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1
Cready, William M. "Determinants of Relative Investor Demand for Common Stocks." Journal of Accounting, Auditing & Finance 9, no. 3 (July 1994): 487–507. http://dx.doi.org/10.1177/0148558x9400900308.
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This paper examines the demand for a firm's common stock by wealthy relative to less wealthy individual investors and by individual relative to institutional investors as a function of risk, information environment (proxied by firm size and S&P 500 membership), and form of return payout (i.e., dividends versus capital gains). The findings indicate that among individual investors demand for the stocks of riskier, larger, and low-dividend-yield firms increases with wealth. The findings also suggest that relative to individual investors, institutional investors prefer the stocks of larger firms, S&P 500 firms, and firms paying low dividend yields. Overall, these results suggest that investors find a number of firm-specific factors important in their investment choices and that the importance of such factors varies systematically with investor size.
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Uysal, Vahap, and Seth Hoelscher. "Local clientele: geography and comovement of stock returns." Review of Behavioral Finance 10, no. 3 (August 13, 2018): 231–51. http://dx.doi.org/10.1108/rbf-07-2017-0071.
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Purpose Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring companies is absent from the academic literature. The purpose of this paper is to fill that void and examine how a local investor clientele affects the stock market reactions of firms located within the same geographic proximity as a news-generating firm. Design/methodology/approach After accounting for firm, industry, and geographic characteristics, this study examines how a firm’s dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA). Findings Dividend-paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend-paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations. Practical implications These findings are consistent with the positive-investor-attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele. Originality/value This is the first study to link how news generated by one firm can influence other geographically local firms, providing evidence on the impact of individual investor clientele on stock returns of local non-news firms.
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Graham, Roger C., and Craig E. Lefanowicz. "Evidence of the Relation between Accounting for Equity Investments and Equity Valuation." Journal of Accounting, Auditing & Finance 11, no. 4 (October 1996): 587–605. http://dx.doi.org/10.1177/0148558x9601100404.
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Income recognition events for equity investments reflect an investor's ability to influence the activities of an investee and therefore the timing of income realization to the investor. Investor firms with passive equity investments recognize investment income when investee dividends are declared, whereas investors with nonpassive equity investments recognize investment income as investee income is earned. To determine whether market participants associate investor income realization with the income recognition events, investor and investee security return correlations are examined around investee dividend and earnings announcements. The correlations suggest an association between passive and nonpassive investor valuation and investee dividend and earnings announcements that corresponds to the accounting income recognition procedures for equity investments. Analysis of the relative timing of investor and investee announcements indicates that the results are not due to a naive fixation on accounting revenue recognition events. Rather, the results suggest differences in the substance of the investor-investee relation between passive and nonpassive investments. The results are robust to alternative specifications and controls for relative investment size and industry affiliation.
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Wang, Ping, James Barrese, and David Pooser. "Performance in financial services: Does institutional ownership matter?" Corporate Ownership and Control 16, no. 2 (2019): 108–20. http://dx.doi.org/10.22495/cocv16i2art11.
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Institutional investor ownership has often been considered a corporate governance variable, typically used to proxy those investors’ ability to influence managers and to expropriate wealth from smaller shareholders. Large institutional investors have developed common holdings across numerous firms within industries. We consider the effects of institutional investor ownership on the performance of banks and insurance companies. Using a generalized autoregressive conditional heteroscedasticity model with firm- and year-fixed effects, we find strong statistical relation between performance and individual firm’s ownership stakes by Blackrock, Inc. and Fidelity Investments. Moreover, we find a positive and statistically significant relation between performance and the percentage of the industry’s equity owned by the Blackrock, Fidelity, State Street and Vanguard. The findings suggest that organizations like Blackrock are successful in obtaining long-term returns by exerting influence over the management of their invested firms, which is consistent with recent statements by the CEO of Blackrock but is also consistent with a “bet on the winners” strategy.
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Kim, Kyung Soon, Jinwoo Park, and Yun W. Park. "Differential informativeness of analyst reports by investor types." Managerial Finance 43, no. 5 (May 8, 2017): 567–94. http://dx.doi.org/10.1108/mf-06-2016-0166.
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Purpose The purpose of this paper is to investigate whether there is any difference across individual investors, domestic and foreign institutional investors in trading volume responses to analyst reports. The authors also examine the determinants of trading volume responses using firm as well as forecast characteristics. Design/methodology/approach The authors use trading data from the Korean equity market. The authors divide investors into three classes of investors; namely, individual investors, domestic institutional investors, and foreign institutional investors. The authors then examine whether the trading responses to analyst reports vary across investor types, and how firm characteristics and characteristics of analyst reports influence the trading activities on the release dates across investor types. Findings Individual investors are the most responsive investor group, being responsive to analyst reports on small, neglected firms with large inside ownership as well as to analyst reports with optimistic forecasts. Domestic institutional investors are responsive to reports on neglected firms with high return volatility while foreign institutional investors show least responses. Originality/value There are few studies that investigate whether the trading responses to analyst reports vary across investor types and how firm characteristics and characteristics of analyst reports influence the trading activities on the release dates across investor types. Taking advantage of the trading volume data for the three main investor types in the Korean stock market, the authors study the trading volume responses for each investor type and make comparisons across investor types.
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Ahmed, Hasib, M. Kabir Hassan, and Blake Rayfield. "When and why firms issue sukuk?" Managerial Finance 44, no. 6 (June 11, 2018): 774–86. http://dx.doi.org/10.1108/mf-06-2017-0207.
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Purpose The purpose of this paper is to analyze whether investors perceive the issuance of sukuk differently than they do in case of conventional bonds, by using event study with superior data. Then, it analyzes whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. Finally, the paper proposes a testable model explaining the investor reaction. Design/methodology/approach This paper uses market model event study to assess investor reaction to the issuance of sukuk. Then, linear and logistic regressions are used to test whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. To investigate the differences between sukuk issuers and bond issuers, this paper tests the difference in means of issuer characteristics. Finally, the sample is subdivided into good and bad firm prospects according to dividend/earnings ratio and book-to-market ratio. The subdivisions are used to test the proposed model explaining the investor reaction. Findings The study finds that a large variety of firms issues sukuk. The event study reports significant negative abnormal returns around the announcement date of sukuk issuance. The study also reveals that the earning prospect of issuer firms affect the investor reaction. Firms with lower earning prospect receive a negative reaction from the investors. Also, smaller, or financially unhealthy firms are more likely to issue sukuk. Smaller and riskier firms issue sukuk, because participation in the market is less constrained. In other words, the risk-sharing nature of sukuk might imply that the firm is not confident about the future prospect. However, if the firm has good earnings prospects, investors react to the issuance of sukuk negatively. Research limitations/implications Reliability and availability of data is a hurdle to test the investor reaction model. As more data become available, the models implications can be further tested. Originality/value This paper uses the most complete set of data to study sukuk, making it the most selection bias-free and complete study. Moreover, the proposed investor reaction model will enrich the theory.
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Chapman, Kimball, Gregory S. Miller, and Hal D. White. "Investor Relations and Information Assimilation." Accounting Review 94, no. 2 (July 1, 2018): 105–31. http://dx.doi.org/10.2308/accr-52200.
