Globalization of banking raises questions about banks' liquidity management, their response to liquidity shocks, and the potential for international shock propagation. We conjecture that global banks ...manage liquidity on a global scale, actively using cross-border internal funding in response to local shocks. Having global operations insulates banks from changes in monetary policy, while banks without global operations are more affected by monetary policy than previously found. We provide direct evidence that internal capital markets are active in global banks and contribute to the international propagation of shocks. This feature was at play during the financial crisis of 2007—2009.
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This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. ...Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.
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Research Summary
Do the performance pressures of the capital market exacerbate short‐termism and stifle innovation? This longstanding question has doggedly eluded a conclusive answer due to ...conflicting empirical findings. We revisit two studies that have been central to rejecting short‐termism: Atanassov (2013) and its replication by Karpoff and Wittry (2018). After revising some of the empirical choices by Atanassov (2013), we find the opposite result: antitakeover laws that insulate managers from the market for corporate control enhance innovation, driven by firms with significant ownership by short‐term oriented investors. However, antitakeover laws do exacerbate the pursuit of value‐destroying acquisitions. Our findings highlight corporate governance as a strategic variable that imposes a tradeoff in disciplining different agency conflicts and weak governance as a necessary evil to stimulate innovation.
Managerial Summary
We present evidence that shareholder pressure indeed exacerbates short‐termism and stifles innovation, especially in firms with significant ownership by short‐term oriented investors. One key implication is that calls to reduce managerial entrenchment and hold managers more accountable to shareholders warrant careful consideration. While curbing other forms of agency conflict, such as managerial shirking and the pursuit of value‐destroying acquisitions, such reforms can exacerbate the myopic focus on short‐term profits and prevent long‐term value creation. Our findings warn that it is misleading to look for universally “good” governance. There are multiple forms of agency conflict that require diametric prescriptions, and designing corporate governance should carefully consider the tradeoffs based on a firm's ownership structure and the need for innovation.
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Recent changes in technology and the media are causing significant changes in how capital markets assimilate and respond to information. We identify important themes in the disclosure literature and ...use this as a framework to discuss the conference papers that appear in this volume. These papers examine how managers' disclosure practices are being affected by changes in technology, the media, and capital markets. While this work makes important progress, we discuss how continuing technological change and the emergence of new forms of media offer further opportunities for research on the role of disclosure in capital markets.
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ABSTRACT
Trade credit finance (TCF), retailer independent finance (RIF), and partial credit guarantee (PCG) finance are all important financing tools for capital‐constrained retailers. Risk aversion ...has a significant impact on financing, but it is difficult to measure. This research investigates the manufacturer's financing provision strategies considering risk aversion and capital market competition. First, an ordinary least squares method with conditional value at risk criteria is proposed to measure the risk attitude of decision‐makers. Second, the equilibrium mode of financing provision and impacts of risk aversion and the retailer's initial capital are analyzed. Third, a laboratory experiment and numerical analysis are conducted to verify the risk aversion estimation method and other theoretical results. We draw the following conclusions. First, the equilibrium financing provision mode changes with the degree of risk aversion and retailer's initial capital. Although the manufacturer prefers TCF and PCG to RIF, the retailer chooses the RIF mode when its initial capital is low. A variable parameter guarantee mechanism is proposed to encourage more retailers to choose PCG instead of RIF. Second, the risk‐averse financing system realizes super‐centralization (i.e., utility in the decentralized system is larger than that in the centralized system) when the manufacturer is less risk averse than the other participants. A Pareto‐optimality mechanism is designed to realize super‐centralization and coordinate the decentralized financing system. This research provides financing providers with practical guidance on the efficient implementation of supply chain financing.
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27.
The Value of Crowdsourced Earnings Forecasts JAME, RUSSELL; JOHNSTON, RICK; MARKOV, STANIMIR ...
Journal of accounting research,
September 2016, Volume:
54, Issue:
4
Journal Article
Peer reviewed
Crowdsourcing—when a task normally performed by employees is out-sourced to a large network of people via an open call—is making inroads into the investment research industry. We shed light on this ...new phenomenon by examining the value of crowdsourced earnings forecasts. Our sample includes 51,012 forecasts provided by Estimize, an open platform that solicits and reports forecasts from over 3,000 contributors. We find that Estimize forecasts are incrementally useful in forecasting earnings and measuring the market's expectations of earnings. Our results are stronger when the number of Estimize contributors is larger, consistent with the benefits of crowdsourcing increasing with the size of the crowd. Finally, Estimize consensus revisions generate significant two-day size-adjusted returns. The combined evidence suggests that crowdsourced forecasts are a useful supplementary source of information in capital markets.
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We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing ...the firm to reputational damage, loss of future sales, and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which, in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to a recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.
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We examine whether the recent regime of increased liquidity and trading activity is associated with attenuation of prominent equity return anomalies due to increased arbitrage. We find that the ...majority of the anomalies have attenuated and the average returns from a portfolio strategy based on prominent anomalies have approximately halved after decimalization. We provide evidence that hedge fund assets under management, short interest and aggregate share turnover have led to the decline in anomaly-based trading strategy profits in recent years. Overall, our work indicates that policies to stimulate liquidity and ameliorate trading costs improve capital market efficiency.
•We examine if capital market anomalies have attenuated in recent years.•These years have been accompanied by significant liquidity increases.•We find that the majority of the anomalies have attenuated.•Returns to anomalies have approximately halved after decimalization.•Thus, policies to increase liquidity stimulate market efficiency.
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While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic ...decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment.
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