Showing papers on "Stock exchange published in 2005"

Corporate Governance and Firm Valuation

Abstract: Gompers et al. [Gompers, P., Ishii, J., Metrick, A., 2003. Corporate governance and equity prices. Quarterly Journal of Economics 118, 107-155] created G-Index, a summary measure of corporate governance based on 24 firm-specific provisions, and showed that more democratic firms are more valuable. Bebchuk et al. [Bebchuk, L., Cohen, A., Ferrell, A., 2005. What matters in corporate governance? Working Paper, Harvard Law School] created an entrenchment index based on six provisions underlying G-Index, and found it to fully drive the Gompers et al. (2003) valuation results. Both G-Index and the entrenchment index are based on IRRC data that is comprised of anti-takeover measures, focusing on external governance [Cremers, K.J.M., Nair, V.B., 2005. Governance mechanisms and equity prices. Journal of Finance 60, 2859-2894]. We create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and we show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value. Our results support the Bebchuk et al. (2005) findings that only a small subset of provisions marketed by corporate governance data providers are related to firm valuation, and the Cremers and Nair (2005) evidence that both internal and external governance are linked to firm value. The 51 governance provisions we consider include five that are relevant to accounting and public policy: stock option expensing, and four that are audit-related. We find none of these five measures to be related to firm valuation. We document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of 2002 or the three major US stock exchanges. We provide researchers with an alternative measure of governance to G-Index with three distinct advantages: (1) broader in scope of governance, (2) covers more firms, and (3) more dynamic, reflecting recent changes in the corporate governance environment.

Do Domestic Investors Have an Information Advantage? Evidence from Indonesia

Abstract: Using transaction data from the Jakarta Stock Exchange, I find three pieces of evidence which indicate that domestic investors have an information advantage over foreign investors. First, foreign investors systematically buy at higher and sell at lower intra-day prices than domestic investors. Second, foreign investors tend to sell prior to large positive returns. Finally, the permanent impact of foreign purchases is smaller than that of domestic purchases. Over time, prices at which foreign investors trade have worsened, while foreign selling prior to positive returns has disappeared.

The Economic Consequences of Increased Disclosure: Evidence from International Cross-listings

Abstract: We study return volatility and trading volume at times of earnings announcements to see if the increased disclosure faced by non-U.S. firms when listing shares in the U.S. has economically significant consequences. We find a surprising change in market behavior around earnings releases: absolute return and volume reactions to earnings announcements typically increase significantly once a company cross-lists its shares in the U.S. Furthermore, the increase in volatility and volume is greatest for firms from developed countries and firms that do not list on an organized stock exchange, rather than for emerging market firms from poor information disclosure environments or firms that submit to the stringent reporting demands of a high quality exchange listing. Additional tests support the hypothesis that it is the individual firm's disclosure environment, rather than changes in its market liquidity, ownership, or trading venue, that explain our findings.

Comparative Value Relevance Among German, U.S., and International Accounting Standards: A German Stock Market Perspective:

Abstract: In recent years, German companies have reported consolidated financial statements under German GAAP, U.S. GAAP, or International Accounting Standards (IAS). Market observers, researchers, and regulators have argued that financial statements prepared under the shareholder (or investor) model, such as U.S. GAAP or IAS, provide better information than financial statements prepared under the stakeholder model (German GAAP). They further have argued that U.S. GAAP is more rigorously defined and, therefore, provides information superior to that under IAS. We investigate comparative value relevance, measured as the slope coefficient of the returns/earnings regression. Within our sample of German companies traded on German stock exchanges, the value relevance of U.S. GAAP- and IAS-based earnings is higher than that of German GAAP-based earnings. Our result holds only for profit observations, suggesting that reporting regime does not have an influence on the quality of earnings in the case of loss firms. However, ...

An Empirical Investigation of Annual Reporting Trends of Intellectual Capital in Sri Lanka

Abstract: This study examines the annual reports of each of the top 30 firms listed on the Colombo Stock Exchange in the period 1998/1999 to 1999/2000, using the ‘content analysis’ method. The findings indicate that the most reported accounting category during this period was external capital and the second most reported was human capital. There was an increase in the frequency of intellectual capital reporting over the 2 years, which this paper explains using political economy of accounting theory. Interestingly, the individual intellectual capital items of each capital category reported by firms in Sri Lanka differed from those found in other countries. It is hoped that the findings of this pioneering study can be used as a benchmark for future studies in Sri Lanka and in other developing countries.