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ABSTRACT This paper examines whether investor relations (IR) officers provide value by facilitating the assimilation of firm information by the market. We find that firms with IR officers have lower stock price volatility, lower analyst forecast dispersion, higher analyst forecast accuracy, and quicker price discovery, consistent with IR officers aiding market participants in their assimilation of firm information. We also show that our findings are stronger for firms with longer-tenured IR officers. Finally, we find that when firms transition from a long-tenured IR officer to a new IR officer, stock price volatility increases, analyst forecasts become more disperse and less accurate, and the price discovery process slows, despite no significant change in the firm's disclosures, media coverage, or performance around the turnover. Collectively, these findings suggest that in-house IR officers, particularly those with greater experience, help facilitate information assimilation by the market, which has positive market effects. JEL Classifications: G14; M40; M41.
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Raharja, Bayu, Dahli Suhaeli, and Muji Mranani. "Research of the Stock Price Overreaction and Investor Overconfidence Issues." Business, Management and Education 15, no. 1 (June 29, 2017): 127–39. http://dx.doi.org/10.3846/bme.2017.358.
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This research examines the existing of investor overconfidence in the capital market and the phenomena of stock prices reversal in the future due to the existing of this behavior. It has a different approach to test the existing of investor overconfidence by introducing firm’s growth as the information which has triggered many investors to behave overconfidently. By using multiple regression analysis, the results of this research confirmed our conducted hypothesis, investor tends to behave overconfident to firms which have higher growth. It proofed by the positive relation between firms’ growth and trading volume. Afterward, this research also found that higher growth firms tend to have declining on its performance in the future. The negative relation between firms’ growth and longterm performance means that the stock’s price reversal caused by the existing of investor overconfidence.
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Sainty, Barbara J., Gary K. Taylor, and David D. Williams. "Investor Dissatisfaction toward Auditors." Journal of Accounting, Auditing & Finance 17, no. 2 (April 2002): 111–36. http://dx.doi.org/10.1177/0148558x0201700202.
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Shareholders, as owners of the firm, often are sought to ratify management's selection of an auditor through a formal vote during the annual shareholders' meeting. This vote represents the primary vehicle for investor communication concerning auditor-related issues and, thus, can be used as an indicator of investor dissatisfaction with the auditor. This study proposes to measure shareholders' dissatisfaction with the auditor through the shareholders' auditor ratification vote. We identify attributes associated with high levels of investor dissatisfaction and then determine if a high level of investor dissatisfaction is associated with a subsequent change in a firm's auditor. We determined that investor dissatisfaction is associated with a firm having engaged a less credible auditor and the issuance of a going concern audit opinion. In addition, we find that investors react strongly to the unexpected issuance of a going concern opinion. Finally, we discovered that managers are sensitive to shareholder dissatisfaction signals by noting a higher occurrence of auditor changes for firms with high investor dissatisfaction.
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Chien, Yu-Tai, and Hsin-Min Lu. "Firm websites and the risk of firm." Industrial Management & Data Systems 115, no. 3 (April 13, 2015): 504–20. http://dx.doi.org/10.1108/imds-09-2014-0276.
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Purpose – Websites have become an important channel for firms to communicate with their stakeholders. Higher web site traffic could represent effective information disclosure and higher investor recognition. Both may reduce the risk of firm by reducing the level of information asymmetry and facilitating a more complete market by reaching to more potential investors. The purpose of this paper is to investigate the impact of firm web site traffic to the risk of firm. Design/methodology/approach – The authors conducted a cross-sectional study on the risk and firm web site traffic data of 4,122 US public firms. Findings – After controlling for confounding factors, web site traffic is significantly negatively associated with three firm risk measures: cost of equity, return volatility, and analyst forecast dispersion. Originality/value – The results provide new insights to the economic impact of web site traffic. Compared with previous studies that mostly investigated the relationships between web site traffic and firm performance measured by stock returns or company profitability, the authors documented empirical evidence that web site traffic influences the risk of firm through the level of information asymmetry and investor recognition. This paper suggests that when valuing a firm, investors would take web site traffic into consideration. Firm managers could use firm Websites as a channel to reduce information asymmetry, and increase investor recognition that can contribute to the firm’s value through reduced risk.
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Hutton, Amy P., and Phillip C. Stocken. "Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts." Journal of Financial Reporting 6, no. 1 (March 1, 2021): 87–107. http://dx.doi.org/10.2308/jfr-2020-005.
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ABSTRACT We examine the properties of firms' forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts.Within the context of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm's forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm's prior forecasting behavior allows it to establish a forecasting reputation, and that market forces encourage accurate forecasting as firms benefit from having a reputation for forecasting accurately. Data Availability: Data are available from public sources cited in the text. JEL Classifications: G19; G39; D89; M40.
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Yeh, Yin Hua, Pei Gi Shu, and Ming Sung Kao. "Corporate Governance and Private Equity Placements." Review of Pacific Basin Financial Markets and Policies 18, no. 02 (June 2015): 1550013. http://dx.doi.org/10.1142/s0219091515500137.
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In a private placement, the identity of the block purchaser has attracted much attention, while the characteristics of the issuing firm are sparsely noted. We hypothesize that the market concerns about the coupling between the issuing firm and the new block investor. Our empirical findings from a sample of 213 private equity placements in Taiwan indicate that the announcement effect of good-governance firms is significantly higher than that of bad-governance firms. Moreover, the induction of outside block investor further punctuates the coupling effect: the coupling between good-governance (poor-governance) firms and outside block investors yields even higher (lower) returns. Finally, the coupling effect remains significant in explaining the long-run performance of private-equity-placement firms.
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Xu, Xiaoyang, Adubofour Isaac, Lizhong Hao, and Dandan Wang. "Investor Sentiment, Innovation Investment and Cash Dividend." International Journal of Economics and Finance 11, no. 7 (June 14, 2019): 97. http://dx.doi.org/10.5539/ijef.v11n7p97.
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Investor sentiment plays a critical role in corporate innovation investment. Firms resort to innovation in their attempts to satisfying the demands of their investors. We argue empirically in our study that investor sentiment has impact on firms’ innovation decisions. We also argue that, strong negative sentiment has higher propensity to foster corporate innovation investment. We analyzed a nine- year panel data ranging from 2009-2017, which consisted of 3,558 Chinese listed firms. A verification of the impact of dividend policy on firms’ innovation investment was conducted. We found that, favorable dividend policy would trigger corporate innovation investment. We also found a statistically significant relationship between innovation investment and firm performance. Our findings showed a positive association between corporate innovation investment and firm performance. We also conducted a series of robustness checks on our empirical models and then discussed the contribution of our study, theoretically and practically.
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Iyer, Subramanian Rama, and Joel T. Harper. "Cash flow volatility and investor sentiment." Managerial Finance 43, no. 2 (February 13, 2017): 178–92. http://dx.doi.org/10.1108/mf-02-2016-0045.
