Shahrokh M. Saudagaran

Testing for micro-structure effects of international dual listings using intraday data

Abstract This paper examines the impact on the liquidity of NYSE/AMEX listed stocks when they were subsequently listed on the London or the Tokyo Stock Exchanges. It can be argued that the increased competition from foreign market makers will reduce the monopoly rents that specialists can earn, thereby improving their quotes. We find, however, that spreads do not decrease following a dual listing, though the depth of the quotes increases as predicted. The apparent increase in depth disappears once we account for changes in price, volume and return variance. We also find that the level of informed trading increases, which increases the cost to the specialist of providing liquidity, and explains why spreads do not decline in spite of increased competition. Consistent with an increase in informed trading, we also document an increase in trading activity.

The Institutional Environment of Financial Reporting Regulation in ASEAN

Abstract The growth of regional trading blocs and economic alliances such as the European Union (EU) and the North American Free Trade Agreement (NAFTA), has served to magnify interest in cross-national aspects of financial reporting regulation. While most of the extant literature has looked at developed industrialized countries, this article focuses on the principal features of the institutional environment for financial reporting in an economic bloc of developing countries—the Association of Southeast Asian Nations (ASEAN). These countries are currently the subject of much attention due to the Asian economic crisis. The article has several objectives. First, it highlights the principal features of the institutional structure of financial reporting regulation in ASEAN countries. Second, it helps understand how these features impact on and are affected by several issues, particularly the limits of private sector participation in regulatory affairs, and the need to improve the enforcement in these countries. Finally, it also studies the international dimensions of financial reporting regulation in ASEAN and considers whether ASEANs institutional arrangements provide an auspicious environment in which to pursue accounting harmonization.

Earnings management in Japanese companies

Abstract This study examines choices of accounting accruals using a large sample of Japanese companies, which operate in an environment that is generally regarded as being rather different from the United States. We find that debt-to-equity and asset hypotheses hold in the Japanese environment only for the years after the market crash of 1990. Prior to the crash, the number of employees seems to capture the political (or economic) pressure. Similar to their U.S. counterparts, managers of Japanese companies chose income-increasing accounting accruals to increase their bonus and increase the amount of outside funding. The ownership effect was also observed on the choice of accounting accruals. Those companies that have higher degrees of ownerships by trust companies and stock brokers have incentives to choose income-increasing accruals to provide a more positive picture of the firm. Since this incentive does not exist for ownership by financial institutions, the opposite effect was observed. The effect of ownership by individual investors, management, or corporations on the choice of income-increasing accruals was opposite to that hypothesized in 1989. These opposite-to-expected effects were not present after the Japanese market crash. The stock market crash of 1990 appears to have had a profound effect on the choices of accounting accruals.

Accounting Regulation in ASEAN: A Choice between the Global and Regional Paradigms of Harmonization

This paper analyzes accounting regulation in ASEAN countries in the context of the global and regional paradigms of accounting harmonization. It uses a comparative framework to highlight the similarities and differences in the regulatory environment of five ASEAN countries. The regional paradigm is discussed in the context of the ASEAN Federation of Accountants’ efforts towards regional harmonization while the global paradigm looks at members countries’ adoption of IASC standards. The paper examines forces driving global harmonization in ASEAN and discusses the economic and political conditions for regional harmonization which, unlike in the EU, do not yet exist in ASEAN. It concludes that this has led to the dominance of the global paradigm of harmonization in ASEAN countries.

Accounting harmonization in ASEAN: Benefits, models and policy issues

Abstract This paper addresses policy issues on the feasibility and prospects for accounting harmonization within ASEAN countries. It examines the benefits of harmonization for ASEAN countries and discusses issues related to the harmonization of both broad accounting aims as well as detailed accounting regulations within ASEAN. The paper examines institutional choices for pursuing regional harmonization and concludes with five policy recommendations for furthering the prospects of accounting harmonization within ASEAN.

Munificent Compensations as Disincentives: The Case of American CEOs

We review the scholarly literature and report that there exists no convincing link between CEO compensation on the one hand and either CEO performance or company performance on the other. We report further that neither market processes nor a lottery-like process account for the systematic difference between the remunerations of CEOs in the US and in other industrialized countries. Based on the observation that CEO mega-compensations are not taxed out of existence although they seem to violate common social norms of equity, we speculate that such compensations must serve a mythical social function. We propose that, baffled by the non-hierarchical nature of our economic system, Americans use high CEO compensation as evidence that someone is in charge. Finally, we argue that the current very high levels of CEO compensation may be counterproductive because they protect CEOs from the material consequences of their bad performance.