start a career. However, recruitment at accounting firms is highly competitive. The majority of personnel are hired through internships, and competition for these positions is fierce. The process usually spans over multiple years and involves participating in leadership seminars, attending social events, and much more in addition to interviewing. Successful placement requires not only exceptional academic achievements but also strong relationships with personnel at the firm. One primary differentiator among the numerous public accounting firms is their people and culture. Other factors include local clients and specializations. Thus, candidates …

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.

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 …

A Visualization Of Teaching The Indirect Method For Computing Cash From Operations, Poh Sun Seow

Research Collection School Of Accountancy

The Statement of Cash Flows (SCF) complements the Statement of Financial Position and the Statement of Comprehensive Income by explaining where the cash came from (cash receipts) and how the cash was spent (cash payments) (Harrison Jr. et al. 2011; Powers and Needles Jr. 2010). International Accounting Standard (IAS) 7 requires companies to classify cash flows during the accounting period according to operating, investing and financing activities (International Accounting Standards Board 2010). IAS 7 also requires companies to report net cash flows from operating activities using either the direct method or the indirect method (International Accounting Standards Board 2010).

Most …

The Agency Problem, Corporate Governance, And The Asymmetrical Behavior Of Selling, General, And Administrative Costs, Hai Lu, Hai Lu, Theodore Sougiannis

Research Collection School Of Accountancy

Selling, general, and administrative (SG&A) costs represent a significant proportion of thecosts of business operations. On average, the SG&A costs to total assets ratio is 27 percent,compared to the research and development (R&D) to total assets ratio of 3 percent(Banker, Huang, and Natarajan 2011). Due to the importance of SG&A costs, practitionerspay close attention to controlling SG&A spending. Understanding SG&A cost behaviorand the role of managers in adjusting the costs is thus important to researchers andpractitioners. Recent empirical research indicates that SG&A costs behave asymmetrically,that is, they increase more rapidly when demand increases than they decline when demanddecreases (Anderson, Banker, …

Intangible Investments And The Pricing Of Corporate Sga Expenses, Rongbing Huang, Gim S. Seow, Joe S. Shangguan

Faculty Articles

This study examined whether the market fully prices the reported Selling, General, and Administrative (SGA) expenses when this item includes an intangible investment component. For a sample of intangible investment-intensive firms, we showed that their SGA expenses benefit future operating performances. Evidence suggests some degree of market inefficiency in the pricing of SGA expenses and the intangible investment component. Furthermore, the financial analysts do not appear to appreciate fully the future benefits of the component in their earnings forecasts. Finally, the pertinent disclosures in firms’ annual reports are so inadequate as to attenuate the market mispricing, suggesting a significant room …

Comprehensive Income Reporting: Fasb Decides Location Matters, Dennis Chambers

Faculty Articles

The article reports on Accounting Standards Update (ASU) 2011-05 issued by the Financial Accounting Services Board (FASB) in June 2011. It states that the standard requires all companies to report comprehensive income and components either in one continuous statement or in two separate, but consecutive, net income and other comprehensive income statements.In both cases, companies must reportedly now report in an income statement-type location for total comprehensive income.

Cfos Versus Ceos: Equity Incentives And Crashes, Jeong-Bon Kim, Yinghua Li, Liandong Zhang

Research Collection School Of Accountancy

Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer's (CFO) option portfolio value to stock price is significantly and positively related to the firm's future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

The Impact Of Brand Quality On Shareholder Wealth, Sundar G. Bharadwaj, Kapil R. Tuli, Andre Bonfer

Research Collection Lee Kong Chian School Of Business

This study examines the impact of brand quality on three components of shareholder wealth, stock returns, systematic risk and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth as they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing-finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show …

Building Structured Products: Like Manufacturing A Complex, Abstract Car, Singapore Management University

Perspectives@SMU

What are structured products, and how do they fit in with clients' needs and the banks' range of services? Experts from Standard Chartered Bank's (SCB) structuring business provided their take at SMU's Lee Kong Chian School of Business Public Lecture.

