Eswaran Velayutham

The Issuance of Warrants in Rights Offerings: Agency Costs and Signaling Effects

We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.The Australian financial market is unique in enabling firms to raise new capital via right offerings of standalone warrants in seasoned equity offerings. As such, it provides an ideal environment for examining the validity of the Chemmanur and Fulghieris (1997) signaling model for warrant inclusion in seasoned equity offerings via rights offerings by analyzing across unit offerings, standalone warrants and standalone equity. We provide empirical evidence in support of their models predictions regarding the issuance of warrants to existing shareholders. The quality dimension contained in the signals is associated with a more favorable stock price reaction, ceteris paribus.

Corruption Risk in the Defence Industry Around the World: Country Level and Firm Level Antecedents

Anecdotal evidence indicates that corruption is rampant in the defence sector globally. Using a unique database on firm level corruption risk in the defence industry, we examine the role of country level and firm level antecedents. Among the country level factors we study are several measures of institutional quality, governance systems and legislative oversight, explicit mechanisms to control corruption and cultural factors such as power distance and uncertainty avoidance. Our empirical results confirm that these factors indeed influence firm level corruption risk. We also find that at the firm level, factors such as visibility, governance and shareholding play a significant role in affecting a firm’s corruption risk. The results of our study also show that the disclosure of corruption risk is associated with the mitigation of information asymmetry and consequent increase in firm level market liquidity.

Drivers of Corruption Risk and Stock Market Effects: Evidence from the Defence Industry

Since anecdotal evidence indicates that corruption is rampant in the defence sector globally, we examine the drivers of firm level corruption risk in the defence industry. Our empirical results indicate that visibility and shareholding are significant drivers affecting a firm’s corruption risk. Large firms and listed firms have lower corruption risk, other things being equal. Further, higher managerial shareholding is associated with higher level of corruption risk. These results hold even after controlling for country level drivers such as institutional quality, cultural and economic factors. Interestingly, stock markets in developed countries react more negatively around the announcement to firms achieving low corruption risk scores. Firms with low corruption risk experience lower stock price volatility after the disclosure of corruption risk scores. Finally, we also find that the disclosure of corruption risk is associated with an increase in firm level market liquidity.

Determinants of defence industry corruption risk: firm level empirical evidence using transparency international‘s anti-corruption index

Since there is a general perception that the defence industry is more susceptible to corruption compared to other sectors, using a unique database provided by Transparency International (TI), we examine the role of firm level antecedents on firm level corruption risk in the defence industry. We find that larger firms have lower levels of firm level corruption risk. Managerial shareholding is associated with higher levels of corruption risk. Firms that voluntarily disclose more information regarding their corruption control systems tend to have lower levels of corruption risk. Finally, listed firms also have lower levels of firm level corruption risk. We find that the “listing effect” is stronger among firms in financially developed countries ostensibly due to the better scrutiny and monitoring by market participants. In our analysis, we control for country level variables such as a composite index of government effectiveness in controlling defence industry corruption.

Corruption Risk in the Defence Industry: Drivers and Stock Market Effects

Anecdotal evidence indicates that corruption is rampant in the defence sector globally. Using a unique database on firm level corruption risk in the defence industry, we examine the drivers. Our empirical results indicate that at the firm level, factors such as visibility, governance and shareholding play a significant role in affecting a firm’s corruption risk. These results hold even after controlling for country level drivers such as institutional quality, cultural and economic factors. The results of our study also show that the disclosure of corruption risk is associated with the mitigation of information asymmetry and consequent increase in firm level market liquidity.

The Role of Voluntary Corporate Governance Mechanisms on Environmental Risk Disclosure: Australian Evidence

We examine the factors associated with the establishment of an environmental committee at the board level and its impact on the disclosure of environmental risks in an Australian context. Using a sample of Australian Stock Exchange firms disclosing their information to the Carbon Disclosure Project, we document a strong association between the existence of environmental committee and board independence, CEO duality, directors’ share ownership, and institutional shareholding. Firms that belong to environmentally sensitive industries are more likely to have environmental committees. Furthermore, we find that firms with environmental committees are more likely to disclose environmental risk information and this leads to mitigation in information asymmetry between managers and stakeholders.