Lee-Young Cheng

Investor Inattention and Under-Reaction to Repurchase Announcements

This paper investigates investor inattention as a plausible explanation for market reaction to repurchase announcements. We use prior turnover as the proxy for investor attention to examine the difference in stock price performance between low-attention stocks and high-attention stocks. We find that low prior turnover firms experience greater underreaction to repurchase announcements than high prior turnover firms. Low prior turnover firms also experience larger positive long-run excess returns following announcements. Furthermore, a higher level of investors inattention leads to higher degree of underreactions, resulting in higher actual completion rates. JEL Classifications: G14, G15

Institutional Investment Horizons and the Stock Performance of Private Equity Placements: Evidence from the Taiwanese Listed Firms

This study examines how the investment horizon of the institutional shareholders of a firm affects the stock performance of private equity placements. The results show that firms with long-term institutional investors receive significantly positive abnormal returns around the offering announcement. Post-issue stock price underperformance is especially pronounced in firms held by short-term institutional investors. These findings suggest that private placement firms with long-term institutional investors acquire certification and monitoring-related benefits and thus reduce the information asymmetry and entrenchment costs between managers and external investors.

Institutional investment horizons and open-market stock repurchases: evidence from the Taiwan stock market

This article investigates how the investment horizon of a firms institutional shareholders affects the outcome of stock repurchase. Our results show that repurchasing firms with long-term institutional investors experience significantly positive abnormal returns around the repurchasing announcements, actually buy back more shares during the execution period, and perform better over a subsequent 3-year period than repurchasing firms with short-term institutional investors. These findings suggest that repurchasing firms held by long-term institutional investors can acquire certification- and monitoring-related benefits, thus providing more credible signals about the true value of firms.

Institutional Investor Conference Calls and Information Diffusion Effect

This paper explores the effects of information diffusion by investigating a sample of firms that voluntarily held institutional investor conference calls (IICCs) between 2004 and 2011. The empirical results reveal a positive correlation between the abnormal returns of IICCs and average industry returns, indicating that IICCs exhibit information diffusion effects and diffuse asymmetry. Moreover, the information environment (IE) of firms plays a critical role in information dissemination. For firms with an IE that is more conducive for information dissemination, the effects of information diffusion are enhanced. Firms with high information asymmetry have strong information diffusion effects. Key words: Institutional investor conference call, information diffusion effect, lead-lag effect, information environment

Market reactions to private equity announcements and intra-industry information spillover

Purpose - – The purpose of this paper is to examine market reactions to private equity placements and intra-industry information spillover effects in the Taiwan Stock Exchange. Design/methodology/approach - – The authors first use the market model to compute the abnormal announcement returns. To examine the joint impact of the private investment in public equity (PIPE) purposes and the lead investor industry, the authors regress the issuers’ cumulative abnormal returns (CARs) on the dummy variables of PIPE purposes and the lead investor industry. To study the spillover effects, the authors regress the rivals’ CARs on the issuers’ CARs, PIPE purposes, and the lead investor industry. Finally, the industry Herfindahl index is used as a proxy for the market power of issuers and rivals to examine its impact on the spillover effects. Findings - – The authors find that issuing firms experience positive abnormal returns during the announcement period. Issuers enjoy more positive market reactions when the proceeds of offerings are primarily used to establish a long-term strategic alliance or to integrate business and when the lead investor is in the same industry. Furthermore, the authors show that the contagion effect dominates the competitive effect in private equity placements at the aggregate level. At the subsample level, the authors find competitive effect overpowers contagion effect when the purpose of offerings is primarily used to establish a long-term strategic alliance or to integrate business and when the lead investor is in the different industry. Finally, the authors show that rivals with relative lower market power enjoy more positive contagion effects. Originality/value - – First, the analysis documents the simultaneous importance of both the purposes of private offerings and the lead investor’s industry on announcement reactions, which shed new light on the positive abnormal returns during the announcement period. Second, the study adds to the literature on the information spillover effects by analyzing the role played by purposes of offerings and rivals’ market power. This paper provides a more complete picture of the offsetting competitive and contagion effects.

An Analysis of Short Selling, Margin Purchasing, and Bid-ask Spreads around Illegal Insider Trading: Evidence from Taiwan

This study examines margin trading activities and bid-ask spreads around companyspecific news announcements, in which insiders were convicted of illegal trading on nonpublic information in the Taiwan stock market. We find significant excess short sales (margin purchases) before bad (good) news announcements. Results indicate that abnormal short selling (margin trading) is significantly and negatively (positively) related to postannouncement stock returns. Furthermore, our results show that short selling and margin purchasing increase pre-announcement bid-ask spreads and decrease market liquidity.

Valuation and Motivation of Equity Carve-Outs

This research explores the motivation of equity carve-outs in Taiwan. We find that carve-out parents are significantly overvalued and the subsidiaries are significantly undervalued. In addition, parents and subsidiaries earned positive abnormal announcement-period returns, and outperformed appropriate benchmarks over a threeyear period following the carve-outs. The abnormal operating performance of subsidiaries improved after carve-outs, and parent operating performance outperformed matching firms. These results are consistent with the divestiture gains hypothesis. Furthermore, cross-sectional regression shows that there exists a positive relationship between abnormal operating performance and long-run abnormal return, providing further support for the divesture gains hypothesis. Key words: Equity carve-outs, asymmetric information hypothesis, divestiture gains hypothesis, mispricing