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Purpose The purpose of this paper is to test whether investors take flight to safety when sentiment is low. In other words, do safe firms perform better than risky firms following periods of low sentiment. Design/methodology/approach Using cash flow volatility and the percent of bullish investors as proxies for risk and investor sentiment the paper tests the relationship between sentiment and returns conditional on risk this performance. Second, a cross-sectional analysis is conducted based on individual firm characteristics and sentiment to explain annual returns. Findings The paper finds that there is a negative relationship between investor sentiment and the return of risky companies, which is contrary to prior studies. All told, risky companies perform worse following periods of high investor sentiment. Originality/value This paper presents evidence contrary to extant literature and that there is no concerted flight to safety. Investor sentiment has little influence on safe stocks.
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Bendig, David, Daniel Willmann, Steffen Strese, and Malte Brettel. "Share Repurchases and Myopia: Implications on the Stock and Consumer Markets." Journal of Marketing 82, no. 2 (March 2018): 19–41. http://dx.doi.org/10.1509/jm.16.0200.
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Investor demand has promoted share repurchases to the dominating payout instrument for U.S. firms. However, critics worry that the repurchase boom leads to firms neglecting long-term investments. Even worse, scholars have shown that investor pressure also motivates firms to cut marketing investments with the aim of boosting short-term income, a practice called myopic marketing management. Extant theory still lacks an understanding of whether and how the co-occurrence of share repurchases and myopic marketing affects firm stakeholders such as investors and consumers. Using a large-scale cross-industry sample, the authors reveal that there is a higher share of firms cutting marketing investments among repurchasing firms than among nonrepurchasing firms. Furthermore, investors immediately respond negatively to myopic firms that also repurchase shares. Finally, repurchases and myopic marketing are also associated with an increase in product recalls. This first study to assess share repurchases through a marketing lens hence reveals negative effects on both the stock and the consumer markets.
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Chemmanur, Thomas J., and An Yan. "Advertising, Attention, and Stock Returns." Quarterly Journal of Finance 09, no. 03 (July 2019): 1950009. http://dx.doi.org/10.1142/s2010139219500095.
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This paper studies the effect of advertising on stock returns both in the short and in the long run. We find that a greater amount of advertising is associated with a larger stock return in the advertising year but a smaller stock return in the year subsequent to the advertising year, even after we control for other price predictors, such as size, book-to-market, and momentum. We conjecture that advertising affects stock returns by attracting investors’ attention to the firm’s stock. Stock price increases in the advertising year due to the attracted attention, but decreases in the subsequent year as the attracted attention wears out over time. We test this investor attention hypothesis and document consistent findings. We find that advertising increases a firm’s visibility among investors in the advertising year. We further find that the negative effect of advertising on the long-run reversal in stock returns is more pronounced if a firm attracts greater investor attention in the advertising year, or if investors face a larger cost of short selling the firm’s stock. It is also more pronounced for small firms, value firms, and firms with poor ex-ante stock or operating performance. Finally, we find that the effect of advertising on future stock returns is stronger when advertising increases compared to the case when advertising decreases.
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Bushee, Brian J., and Gregory S. Miller. "Investor Relations, Firm Visibility, and Investor Following." Accounting Review 87, no. 3 (January 1, 2012): 867–97. http://dx.doi.org/10.2308/accr-10211.
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ABSTRACT We examine the actions and outcomes of investor relations (IR) programs in smaller, less-visible firms. Through interviews with IR professionals, we learn that IR strategies have a common goal of attracting institutional investors and that direct access to management, rather than increased disclosure, is viewed as the key driver of the strategy's success. We test for the effects of IR programs by examining small-cap companies that hired IR firms in a differences-in-differences research design with controls for changes in disclosure and determinants of the decision to initiate IR. Relative to a matched sample of control firms, we find that companies initiating IR programs exhibit greater increases in institutional investor ownership and a shift toward investors that normally would not follow the companies. We also find greater improvements in analyst following, media coverage, and the book-to-price ratio. Our results indicate that IR activities successfully improve visibility, investor following, and market value. Data Availability: All analyses are based on publicly available data.
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Bertoni, Fabio, Massimo G. Colombo, and Annalisa Croce. "Diverse tipologie di venture capital e relazione tra investimenti e cash flow." ECONOMIA E POLITICA INDUSTRIALE, no. 2 (June 2009): 73–103. http://dx.doi.org/10.3280/poli2009-002005.
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- In this paper we study the effect of venture capital (VC) financing on firms' investments in a longitudinal sample of 374 Italian unlisted new-technology-based firms (NTBFs) observed over the 10-year period from 1994 to 2003. In particular, we consider the influence of VC on both firms' investment levels and the sensitivity of investments to firms' cash flows. We also distinguish the effects of VC financing according to the type of investor: financial VC (FVC) investors and corporate VC (CVC) investors. We show that the investment rate of Italian NTBFs is strongly and positively correlated with their current cash flows. We also find that after receiving VC financing, NTBFs increase their investment rate independently of the type of VC investor. Even though, on average, VC financing seems not to affect the sensitivity of investments to cash flows, we have found that there is substantial heterogeneity according to the type of VC investor. In fact, CVC-backed firms still exhibit positive investment-cash flow sensitivity. Conversely, when firms receive VC financing from an FVC investor, the sensitivity of investments to cash flows disappears. Therefore, while this study clearly indicates that VC financing is beneficial to NTBFs, it also suggests that managers of NTBFs looking for external financing should be aware that the nature of these benefits depends crucially on the type of investor. . Keywords: investment, new technology-based firm, pecking order, venture capital, corporate venture capital Parole chiave: investimenti, imprese ad alta tecnologia, pecking order, venture capital, corporate venture capital . Jel Classification: G32 - D92 - G23
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Kirk, Marcus P., and James D. Vincent. "Professional Investor Relations within the Firm." Accounting Review 89, no. 4 (January 1, 2014): 1421–52. http://dx.doi.org/10.2308/accr-50724.
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ABSTRACT: This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment. JEL Classifications: D82; M41; G11; G12; G14; G24 Data Availability: Data are publicly available from the sources identified in the paper with the exception of the membership data from the National Investor Relations Institute, which is a proprietary dataset.
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Asem, Ebenezer, Jessica Chung, Xin Cui, and Gloria Y. Tian. "Liquidity, investor sentiment and price discount of SEOs in Australia." International Journal of Managerial Finance 12, no. 1 (February 1, 2016): 25–51. http://dx.doi.org/10.1108/ijmf-10-2013-0106.
