Purpose




This study aims to examine the relationship among corporate risk disclosure, cost of equity capital and performance within banking institutions in a developing country setting. The authors argue that corporate risk disclosure reduces the cost of capital as investors attain better information and have confidence in the business and that less risk disclosure may generate ambiguity for potential stakeholders.




Design/methodology/approach




This study uses the population of all 30 listed banks on the Dhaka Stock Exchange, Bangladesh, for the years 2006 to 2012 and uses three-stage least-squares simultaneous equations to deal with endogeneity issues.




Findings




There is evidence that Bangladesh has voluntarily adopted the International Financial Reporting Standard 7 – Financial Instruments: Disclosures (IFRS 7) and Basel II: Market Discipline and that these standards enhance risk disclosure even where compliance is not compulsory. The cost of capital is found to be negatively associated with risk disclosure, which has an inverse relationship with bank performance.




Originality/value




This study provides a link between risk disclosure, cost of capital and performance. It fills a gap in the literature by providing a longitudinal study of risk disclosure in the banking sector of Bangladesh. This research also highlights the importance of appropriate risk disclosure for banks and suggests its importance in the process of fulfilling stakeholders’ demands.

Risk disclosure, cost of capital and bank performance

Purpose: Merger is a corporate restructuring strategy that affects the performance of the company on many parameters. This study aims to examine the growth of M&A transactions in India in l...

Impact of Mergers and Acquisitions on Accounting-based Performance of Acquiring Firms in India:

This paper aims to investigate the empirical relationship between the cost of debt (CoD) and accruals quality (AQ) of European listed firms during the period of 2005 to 2014. Also, it aims to test the impact of the interrelationship between the financial crisis (2008-2009) and AQ on CoD. Finally, we decompose AQ into two components; the innate (InnateAQ) and discretionary components (DiscAQ); and test their relationships with CoD.,To empirically examine the relationship between AQ and CoD, a sample including 15 member states of the EU is constructed. AQ proxy is based on the McNichols (2002) modification of Dechow and Dichev (2002) model. A univariate analysis and a multivariate analysis are conducted to examine the relationship between AQ and CoD after controlling for firm characteristics and institutional variables.,We find a significant negative association between AQ and CoD in a vast proportion of the 15 countries under review. Also, the results indicate that during the crisis period, creditors pay relatively more attention to the quality of accounting information than during the pre-crisis period when they determine CoD of firms. Moreover, we report a link between the magnitude of this relationship and national characteristics and provide evidence of the significant effects of national characteristics and market forces on CoD. Finally, we find that InnateAQ drives the relationship with CoD.,This paper provides up-to-date evidence on the economic consequences of AQ and IFRS in the capital market. The results should, therefore, be of interest to managers, creditors, regulators and standard-setters.,To the best of the authors’ knowledge, this is the first paper to investigate the effects of AQ on CoD for European listed firms. Also, it examines the impact of financial crisis on the association between AQ and CoD.

/pdf/accruals-quality-and-the-cost-of-debt-the-european-evidence-4b21wy6g6o.pdf

Accruals quality and the cost of debt: the European evidence

This study examines the effect of managerial ability on subsequent stock price crash risk using listed firm data in Korea. Compared to some financially advanced countries, the influence of managers is particularly more powerful in Korea, as ownership and management are not effectively separate in most Korean firms. In addition, we considered the effect of large business groups called Chaebol, which is family-run conglomerates with unique corporate governance system that hugely affect the Korean economy. It is important to recognize determinants of the stock price crash risk which would result in doubt on going concern to enhance the company’s sustainable management. Hence, this study focuses on the managerial ability as one of the main factors of the stock price crash risk. We use the measures of firm-specific stock price crash risk based on Hutton et al. (2009). Managerial ability is estimated through a Data Envelopment Analysis (DEA) and tobit regressions following Demerjian et al. (2012). From the empirical tests, there is a negative association between managerial ability and stock price crash risk. This suggests that managers with a higher ability release more voluntary disclosure to signal their ability, ultimately lowering the subsequent stock price crash risk. We also find that firms in large business groups, Chaebol, weaken the negative association between managerial ability and subsequent stock price crash risk.

