Hsuan-Chi Chen

Why do Underwriters Charge Low Underwriting Fees for Initial Public Offerings in Taiwan

In Taiwan, underwriting fees for initial public offerings (IPOs) are extremely low compared to fees in other countries. From 1989 to 1999, the average underwriting fee for IPOs in Taiwan is 0.99%-far below the regulatory limit. Although the Taiwanese underwriting industry is highly concentrated, underwriting fees do not cluster at any particular level. We examine the underwriting fee and income structure in Taiwan and find support for an incentive hypothesis. Underwriters have an incentive to charge lower underwriting fees when market demand for IPO shares increases and capital gains account for a larger portion of their total income. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

The long-run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis” which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long-run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long-run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

Seasoned Equity Selling Mechanisms: Costs and Innovations

We report two innovations in seasoned equity selling mechanisms, accelerated seasoned equity offerings (SEOs) and private investments in public equities (PIPEs), and their impacts on the costs of raising equity capital for U.S. corporations. Majority of more recent SEOs (2002–July 2005) are accelerated SEOs. They have larger issue size and lower direct cost in comparison to the period 1990–1994. PIPEs are complementary to SEOs by fulfilling the demand of smaller offerings. PIPEs are on average more costly than SEOs. The costs of raising equity capital are associated with issue size, stock price, the type of shares offered, and the exchange where the firms stock is listed.

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements: INSIDER TRADING AND FIRM PERFORMANCE FOLLOWING OMR ANNOUNCEMENTS

The long�?run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis�? which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long�?run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long�?run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

Economic Shocks and Share Repurchases

The external environment affects firm payout policies. A firm’s behavior during positive and negative external shocks could be different from what theories have postulated. Several theories have been proposed for share repurchases. Using the financial crisis and quantitative easing period as a background, we test these theories. Based on our empirical tests, we find firms that have higher cash flows, lower leverage, fewer financial constraints, pay smaller/or no dividends, or higher takeover probabilities are more likely to announce repurchase programs across both periods. However, the popular motives for share repurchase are inconsistent in explaining related aspects such as size of the repurchase program, actual share repurchases, and completion.

Effort Substitution and Performance Shift of Multi-Tasking Mutual Fund Managers

We examine performance shift and managerial effort substitution for the practice of multi-tasking in the mutual fund industry. Using the pairing of newly issued and incumbent funds under concurrent management, we show that fund managers shift performance from incumbent funds to newly issued funds. Such outperformance of newly issued funds relative to incumbent counterparts can be attributed to managerial effort substitution. In order to examine managerial effort substitution, we compare the portfolio holdings of a newly issued fund that differ from the holdings of its incumbent counterpart and use the difference as a proxy for managerial effort substitution. We decompose the difference into three components: The same stocks as in the incumbent fund but with deviating portfolio weights, newly selected stocks that are not included in the incumbent fund, and old stocks that are included in the incumbent fund but not in the new fund. The empirical results indicate that the outperformance of newly issued funds against their incumbent counterparts can be attributed to the selection of new stocks in newly issued funds. Furthermore, we find that incentives embedded in the marginal impact of managerial effort on performance measures can help explain effort substitution and resulting performance shift. Overall, the results support the prediction of our multi-task principal-agent model.