Stock Market Liquidity and the Cost of Issuing Equity

Abstract: We show that stock market liquidity is an important determinant of the cost of raising external capital. Using a large sample of seasoned equity offerings, we find that, ceteris paribus, investment banks' fees are significantly lower for firms with more liquid stock. We estimate that the difference in the investment banking fee for firms in the most liquid vs. the least liquid quintile is about 101 basis points or 21% of the average investment banking fee in our sample. Our findings suggest that firms can reduce the cost of raising capital by improving the market liquidity of their stock.

Corporate governance and performance in publicly listed, family-controlled firms: evidence from Taiwan

Abstract: Using a multi-industry dataset of 228 firms listed on the Taiwan Stock Exchange (TSE) this paper analyses the effects of ownership structure and board characteristics on performance in large, publicly traded firms that are controlled by founding families. After taking account of possible endogeneity problems, we do not find that family control is associated with performance measured in terms of accounting ratios, sales per issued capital, earnings per share and market-to-book value. However, share ownership by institutional investors, and foreign financial institutions in particular, is associated with better performance. Our results indicate that board independence from founding family and board members’ financial interests have a positive impact on performance.

The predictive power of zero intelligence in financial markets.

Abstract: Standard models in economics stress the role of intelligent agents who maximize utility. However, there may be situations where constraints imposed by market institutions dominate strategic agent behavior. We use data from the London Stock Exchange to test a simple model in which minimally intelligent agents place orders to trade at random. The model treats the statistical mechanics of order placement, price formation, and the accumulation of revealed supply and demand within the context of the continuous double auction and yields simple laws relating order-arrival rates to statistical properties of the market. We test the validity of these laws in explaining cross-sectional variation for 11 stocks. The model explains 96% of the variance of the gap between the best buying and selling prices (the spread) and 76% of the variance of the price diffusion rate, with only one free parameter. We also study the market impact function, describing the response of quoted prices to the arrival of new orders. The nondimensional coordinates dictated by the model approximately collapse data from different stocks onto a single curve. This work is important from a practical point of view, because it demonstrates the existence of simple laws relating prices to order flows and, in a broader context, suggests there are circumstances where the strategic behavior of agents may be dominated by other considerations.

Relationship between Macroeconomic Variables and Stock Market Indices: Cointegration Evidence from Stock Exchange of Singapore's All-S Sector Indices

Abstract: The relationship between macroeconomic variables and stock market returns is, by now, well-documented in the literature. However, a void in the literature relates to examining the cointegration between macroeconomic variables and stock market's sector indices rather than the composite index. Thus in this paper we examine the long-term equilibrium relationships between selected macroeconomic variables and the Singapore stock market index (STl), as well as with various Singapore Exchange Sector indices-the finance index, the property index, and the hotel index. The study concludes that the Singapore's stock market and the property index form co integrating relationship with changes in the short and long-term interest rates, industrial production, price levels, exchange rate and money supply. Implications of the study and suggestions for future research are provided. ABSTRAK Hubungan antara pembolehubah makroekonomi dengan pulangan pasaran saham, sehing g a kini, sudah banyak dihasilkan dalam karya lepas. Bagaimanapun, masih terdapat kekosongan dalam literatur ini mengenai hubung an kointegrasi antara pembolehubah ekonomi makro dengan indeks sektoral dalam pasaran saham berbanding kajian berkatian dengan indeks komposit. Justeru itu, dalam kertas ini, kami mengkaji hubungan keseimbangan jangka panjang antara beberapa pembolehubah ekonomi makro yang terpilih, dengan indeks pasaran saham Singapura (STl) serta beberapa indeks sektoral - indeks kewangan, indeks hartanah, dan indeks perhotelan. Kajian ini mendapati bahawa pasaran saham Singapura dan indeks hartanah menunjukkan hubungan kointegrasi dengan perubahan kadar bunga jangka pendek dan jangka panjang juga dengan pengeluaran industri, paras harga, kadar tukaran mata wang dan penawaran wang. Implikasi kajian dan cadangan kajian untuk masa depan dikemukakan.

