Finance and Financial Management Commons^™

Board Characteristics And Bank Performance: An Empirical Analysis Of The Size Effect In Emerging Economies, A. Bouteska, M. Kabir Hassan, Luca Pezzo, Jose Perez-Amuedo

Finance Faculty Research and Publications

Purpose

This paper aims to estimate the impacts of the board characteristics on bank performance in emerging countries, mainly focusing on the role of moderating factor.

Design/methodology/approach

Based on the literature review and the feasible generalized least squares econometric method approach, 137 deposit banks from seven emerging countries, including Saudi Arabia, Kuwait, United Arab Emirates, Bahrain, Qatar, Malaysia and Turkey, are all examined in the 2010–2022 year period.

Findings

Bank size is suggested as the statistically significant factor that moderates the association among the board characteristics, i.e. board size, duality, government ownership and bank performance. Based on the bank size, …

Accounting Aspects Of Appraisals, Raymond A. Weber

Bachelors’ Theses

The purpose of this thesis is to explain the application of appraisals to the following specific accounting problems: 1. The Establishment of Plant Accounts 2.The Determination of Invested Capital 3. The Distribution of Departmental Investment

It is important to keep accurate property records in every line of industry; yet property accounts are subject to many inaccuracies, and their correct maintenance offers many perplexing problems to the accountant. This thesis is, therefore, an attempt to point out some of the more common errors which creep into property records, and to show how appraisals may be applied to correct these errors. Particular …

Anomalies, Option Volume, And Disagreement, Allaudeen Hameed, Byoung-Hyun Jeon

Finance Faculty Research and Publications

We document robust amplification of stock market anomaly returns associated with elevated option trading volume driven by disagreement trades. Consistent with the correction of mispricing associated with biased beliefs, anomaly returns are higher when disagreement option volume is high prior to earnings announcements. Additionally, we demonstrate that disagreement-based option volume is negatively related to future stock returns among stocks that are overpriced based on anomaly characteristics. Our findings also concentrate in stocks that are also difficult to short, emphasizing the combined impact of investor bias and shorting costs. Leveraging the staggered adoption of extensible Business Reporting Language, we establish a …

Family Firms' Cross-Border Mergers And Acquisitions, Matteo P. Arena, Michaël Dewally, Bharat A. Jain, Yingying Shao

Finance Faculty Research and Publications

We evaluate the link between family ownership and cross-border investment behavior. By analyzing a sample of 2000 large U.S. acquirers between 2001 and 2016, we empirically show that family firms are less active in the international market for corporate control. Unlike non-family firms, family firms generate positive cross-border acquisition returns. Our results also suggest that target country conditions and acquirer financing constraints influence the link between family ownership and cross-border acquisitiveness as well as its valuation consequences. Overall, we find evidence to indicate that reduced shareholder-manager agency conflicts in family firms result in value enhancing cross-border investment behavior.

Institutional Investors And Corporate Environmental And Financial Performance, Steve M. Miller, Bin Qiu, Bin Wang, Tina Yang

Finance Faculty Research and Publications

We propose a conceptual framework to illustrate that when three conditions hold, institutional investors moderate a positive relation between corporate financial performance and corporate environmental performance. We explore heterogeneities across institution types to demonstrate the importance of each condition. The moderating effect works through the channels of expert consulting and effective monitoring. Our results have important policy and practical implications given the global trend of ownership concentration in institutional investors and the projection that by 2025, one out of three dollars under professional management will be invested in corporate social responsibility assets.

The Impact Of Stakeholder Orientation On Tax Avoidance: Evidence From A Natural Experiment, Gary Chen, Ani Manakyan Mathers, Bin Wang, Xiaohong Wang

Finance Faculty Research and Publications

We study the effect of stakeholder orientation on corporate tax avoidance. Using the staggered passage of constituency statutes across U.S. states between 1983 and 2006, we show that greater stakeholder orientation results in increased tax avoidance. We further find greater tax avoidance among firms with limited financial resources and that employees benefit from the change. Our results are consistent with stakeholder salience theory that resource-constrained managers prioritize the claims of salient stakeholders, such as employees, at the expense of secondary stakeholders, such as the government.

