Gilberto Loureiro

Do Improvements in the Information Environment Affect Real Investment Decisions

We examine how the adoption of International Financial Reporting Standards (IFRS) across 32 countries affects stock price informativeness. Overall, we document a decline in stock price informativeness over time. However, we find that voluntary adopters, arguably the more serious and committed adopters, experience a less severe decline in stock price informativeness following IFRS adoption. These results suggest that the benefits associated with IFRS adoption may accrue more to voluntary adopters. In addition, we find that enforcement plays a critical role on the impact of IFRS adoption. Firms in countries with better enforcement have higher firm-specific return variation, and experience a less severe decline in stock price informativeness relative to those firms in countries with weaker enforcement. Our results are robust to alternate measures of stock price informativeness and enforcement. 1 Assistant Professor of Finance, University of Minho School of Economics and Management, 4710-057 Braga, Portugal, Email: gilberto@eeg.uminho.pt (Loureiro), and Assistant Professor, Department of Finance, College of Business Administration, University of Tennessee, 434 Stokely Management Center, Knoxville, TN 37996, Email: ataboada@utk.edu , Phone: (865) 974-1704 (Taboada).

Estimating the expropriation of minority shareholders: Results from a new empirical approach

Abstract A novel methodological approach is proposed to estimate the effect of separation of ownership and control by dominant shareholders on firm value. The approach offers two major innovations. First, it frees the researcher from the necessity of having to make an ad hoc judgment call regarding which firms feature entrenched owners and which don’t. Under this approach, the main shareholder becomes entrenched when the Shapley Value (SV) of his voting rights crosses an unknown threshold that is estimated jointly with the other model parameters. This approach allows one to perform a test on the joint hypotheses that the incentive to expropriate held by the dominant shareholder impacts negatively the market performance of the firm if the main shareholder is entrenched but produces no impact otherwise. Secondly, it generates a market-based estimate of the critical level of power at which the main shareholder becomes entrenched. The method is applied to a sample of European firms and a threshold equal to 0.34 is estimated. Most firms from the UK have a main shareholder with a SV below the estimated threshold; in contrast, about half of the continental firms in the sample feature main shareholders whose power index is above the estimated threshold. A negative relationship is found between the incentive to expropriate and corporate valuation above the threshold, that is both statistically and economically significant; below the threshold, we find no evidence of a relationship.

The impact of hiring a reputable underwriter on the information environment of cross-listed firms

I examine how the information environment of cross-listed firms is affected by a mechanism of reputational bonding: the choice of a reputable underwriter to sponsor an equity offering. Using a sample of foreign firms cross-listed in the U.S. from 1980 to 2004, I find that those that raise equity and hire a reputable underwriter, post cross-listing, observe higher analyst coverage and more accurate earnings forecasts. Empirical evidence shows that these improvements are positively related to firm value. More importantly, the improved accuracy of firms sponsored by top underwriters has an additional positive impact on their Tobins q. Overall, the results show that top underwriters play an important monitoring role, via their impact on firms information environment.

Monitoring the board: should shareholders have direct proxy access?

Motivated by the current discussion to reform shareholder-nominated director elections, this paper presents a model that shows that, when shareholders have direct access to proxy, the quality of the board of directors improves. This is so because more independent directors—regarded as better monitors of managerial activities—will be elected. In the model, a manager maximizes his expected utility by solving the trade-off between reputation and consumption of private benefits. The board can be of high-type (independent, only cares about reputation) or low-type (non-independent, faces a trade-off similar to the managers). When the board can signal its type at a relatively small cost, giving shareholders direct access to proxy is better than delegating the nomination of outside directors to managers: in the first alternative, only high-type boards will be kept, whereas in the second, low-type boards will predominate.

The market for ADRs: does depositary bank reputation matter?

This article analyses whether the reputation of depositary banks that sponsor US cross-listed firms has an impact on: (1) the number of new issuers every year, (2) the stock price reaction around the listing date (3) the percentage of institutional ownership and (4) the activity of raising capital. Using a total of 676 American Depositary Receipts (ADRs), from 45 different countries, issued between 1962 and 2003, I find a positive and significant relation between depositary bank reputation and the market share of new listings. Using a subsample of listings, from 1996 to 2003, the results of the event study show a positive relation between depositary bank reputation and average abnormal returns estimated for the week of listing. The results also show that issuers sponsored by more reputable depositary banks tend to have higher levels of institutional ownership. No statistical significant relation is found between depositary bank reputation and capital raisings.

Individual investors repurchasing behaviour: evidence from the Portuguese stock market

ABSTRACT We study the repurchasing behaviour of individual investors and identify-related stock- and investor-specific attributes that affect the preference to repurchase stocks previously owned. Using a unique database of Portuguese individual investors, we find that investors prefer to repurchase stocks that were associated with a gain during their previous roundtrip (i.e. prior winners) and have suffered price declines subsequent to their last sale. Consistent with the extant literature based on the US market, our results suggest that different market characteristics do not seem to affect investors’ preference regarding stock repurchases. Moreover, we find that this preference increases with the magnitude of the prior gain or the decline in price following the last sale. We also demonstrate that larger and more visible domestic stocks are more likely to be repurchased and that less active, under-diversified and home-biased investors are more likely to engage in such behaviour. Finally, we find that repurchased stocks yield poor post-performance – approximately 267 basis points less than newly purchased stocks. Our main conclusion is that repurchases are essentially emotionally driven and penalize investor’s performance.