Corporate governance mechanisms and firm financial performance in Nigeria

Abstract: Recent global events concerning high-profile corporate failures have put back on the policy agenda and intensified debate on the efficacy of corporate governance mechanisms as a means of increasing firm financial performance. This study attempts to address this question using pooled ordinary least squares regression analysis for a sample of 93 firms quoted on the Nigerian Stock Exchange for the period 1996–1999. While making a case for a board size of ten and for concentrated as opposed to diffused equity ownership, the results argue for the separation of the posts of Chief Executive Officer (CEO) and Chair. Moreover, although the results find no evidence to support the idea that boards with a higher proportion of outside directors perform better than other firms, there is evidence that firms run by expatriate CEOs tend to achieve higher levels of performance than those run by indigenous CEOs. In the main, the results are consistent with existing literature, but there is need to err on the side of caution in any attempt to generalize the findings as the sample selection was determined by the availability of data rather than byany probability criterion.

Identifying the interdependence between US monetary policy and the stock market

Abstract: We estimate the interdependence between US monetary policy and the S&P 500 using structural VAR methodology.A solution is proposed to the simultaneity problem of identifying monetary and stock price shocks by using a combination of short-run and long-run restrictions that maintains the qualitative properties of a monetary policy shock found in the established literature (CEE 1999).We find great interdependence between interest rate setting and stock prices.Stock prices immediately fall by 1.5 per cent due to a monetary policy shock that raises the federal funds rate by ten basis points.A stock price shock increasing stock prices by one per cent leads to an increase in the interest rate of five basis points.Stock price shocks are orthogonal to the information set in the VAR model and can be interpreted as non-fundamental shocks.We attribute a major part of the surge in stock prices at the end of the 1990s to these non-fundamental shocks. Key words: VAR, monetary policy, asset prices, identification JEL classification numbers: E61, E52, E43

The capital structure of Swiss companies: an empirical analysis using dynamic panel data

Abstract: In this paper, we analyse the determinants of the capital structure for a panel of 104 Swiss companies listed in the Swiss stock exchange. Dynamic tests are performed for the period 1991–2000. It is found that the size of companies and the importance of tangible assets are positively related to leverage, while growth and profitability are negatively associated with leverage. The sign of these relations suggest that both the pecking order and trade-off theories are at work in explaining the capital structure of Swiss companies, although more evidence exists to validate the latter theory. Our analysis also shows that Swiss firms adjust toward a target debt ratio, but the adjustment process is much slower than in most other countries. It is argued that reasons for this can be found in the institutional context.

Stock Splits, Stock Prices, and Transaction Costs

Abstract: We develop a model of stock-split behavior in which the split serves as a costly signal of managers' private information because stock trading costs depend on stock prices. We present empirical evidence confirming the relation between stock trading costs and stock prices. The signaling model is estimated using a large sample of splits and explains a substantial fraction of the split-announcement returns.

Governing Stock Markets in Transition Economies: Lessons from China

Abstract: Jump-starting stock markets in transition economies has proved difficult. These countries lack effective legal governance structures and face severe information problems. Yet not all financial markets failed because of adverse conditions. Using China's initial stock market development as a case study, this article suggests that administrative governance can substitute for formal legal governance. At the core of this governance structure was the quota system. It created incentives for regional competition and decentralized information collection at the IPO stage. It was also used to punish regions and responsible officials when companies from their regions failed, as evidenced herein. Copyright 2005, Oxford University Press.

Do Non-U.S. Firms Issue Equity on U.S. Stock Exchanges to Relax Capital Constraints?

Abstract: The positive market reaction associated with an ADR listing is frequently attributed to a reduction in market segmentation costs that improves access to capital. If so, the benefit should be greatest for ADR firms that face relatively high indirect barriers to capital access. Our paper directly tests this supposition. We document that, following a U.S. listing, the sensitivity of investment to free cash flow decreases significantly for firms from emerging capital markets, but does not change for developed market firms. Further, emerging market ADR firms mention the need for access to external capital markets in their filing documents more frequently than their developed market counterparts and, in the post-ADR period, tout their liquidity rather than a need for capital access. Finally, the increase in capital access following an ADR is more pronounced for firms from emerging markets. Our findings suggest that greater access to external capital markets is an important benefit of a U.S. stock market listing for emerging market firms and is less important for developed market firms.

Corporate governance mechanisms and firm financial performance in Nigeria

Abstract: This paper investigates the effects of certain corporate governance mechanisms on the performance of firms listed on the Nigerian Stock Exchange. Based on a sample of 93 firms for the period 1996 through 1999, our results show an optimal board size of ten, favour concentrated over diffused ownership, and support separation of posts of CEO and chair. Moreover, while director shareholding is found to be an insignificant factor affecting firm performance, the results show expatriate CEOs performing better than their local counterparts. We need to err on the side of caution as sampling selection was based on data availability rather than any probability criterion.

