Ethics and Banking: Do Banks Divest Their Kind? Guisande, Diego P.; Harjoto, Maretno Agus; Hoepner, Andreas G. F. ...
Journal of business ethics,
06/2024, Volume:
192, Issue:
1
Journal Article
Peer reviewed
Open access
A growing group of institutional investors use divestment strategically to deter misconducts that are harmful for the climate and society. Based on Kantian ethics, we propose that divestment ...represents investors’ universal and absolute moral commitment to socially responsible investing (SRI). Following categorical and hypothetical imperatives and reciprocity as a norm, we hypothesize how institutional investors’ commit to SRI through a divestment strategy against ethically reprehensible behaviour of banks, especially when these investors represent banks themselves. Using a hand-collected database of the revelation dates of enforcement actions on banks, we find evidence that banks are less likely to divest equity holding on banks with misconduct (fined banks) than their non-bank institutional investors peers. Banks that commit to invest responsibly by signing for the Principles for Responsible Investment (PRI) are not significantly more likely to divest on fined banks stocks than non-signatory banks. Moreover, divestment of fined banks whose own legitimacy to operate is in question is not significantly different from non-fined banks divestment. We find that European banks are more inclined to sell their holdings permanently on fined banks than their United States peers. Therefore, bank’s moral commitment to SRI via divestments is influenced more by cultural and reciprocity norms than their moral commitment to participate in the PRI.
Management companies assign some portfolio managers to run funds within a single investment objective (i.e., specialists), and others to run funds across several investment objectives (i.e., ...generalists). Our results show that funds achieve higher performance when they appoint superior pickers as specialists and market timers as generalists. We argue that these decisions are the result of a better match of manager mandates with the way information is collected and processed in each investment strategy. Overall our results are consistent with decision-making in fund families that add value to their investors by aiming to optimally assign or reassign portfolio managers.
Who Drove and Burst the Tech Bubble? GRIFFIN, JOHN M.; HARRIS, JEFFREY H.; SHU, TAO ...
The Journal of finance (New York),
August 2011, Volume:
66, Issue:
4
Journal Article
Peer reviewed
Open access
From 1997 to March 2000, as technology stocks rose more than five-fold, institutions bought more new technology supply than individuals. Among institutions, hedge funds were the most aggressive ...investors, but independent investment advisors and mutual funds (net of flows) actively invested the most capital in the technology sector. The technology stock reversal in March 2000 was accompanied by a broad sell-off from institutional investors but accelerated buying by individuals, particularly discount brokerage clients. Overall, our evidence supports the bubble model of Abreu and Brunnermeier (2003), in which rational arbitrageurs fail to trade against bubbles until a coordinated selling effort occurs.
Distracted Institutional Investors Schmidt, Daniel
Journal of financial and quantitative analysis,
12/2019, Volume:
54, Issue:
6
Journal Article
Peer reviewed
Open access
I investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction-level data, I show that managers with a large fraction of portfolio stocks ...that have an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements divert attention from trading decisions for other stocks. This distraction effect is more pronounced for nonpassive managers who engage in active stock selection choices. Finally, I identify three channels through which distraction hurts managers' performance: Distracted managers trade less profitably, incur slightly higher transaction costs, and are less likely to close losing positions.
Flights to Safety Baele, Lieven; Bekaert, Geert; Inghelbrecht, Koen ...
The Review of financial studies,
02/2020, Volume:
33, Issue:
2
Journal Article
Peer reviewed
Open access
We identify flight-to-safety (FTS) days for twenty-three countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample and are associated ...with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight to quality in the U. S. corporate bond market. Emerging markets, endowment funds, and hedge funds perform poorly during FTS, whereas hedge funds appear to vary their systematic exposures prior to an FTS.
This paper investigates the changes and dispersion of earnings signals as they proliferated through media coverage on stock liquidity. We determine that the earnings dispersion disseminated by the ...media will reduce stock liquidity during earnings announcement. By investigating the dissemination effects of earnings dispersion on trading activity, we find that individual investors refrain from providing liquidity to those stocks with highly media-exacerbated earnings dispersion. Institutional investors, however, do not reduce their trading on media-exacerbated earnings dispersion stocks. To identify the causal relation with media coverage, we exploit the variation in information dissemination stemming from actual investor accounts, which represent the ex-ante information breadth of a stock. The results demonstrate that stocks with a larger number of investor accounts have an amplified effect from earnings dispersion on stock illiquidity. These effects are significant for individual accounts, as opposed to institutional accounts. Overall, these results imply that the media create the real impact of earnings dispersion on stock liquidity by directing investors' attention.
•Earnings dispersion disseminated by media will reduce the stock liquidity.•We use investor accounts to exploit the variation in information dissemination.•We study the dissemination effects of earnings dispersion on trading activity.
This paper examines the monitoring role of institutional investors by investigating the market reactions and long-run stock performance of acquirers in East Asian markets. The market reacts ...positively to the announcement but underperforms in the long-run. Although institutional ownership does not associate with the announcement abnormal return, it correlates positively with long-run performance. This positive association is driven primarily by foreign institutional ownership. Further analysis shows that acquirers with higher independent, long-term, and passive foreign institutional ownership report better long-run performance. This result is consistent with the monitoring hypothesis that foreign institutional investors can improve the quality of managerial decisions. Finally, we investigate the impairment of goodwill postacquisition and find that acquirers with higher foreign institutional ownership suffer lower goodwill write-offs. Overall, our findings are consistent with the view that foreign institutional investors can provide effective monitoring of local firms in East Asian markets.
•We examine the monitoring role of institutional investors by investigating acquisition performance of acquirers in East Asian markets.•Although institutional ownership does not associate with the announcement return, it correlate positively with long-run performance.•We find that the institutional effect is mainly driven by foreign institutional ownership.•Acquirers with higher foreign institutional ownership suffer lower goodwill write-offs postacquisition.•Foreign institutional investors can monitor local firms effectively in the non-US markets.
ABSTRACT
I investigate whether the financial reporting quality (FRQ) of a firm influences the propensity of institutional investors to simultaneously hold the firm's debt and equity (dual-holding). I ...predict that the underlying reason for institutional dual-holding is access to the better information that is available to lenders in firms with low FRQ. Accordingly, I find that dual-holders are more likely to participate in firms with low FRQ. Additionally, I predict and find that dual-holders trade on the additional information received from borrowers. I find that dual-holders achieve excess returns of 8 percent on their trades in the borrower's equity, and that the direction of their trades predicts the direction of borrowers' news on the earnings announcement day. Finally, I demonstrate that dual-holders' trades generate excess returns only in firms with low FRQ, suggesting that investors become dual-holders in firms with low FRQ because informed trades in such firms offer higher returns.
JEL Classifications: G14; M41.
The disclosure of corporate environmental performance is an increasingly important element of a firm’s ethical behavior. We analyze how the legal origin of foreign institutional investors affects a ...firm’s voluntary greenhouse gas emissions disclosure. Using a large sample of firms from 36 countries, we show that foreign institutional ownership from civil law countries improves the scope and quality of a firm’s greenhouse gas emissions reporting. This relation is robust to addressing endogeneity and selection biases. The effect is more pronounced in firms from non-climate-sensitized countries, for which the gap between firms’ environmental standards and investors’ environmental targets is potentially larger, and in less international firms. Firms with a higher level of voluntary greenhouse gas emissions disclosure also exhibit higher valuations.
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