Carl R. Chen

Managerial ownership and firm valuation: Evidence from Japanese firms

Abstract We study the relation between managerial ownership and Tobins q ( Q ) for 123 Japanese firms from 1987 to 1995. Managers in Japanese firms own a smaller stake in their firms relative to their US counterparts. Our initial analyses using an Ordinary Least Squares (OLS) regression model show a negative (positive) relation between Q and managerial ownership at low (high) levels of ownership. However, we argue that this finding is most likely a statistical artifact. When we control for firm fixed effects, suggested by recent literature, we reach a different conclusion. Specifically, we find that Q increases monotonically with managerial ownership. Our findings, therefore, suggest that as ownership increases, there is a greater alignment of managerial interests with those of stockholders. This conclusion remains when both managerial ownership and Q are treated as endogenous variables in a simultaneous equation system.

Production in the Finance Literature, Institutional Reputation, and Labor Mobility in Academia: A Global Perspective

Academic institutions are ranked on a global scale in terms of finance literature productivity. US institutions are dominant in academic publishing although European and Asian institutions have improved significantly in recent years. Additionally, we study the relationship between the quality of human capital and the likelihood of an upward career move. Our results show that an individual relocates to a higher-ranked institution exhibits a research record that is two times stronger than that of an average faculty member at the destination institution. We further model the probability of an upward move in the academic labor market as a function of human capital using an ordered logistic model. We find that publications in sixteen core journals, publications in three top journals, and the rank of the Ph.D. granting institution enhance the probability of moving to a higher ranked institution. On the other hand, the length of teaching experience decreases this probability.

Tobin’s q, managerial ownership, and analyst coverage: A nonlinear simultaneous equations model

Abstract This paper estimates a simultaneous equations model with analyst coverage, managerial ownership and firm valuation jointly determined within the system. We argue that both managerial ownership (serving an internal monitoring function) and analyst coverage (serving an external monitoring function) enhance firm value, while managerial ownership and analyst coverage are substitutes in the monitoring of the firm. The empirical results based upon a nonlinear three-stage-least-square procedure lead to several interesting conclusions: First, we find a diminishing substitution effect between managerial ownership and analyst coverage and a decreasing marginal value for managerial ownership. Second, we find support for both an alignment effect and an entrenchment effect in the relationship between managerial ownership and Tobin’s Q after controlling for the effect of analyst coverage. Third, we find support for the argument that analyst coverage serves to enhance firm valuation after controlling for the effect of managerial ownership. Finally, we find that analyst coverage, managerial ownership and firm valuation are jointly determined. Keywords: Firm value; Managerial ownership; Analyst coverage JEL classification: G30; G32

Discount rate changes, stock market returns, volatility, and trading volume: Evidence from intraday data and implications for market efficiency

We examine the eAect of discount rate changes on stock market returns, volatility, and trading volume using intraday data. Equity returns generally respond negatively and significantly to the unexpected announcements; however, the eAect of expected changes on equity returns is insignificant. Furthermore, our results indicate that equity prices respond to announcements within the trading period/hour after the information release. An indication of a return reversal is too small to cover the full transaction costs. Unexpected discount rate changes also contribute to higher market volatility although the volatility is short-lived. Similarly, unexpected changes in discount rates induce larger trading volume while expected changes do not. Abnormal trading volume occurs only in period t. Our results also support the notion that unexpected changes in the discount rates impact market returns irrespective of the Federal Reserve operating procedures. ” 1999 Elsevier Science B.V. All rights reserved.

Underwriter Spread, Underwriter Reputation, and IPO Underpricing: A Simultaneous Equation Analysis

This paper studies the relationships between underwriter reputation, underwriter spread, and IPO underpricing. We consider the information content of underwriter spread and find that it conveys information pertinent to IPO quality. Because underwriter spread is endogenous, underpricing and underwriter spread are jointly determined in a simultaneous equation system. Also, we examine the IPO market for evidence of segmentation, and our results suggest some market segmentation. Underwriter spread impacts initial underpricing for a group of medium-reputation underwriters, while underpricing affects underwriter spread for groups of low- and high-reputation underwriters. Consequently, high-risk IPOs may not be priced the same way as low-risk IPOs. We attribute this finding to regulation, competition, and/or market segmentation.

