Gillian Hian Heng Yeo

Corporate Ownership Structure and the Informativeness of Earnings

This study extends prior studies by examining how managerial ownership and external unrelated blockholdings affect the informativeness of earnings. The results are in contrast to prior studies. A non-linear relation exists between managerial ownership and earnings informativeness. Earnings informativeness increases with managerial ownership at low levels but not at higher levels of managerial ownership where the entrenchment effect sets in. Consistent with the role of large shareholder monitoring, the evidence shows a strong positive relationship between external unrelated blockholdings and earnings informativeness. These results are supported when income-increasing and absolute discretionary accruals are used to measure the extent of earnings management Copyright Blackwell Publishers Ltd 2002.

Investment opportunities, free cash flow and market reaction to international joint ventures

Abstract This paper examines the role of investment opportunities and free cash flow in explaining the source of the wealth effect of international joint ventures. We document that firms with promising investment opportunities have significantly positive response to announcements of international joint venture investments, whereas firms with poor investment opportunities have unfavorable response to such announcements. In contrast, we find that free cash flow does not explain the cross-sectional differences in abnormal returns associated with the announcements of international joint ventures. Thus, our results show support for the investment opportunities hypothesis but no support for the free cash flow hypothesis. These findings hold even after controlling for other potential explanatory variables.

Wealth Effects of Private Equity Placements: Evidence from Singapore

We examine institutional characteristics and the wealth effects of private equity placements in Singapore. Our findings show that private placements in Singapore generally result in a negative wealth effect and a reduction in ownership concentration. We find that at high levels of ownership concentration, the relation between abnormal returns and changes in ownership concentration is significantly negative. We also show that the market reacts less favorably to placements in which management ownership falls below 50%, but more favorably to issues to single investors. We do not find evidence suggesting that our results are due to an information effect.

Organizational Structure and Earnings Management

In this study, we identify a fundamental attribute of the organizational structure of the firm—the intensity of interdivisional transaction relatedness and complementarity—which contributes to earnings management. We draw from the theoretical economics literature that demonstrates that intrafirm collusion is more likely in hierarchical and complex organizational structure. We posit that intrafirm collusion toward a common organizational goal is more prevalent in highly related organizational structure because the economic welfare of economic agents is highly interdependent. Consistent with our hypothesis, we find that earnings management is positively associated with organizational relatedness. We also find that, for firms with high organizational relatedness, those with a high proportion of outside directors and high institutional equity ownership have less pronounced earnings management. Collectively, our result suggests an interaction between corporate governance structure and organizational relatedness in affecting earnings quality.

An Empirical Test of the Signaling Effect of Management's Earnings Forecasts: A Decomposition of the Earnings Surprise and Forecast Surprise Effects

When corporate management issues an earnings forecast there are potentially two surprises. One potential surprise is that a forecast was issued and the other is the surprise in the earnings forecast. Accordingly, the observed stock market reaction to management earnings forecasts may be due to one or the other, or both. This study decomposes the cross-sectional variability in stock market reactions to management earnings forecasts into the portions attributable to the forecast surprise and the earnings surprise. The results indicate that the markets reaction is a function of both the earnings surprise and the forecast surprise. However, the market reaction is more associated with forecast surprise than with the earnings surprise. This suggests that results in previous studies on the market reactions to management earnings forecasts may need to be reconsidered.

Further Evidence on the Determinants of Secured versus Unsecured Loans

Using a unique data set collected from financial statements of all Singapore listed firms from 1983 to 1991, we provide international evidence on the determinants of the amount of secured loans as a fraction of total secured and unsecured loans. This data set comprises a much wider range of firms than most previous studies. We show that consistent with the agency-cost hypothesis, firms with more growth opportunities use more secured loans. This is in contrast to the opposite result reported in Barclay and Smith (1995b) who measure secured debt as a fraction of total long-term fixed claims. We also find strong support for the hypothesis that smaller firms use more secured loans. In contrast, Leeth and Scott (1989), using survey data on small firms, find an insignificant firm size effect. Finally, we show that the use of secured loans is positively related to asset riskiness and loan size, and is negatively related to asset specificity. Firm quality has no explanatory power. Copyright Blackwell Publishers Ltd 1998.

Does IT outsourcing create firm value

The continued growth of IT outsourcing seems to reflect a fundamental belief among businesses that outsourcing creates wealth and delivers value to companies that outsource. Such a belief is supported by theories of production and transaction cost economies. These theories suggest that IT outsourcing should indeed generate greater wealth and create greater value for firms that outsource vis-à-vis firms that prefer to manage and operate their IT in-house. Yet, to date, there is little objective evidence to show how IT outsourcing actually does create value to companies. Drawing on transaction and production cost economies, we argue that IT outsourcing should create value for firms. We test our hypothesis using an event study of 420 IT outsourcing announcements by U.S. public listed companies during the period 1989-1999. Results showed that IT outsourcing did create value for firms in terms of positive short-term stock market returns.

Information asymmetry and accounting disclosures for joint ventures

Abstract In September 1999, the Financial Accounting Foundation issued a special report recommending the use of the equity method supplemented with appropriate disclosures for corporate joint ventures in the United States. This study, using data for corporate joint ventures in Singapore, provides some preliminary evidence regarding the effect of the supplementary information disclosure on information asymmetry among market participants as measured by bid–ask spreads. The results show that the disclosure of supplementary information of joint ventures is associated with a significant decline in bid–ask spreads. The results also indicate that the decline in information asymmetry is larger when the investment in joint ventures is significant and that larger investing firms tend to have a smaller decline in information asymmetry compared to smaller investing firms. The implications of this study, that the provision of supplementary information about joint ventures could reduce information asymmetry among participants in equity markets, thus leveling the playing field among traders, could have implications for policymakers.

The Determinants of Debt Maturity: The Case of Bank Financing in Singapore

This study presents important international evidence by examining the determinants of debt maturity of listed firms in Singapore, a major financial center in Asia. We focus on bank debt because it is the principal source of financing for most Singapore firms. We find that consistent with the contracting-cost hypothesis, firms with greater growth opportunities rely more heavily on short-term bank debt whereas larger firms are more likely to use long-term bank debt. In contrast, we find no strong support for either the tax or signaling hypotheses.

Corporate focus versus diversification: the role of growth opportunities and cashflow

Abstract We examine the valuation impact of corporate diversification strategies through an analysis of a set of international joint ventures which contain both focus-decreasing and focus-increasing investments. Consistent with previous findings reported for US firms, we find that focus-increasing joint ventures create value for shareholders. However, we do not find that corporate diversification uniformly reduces shareholder value, either at the announcement of the project or in the long-run. Diversifying joint ventures negatively impact shareholder wealth only when the investing firms have poor growth opportunities and a weak cashflow position. After controlling for the q and cashflow effects, we find no significant difference in the market reaction to focus-increasing and -decreasing joint ventures. Such a result implies that the impact of diversification on shareholder wealth is not absolute, but rather is conditional upon the financial resources and growth opportunities available to the firm.