Farshid Navissi

Audit Committee Financial Expertise, Corporate Governance and Accruals Quality: An Empirical Analysis

Following the enactment of the Sarbanes Oxley Act 2002, US stock exchanges strongly advocate the presence of financial experts on audit committees. However, the ideal definition of financial expertise proves to be a controversial issue culminating with the stock exchanges adopting a wide scoped definition of financial expertise. Using this definition, prior studies have not provided consistent evidence of financial expertise positively influencing audit committee effectiveness. We investigate the association between three types of audit committee financial expertise (accounting, finance and supervisory expertise) and accruals quality. We find significant positive relation between accounting expertise and accruals quality, which is more pronounced in the presence of strong audit committee governance. The findings indicate that the current definition of financial expertise is too broad and any future refinements must focus on accounting expertise of the audit committee members.

Institutional ownership and corporate value

Purpose – Prior studies examining the relation between the shareholdings by institutional investors and firm value have produced mixed results. These studies have assumed that a linear relation exists between corporate value and institutional shareholdings. The purpose of this study is to further investigate the nature of this relationship and by partitioning institutional investors into institutions that have appointed a representative to the board of directors of the firms in which they have a block investment and institutions with a similar holding but without a representative on the board of directors. Design/methodology/approach - The study is based on a sample of 123 firms with available financial and institutional ownership data. A cross-sectional regression analysis is used to test the relation between corporate value and institutional ownership with and without board representation. Findings - The results of the study suggest that share ownership by investors with board representation is positively related to the value of the firm at lower levels of ownership. However, as the share ownership increases, the impact on the value of the firm becomes negative, giving rise to a non-linear relation. The extent of shareholding by institutions without board representation, on the other hand, is not related to the value of the firm. Research limitations/implications - The findings show that institutions with board representation have greater incentives to monitor management, and therefore their presence should have a positive influence on firm value. However, at high levels of ownership, institutional investors with board representation may induce boards of directors to make sub-optimal decisions. Originality/value -The study provides a deeper understanding of the relationship between firm value and institutional ownership. That is, the effect of shareholding by institutions with board representation is likely to have a non-linear relation with firm value.

Value relevance of accounting information in China pre- and post-2001 accounting reforms

Purpose - This paper aims to investigate whether the accounting reform in China has improved the relevance of Chinas accounting information. It seeks to investigate the association between earnings and book value of equity to share returns before and after the introduction of the Accounting System for Business Enterprises (ASBE) in 2001 for A- and A&B-share firms. Design/methodology/approach - The paper employs the return regression model. The pre-ASBE period is designated as 1997 through to 2000, and the post-ASBE period is designated as 2002 through to 2004. All firms listed on the Chinese stock market during the investigation period constitute the sample. Findings - It is found that accounting information better explains share returns for both A-share firms and A&B-share firms in the post-ASBE period. The paper also finds that the book value of equity for A&B-share firms is incrementally value relevant to that of A-share firms in the post-ASBE period. Research limitations/implications - Further studies will contribute to understanding how governance mechanisms and liquidity influence the association between accounting information and share returns in the Chinese A-share market. Practical implications - The findings provide empirical evidence regarding the relevance of accounting information in emerging markets. Originality/value - The paper contributes to the extant value relevance literature by investigating time periods surrounding the issue of ASBE in 2001 in the Chinese stock market.

Equity value implications of the SEC Exchange Act Rule 13a-14: A litigation cost perspective

The purpose of our study is to assess the role of litigation risk in the stock price setting process in relation to the Securities and Exchange Commission (SEC) Exchange Act Rule 13a-14. We employ 12 June, the proposal of Rule 13a-14, and 27 June, the ruling of certification requirement, as event dates, and investigate litigation cost implications of the SEC proposal and ruling. We focus on firms in industries that are highly exposed to class action lawsuits and find negative abnormal returns surrounding 12 June, and positive abnormal returns surrounding 27 June, for firms relieved from compliance requirements. The results are more profound for firms in high-litigation-risk industries.

Stock price performance of seasoned equity offerings: Completed vs withdrawn

Purpose – This paper aims to investigate whether completed vs withdrawn equity offerings result in different stock price performance prior to announcement and between announcement and withdrawal or completion. Design/methodology/approach - Investigates stock price performance prior to equity offerings announcements and between the announcement and actual completion or withdrawal. Stock price performance is measured by cumulative abnormal returns (CARs). Findings - It was found that stock price performance is strong only for firms that later complete the offerings. Firms that withdraw their offerings have poor stock price performance even before the announcement. Additionally, it was found that stock price performance for both the completed and the withdrawn offerings is poor after the announcement. Contrasting with prior research, the results show that firms complete their equity offerings, even though their stock price performance deteriorates. The fact that this deterioration is significantly smaller (approximately one-third) than that of withdrawn offerings indicates that there is an acceptable level of deterioration that firms tolerate. Originality/value -The paper evaluates short-run stock price performance for a number of firms in the period 1984-2000.

Implications of dividend imputation for equity pricing in New Zealand

Dividend imputation was introduced in New Zealand as from 1 April 1988. In this paper we analyse the implications of the tax regime for equity pricing and the allocation of investment funds. The analysis indicates that the expected effects of imputation are potentially significant. We demonstrate that understanding the nature and magnitude of the effects requires knowing the identity of the marginal investors for equities (and other investments) in New Zealand. The magnitude of the effects is most striking if marginal investors are international investors. Where the marginal investors are New Zealand residents, the most significant is the rise (fall) in New Zealand equity prices (before‐tax expected returns).

Securities Price Effects of Napster-Related Events

Napster released its controversial peer-to-peer music file sharing software to the public in June 1999, and after approximately two years of intense debates and legal battles it was eventually ordered to shut down in February 2001. The opponents of Napster (e.g., the Recording Industry Association of America, RIAA, and Metallica Lars Ulrich) suggested that Napster had collapsed the business structure of the U.S. multibillion-dollar music industry. Napster, on the other hand, argued that its service had increased the music sales. We use Napster as a proxy for diffuse piracy through the Internet since it was the conduit for individual file sharing on a large scale. We examine the effects of 11 prominent Napster-related events on the equity value of firms in the U.S. music industry. If Napsters service stimulated (harmed) music sales, then events that increased (decreased) the effectiveness of Napster would improve (reduce) the stock prices of the music firms. Our evidence suggests that events that increased the effectiveness of Napster as a distribution mechanism improved the stock prices of the music firms. Additionally, the evidence indicates that events that threatened Napsters survival resulted in decreases in the stock prices of the music firms. Music firms in the sample experienced negative excess returns ranging from minus;1.76 percent to minus;10.69 percent in response to anti-Napster events. On the other hand, retreats from anti-Napster events were accompanied by positive excess returns ranging from +0.56 percent to +5.05 percent. The seven anti-Napster events resulted in a total capital loss in excess of

The effect of price control regulations on firms' equity values

18 billion and the four pro-Napster events created wealth in excess of

Rules Governing the Transfer of Ownership: Wealth Effects and the Influence of Ownership Structure

9 billion, compared to the total market capitalization of

Net stock issuance anomaly and cash flow explanation: A research note:

101 billion for the sample firms.