Marvin Wee

Does Disclosure Quality via Investor Relations Affect Information Asymmetry

High disclosure quality can be achieved through an effective investor-relations program and results in firm benefits such as enhanced market exposure, increased analyst coverage and institutional following. We examine the association between disclosure quality and information asymmetry where a checklist was used to evaluate a firms Internet-based investor-relations practices. Firms with higher disclosure quality through their investor-relations activities have higher analyst following, more institutional shareholders, more active trading, and are larger in terms of market capitalisation. Bid-ask spread decreased with increased disclosure quality, although the effect of investor relations was weaker in the presence of other factors.

How Does Investor Relations Disclosure Affect Analysts' Forecasts?

We study the relationship between investor relations disclosure and analyst forecast properties in Australian firms, a setting dominated by small firms with limited analyst coverage and requiring continuous disclosure of price sensitive information. We find increasing disclosure in the time period investigated is associated with greater accuracy in firms disclosing fewer items. Disclosure was unrelated to forecast dispersion, possibly due to the low analyst following. In periods of uncertainty, the investor relations awards effectively discriminated quality from quantity of disclosure. These findings highlight the importance of active communication with analysts, particularly in firms providing less disclosure and during periods of uncertainty.

Disclosure Incentives, Mandatory Standards and Firm Communication in the IFRS Adoption Setting

We investigate the content, timing and relevance of firms’ narrative disclosure about the effects of IFRS adoption in annual statutory financial statements and firm announcements to the stock exchange for 150 large listed Australian firms in the three-year period surrounding adoption (which occurred from 1 January 2005). We observe communication about changes in financial reports, even when the change relates to accounting rather than economic events. We record more disclosure by firms experiencing an adverse change in earnings, consistent with them being sensitive to signals about future earnings. When economic performance is stronger, firms provide less discussion of the accounting effects of IFRS. We also find the discussion of IFRS impact in both disclosure channels is value–relevant for firms with relatively higher levels of disclosure, providing evidence of the usefulness of transition disclosures.

Do Investor Relations Affect Information Asymmetry? Evidence from Australia

Disclosure via a successful investor relations (IR) policy enables firms to enhance market exposure, increase analyst coverage and attract institutional investors. We examine the link between IR and information asymmetry where a web-based survey was used to rate a firms practices. Our results show that the level of information asymmetry differs between firms according to their investment in IR and during periods of uncertainty, they experience dissimilar changes in the level of information asymmetry. Disclosure impacts on information asymmetry wherein firms with high quality and continuous disclosure benefit from the lower information asymmetry and experience smaller shocks.

Order Size, Order Imbalance and the Volatility–Volume Relation in a Bull Versus a Bear Market

This paper revisits the volume–volatility relationship documented in Chan and Fong (2000) in a bull versus a bear market by using data from the period surrounding the subprime crisis in 2008. The relationship is predicted to be asymmetric because of the greater cost of short positions, the lack of liquidity and the differing trading strategies adopted in a bearish market. Our analysis shows the trading patterns in the bull and bear markets are different. Particularly, in a falling market characterised by higher volatility and lower liquidity, the frequency of order placement has doubled but orders are smaller in size. This provides evidence of investors’ shift of trading strategy in relation to the status change of the market. Furthermore, we find evidence to support the proposition that volume is more informative in a bear market than in a bull market.

The Evolution of Informed Liquidity Provision: Evidence from an Order-driven Market

The liquidity provision strategies by institutional traders on the ASX have changed over the period 2006 to 2012. Besides using smaller‐sized orders more frequently than their retail counterparts, they have increased the use of passive limit orders. Institutional traders are found to be more sensitive and responsive to changes in market conditions. Analyses on order placement and price impact suggest that institutional traders are better informed. However, their limit orders are found to have a lower price impact at the intra‐day level in the 2012 subsample period. We show evidence this is associated with the proliferation of algorithmic and high frequency trading.

Realized Volatility of the Spread: An Analysis in the Foreign Exchange Market

This chapter investigates the determinants of the volatility of spread in the over-the-counter foreign exchange market and examines whether the relationships differ in the crisis periods. We compute the measures for the volatility of liquidity by using bid-ask spread data sampled at a high frequency of five minutes. By examining 11 currencies over a 13-year sample period, we utilize a balanced dynamic panel regression to investigate whether the risk associated with the currencies quoted or trading activity affects the variability of liquidity provision in the FX market and examine whether the crisis periods have any effect. We find that both the level of spread and volatility of spread increases during the crisis periods for the currencies of emerging countries. In addition, we find increases in risks associated with the currencies proxied by realized volatility during the crisis periods. We also show risks associated with the currency are the major determinants of the variability of liquidity and that these relationships strengthen during periods of uncertainty. First, we develop measures to capture the variability of liquidity. Our measures to capture the variability of liquidity are non-parametric and model-free variable. Second, we contribute to the debate of whether variability of liquidity is adverse to market participants by examining what drives the variability of liquidity. Finally, we analyze seven crisis periods, allowing us to document the effect of the crises on determinants of variability of liquidity over time.

Does the Probability of Informed Trading Measure Informed Trading

Recent research has raised concerns over whether the probability of informed trading model (PIN) is an appropriate proxy of information asymmetry. We investigate PIN and test whether the model can detect illegal insider trading prior to M&A announcements. We then compare the performance of PIN to an alternative proxy, the PIN asymmetric autoregressive conditional duration model (PIN-AACD), to determine if this model offers a better proxy for informed trading. We find that PIN does not measure informed trading prior to M&A announcements, and that PIN-AACD offers a better measure of information asymmetry.

Do Insiders Use Investor Relations for Their Personal Benefit? An Empirical Investigation of Hong and Huang (2005)

Investor relations (IR) are costly activities, and a widely held view is that companies undertake them to increase share price over time. However, Hong and Huang (2005) assert that companies undertake IR for the personal benefit of company insiders with large ownership stakes. We test Hong and Hong (2005) empirically, specifically by investigating the association between the IR activities of newly listed companies and insider equity ownership, as well as insider sales. The results support Hong and Huang’s predictions where newly listed companies are more likely to engage in broker presentations when insiders have a valuable ownership stake. Furthermore, companies where insiders sell a large portion of their shares undertake different group presentations. The results suggest that insiders in these companies contemplate their personal incentives when setting IR policy such that IR is not necessarily undertaken for the benefit of all shareholders.