A ranking of accounting research output in the European region

Abstract This study provides a ranking in accounting research output in Europe during 1991-2002. We use a set of 19 accounting journals to rank accounting programmes for 253 European universities. UK universities are overwhelmingly represented in the top ranking. Over the entire period, the top three universities are the University of Manchester. London School of Economics and the University of Edinburgh. Some leading European accounting programmes made good progress in research output during the 12-year period. The distribution of publication is highly skewed. The top-5, top-10, and top-25 universities account for 21%, 30%. and 54% of the total weighted number of articles, respectively.

Is Stock Market Overreaction Persistent Over Time

This paper examines the stability and persistence of the market overreaction hypothesis as posited by DeBondt and Thaler (1985 and 1987), and reinforced by Chopra, Lakonishok, and Ritter (1992). Using monthly CRSP data for the period 1926 through 1992, we find that returns obtained from a contrarian investment strategy are not time-stationary. Specifically, there is no winner-loser portfolio relationship during the post-war period of 1940_50s. The relationship resumes during the pre-energy-crisis subperiod, but weakens again during the post-energy-crisis subperiod. The effectiveness of trading based upon the overreaction hypothesis is, therefore, suspect. Copyright Blackwell Publishers Ltd 1997.

Are IPOs Priced Differently Based Upon Gender

Differences between male and female management style, risk aversion, investment strategies, and financial decision making can be found in economic, management, psychology, and social literature. There are no published studies, however, linking gender issues with valuation. In this article, we consider differences in pricing female- versus male-led initial public offerings. Specifically, we find no difference in firm characteristics between a female-led and a male-led IPO, and no difference in underpricing between male-led and female-led IPOs after controlling for firm-specific variables. Our evidence suggests that in a market such as IPOs, where subjects share more similar opportunity sets, wealth, and knowledge, gender bias does not exist.

Information content of lock-up provisions in initial public offerings

Abstract An overwhelmingly large proportion of initial public offerings (IPOs) report lock-up provisions that prohibit existing stockholders from selling their shares within a specified period after the offering date. These lock-up periods may last as long as 3 years. Because influential buyers request the lock-up, we conjecture that the length conveys credible information pertinent to the risk of the IPO. Analyzing 729 IPOs from January 1990 to December 1992, we found that the lock-up period signals the issuers riskiness and that a 180-day lock-up period seems to be the norm. Any departure from the norm suggests more uncertainty about a firms value and thus results in deeper IPO underpricing as well as a larger underwriter spread. We also found that thin-trading activity occurring shortly after the expiration of the lock-up period is perceived by the market as good news, while heavy trading is regarded as bad news.

Timing the Disclosure of Information: Management's View of Earnings Announcements

Do managers think the timing of earnings announcements is significant? We surveyed top management on issues pertaining to this question and report the results in this article. About 50% of the firms responding maintain a fixed earnings announcement schedule (they release information on the second Friday after the close of a quarter, for example). Firms that vary announcement timing report that earnings levels that are unexpected have the most impact on the timing decision. Lower-than-expected earnings are more likely than higher-than-expected earnings to prompt a change in timing, and change of announcement date tends to happen more often than change in the time of release during the day. It is interesting that the pending release of economic or market information plays little role in determining when to announce earnings. Sample partitioning reveals that small firms and NASDAQ-traded firms are more likely to change announcement schedules than large firms or firms trading on the NYSE. These results may be interesting to analysts who might consider the timing of earnings announcements to be important information, to managers who may wonder whether timing of information disclosure is a common practice among their peers, and to academicians who can compare these survey results to other findings.