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Purpose – The purpose of this paper is to empirically test whether stock liquidity and investor sentiment have interactive effects on seasoned equity offers (SEOs) price discounts in Australia. Design/methodology/approach – The authors focus on the implicit cost borne by firms when issuing seasoned equity capital. This cost is measured as the relative difference between the SEO offer price and the last close price prior to the announcement of the issue. The primary measure of investor sentiment is a composite index constructed similar to that in Baker and Wurgler (2007). Findings – The results show that, in periods of deteriorating investor sentiment, the increase in SEO price discounts for firms with illiquid stocks is larger than the corresponding increase for firms with liquid stocks. This suggests that, as sentiment wanes, investors become even more concerned about illiquidity, leading to even greater required compensation for holding illiquid assets. The authors find that information asymmetry is positively related to SEO price discounts but this relation is not affected by changing investor sentiment. Research limitations/implications – Collectively, the empirical results provide support for the argument that price discount of SEOs represents compensation to investors for bearing costs associated with illiquidity. The results also lend some support to the behavioural argument that pricing of equity offers is dependent upon investor sentiment, particularly for firms with illiquid stocks. Practical implications – The ability for firms to raise capital in a cost-effective manner is critical for firm growth and stability. Investors require compensation for bearing the costs of illiquidity of their investments in equity. Accordingly, firms need to be conscious of their stocks’ existing liquidity and its influence on the cost of raising additional capital which, in turn, affects their operational stability and investment opportunities. Social implications – Ultimately, the implications of this study will assist firms in capital-raising decisions, investors in making portfolio investment decisions, and investment banks in setting offer prices on equity issues. Originality/value – To the best of the authors’ knowledge, this is the first study to examine the interaction between investor sentiment and SEO price discounts in Australia.
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Derrien, François, Ambrus Kecskés, and David Thesmar. "Investor Horizons and Corporate Policies." Journal of Financial and Quantitative Analysis 48, no. 6 (December 2013): 1755–80. http://dx.doi.org/10.1017/s0022109013000628.
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AbstractWe study the effect of investor horizons on corporate behavior. We argue that longer investor horizons attenuate the effect of stock mispricing on corporate policies. Consistent with our argument, we find that when a firm is undervalued, greater long-term investor ownership is associated with more investment, more equity financing, and less payouts to shareholders. Our results do not appear to be explained by long-term investor self-selection, monitoring (corporate governance), or concentration (blockholdings). Our results are consistent with a version of market timing in which mispriced firms cater to the tastes of their short-term investors rather than their long-term investors.
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Da, Zhi, Mitch Warachka, and Hayong Yun. "Fiscal Policy, Consumption Risk, and Stock Returns: Evidence from U.S. States." Journal of Financial and Quantitative Analysis 53, no. 1 (February 2018): 109–36. http://dx.doi.org/10.1017/s0022109017000977.
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We find that consumption risk is lower in states that implement countercyclical fiscal policies. Moreover, firms with an investor base that is concentrated in countercyclical states have lower stock returns, along with firms that relocate their headquarters to a countercyclical state. Therefore, countercyclical fiscal policies lower the consumption risk of investors and, consequently, their required equity return premium. This conclusion is confirmed by smaller declines in market participation during recessions in countercyclical states. Overall, the location of a firm’s investor base enables state-level fiscal policy to influence stock returns.
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Mola, Simona, P. Raghavendra Rau, and Ajay Khorana. "Is There Life after the Complete Loss of Analyst Coverage?" Accounting Review 88, no. 2 (October 1, 2012): 667–705. http://dx.doi.org/10.2308/accr-50330.
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ABSTRACT This paper examines the value of sell-side analysts to covered firms by documenting the effects on firm performance and investor interest after a complete loss of analyst coverage for periods of at least one year. We find that analyst coverage adds value to a firm both because it reduces information asymmetries about the firm's future performance and because it maintains investor recognition for that firm's stock. After the introduction of regulations that curtailed the informational advantage of analysts in the early 2000s, the investor recognition role of analysts remains important. Firms that lose all analyst coverage continue to suffer a significant deterioration in bid-ask spreads, trading volumes, and institutional presence but do not show a significant difference in subsequent performance relative to covered peers. In addition, controlling for other factors, we find that firms that lose all analyst coverage for one year are significantly more likely to delist than their covered peers. Our results provide insight into the reasons why firms place so much importance on analyst coverage.
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Henry, Elaine, and Marietta Peytcheva. "Earnings-Announcement Narrative and Investor Judgment." Accounting Horizons 32, no. 3 (April 1, 2018): 123–43. http://dx.doi.org/10.2308/acch-52121.
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SYNOPSIS This study examines how emphasis framing in narrative disclosures, and the investor characteristics of numeracy and persuadability, affect investors' ability to discriminate between firms' better and worse financial performance. In an experiment with 264 participants from the general population, we manipulate emphasis framing in earnings announcement narratives as neutral, consistent, or inconsistent with the firm's performance. We find that investors are better able to distinguish between good and poor firm performance when the accompanying disclosure emphasizes information that is consistent with the firm's performance. Further, persuadability reduces, but numeracy increases, investors' ability to distinguish between good and poor performance. However, our results also indicate that the inclusion of biased numerical information in narrative disclosures may have a greater negative effect on higher numerates than on lower numerates, consistent with theory suggesting that more numerate individuals tend to focus on and draw affective meaning from numbers. JEL Classifications: M41.
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Naughton, James P., Clare Wang, and Ira Yeung. "Investor Sentiment for Corporate Social Performance." Accounting Review 94, no. 4 (October 1, 2018): 401–20. http://dx.doi.org/10.2308/accr-52303.
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ABSTRACT We document time-varying investor sentiment for corporate social responsibility (CSR) performance. We show that announcements of CSR activities generate positive abnormal returns during periods when investors place a valuation premium on CSR performance. In addition, we find that firms boost CSR performance in response to investor sentiment, and that this response is more pronounced for those firms that are more inclined to respond to investor sentiment due to valuation uncertainty and investor horizon. Our results suggest that investor sentiment plays a role in firms' commitment to CSR. JEL Classifications: M41; D82; G14; G30; G31; G32; G34. Data Availability: Data are available from the public sources cited in the text.
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Yuanita, Dielanova Wynni, Christine Novita Dewi, Arief Zuliyanto Susilo, and Kusharyanti Kusharyanti. "Foreign Investor’s Interest and Tax Avoidance: Contingency Perspectives Depended on Country’s Protection Level and Law Systems." Gadjah Mada International Journal of Business 22, no. 1 (May 28, 2020): 74. http://dx.doi.org/10.22146/gamaijb.43521.
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This study investigates differences in firms’ tax avoidances between multinational and national. Furthermore, it investigates the differences between firms’ contingent behavior because of the country’s investor protection level and law systems. This research takes into account the firms’ tax avoidance phenomenon. Besides that, it proposes novelties as follows. First, this study highlights that multinational firms tend to avoid taxes higher than national ones. Second, it induces the dividend catering theory related to the country’s investor protection. The latest, it persuades that country’s investor protection, and law systems make firms contingent on their tax avoidance behaviors. This study finds that firms where they live in high investors’ protection countries and common law did higher tax avoidance than others. The findings imply that these firms could grow higher than others. It means that this study suggests economic consequences. The consequence is that a country should increase its investors’ protection level and somehow redefine its law systems. Therefore, it could enhance its capital market and subsequently improve the national welfares.
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Levitas, Edward, and M. Ann McFadyen. "External funding and emergent technology inputs." International Journal of Research in Business and Social Science (2147- 4478) 9, no. 5 (September 17, 2020): 1–12. http://dx.doi.org/10.20525/ijrbs.v9i5.833.