Litigation Risk Management Through Corporate Payout Policy, Matteo P. Arena, Brandon Julio

Finance Faculty Research and Publications

Firms modify their payout policy in anticipation of future litigation costs. We examine a comprehensive sample of U.S. corporate lawsuits and find that firms facing significant litigation risk pay lower dividends, and in some cases omit dividends while distributing more cash through share repurchases. Litigation risk changes the distribution of payouts but not the total payout yield as the increase in share repurchases offsets the decrease in dividends. Cash-poor firms cut share repurchases when settlement costs are incurred. The results suggest that firms at a higher risk of litigation increase their payout flexibility.

Momentum Crashes And The 52-Week High, Byoung-Hyun Jeon, Suk-Joon Byun

Finance Faculty Research and Publications

Momentum strategies suffer from occasional large drawdowns referred to as momentum crashes when the market rebounds. We find that a surge of investor speculation toward stocks far from their 52-week highs can partially explain the momentum crashes. If a momentum strategy is revised to be neutral on a 52-week high effect, momentum crashes are significantly attenuated and the revised strategy does not exhibit procyclical returns. Furthermore, the revised strategy generates a higher Sharpe ratio in different sub-periods and international stock markets.

Don't Interfere With My Rights! Employee Rights Violation And The Cost Of Bank Loans, Amirhossein Fard, Ibrahim Siraj, Bin Wang

Finance Faculty Research and Publications

We study the relationship between the cost of bank loans and the charges filed to the National Labor Relations Board (NLRB) due to managerial interference in employee rights. Loans issued after the filing of the allegations are associated with significantly higher loan spreads than loans initiated before the filing of allegations. Strong allegations that result in withdrawal with adjustments or compliance tend to positively affect the loan pricing. Further, interfering firms tend to experience higher default risks in the years following the filing of charges. Our paper is the first in the literature to show the impact of violation of …

Monitoring Institutional Ownership And Corporate Innovation, Steve Miller, Bin Qiu, Bin Wang, Tina Yang

Finance Faculty Research and Publications

We document a positive effect of monitoring institutional ownership on firm innovation after controlling for traditional measures of institutional ownership. We further find that monitoring institutions enhance firm innovation by: (1) incentivizing CEO risk-taking and reducing intense board monitoring, (2) alleviating agency problems, (3) attenuating managerial career concerns, and (4) mitigating corporate misvaluation. Overall, our findings highlight the importance of considering institutions’ monitoring incentives when examining the outcomes of their portfolio firms’ activities associated with high information asymmetry.

Institutional Investors And Bank Governance: An International Analysis Of Bank Earnings Management, Steve M. Miller, Rabih Moussawi, Bin Wang, Tina Yang

Finance Faculty Research and Publications

Despite the growing importance of institutional investors in global capital markets and the link between bank earnings management and financial crash risk, little is known about the role of institutional investors in mitigating bank earnings management. We conduct the first international analysis of this issue using a broad sample of banks and institutional investors. We find a negative relation between institutional ownership and bank earnings management, after controlling for the stringency of a country's bank regulations and other relevant bank and country characteristics. Additionally, institutional ownership is more negatively related to earnings management in countries with more-stringent bank disclosure requirements …

Corporate Social Responsibility And Information Flow, Gary Chen, Bin Wang, Xiaohong Wang

Finance Faculty Research and Publications

We find that a firm's greater commitment to corporate social responsibility (CSR) increases firm- specific information incorporated into stock prices. We further show that information searches increase around major disclosure events for firms that are more socially responsible, as observed through requests for newly released annual (10-K) filings on EDGAR and company ticker searches on Google around earnings announcements. Using alternative empirical specifications, we establish a robust and positive relation between CSR and stock price informativeness. Our results are consistent with the ethical and reputational view that a commitment to CSR encourages information acquisition and facilitates information flow into stock …

