nep-cfn New Economics Papers
on Corporate Finance
Issue of 2012‒06‒05
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. How Important are Foreign Ownership Linkages for International Stock Returns? By Sohnke M. Bartram; John Griffin; David T. Ng
  2. Going concern opinions are not bad news: Evidence from industry rivals By Luís M. S. Coelho; Rúben M. T. Peixinho; Siri Terjensen
  3. No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs By Tomasz R. Bielecki; Igor Cialenco; Rodrigo Rodriguez
  4. Asymmetric information and financial markets By Estrada, Fernando
  5. Board size and corporate risk-taking: Further evidence from Japan By Nakano, Makoto; Nguyen, Pascal
  6. The impact of foreign investors on the risk-taking of Japanese firms By Nguyen, Pascal

  1. By: Sohnke M. Bartram (Warwick University); John Griffin (University of Texas at Austin); David T. Ng (Cornell University and Hong Kong Institute for Monetary Research)
    Abstract: We develop a simple measure of international ownership linkages and show that this measure is of similar importance as the traditional effects coming from country and industry fundamentals. International ownership linkages are not explained by omitted country/industry variations, wealth effects or other explanations like liquidity, investment style, or fund flows. We find that ownership linkages are a summary measure of investment locale that links investor capital around the world. Beyond the level of foreign ownership, the specific ownership composition of a stock is an important facet of international equity returns - a finding which has important implications for diversification.
    Keywords: Institutional Ownership, Asset Management, Portfolio Diversification, International Finance, Comovement
    JEL: G3 F4 F3
    Date: 2012–05
  2. By: Luís M. S. Coelho; Rúben M. T. Peixinho; Siri Terjensen
    Abstract: This paper examines whether going concern audit opinions (GCO) affect the stock price performance of the announcing firms and their industry rivals. Our original evidence clearly suggests that such accounting event is asymmetrically perceived by the market depending on whether the firm is qualified by the auditor or not. In particular, firms receiving a GCO earn negative abnormal returns at the audit report’s disclosure date and over the following year whereas their industry rivals exhibit positive abnormal returns at the GCO date and in the subsequent one-month period. This is in contrast with the preevent abnormal returns, which, on average, are negative and significant for all firms operating within the industry. Overall, we highlight the relevance of audit opinions and mandatory accounting information for the timing of transactions in financial markets.
    Keywords: Audit reports, going concern, competitive effect
    Date: 2012–05
  3. By: Tomasz R. Bielecki; Igor Cialenco; Rodrigo Rodriguez
    Abstract: We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction assumption is equivalent to the existence of a risk-neutral measure. We derive dual representations for the superhedging ask and subhedging bid price processes of a derivative contract. Our results are illustrated with a vanilla credit default swap contract.
    Date: 2012–05
  4. By: Estrada, Fernando
    Abstract: This paper aims to explore the relevance of the Asymmetric Information and the Theory of Argumentation TA in the complex area of financial crises. Specifically, we investigated the scope of the phenomenon of persuasion in advertising. It examines advertisements in publications notable economic movement in Colombia. The financial communication is important to distinguish how to run the models of behavior based on beliefs of agents. Consequently, investors' beliefs can also change systematically with changes in market prices
    Keywords: Financial crises; Financial markets; economy; theory argumentation; information; advertising
    JEL: G14 G11 D81 M3 M37 D8 D85 G01
    Date: 2012
  5. By: Nakano, Makoto; Nguyen, Pascal
    Abstract: Evidence based on US firms suggests that large boards restrain risk taking. We investigate whether a similar effect exists in Japan. Our results confirm that firms with larger boards exhibit lower performance variability relative to firms with smaller boards. However, this effect is less significant when firms have plenty of investment opportunities, but considerably stronger when firms have few growth options. This new finding is consistent with recent evidence indicating that larger boards are not necessarily detrimental to firm performance. The results are shown to be robust to the endogeneity of board structure and the use of alternative risk measures and estimation methods.
    Keywords: corporate governance; board size; risk taking; investment opportunities; performance volatility; bankruptcy risk
    JEL: G34
    Date: 2012–05–24
  6. By: Nguyen, Pascal
    Abstract: Consistent with a bank-centered governance system, Japanese firms exhibit an exceptionally low level of performance variability. The increased involvement of foreign investors motivated by shareholder value is thus likely to have triggered a major shift in their risk-taking behavior. My results confirm this assumption as all standard measures of performance volatility appear to have significantly increased with the level of foreign ownership. Controlling for endogeneity provides higher point estimates supporting anecdotal evidence that foreign investors have targeted firms taking unusually low risk. Overall, the evidence highlights the considerable impact that this category of investors can have on a firm’s decisions and, by consequence, on its performance.
    Keywords: foreign ownership; monitoring; risk taking; performance volatility
    JEL: G34
    Date: 2012–04–10

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