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The research and development (R&D) process is critical to a firm’s competitive advantage and often requires external funding. Yet, we know little about how different types of investors respond to the cash needs of established R&D intensive firms nor about how external financial analysts influence those decisions. We address these gaps by examining how a firm’s patenting activity affects its ability to raise cash. We distinguish the motivations of two investor groups: open-market and alliance partners. We focus on how patents based on emergent technologies impact two types of investors and their willingness to fund the R&D process. We develop theory and test our hypotheses using data from publicly traded biopharmaceutical firms by drawing upon knowledge-based view, alliance, and investment theories. We find evidence that patents built upon emergent technologies are viewed differently by the two types of investors. We find open market investors were less likely to invest in emergent technologies and invested less when they did. Conversely, alliance partner investors would be more appreciative of the opportunities new technology inputs present, thus, more likely to invest in firms using emergent technologies and invest more.
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Lundholm, Russell J., Rafael Rogo, and Jenny Li Zhang. "Restoring the Tower of Babel: How Foreign Firms Communicate with U.S. Investors." Accounting Review 89, no. 4 (January 1, 2014): 1453–85. http://dx.doi.org/10.2308/accr-50725.
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ABSTRACT: We examine the readability of text and the use of numbers in the annual filings and earnings press releases of foreign firms listed on U.S. stock exchanges. We find that foreign firms generally write clearer text and present relatively more numerical data than their U.S. firm counterparts. More importantly, we find that the readability of the text and use of numbers increases as the foreign firms get geographically further from the U.S. It also increases as the foreign firm's home country has greater differences in accounting standards or investor protection laws relative to the U.S. Further corroborating our results, we also find that these communication efforts are partially successful. Within a country, firms that produce relatively more readable disclosures attract relatively more U.S. institutional ownership. Collectively, our results suggest that foreign firms are responding to a perceived reluctance on the part of U.S. investors to own them and attempt to lower the investors' information disadvantage or psychological distance by providing clearer and more concrete disclosures.
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Schepker, Donald J., Won-Yong Oh, and Pankaj C. Patel. "Interpreting Equivocal Signals: Market Reaction to Specific-Purpose Poison Pill Adoption." Journal of Management 44, no. 5 (March 18, 2016): 1953–79. http://dx.doi.org/10.1177/0149206316635250.
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Signaling theory suggests that firms send signals to stakeholders to reduce information asymmetry. Research, however, has rarely examined how investors interpret signals that are equivocal. We suggest that sensemaking serves as an important process by which investors interpret firm signals, and salient contextual cues influence the sensemaking process. We examine an equivocal signal, the adoption of a poison pill, as a means of examining investor interpretation of the signal and the role of contextual cues in influencing interpretation. Using a sample of 578 poison pill adoptions and controlling for self-selection, we find that investors react negatively to poison pills adopted to protect net operating losses (NOL poison pills) but positively to poison pills adopted when the firm is in receipt of a takeover offer (in-play poison pills). Assessing the role of contextual cues, our results suggest that CEO duality, the proportion of inside directors on the firm’s board, the firm’s R&D investments, and industry concentration also condition investor response to specific-purpose poison pill adoption. Our study contributes to research on signaling theory, sensemaking, and corporate governance by examining how investors interpret a firm’s equivocal governance decisions.
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Shi, Xiaofeng, Michael Dempsey, Huu Nhan Duong, and Petko S. Kalev. "Investor protection and market liquidity revisited." Corporate Governance 15, no. 4 (August 3, 2015): 517–29. http://dx.doi.org/10.1108/cg-04-2014-0046.
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Purpose – This paper aims to establish the relation between corporate governance – as represented by investor protection at both the legal and firm levels – and stock market liquidity. Design/methodology/approach – This paper avails of the unique features of Hong Kong- and China-based stocks that are traded on the Hong Kong Stock Exchange so as to test whether differences between “common law” and “civil law” legal environments contribute to differences in stock liquidity. In addition, by constructing an internal corporate governance index score for each firm based on board size, board independence and information on the audit and remuneration committee, we document whether firms with better corporate governance scores have narrower spreads, greater depth and higher trading volumes. Findings – Overall, results provide support for a linkage between corporate governance issues – as investor rights protection at both the environment and firm protection levels – and stock market liquidity. Research limitations/implications – This paper recognizes that investor protection constitutes a single component of the desirability of investing in a firm’s stock. Nevertheless, it does appear to constitute an important component of a stock’s attractiveness. Practical implications – The practical implications are clear, namely, that good corporate governance of firms leads to their attractiveness as investment vehicles (for both the shorter and the longer terms). Social implications – The paper has clear social implications. In particular, the paper serves to highlight that prospects for enduring wealth creation are contingent on the safeguards accorded to the equity ownership of a firm’s stock. Originality/value – The originality lies in taking advantage of the unique features of the Chinese and Hong Kong firms on the Hong Kong Exchange, so as to examine the contrasting influences of common law and civil law on stock liquidity. Thus, the authors allow for the effects of corporate governance across the two legal environments (China and Hong Kong) to be compared and contrasted while maintaining other influences unchanged across Chinese and Hong Kong shares.
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Lee, Sangki, Insu Kim, and Chung-hun Hong. "Who Values Corporate Social Responsibility in the Korean Stock Market?" Sustainability 11, no. 21 (October 24, 2019): 5924. http://dx.doi.org/10.3390/su11215924.
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In this study, we explore the stock market’s response to new information that a firm has been included in the Dow Jones Sustainability Index (DJSI) in Korea. In addition, we investigate which investor group contributes to the changes, if any significant increase in returns is found, after a firm’s incorporation into the DJSI. This study aims to identify which investors value corporate social responsibility (CSR) in the Korean stock market and examine whether the government-led campaigns for CSR have affected private sector investors, as well as those from the public sector. We find statistically significant abnormal returns for firms after their first listing in the index, implying that investors in Korean markets consider a firm’s inclusion in the DJSI as good news for the firm value. Using a unique dataset from the Korea Exchange (KRX) on investors, we classify investors into four groups: individual investors, public pension funds, other institutional investors, and foreign investors. Unlike prior studies that focus only on the existence of abnormal returns, we investigate the trading behavior of each investor group for such announcements. We find that it is mainly the buying pressure of public pension funds that generates abnormal returns. By contrast, we cannot find statistically significant results for the other investor groups. This result implies that the government-led campaign for CSR has only had limited effects in the Korean stock market, and that awareness of CSR in the private sector should be improved.
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Su, Zili, and Constantinos Alexiou. "Equity incentive schemes, investor protection and corporate performance." China Finance Review International 10, no. 3 (November 5, 2019): 297–322. http://dx.doi.org/10.1108/cfri-07-2019-0091.