Independent Directors' Dissensions And Firm Value, Wonseok Choi, Monika K. Rabarison, Bin Wang

Finance Faculty Research and Publications

Using a novel dataset of independent directors’ voting activities on items proposed by managers of Korean firms, we investigate whether independent directors’ dissension in board meetings plays an effective role in enhancing firm value through improved corporate governance. Our results indicate that dissension improves firm value. This finding is robust to different measures of firm value and alternative model specifications including subsample, propensity score matching, and instrumental variable analyses. Overall, we contribute to the understanding of the relation between corporate governance and firm value. Specifically, we provide new evidence that the monitoring by independent directors enhances firm value.

Option Trading And Reit Returns, George D. Cashman, David M. Harrison, Hainan Sheng

Finance Faculty Research and Publications

This article examines the relation between option trading volume and real estate investment trust (REIT) market performance. Specifically, we find that option volume increases are followed by decreases in returns. Furthermore, the portion of option volume that is orthogonal to REIT characteristics drives the observed return predictability relation, thereby suggesting that the return predictability of option trading is (at least partially) attributable to information-based explanations. Finally, consistent with informed traders favoring option market activities due to short-sale costs and/or constraints, we find option based return predictability is more evident within REITs than non-REITs, even though firms within this industry are …

Securities Litigation And Corporate Tax Avoidance, Matteo P. Arena, Bin Wang, Rong Yang

Finance Faculty Research and Publications

We examine whether litigation risk is systematically related to corporate tax avoidance. We find that the exogeneous reduction in the threat of securities class action litigation due to the 1999 ruling of the Ninth Circuit Court of Appeals effectively increases corporate tax avoidance, which is consistent with the notion that the threat of shareholder litigation plays a disciplinary role in curbing managerial rent extraction from tax avoidance activities. This finding is robust to alternative model specifications including two placebo tests and propensity score matching. We further find that labor union and alternative external governance mechanisms such as analyst coverage and …

Corporate Innovation In A World Of Common Ownership, Cheng-Huei Chiao, Bin Qiu, Bin Wang

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to examine the impact of common ownership on corporate innovation, including innovation input, innovation output and postgrant patents.

Design/methodology/approach

This paper uses the ordinary least square model and the difference-in-differences technique to evaluate the effect of institutional interlocking shareholdings on the life cycle of corporate innovation.

Findings

The results show that common ownership impedes innovation measured by patent grants and citations through reduced R&D expenditures. However, common ownership protects postgrant patents by lowering the likelihood that a co-owned firm gets involved in patent litigation and by accelerating the settlement of lawsuits between co-owned …

Specialization And Institutional Investors’ Performance – Evidence From Publicly Traded Real Estate, Eli Beracha, George D. Cashman, Hilla Skiba

Finance Faculty Research and Publications

We examine the extent to which 50,620 global institutional investors’ specialization in publicly traded real estate securities is related to their investment performance. Consistent with the information advantage theory (Merton Journal of Finance 42, 483–510, 1987; Van Nieuwerburgh and Veldkamp Journal of Finance, 64, 1187–1215, 2009), we show a positive relation between the percentage of the institution’s portfolio invested in real estate securities and the return generated on those securities. Moreover, we present evidence that the institution’s level of active share to real estate securities is positively related to performance. Additionally, we find that the benefits related to …

Fight Or Flee: Outside Director Departures Prior To Contested Management Buyout Offers, Matteo P. Arena, Michaël Dewally, Sarah Peck

Finance Faculty Research and Publications

Research Question/Issue: We investigate outside director departures prior to management buyout offers (MBOs). In these transactions, managers have both an information advantage and incentives to make a lowball offer to shareholders. Outside directors can safeguard against managerial self‐dealing by negotiating for the best terms for public shareholders from either management or another bidder. Research Findings/Insights: It is typical that outside directors stay on the board through an MBO offer as MBOs are less likely to have changes in directors—either joining or leaving—relative to a control sample. After controlling for endogeneity as well as firm and director characteristics, we find that …

