Millicent Chang

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.

Financial distress: Lifecycle and corporate restructuring

A firms lifecycle consists of birth, growth, maturity and decline. We examine the strategies that firms choose when facing financial distress and present evidence that these choices are influenced by the corporate lifecycle. This influence is most pronounced in the choice of financial restructuring strategies such as reducing dividends or changing capital structure. We also examine if the way firms face financial distress affects the likelihood of recovery. We find that reducing investment and dividends are associated with recovery for all firms, but there is little influence of lifecycle.

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.

Analyst forecast revisions and asset allocation in Asia-Pacific markets

Abstract An indicator derived from analyst forecast revisions was used to investigate the relationship between revisions and subsequent stock returns in 15 Asia-Pacific markets. From an investment strategy based on forecast revisions, positive abnormal returns were earned in emerging markets, and negative abnormal returns in developed markets. This pattern was stronger in the 3-year period after July 1997 than in the prior 3 years. Significant market imperfections or irrational behaviour of market participants in emerging markets are possible reasons for the results. The difference in results between subperiods could also be due to an increased reliance on near-term earnings information in stock valuation after the burst of the Asian bubble economy.

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.

Does director trading change the information environment

Investigating ASX300 firms for the period 2002–2010, we find that the information content of director trading has a negative relationship with post-trade information asymmetry, but a positive relationship with information efficiency. These results are mainly driven by director purchases rather than their sales, and are stronger in non-executive director trading. Our results are robust to the adoption of IFRS in 2005 and the global financial crisis in 2008. These findings back the claims of insider trading proponents, by showing that director trading plays a crucial role in reducing information asymmetry and in improving information efficiency for stock market participants.

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.

The Effect of Cross-Listing on Director Trading Profits

We examine the effect of a firm’s cross-listing on profits earned by its directors when they trade in the firm’s shares. Private benefits acquired through insider trading illustrate agency conflicts with outside shareholders. According to Coffee (2002) and Stulz (1999), insiders can be prevented from taking excessive benefits when the firm is cross-listed on an exchange having higher regulatory and legal costs compared to the firm’s home exchange. Therefore, insiders in firms bonded to a higher regulatory environment are expected to earn less profits when they trade. Our sample examines trades conducted by directors between 2002 and 2007 in firms listed on the Australian Securities Exchange (ASX) with international cross-listings. The results support the bonding hypothesis where directors in cross-listed firms earn less profits when they buy shares, compared to those in domestic firms. However, there is no difference in profit when sales are made. However, profits from trades in firm with multiple listings are no different to trades in firms with only a single international listing. The destination of the cross-listing also appears to matter, where a US listing for an ASX firm, results in less profitable purchases for their directors.

What are Insider Trades Around Profit Warnings Really Telling Us

In this paper, we investigate insider trading activity around profit warnings. We conjecture that since firms are required to release price sensitive information, such as in the form of profit warnings, to ensure that investors are continually informed of changes in performance and future prospects, insiders time their trades to maximise personal gains. Our results show that in the six months leading up to the warning, there is a decrease in share price that continues after the warning. Insiders take advantage of the situation by increasing their holdings in the pre-warning period and continue buying, though to a less extent after the warnings release. The findings indicate that profit warnings signal poorer though temporary financial performance and insiders profit from this knowledge.