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Purpose On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection index (IPI), the purpose of this paper is to explore the impact of equity incentives and regional investor protection on corporate payout policies and corporate performance. Design/methodology/approach This paper establishes ordinary least squares regression model to examine interactions between the effects of equity incentives and regional investor protection upon firms’ dividend payouts. In addition, the authors also explore whether the joint effects on payouts are altered in the presence of growth opportunities, and investigate the effects of interactions between equity incentives and regional investor protection on corporate performance. Findings The authors observe that firm managers appear to abuse equity incentives by increasing dividend payouts. However, regional investor protection can potentially restrain such behavior. The restraining effect depends on the firms’ growth opportunities, on the basis of which the effect on cash (stock) dividends is found to be weaker (stronger) in high-growth firms – and stronger (weaker) in low-growth firms. Further evidence indicates that the restraining effect of regional investor protection on selfish dividend-related behavior encouraged by equity incentives may also prove valuable in encouraging exploitation of these incentives so as to enhance corporate performance. Practical implications Since reforming investor protection laws and improving judicial quality are difficult and lengthy at a country level. Improving regional levels of investor protection, however, seems more feasible and effective. Through measures encouraging the development of intermediaries, increases in the number of lawyers – all of which seem likely to constrain behavior harmful to the interests of investors – the provincial administrations can reasonably expect to contribute toward improvements in the performance of firms and the development of the economy in their region. This paper provides encouragement to regional policy makers in China and in other developing countries. Originality/value This paper uses a regional index of investor protection to study the impact on corporate dividends and performance, in contrast with most previous studies, which have examined these issues at country or individual firm levels. The use of a regional-level investor IPI in this paper therefore fills a gap by coming in between the country- and firm-level indicators typically used in previous research, thus providing a new perspective on investor protection issues.
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Chae, Joon, Ryumi Kim, and Jaehee Han. "Investor Attention from Internet Search Volume and Underreaction to Earnings Announcements in Korea." Sustainability 12, no. 22 (November 11, 2020): 9358. http://dx.doi.org/10.3390/su12229358.
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Recent studies have used internet search volume as a measure of investor attention. In addition, literature argues that limited investor attention contributes to market underreaction to public information such as earnings announcements. We show that firms with more investor attention captured by abnormal internet search frequency have stronger announcement-day reactions and weaker post-earnings-announcement drift. The effect of abnormal search frequency is stronger for medium and small-sized firms, which usually receive insufficient attention. Our evidence indicates that firms with higher search intensity are traded more, especially by individual investors. Moreover, we imply that it is a sustainable development for investors to be able to use public information through the internet for investment in stock markets.
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Neves, Maria Elisabete Duarte. "Payout and firm’s catering." International Journal of Managerial Finance 14, no. 1 (February 5, 2018): 2–22. http://dx.doi.org/10.1108/ijmf-03-2017-0055.
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Purpose The purpose of this paper is to investigate whether investor sentiments exert significant influence on corporate dividend policy. Additionally it provides further evidence on the moderating role of certain firm’s characteristics on the relation between dividends and investor sentiment. Design/methodology/approach A sample of 635 firms from 12 Eurozone countries for the period of 1986-2003 has been used. A dividend model has been suggested which incorporates a variable at the firm level that proxies for the catering effect, as a measure of investor sentiments. The estimation model of dividends is based on the Generalized Method of Moments (Arellano and Bond, 1991). Findings It can be concluded that psychological factors influence the decision to pay. Furthermore, other relevant findings show an interaction effect between catering and firm’s characteristics, particularly high liquid assets, valuable investment opportunities, and higher levels of free cash flow. Research limitations/implications Given the subjectivity inherent in creating a variable that captures the sentiment of investors, the author admits that there are other variables to consider. Also, corporate governance factors could have been introduced as well as other countries with different institutional environments. Originality/value To the best of the author’s knowledge, this is a novel approach that incorporates a variable capturing investor’s sentiment at the firm level. With the approach suggested it has been shown that investors’ sentiments impact dividends payout, highlighting its usefulness for managers who are expected to pay dividends according to investors’ expectations. Moreover, this work also demonstrated that firm’s characteristics could affect the investor sentiments for dividends also conveying a valuable contribution for investors.
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Li, Yiwen, You-il Park, and Jinyoung Wynn. "Investor reactions to restatements conditional on disclosure of internal control weaknesses." Journal of Applied Accounting Research 19, no. 3 (September 10, 2018): 423–39. http://dx.doi.org/10.1108/jaar-10-2017-0107.
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Purpose The purpose of this paper is to investigate investor reactions to financial restatements conditional on disclosures of internal control weaknesses under Section 404 of the Sarbanes-Oxley Act. Design/methodology/approach The research uses cumulative abnormal stock returns (CARs) as a proxy for investor reactions. Restatements and internal control reports are available on audit analytics. Multivariate regression analyses were used for testing. Findings Using a sample of restating firms whose original misstatements are linked to underlying internal control weaknesses, the research finds that cumulative abnormal returns for firms disclosing internal control weaknesses in a timely manner is negative in a three-day window around the restatement announcements. The finding indicates that restatements with early disclosure of internal control weaknesses provide more persuasive evidence of the ineffectiveness of a firm’s internal control over financial reporting, rather than early disclosure lowering the information asymmetry between a firm and investors. Research limitations/implications This study employs CARs to examine the market reaction to restatements conditional on disclosure of internal control weaknesses. Practical implications Further study on reactions by creditors who have access to private information on firms could extend the implications of the finding. Originality/value The study contributes to the existing research by documenting that early disclosure of material weaknesses in internal control affects investors’ reactions to financial restatements.
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Brauer, Matthias, and Martin Zimmermann. "Investor Response to Workforce Downsizing: The Influence of Industry Waves, Macroeconomic Outlook, and Firm Performance." Journal of Management 45, no. 5 (October 5, 2017): 1775–801. http://dx.doi.org/10.1177/0149206317734901.
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Building on behavioral decision-making theory, we study the extent to which current industry downsizing intensity, changes in future macroeconomic outlook, and a firm’s past performance trend influence the relationship between downsizing magnitude and investor response. Based on the analysis of a large-scale sample of downsizing announcements in the United States over a period of 12 years, our results indicate that negative investor responses to downsizings are amplified in periods of industry downsizing waves, in the face of changes in macroeconomic outlook, and subsequent to deteriorating firm financial performance. Additionally, our empirical results suggest that investors’ cross-level aggregation of these cues has a significant, negative compound effect on downsizing firms’ market valuations.
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Aboody, David, Omri Even-Tov, Reuven Lehavy, and Brett Trueman. "Overnight Returns and Firm-Specific Investor Sentiment." Journal of Financial and Quantitative Analysis 53, no. 2 (March 1, 2018): 485–505. http://dx.doi.org/10.1017/s0022109017000989.
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We examine the suitability of using overnight returns to measure firm-specific investor sentiment by analyzing whether they possess characteristics expected of a sentiment measure. We document short-term overnight-return persistence, consistent with existing evidence of short-term persistence in the share demand of sentiment-influenced investors. We find that short-term persistence is stronger for harder-to-value firms, consistent with existing evidence that sentiment plays a larger role for such firms. We show that stocks with high (low) overnight returns underperform (outperform) over the longer term, consistent with prior evidence of temporary sentiment-driven mispricing. Overall, our evidence supports using overnight returns to measure firm-specific sentiment.
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Khalil, Mohamed, Aydin Ozkanc, and Yilmaz Yildiz. "Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market." Review of Quantitative Finance and Accounting 55, no. 1 (September 10, 2019): 1–27. http://dx.doi.org/10.1007/s11156-019-00834-3.
