Research summary
This article examines the effect of dedicated institutional investors on firms’ strategy uniqueness. We build on the uniqueness paradox where unique strategies are important drivers ...of economic rent, yet create an information problem whereby CEOs face discounts from the capital market, thus discouraging them from selecting unique strategies. We propose dedicated institutional investors as a partial remedy to the uniqueness paradox. Dedicated institutional investors invest in gaining private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressure. Thus, dedicated institutional investors can encourage CEOs to pursue more unique strategies. Our empirical results show the positive influence of dedicated institutional investors on strategic uniqueness, which is even stronger when firms operate in industries that are hard to value.
Managerial summary
Unique strategies can be an important way for managers to create long‐term value. However, some managers shy away from implementing such strategies, fearing that the short‐term oriented capital market does not fully understand the long‐term benefits of unique strategies and hence punishes them. Our study shows that investors who are long‐term‐oriented, focused, and committed help resolve this issue. These owners gather in‐depth private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressures. Hence, their commitment and patience can encourage CEOs to pursue more unique strategies. Our study reflects the high levels of responsibility that investors have on strategic decision‐making. Therefore, we recommend to intensify the communication between investors and firms on strategic topics (e.g., in form of stewardship policies).
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THE DIRTY LITTLE ROBOT Serban, Florentin; Vrinceanu, Bogdan-Petru; Stana, Andreea
Journal of applied quantitative methods,
06/2022, Volume:
17, Issue:
4-02-2024
Journal Article
Peer reviewed
In a time marked by significant technological progress, the capital market environment is experiencing swift and transformative changes. Central to this transformation is the integration of ...algorithmic trading, driven by advanced algorithmic robots (algobots) and powered by state-of-the-art artificial intelligence (AI). This article offers an extensive examination of the substantial influence of algorithms and AI on making financial decisions, illuminating the numerous benefits, associated risks, and broader consequences for enhancing investment results. We embarked on an endeavor to create and evaluate a groundbreaking algorithmic trading bot referred to as "The Dirty Little Robot." Key words: algorithmic trading; cryptocurrency; back-testing; risk management; trading strategies; technical analysis
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This paper discusses empirical evidence on the economic consequences of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union (EU), and provides suggestions on ...how future research can add to our understanding of these effects. Based on the stated objectives of the EU's so-called 'IAS Regulation', we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, and we provide specific guidance for future research.
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Indonesia as a sovereign country guarantees and provides protection for every citizen. This is a reflection of the State of Indonesia as a state of law. It is the same as the supporting profession of ...legal consultants in the capital market who have the right to have all their rights protected while carrying out their profession. The supporting profession of legal consultants in the capital market has an important role. Provisions of Article 67 of Law no. 8 of 1995 concerning the Capital Market which reads "In carrying out business activities in the Capital Market sector, Capital Market Supporting Professionals are required to provide an independent opinion or assessment. However, according to the author's careful review, in the capital market legal consultant profession, legal immunity has not been found while carrying out their profession. While in the Advocate Law there is immunity for an Advocate who carries out his functions as contained in Article 16 of Law Number 18 of 2003 concerning Advocates. The Capital Market Law does not explicitly describe legal protection for capital market legal consultants. For this reason, in this paper the author finds about preventive legal protection for capital market legal consultants in Indonesia with a Comparative Study of Indonesian and Singapore Laws. Legal Consultants in the Capital Market in Indonesia, one of the fundamental things to avoid legal sanctions is obedience to existing legal norms. While in Singapore it was found that since the beginning according to the country's constitution there has been legal immunity for professions related to Advocates, Lawyers or legal consultants. To answer the problem of this paper, the writer uses normative juridical method with progressive legal theory (Prof. Satjipto Rahardjo) and Legal Protection Theory (Philipus M. Hadjon).
Rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009; holding firm characteristics constant, average ratings have dropped by three notches. ...This change does not appear to be fully warranted because defaults have declined over this period. Firms affected more by conservatism issue less debt, have lower leverage, hold more cash, are less likely to obtain a debt rating, and experience lower growth. Their debt spreads are lower than those of unaffected firms with the same rating, which implies that the market partly undoes the impact of conservatism on debt prices. This evidence suggests that firms and capital markets do not perceive the increase in conservatism to be fully warranted.