Shareholder Coordination And Corporate Innovation, Ani Manakyan Mathers, Bin Wang, Xiaohong Wang

Finance Faculty Research and Publications

We show that greater shareholder coordination, as proxied by the geographic proximity between institutional investors, is positively related to corporate innovation outcomes. This relationship is driven by coordination among dedicated and independent institutions who have strong monitoring incentives and is more pronounced among firms with lower blockholder ownership and greater information asymmetry where there is greater benefit to monitoring. We propose that shareholder coordination promotes corporate innovation through a reduction in managerial agency problems. Overall, our results are consistent with the notion that greater shareholder coordination enables diffuse shareholders to monitor managers more effectively and enhances corporate innovation.

Early Termination Of Small Loans In The Multifamily Mortgage Market, Anthony Pennington-Cross, Brent C. Smith

Finance Faculty Research and Publications

This article uses micro‐level data on small (as defined by Fannie Mae) multifamily loans in the Fannie Mae loan portfolio to examine prepayment and default performance. The results document the importance of equity, as measured by the loan‐to‐value ratio, and contemporaneous property operating income relative to debt service obligations, as measured by the debt‐to‐income ratio. Our results indicate that the expiration of prepayment penalties and yield maintenance provisions lead to large spikes in prepayment and default. The results also illustrate that multifamily loans, as they are not fully amortized, also have a substantial risk of both extension and default at …

How To Develop Successful And Ethical Investment Analysts: Marquette University's Applied Investment Management Program, Matteo P. Arena, David K. Krause

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to suggest best practices for managing a successful student-managed investment program (SMIP) based on the experience of Marquette University's Applied Investment Management (AIM) program.

Design/methodology/approach

The authors provide a detailed description of the program curriculum, instructional design, fund structure, program history, fund performance and student outcomes.

Findings

Through its experiential learning innovations, focus on ethics and close relationships with a dedicated alumni group, the AIM program prepares students for a successful career in investment analysis. Students who graduate from the AIM program experience a significantly higher successful placement rate and higher compensation at …

Institutional Investors And Corporate Environmental, Social, And Governance Policies: Evidence From Toxics Release Data, Incheol Kim, Hong Wan, Bin Wang, Tina Yang

Finance Faculty Research and Publications

This paper studies the role of institutional investors in influencing corporate environmental, social, and governance (ESG) policies by analyzing the relation between institutional ownership and toxic release from facilities to which institutions are geographically proximate. We develop a local preference hypothesis based on the delegated philanthropy and transaction-costs theories. Consistent with the hypothesis, local institutional ownership is negatively related to facility toxic release. The negative relation is stronger for local socially responsible investing (SRI) funds, local public pension funds, and local dedicated institutions. We also find that the relation is more negative in communities that prefer more stringent environmental policies …

The Impact Of Post-Trade Transparency On Price Efficiency And Price Discovery: Evidence From The Taiwan Stock Exchange, Chiou-Fa Lin, Cheng-Huei Chaio, Bin Wang

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to examine the impact of post-trade transparency on price efficiency and price discovery.

Design/methodology/approach

The authors use an exogeneous change in market transparency in the Taiwan Stock Exchange that mandates the disclosure of unexecuted orders of the five best bid and ask prices after each trade, and conduct an event study analysis.

Findings

After the change, price efficiency enhances for both large and small firms, although the impact on stock prices is greater when the firm is larger. The authors also find that post-change trading reveals more private information for large firms but …

Compensation Clawback Policies And Corporate Lawsuits, Matteo P. Arena, Nga Nguyen

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to study the relation between compensation clawbacks and lawsuits and analyze how these two corporate disciplinary forces interact. This paper hypothesizes that by allowing firms to recoup compensation from managers who breach their fiduciary duty, clawbacks provide a form of discipline that potentially reduces the likelihood of managerial wrongdoing, which, in turn, lowers the risk of corporate lawsuits.