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Abstract This study investigates how foreign institutional ownership interacts with accounting conservatism in an emerging market setting. We posit that weak investor protection and a high degree of information asymmetry between insiders and outside investors increase demand for conservative reporting in firms operating in emerging markets. Foreign investors in this setting have informational disadvantages relative to their domestic peers and have difficulties in getting access to data. Using a sample of Turkish firms, we find that foreign institutions (particularly foreign corporate investors) demand more conservative reporting in the investee firms. Moreover, we show that this association is more pronounced among firms with greater asymmetric information problems and growth opportunities. Our additional tests reveal that the direction of causality flows from foreign institutional ownership to conservatism, and not vice versa.
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Moen, Øystein, Roger Sørheim, and Truls Erikson. "Born Global Firms and Informal Investors: Examining Investor Characteristics." Journal of Small Business Management 46, no. 4 (October 2008): 536–49. http://dx.doi.org/10.1111/j.1540-627x.2008.00255.x.
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Higgins, Eric J., Joseph R. Mason, and Adi E. Mordel. "Asset sales, recourse and investor reactions to initial securitizations." Journal of Risk Finance 20, no. 3 (August 12, 2019): 291–310. http://dx.doi.org/10.1108/jrf-11-2018-0172.
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Purpose Both accounting and regulatory treatments classify securitizations as a “sale” of assets, therefore allowing the issuer to remove the assets from their books. The purpose of this paper is to present conjectural evidence of recourse activity and bankruptcy treatment that undermine the fundamental concept of true sale. Design/methodology/approach The authors use investor reactions to firm’s first securitizations to isolate investors’ views of the potential risk transfer. Findings Investor reactions to firms’ first securitization announcements suggest that investors, themselves, think of the effects of securitizations as more like a financing than an asset sale. Firms securitizing for the first time exhibit negative short-term equity returns and negative long-term operating performance, reactions more similar to financings than asset sales. Additional analysis shows that securitization is also associated with increased systematic risk, suggesting that the rapid growth fueled by securitization is similar to increasing leverage. The effect is more pronounced for banks than non-banks. Originality/value This is the first study to have used firms' first securitizations to analyze the nature of risk transfer in securitizations. The results show that off-balance-sheet treatment for securitizations may be inappropriate, given investor perceptions of the nature of potential contingent liabilities.
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Clark, Gordon L., Sarah McGill, Yukie Saito, and Michael Viehs. "Institutional shareholder engagement with Japanese firms." Annals in Social Responsibility 1, no. 1 (June 8, 2015): 30–56. http://dx.doi.org/10.1108/asr-12-2014-0003.
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Purpose – The purpose of this paper is to explore how shareholder engagement on environmental, social, and governance (ESG) issues is informally exercised by a large global institutional investor with locally embedded, geographically remote firms. This field is still a new area of research due to a scarcity of data, and because ordinarily, private engagement activities are conducted confidentially. Therefore, the paper aims to fill this gap in the literature by studying the private corporate engagement activities of a large UK-based institutional investor on ESG issues with Japanese investee firms in order to achieve a greater understanding of the under-researched area of corporate social responsibility. Design/methodology/approach – The authors employ a multi-method approach to analyse engagement activities by the institutional investor. The authors have obtained a unique data set of the institutional investor’s engagement activities. The institutional investor is UK-based, has a long history of active engagement, and is considered one of the oldest and largest specialists in responsible investment. Further, the authors have conducted several in-depth interviews with a UK-based ESG service provider as well as one of the largest Japanese trust companies. Findings – First, it is found that main target firms of engagement activities are large firms with global operations, and that corporate governance issues are the most important engagement topic in Japan. Second, in trying to effectively exercise voice across societies, engagement activities are conducted with geographically remote target firms on various ESG agendas in a self-enforcing, face-to-face, and sometimes collective manner. Finally, this study argues for the gap between the asset manager’s motivation to engage and local target firms’ readiness to respond due to corporate organisational and language issues. Originality/value – The authors contribute to social responsibility literature by focusing on the role of global investors in Japan to diffuse global standards. This area has been largely neglected in this stream of literature, despite the increasing presence of foreign investors in Japan. This is one of the first attempts to analyse a global investor’s engagement strategies with one specific country outside of the USA and Europe. Further, within the literature on shareholder engagement, this is the first paper that focuses on the means of engagement activities and the responses by target firms.
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Robinson, Leslie A., and Andrew P. Schmidt. "Firm and Investor Responses to Uncertain Tax Benefit Disclosure Requirements." Journal of the American Taxation Association 35, no. 2 (March 1, 2013): 85–120. http://dx.doi.org/10.2308/atax-50458.
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ABSTRACT We examine whether proprietary costs affect disclosure quality and how investors react to disclosure quality in a new proprietary cost setting. We apply Verrecchia's (1983) proprietary cost theory to the FIN 48 adoption setting and argue that proprietary costs result from beliefs that the new disclosures could weaken a firm's competitive position when negotiating with tax authorities. FIN 48 is an ideal setting to examine how proprietary costs affect disclosure given the proprietary nature of uncertain tax positions, and the ability to construct objective measures of both proprietary costs and disclosure quality. We construct disclosure quality scores for S&P 1500 firms and offer two empirical findings. First, we find a negative association between proprietary costs and disclosure quality. Second, investors reward firms for low disclosure quality, especially small firms and firms with high proprietary costs. Both findings are consistent with Verrecchia's (1983) theory, and suggest that proprietary costs moderate investor demand for full disclosure. JEL Classifications: G14, L15, M41, M44, M45
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Jacob, Chacko, and Jijo Lukose P.J. "Institutional Ownership and Dividend Payout in Emerging Markets: Evidence from India." Journal of Emerging Market Finance 17, no. 1_suppl (February 23, 2018): S54—S82. http://dx.doi.org/10.1177/0972652717751538.
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We examine the relationship between institutional investor ownership and dividend payouts using a large sample of NSE-listed non-financial firms during the period 2001 to 2016. Consistent with the evidence from the US market, institutional investors, on average, have larger holdings in dividend-paying firms and are seen to prefer dividend payers over non-payers among larger firms. However, among smaller firms, institutional investors seem to prefer non-paying firms. Consistent with it, logistic regression results reveal that institutional investors do improve a firms’ propensity to pay dividends, primarily across large firms. Further, among dividend-paying firms, institutional investors, on average, are observed to have relatively lesser holdings in firms with higher payouts than those with lower payouts. In line with these observations, regression analysis also provides no evidence to support a positive relationship between total institutional ownership and payout level. However, across investor categories, we do find evidence for domestic institutional investors (DII) in improving payouts. Further, we use a dynamic panel GMM estimator to correct for endogeneity and find that the relationship is robust among large firms. Our results highlight the role of DII in improving dividend payout and provide support to models that predict a positive relationship. JEL Classification: G23, G32, G34, G35
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Li, Xin, and Tienan Wang. "Investor reaction to R&D investment." International Journal of Innovation Science 8, no. 2 (June 6, 2016): 133–47. http://dx.doi.org/10.1108/ijis-06-2016-009.