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Research Summary
We examine how managers' political power reallocates resources in the internal capital market. By shifting the focus from financial to firm‐specific, non‐financial resources that are ...difficult to evaluate and zero‐sum in nature, we revise the prevailing view that managers' political power plays a significant yet contingent role under financial constraint and weak governance. We instead characterize managerial political power as an intrinsic, inescapable determinant of internal competition and resource allocation. Our research design links sentence‐by‐sentence, qualitative analyses of the legal opinion delivered as breaking news during the corruption trials involving a key executive at Samsung group with minute‐level shifts in share prices. This study presents a politics‐based theory of the internal capital market and highlights the methodological potential of quantitative case studies.
Managerial Summary
Managerial politics presents a vexing yet persistent reality of organizational life and the inter‐divisional competition for resources. We attribute its pervasiveness to the contest over non‐financial resources with fuzzy ownership and significant yet uncertain value, such as bargaining power over internal transfer pricing, managerial attention, and control over new business opportunities. Because of the zero‐sum dynamics of these non‐financial resources and their constant scarcity, political contests cannot be suppressed through the provision of financial slack or agency controls and even extend to family members. Appointing rival managers along clearly separated lines of businesses may curb, but not eliminate, managerial politics. We show that investors are acutely aware of the value of managers' political power and make investment decisions based on them.
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The present study focuses on the development of one of the key institutions of the market economy – namely, the securities market in terms of its role in promoting competitive conditions in the ...financial services sector. Due to a variety of objective and subjective factors, banks have become the most dominant institutions in all CIS countries in terms of, both, accumulating and redistributing financial resources. Particularly, the research outlines the background to capital market formation and development in CIS countries through a brief history of the CIS; considers the necessity of capital market and its regulation in CIS countries; reviews the institutional and legal framework of capital market regulation, and analyzes certain problems of capital market development.
This study evaluates alternative measures of the tone of financial narrative. We present evidence that word-frequency tone measures based on domain-specific wordlists—compared to general ...wordlists—better predict the market reaction to earnings announcements, have greater statistical power in short-window event studies, and exhibit more economically consistent post-announcement drift. Further, inverse document frequency weighting, advocated in Loughran and McDonald (2011), provides little improvement to the alternative approach of equal weighting. We also provide evidence that word-frequency tone measures are as powerful as the Naïve Bayesian machine-learning tone measure from Li (2010) in a regression of future earnings on MD&A tone. Overall, although more complex techniques are potentially advantageous in certain contexts, equal-weighted, domainspecific, word-frequency tone measures are generally just as powerful in the context of financial disclosure and capital markets. Such measures are also more intuitive, easier to implement, and, importantly, far more amenable to replication.
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The market for secondary venture capital transactions provides a way for investors to obtain liquidity if the investee start-up corporation has not yet reached sufficient maturity for an IPO. It also ...creates divestment opportunities for badly performing ventures that investors would rather abandon. We analyze the way in which the opportunistic behavior and liquidity constraints of venture capital funds channel deal flow into the secondary venture capital market. Such opportunistic behavior leads to the strategic exit of seed financing venture capitalists. These exits enlarge investors' opportunity set of strategies and therefore affect the deal terms with entrepreneurs. In this paper, we show that two contracts are possible in a world with financially constrained venture capital investors, staged investments, and premature divestment opportunities. Both contracts have their disadvantages. With the first, the venture capitalist will never liquidate a project, even if it is a lemon, but will instead engage in a secondary transaction. With the second contract, although lemons will be systematically abandoned, high-quality ventures may also be liquidated. Entrepreneurs need to consider these effects when aiming to maximize their benefits and must trade off the contract parameters accordingly. Our model provides guidance to entrepreneurs in this respect, helps to explain deal flow into the secondary venture capital market, and offers several empirical predictions.
•Secondary VC transactions provide liquidity to investors, but the market for “secondaries” is under researched.•We elaborate on “strategic exits” and develop a theory why this market is not a market for lemons.•The rising liquidity affects the VC's opportunity set of exit strategies and the deal terms with entrepreneurs.•Our model helps to explain deal flow into the secondary VC market and offers empirical predictions.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
Highlighting the sources, processes and outcomes of moral struggles in and around markets, this volume advances our current understanding of markets and their contested moralities.
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