Design/methodology/approach

This paper identifies whether or not a company in the S&P 1500 had a clawback policy between 2007 and 2014 by searching the company filings and press releases. The authors also construct different proxies …

A Global Analysis Of Corporate Litigation Risk And Costs, Matteo P. Arena, Stephen P. Ferris

Finance Faculty Research and Publications

We analyze a unique hand-collected international sample of 475 corporate lawsuits involving 361 publicly-traded defendant firms headquartered in 16 developed countries to explore how country factors influence litigation risk, equity market value, lawsuit outcomes, and settlement costs. Unlike U.S.-focused studies, we do not find a significant relation between stock turnover, equity performance, and the probability of litigation. Defendant firms headquartered in civil law countries or countries with less efficient judiciary systems face lower litigation risk and costs as well as less share price decline at filing. Countries whose courts are less independent demonstrate a significant bias against foreign defendant firms.

Labor Law And Innovation Revisited, Bill B. Francis, Incheol Kim, Bin Wang, Zhengyi Zhang

Finance Faculty Research and Publications

This paper examines the impact of changes in job security on corporate innovation in 20 non-U.S. OECD countries. Using a difference-in-differences approach, we provide firm-level evidence that the enhancement of labor protection has a negative impact on innovation. We then discuss possible channels and find that employee-friendly labor reforms induce inventor shirking and a distortion in labor flow. Further investigation reveals that the negative relation is more pronounced in (1) firms that heavily rely on external financing, (2) firms that have high R&D intensity, (3) manufacturing industries, and (4) civil-law countries. Our micro-level evidence indicates that enhanced employment protection impedes …

Boards Of Directors And Firm Leverage: Evidence From Real Estate Investment Trusts, Trang Doan, Nga Nguyen

Finance Faculty Research and Publications

We re-examine the negative association between leverage and returns while also focusing on the role of boards of directors. To do so, we utilize the unique setting of real estate investment trusts (REITs), their high leverage, and the volatility that the industry experienced during the recent financial crisis. We find that during the financial crisis REIT board activity increased, especially among firms with high leverage. We also find that board activity helps mitigate the previously reported negative effect of leverage on returns during this time period. Post-crisis, we find evidence suggesting that firms with more active boards reduce …

Shareholder Coordination And Stock Price Informativeness, Incheol Kim, Christos Pantzalis, Bin Wang

Finance Faculty Research and Publications

We show that firm‐specific information is more likely to be incorporated into stock prices when firms have stronger shareholder coordination. The premise of our work is that geographic proximity reduces communication costs among shareholders, thereby leading to better coordination. The positive coordination‐informativeness relation is driven mainly by shareholder coordination among dedicated and independent institutions. We further show that the positive effect is more pronounced for firms with weaker governance mechanisms, suggesting that shareholder coordination could serve as a substitute conduit of price discovery. Lastly, we propose that shareholder coordination improves stock price informativeness through the channel of enhanced voluntary disclosure …

Corporate Litigation And Debt, Matteo P. Arena

Finance Faculty Research and Publications

This study examines the effect of litigation risk and litigation costs on firms’ credit ratings and debt financing. The results show that litigation affects a firm's creditworthiness and debt costs in two stages. Before a lawsuit filing, firms at higher risk of litigation have lower credit ratings, are more likely to be rated speculative grade, pay higher yields on loans and bonds, and are less likely to rely on debt financing. At the time of the lawsuit resolution, settlement costs have an additional effect on firm credit quality. Companies facing larger settlement disbursements in relation to their available cash experience …

Mortgage Losses: Loss On Sale And Holding Costs, Ben Le, Anthony Pennington-Cross

Finance Faculty Research and Publications

No abstract provided.