Kyojik Song

Long-Term Effects of a Financial Crisis: Evidence from Cash Holdings of East Asian Firms

We investigate the long-term effect of the Asian financial crisis on corporate cash holdings in 8 East Asian countries. The Asian firms build up cash holdings by decreasing investment activities after the crisis. We find that the increase in cash holdings is not explained by changes in firm characteristics but by changes in the firms’ demand function for cash, which indicates that the crisis has systematically changed the firms’ cash-holding policies. Specifically, the firms’ increased sensitivity to cash flow volatility is one of the main factors explaining the higher level of their cash holdings in the postcrisis period.

Credit Rating Changes and Earnings Management

We examine whether they engage in income-increasing accruals manipulation (AM) or real activities earnings management (RM) to affect the future rating changes when firm managers have private information about the upcoming credit rating change. Using the large sample of U.S. data over the period of 1990-2011, we find that firms with upcoming credit rating changes are likely to engage in real activities earnings management, whereas they tend to decrease discretionary accruals before credit rating changes. We also find a positive relation between real activities management and credit rating upgrades, but no relation with between real activities management and downgrades. The findings suggest that the firm’s management tries to influence the upcoming changes of credit ratings by actively engaging in real activities earnings management rather than accruals-based earnings management.

Do long-term institutional investors foster corporate innovation?

This article examines the effect of institutional investors’ investment horizons on firms’ innovation activities. We conjecture that the presence of long-term institutional investors mitigates managerial myopia, prompting firms to generate greater corporate innovation outputs. Using data on patents and patent citations for US firms, we find that institutions’ investment horizons are positively related to the number of patents and patent citations. We also document that long-term (short-term) institutional ownership is positively (negatively) related to the innovation outputs. This article makes an additional contribution to the corporate innovation literature by addressing the positive role of long-term institutional investors.