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Purpose This paper aims to examine the impact of research and development (R&D) investment on firms’ stock price from the perspective of investors. Design/methodology/approach Building on signaling theory, the authors propose that R&D investment sends important signals to the investment community regarding future growth, which in turn impacts investor reaction to such investment. Findings Using a sample of listed pharmaceutical firms in China from 2007 to 2011, the authors find that R&D investment has a positive effect on firms’ stock price, indicating that investors have a positive reaction to R&D investment signals. Further, the authors find that the signaling role of new product announcements mediates this relationship between R&D investment and investor reaction. Originality/value The authors also find that the signaling role of development capacity (DC) has a moderating effect on the relationship between innovation activities (i.e. R&D investment and new product announcements) and investor reaction, such that DC strengthens the positive effect of R&D and new product announcements on investors.
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Gul, Ferdinand A., Gaoguang (Stephen Zhou, and Xindong (Kevin Zhu. "Investor Protection, Firm Informational Problems, Big N Auditors, and Cost of Debt around the World." AUDITING: A Journal of Practice & Theory 32, no. 3 (March 1, 2013): 1–30. http://dx.doi.org/10.2308/ajpt-50462.
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SUMMARY: This paper examines the effects of investor protection, firm informational problems (proxied by firm size, firm age, and the number of analysts following), and Big N auditors on firms' cost of debt around the world. Using data from 1994 to 2006 and over 90,000 firm-year observations, we find that the cost of debt is lower when firms are audited by Big N auditors, especially in countries with strong investor protection. Second, we find that firms with more informational problems (i.e., higher information asymmetry problems) benefit more from Big N auditors in terms of lower cost of debt only in countries with stronger investor protection. JEL Classifications: G14; G15; G32; K22; M42.
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Rodrigs, Marcus Craig. "Use of the Internet for investor relations by public listed companies." Corporate Ownership and Control 13, no. 4 (2016): 81–88. http://dx.doi.org/10.22495/cocv13i4p8.
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With the increasing emphasis on developing economies and the use of the internet for corporate relationship building, this study aims to investigate the usage of internet by listed companies in the ready-made garment industry in Bangladesh. The study will also include comparison of the contents of investor relationships with empirical evidence from around the world. The sample size contains 105 firms listed on the Dhaka Stock Exchange. Employing statistical analysis for measuring investor relations based on available contents disclosed in firms’ website for investor information, this study found that the 105 firms disclose contents related to investors on their websites but fall short of the standard of other countries with only the company profile as the most prominent disclosure. Study result reports that companies in Bangladesh are still behind compared to developed economies in terms of using internet for investor relations. The study also recommends the Dhaka Stock Exchange, Bangladesh Garments Manufacturing and Export Association (BGMEA) and other indigenous regulatory bodies encourage firms to disclose more investor related information
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Albada, Ali, Soo-Wah Low, and Othman Yong. "Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence." International Journal of Emerging Markets 15, no. 2 (July 19, 2019): 302–19. http://dx.doi.org/10.1108/ijoem-04-2018-0170.
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Purpose The purpose of this paper is to examine the effects of prestige signals measured by the reputations of the underwriter, auditor and board size on the heterogeneity of investor belief about the true value of IPO in the Malaysian IPO market. Design/methodology/approach This study employs a sample of 281 IPOs issued between January 2000 and December 2015. The relationship between prestige signals and investor heterogeneity, measured by first-day price range of IPOs, is analysed using cross-sectional regression and quantile regression technique. Findings Of the three prestige signals, the findings show that only underwriter reputation and board size have significant negative relationships with IPO first-day price range. This implies that IPOs underwritten by reputable underwriters and issuing firms with larger board members have lower heterogeneity of opinion among investors. The findings also show that underwriter and auditor reputations have negative relationship with IPO initial return, suggesting that these prestige signals help to reduce IPO under-pricing, which is a direct cost of raising capital for the issuing firm. Furthermore, the results indicate that offer price, initial return, over-subscription ratio and private placement are associated with higher first-day price range. However, the findings on offer size suggest that larger IPO offer size is associated with lower first-day price range. Overall, the findings suggest that firm’s prestige signals reduce opinion heterogeneity among investors and that lower investors’ heterogeneity leads to lower IPO under-pricing cost for issuing firms. Originality/value Despite the importance of underwriter, auditor and board member reputations in signalling firm’s quality and reducing the level of information asymmetry of the listing firm’s issues, research on the effects of prestige signals on investor heterogeneity remains unexplored. This study investigates the role of prestige signals in influencing investors’ heterogeneity in Malaysia. The authors conjecture that underwriter, auditor and board member with higher reputations are associated with lower levels of opinion heterogeneity among IPO investors.
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Jung, Boochun, Dongyoung Lee, Ilhang Shin, and C. Y. Desmond Yuen. "Foreign Equity Ownership and Income Smoothing." Journal of International Accounting Research 19, no. 2 (March 23, 2020): 141–62. http://dx.doi.org/10.2308/jiar-19-514.
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ABSTRACT We examine whether foreign investors influence a local firm's income smoothing, using a sample of Korean firms from 2000 to 2013. We hypothesize that given innate informational difficulties of overseas investments, foreign investors demand less noisy and more sustainable earnings, and to satisfy this demand, managers have strong incentives to smooth earnings. We find that foreign investors' ownership is positively related to the level of earnings smoothing. We also find that earnings smoothing improves earnings informativeness in the presence of high foreign investor ownership, consistent with the notion that foreign investors play an important role in local firms' information environments. JEL Classifications: M41; M43; J53.
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Karolyi, G. Andrew, Dawoon Kim, and Rose Liao. "The Theory and Practice of Investor Relations: A Global Perspective." Management Science 66, no. 10 (October 2020): 4746–71. http://dx.doi.org/10.1287/mnsc.2019.3405.
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Using proprietary survey data of investor relations (IR) officers from 59 countries, we uncover new stylized facts on a wide variety of IR functions, such as the firm’s interactions with brokers and investors, the formulation of its disclosure policies, and its global outreach efforts. We find that IR activities vary widely across firms, industries, and countries. They have become increasingly important, as reflected by the more frequent involvement of IR officers with senior executives on a day-to-day basis. We also find that large and complex firms receiving greater media attention engage more in IR activities. In addition, firms domiciled in countries with weaker legal protections for investors and poorer disclosure standards, those cross-listed in the stock markets that are outperforming, and those with high global media visibility invest in greater global outreach efforts with IR activities. Firms’ IR efforts to investors worldwide are associated with higher Tobin’s q valuation ratios. We interpret our findings in the context of theories and existing evidence on the role of asymmetric information and governance problems in global markets. This paper was accepted by David Simchi-Levi, finance.
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Katti, Supriya, and Mehul Raithatha. "Impact of Venture Capital Investment on Firm Performance: An Indian Evidence." Global Business Review 21, no. 4 (June 27, 2018): 1011–24. http://dx.doi.org/10.1177/0972150918779165.
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We evaluate the monitoring and certification hypotheses associated with venture capital (VC) investors involved with Indian listed firms having the potential to influence firm performance. Empirical results of our study do not support monitoring and certification hypotheses associated for VC investors involved in publicly listed firms in India. On the other hand, we find the evidence of value erosion due to the presence of VC investors. The negative effect is justified through the opportunistic behaviour of the investor having a very easy route to exit investment through the secondary market in case of expected underperformance of the firm. The study also reveals that the origin of VC investors does influence firm performance. The results have a significant impact due to the regulatory framework defining the portfolio of VC investors.