/pdf/the-effect-of-managerial-ability-on-future-stock-price-crash-1ujgtec5ng.pdf

The Effect of Managerial Ability on Future Stock Price Crash Risk: Evidence from Korea

This thesis consists of two studies. The first study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) affects stock price informativeness, as measured by the extent to which firm-specific information is capitalised into the stock price. Using a sample of 6,367 firm-year observations from 970 publicly listed UK firms during the period from 1990 to 2013, the results show that the mandatory adoption of IFRS does make the stock price more informative. In particular, the results suggest a significant negative relationship between IFRS adoption and the stock price synchronicity. This indicates that the increased transparency following the mandatory adoption of IFRS facilitates the incorporation of firm-specific information into the stock price, leading to more informative stock prices. In this study, the effect of financial analysts’ activities on the relationship between IFRS adoption and stock price informativeness is also considered. The regressions results show that, within the IFRS adopters, the firms followed by a higher number of financial analysts have a higher stock price synchronicity than those followed by a lower number of financial analysts, suggesting that the IFRS adoption increases financial analysts’ ability to incorporate market-wide and industry-wide information into the stock price. Furthermore, these results indicate that the financial analysts’ activities attenuate the synchronicity-reducing effect of mandatory IFRS adoption. The second study, examines the effect of earnings quality on the informativeness of the stock price, using a sample of 5,214 firm-year observations, collected from 880 UK firms for the period from 1994 to 2013. The findings suggest that higher earnings quality encourages the investors to collect and process more firm-specific information, which in turn facilitates the incorporation of this information into the stock price, leading to less synchronous and more informative stock price. In addition, the effect of mandatory IFRS adoption on the relationship between earnings quality and stock price informativeness is examined. Contrary to expectations, the results suggest that the mandatory adoption of IFRS does not have a significant impact on the relationship between earnings quality and stock price informativeness.

Do IFRS adoption, financial analysts and earnings quality affect the informativeness of stock price?Evidence from the UK

Purpose



– This study aims to examine the effects of firms’ accounting disclosure policies on stock price synchronicity and stock crash risk, using a sample including 13 emerging markets Furthermore, this research investigates how these relationships are affected by country-level investor protection and firm-level governance rankings 




Design/methodology/approach



– This paper uses accounting disclosure measures constructed based on survey questions by Credit Lyonnais Securities Asia (2001, CLSA) The accounting disclosure measure is used to explain the two dependent variables, stock price synchronicity and stock crash risk The stock price synchronicity measure is defined as the logistic transformation of R2 following Hutton et al (2009) and Jin and Myers (2006) R2 is taken from the estimation of an extended market model The stock crash risk variable is measured as the frequency difference between extremely negative and positive stock return residues following Jin and Myers (2006) These stock return residues are taken from the estimation of an extended market model Because the CLSA firm-level disclosure data are from 2000, this paper matches other data taken from the same year, for consistency The final sample includes 204 observations in 13 emerging countries 




Findings



– This paper finds that firms’ stocks are less synchronized with the entire market and have less crash risk if firms have superior accounting disclosure policies These results suggest that the cost to collect firm-specific information may be decreased for investors if firms are more transparent Thus, these firms’ stocks have more firm-specific information content These results also suggest that management is less likely to hide some negative information and release such negative information suddenly in the future if firms have higher levels of accounting disclosure Thus, these firms’ stocks are less likely to crash In addition, the influences of firms’ accounting disclosure policies on stock price synchronicity and crash risk are more significant for firms with superior country-level investor protection and firm-level governance rankings These results imply that external investors place more value on accounting disclosure by well-governed firms because firms with superior governance standards are less likely to intentionally disclose misleading information Thus, these firms’ stocks can incorporate more firm-specific information and have less crash risk 




Originality/value



– The current study is the first to show that the effects of accounting disclosure on stock price synchronicity and crash risk are more pronounced for firms with superior country-level investor protection and firm-level governance standards Thus, this research extends the literature by providing a comprehensive picture of the influences of accounting disclosure on stock markets In addition, the existing literature (Chen et al, 2006; Durnev et al, 2004) shows that firms with lower stock price synchronicity are associated with higher investment efficiency because managers invest based on the information in stock prices Obviously, higher stock crash risk is highly related to higher bankruptcy risk for firms Thus, examining the effects of accounting disclosure on stock price synchronicity and stock crash risk is of obvious importance to policy makers

Liang Song

Papers

Accounting disclosure, stock price synchronicity and stock crash risk: An emerging-market perspective