Carol Padgett

The Performance and Long-Run Characteristics of the Chinese IPO Market

We study the short-run and long-run performance of Chinese privatization initial public offerings (PIPOs), using data for 340 and 409 new issues on the Shanghai and Shenzhen Stock Exchanges respectively, from 1 January 1996 through 31 December 1997. The average market-adjusted initial return is found to be 127.31%, and the initial returns on both stock exchanges are not significantly different from each other. The average market-adjusted buy and hold return over the three years after listing is 10.26%, which is significantly different from zero at the 1% level. We then use cross-sectional analysis to explain the long-run supernormal performance of Chinese PIPOs, and find that government ownership, the offering size and the feature of belonging to a high-tech industry are the main determinants of the long-run performance. In addition, firms that perform better in the long-run tend to make more Seasoned Equity Offerings (SEOs), and the underpricing of IPOs is negatively related to their long-run performance.

Operating performance and its relationship to market performance of Chinese initial public offerings

We investigate the operating performance changes of initial public offerings (IPOs) and the relation between operating performance and both short-run underpricing and long-run market returns of IPOs. We find that listing causes a significant deterioration in profitability, sales-growth rates, and efficiency, and brings a significant increase in sales and a significant decrease in leverage. We also find underpricing has insignificant explanatory power in predicting post-issue operating performance, which suggests that the signaling hypothesis does not explain underpricing very well in Chinese IPO markets. Using a cross-sectional analysis, we find firms with higher return on assets (ROA), smaller size (lower sales), higher sales-growth rates, higher asset turnover, and higher debt-to-asset ratios enjoy higher long-run market returns.

The Relationship between Risk, Capital and Efficiency: Evidence from Japanese Cooperative Banks

The risk-capital positions of Japanese banks have been under tension throughout the 1990s. However, existing theory on the determinants of bank risk-taking still remains limited and the evidence is conflicting. Most studies concentrate on US and European banks, while empirical evidence has remained scarce for Asian banks. Added to that, to our knowledge, there are almost no papers on this subject for cooperative banks in Japan. Thus, the main contribution of this study is to shed some light on the determinants of bank risk-taking and analyse its relationship with capital and efficiency in Japanese cooperative banking (namely shinkin and credit cooperatives banks). This paper focuses on Japanese cooperative banks as they constitute an important segment of the Japanese banking sector. We employ a simultaneous equation model in which the relationships between, risk, capital and cost inefficiency are modelled. Two stage least squares with fixed effects estimation procedure are applied to a panel data set of 263 Japanese cooperative banks over the period 2003 through 2006. The results confirm the belief that risk, capital and inefficiency are simultaneously determined. The empirical model shows a negative relationship between risk and the level of capital for Japanese cooperative banks. Inefficient Japanese cooperative banks appear to operate with larger capital and take on more risk. These arguments may reflect the moral hazard problem that exists in the banking system through exploitation of the benefits of deposit insurance. We also assess the size effects and find that larger cooperative banks holding less capital take on more risk and are less efficient.

Size and Scale Economies in Japanese Cooperative Banking

The Japanese banking industry, including the cooperative sector has been restructured following the crisis of the 1990s. Here we examine the relationship between size and scale economies of cooperative banks in Japan (namely Shinkin and credit cooperatives). We use the translog cost-function methodology and intermediation approach coupled with a large set of both cross-sectional and panel data over the period 2003 to 2006. We find significant diseconomies of scale for both the full sample and sub-samples of small and large cooperative banks. It is of interest to note that larger cooperative banks were at cost disadvantage as compared to small ones throughout most of the period. Thus, bigger is not always better. Shinkin and credit cooperative banks need to make further efforts to assess the business environment and strengthen profitability by, for example, expanding the range of financial services they offer in their regional areas and making further progress in risk management.

Variety is the Spice of Life – and Boardrooms

We examine the impact of board diversity on both the corporate value and equity risk of British companies since the financial crisis. We find that the inclusion of overseas directors on boards improves market value and reduces equity risk. When the number of female directors included on the board reaches a critical mass this also increases corporate value but has no effect on risk. These findings do not change when we allow for the presence of board members who are qualified accountants or who hold MBAs. Diversity in and of itself has a significant effect on corporate performance.Length:

Does Emerging Market Recognize Intangible Capital? Evidence from China

Emerging markets are characterized by rapidly changing capital structures and advancing technology; but how well is intangible capital recognized in the capital market? This paper investigates equity market valuation of firm intangible capital and asset pricing model in the Chinese A-share market. While intangible capital is recognized as a risk factor in developed markets, we want to investigate whether this is the case in an emerging market. We derive a systematic model to identify and to value firms’ intangible capital relative to that of their industry peers and competitors. In this paper, firm intangible capital effect divides into human capital (HCF), external capital (ECF), and organizational capital (OCF). Using capital market data from China, we find that the traditional asset pricing model can be statistically enhanced by the presence of intangible capital and that market is able to recognize the value of intangible capital. Portfolios with low HCF, OCF, and ECF firms systematically outperform portfolios of high HCF, OCF, ECF firms by an average of 1.43%, 12.8%, and 4.02%. As shown in time series Fama-French three factors model, we found that the risk component proxied by intangible capital is not included in the traditional asset pricing model. Also large/state owned companies react to these risk proxies more than small/private companies.