The Corporate Ethics Audit: To Prevent And Detect Management Fraud, Internal Auditors Must Have A Sound Understanding Of Human Behavior, Sridhar Ramamoorti, R. Luke Evans

Accounting Faculty Publications

In theory, management is responsible not only for designing and implementing strong systems of internal control but also confirming their continued effectiveness over time through monitoring activities. Yet, management override of these monitoring activities — -Soften described as the Achilles' heel of internal controls — is a growing trend at the executive level, as indicated by both of The Committee of Sponsoring Organizations of the Treadway Commission's fraud studies of 1998 and 2010. When the “overseer” becomes the perpetrator of fraud, how do shareholders protect themselves? Indeed, as the Roman satiric poet Decimus Juvenal wrote, “But who will guard the …

Credit Fluctuations And Lodging Firms: An Investigation Of The Differing Capital Structures In The Us Lodging Industry, Dipendra Singh

UNLV Theses, Dissertations, Professional Papers, and Capstones

This study empirically investigates the effect of credit availability and firm size on the leverage of lodging industry in United States using a 3 X 2 factorial Multivariate Analysis of Variance (MANOVA). Three time points of differing credit availability (Low, High, and Average) were identified using Case-Shiller home price index. Leverage, Net Leverage, and Short-to-Long-Term debt ratios of large and small US lodging firms were analyzed at these differing credit availability time points to assess any significant differences. Specifically, this study attempts to find whether there is an interaction effect of credit availability and firm size on the leverage of …

Streaks In Earnings Surprises And The Cross-Section Of Stock Returns, Roger Loh, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

No abstract provided.

Acquisitions Driven By Stock Overvaluation: Are They Good Deals?, Fangjian Fu, Leming Lin, Micah Officer

Research Collection Lee Kong Chian School Of Business

Overvaluation may motivate a firm to use its stock to acquire a target whose stock is not as overpriced (Shleifer and Vishny (2003)). Though hypothetically desirable, these acquisitions in practice create little, if any, value for acquirer shareholders. Two factors often impede value creation: payment of a large premium to the target and lack of economic synergies in the acquisition. We find that overvaluationdriven stock acquirers suffer worse operating performance and lower long-run stock returns than control firms that are in the same industry, similarly overvalued at the same time, have similar size and Tobin’s q, but have not pursued …

Fdi In Central And Eastern Europe: Business Environment And Current Fdi Trends In Poland, Lucyna Kornecki

Accounting, Economics, Finance, and Information Sciences - Daytona Beach

The Central and Eastern European Countries (CEEC) acknowledge foreign direct investment (FDI) as an essential tool in the development and modernization of their economies. The first part of this paper centers on economic stability and FDI inflows in the CEE indicating the Polish leadership in inward FDI inflow. The section of this study focuses on Poland and provides a description of business environment and current FDI trends in Poland. It analyzes the factors influencing the inward FDI in Poland, such as: economic stability, cost of labor, EU membership, regulatory framework. It presents the current FDI trends in Poland, such as: …

Executive Equity Compensation And Earnings Management: A Quantile Regression Approach, Chih-Ying Chen, Ming-Yuan Li

Research Collection School Of Accountancy

Prior research has investigated the association between executive equity compensation and earnings management but the evidence is not conclusive. We investigate this question using the quantile regression approach which allows the coefficient on the independent variable (equity compensation) to shift across the distribution of the dependent variable (earnings management). Based on a sample of 18,203 U.S. non-financial firm-year observations from 1995 to 2008, we find that chief executive officer (CEO) equity compensation is positively associated with the absolute value of discretionary accruals at all quantiles of absolute discretionary accruals, but the association becomes weaker as the quantile decreases. The association …

Do Merger-Related Operating Synergies Exist?, Gennaro Bernile, Scott W. Bauguess

Research Collection Lee Kong Chian School Of Business

Executives frequently forecast large operating efficiency gains from mergers. Using these projections, we study the impact of operating synergies on merger performance. Investors' reaction to mergers varies directly with the availability of these forecasts and the gains they imply, and post-merger operating performance increases with the predictable component of forecasted synergies based on deal characteristics. The realized improvements, however, do not depend on the availability of forecasts or the surprise they convey, and post-merger stock returns reconcile discrepancies between investors' ex ante beliefs and mergers' ex post performance related to management forecasts. Overall, the evidence supports the neoclassical view that …

Political Connection And Firm Value, James S. Ang, David K. Ding, Tiong Yang Thong

Research Collection Lee Kong Chian School Of Business

We study the effect of political connection (PC) on company value in an environment where low PC is due to better institutions and not confounded by favorable social/cultural factors. We find that in Singapore, the only country that fits this description, PC in general adds little to the value of a company. However, in industries that are subject to more stringent government regulations, PC appears to be somewhat important. Robustness checks show that alternative PC variables give rise to similar results, and the addition of control variables do not drastically change the findings. Politically connected firms have higher managerial ownership …

Firm Structure And Corporate Cash Holdings, Venkat Subramaniam, Tony Tang, Heng Yue, Xin Zhou

Research Collection School Of Accountancy

We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of active internal …