Stock Market Development and Economic Growth in Belgium

Abstract: This paper investigates the long-term relationship between financial market development and economic development in Belgium. We use a new data set of stock market development indicators to argue that financial market development substantially affected economic growth. We find strong evidence that stock market development caused economic growth in Belgium, especially in the period between 1873 and 1935. Institutional changes affecting the stock exchange explain the time-varying nature of the link between stock market development and economic growth.

Voluntary Disclosure of Corporate Governance Practices by Listed Australian Companies

Abstract: This study examines the relationship between the voluntary disclosure of information about corporate governance practices and the intention to raise external finance. This relationship is examined by using corporate governance disclosures in the annual reports of Australian companies in 1994. Data from this year are used because in subsequent years Australian Stock Exchange regulations influenced listed companies to make disclosures about their corporate governance practices. Regression analysis indicates that the voluntary disclosure of corporate governance information is positively associated with the intention to raise equity capital, but not with the intention to raise debt capital.

What Do Firms Disclose and Why? Enforcing Corporate Governance and Transparency in Central and Eastern Europe

Abstract: While specific corporate governance rules often are controversial, most observers agree on the need to disclose who owns and controls a firm and what governance arrangements are in place. This paper examines such disclosure in a sample of 370 companies listed on stock exchanges in Central and Eastern Europe. The data show widespread non-disclosure of even the most basic elements of corporate governance arrangements, despite existing regulation. The level of disclosure varies substantially across firms, and there is a strong country effect in what companies disclose. Overall, what is disclosed depends on the legal framework and practice in a given country, but it does not correlate with firms' financial performance. On the other hand, financial performance is strongly related with how easily available the information is to the public. In particular, information is more available in larger firms, firms with lower leverage, higher market-to-book ratios, and more concentrated ownership.

The changing efficiency of african stock markets

Abstract: This paper classifies formal African stock markets into four categories and discuses the principal characteristics of the seven markets covered in this study: South Africa, Egypt, Morocco, Nigeria, Zimbabwe, Mauritius and Kenya. Using a GARCH approach with time-varying parameters, a test of evolving efficiency (TEE) is implemented for periods starting in the early 1990s and ending in June 2001. This test detects changes in weak form efficiency through time. The TEE finds that the Johannesburg stock market is weak form efficient throughout the period, and three stock markets become weak form efficient towards the end of the period: Egypt and Morocco from 1999 and Nigeria from early 2001. These contrast with the Kenya and Zimbabwe stock markets which show no tendency towards weak form efficiency and the Mauritius market which displays a slow tendency to eliminate inefficiency. The paper relates weak form efficiency to stock market turnover, capitalisation and institutional characteristics of markets. JEL Classification: G14, G15, O16 Keywords: African Stock Markets, efficiency, GARCH WITH THE POSSIBLE EXCEPTION of the JSE Securities Exchange (JSE), there have been relatively few studies of the weak form efficiency of African stock markets. While the evidence for the JSE is mixed, the few studies that have been carried out for other markets find, not surprisingly, that most are inefficient (in a financial sense, meaning that stock prices do not reflect all available information, and that stocks are not therefore being appropriately priced at their equilibrium values). A variety of empirical tests can be used to assess market efficiency. Thompson and Ward (1995) reviewed a wide range of literature covering empirical tests of the efficiency of the JSE and noted that, with different methodologies for testing efficiency giving different results, no clear conclusion is possible. Jefferis and Okeahalam (1999a) applied unit root tests to stock price indices to assess the efficiency of the stock markets in South Africa, Botswana and Zimbabwe over the period 1989-96, and find that the South African and Zimbabwean markets were efficient during this period, although Botswana was not, at least during the early part of the period. However the unit root test of market efficiency is not a powerful one, and subsequent analysis using different tests provided contrasting results. Jefferis and Okeahalam (1999b) used an event study of the same three markets to test the response of individual stock prices to information announcements, by evaluating the speed and efficiency with which information is incorporated into market prices. They found that the Botswana and Zimbabwe markets are inefficient, while the JSE is weak form efficient. This corresponds with the findings of Smith et al (2002), who tested whether eight African stock markets follow a random walk using multiple variance ratio tests. Of the eight markets (South Africa, Egypt, Kenya, Morocco, Nigeria, Zimbabwe, Botswana and