Shao Chi Chang

Why firms use convertibles: A further test of the sequential-financing hypothesis

Abstract The sequential-financing hypothesis advanced by Mayers [J. Financ. Econ. 47 (1998) 83] suggests that convertibles are more valuable for issuing firms with focused activities. The hypothesis also suggests that firms may design their convertibles so that there are sufficient internal funds for future investment expenditures so as to avoid the costs of accessing capital markets. This paper provides direct evidence for these two predictions. We find that the stock market responds more favorably to the announcements of convertible offerings by focused firms than to those by diversified firms. This finding holds even after controlling for other potential explanatory variables. We also find that the issuing firms net new financing is not significantly different from zero over the life of the convertible debt. Thus, our results provide further support for the sequential-financing hypothesis that convertible debt financing is motivated by a desire to minimize security issue costs and agency costs of overinvestment for firms with promising growth opportunities to finance a sequence of potential investment options.

Family Control and Stock Market Reactions to Innovation Announcements

Although family firms are common around the world, studies on family-controlled business are limited. Prior studies mainly focused on the influences of family ownership on overall firm performance, and the results were mixed. In this study we attempted to explore the impacts of family ownership on innovation by examining the association of family control and stock market reactions to innovation announcements. We found that firms with greater family control experienced significantly more negative stock market reactions to innovation announcements. The results further indicated that divergence of cash flow and voting rights was strongly and negatively correlated with announcement-period abnormal returns. In addition, the findings suggested a significantly positive moderating effect of institutional ownership. The conclusions were robust under various measures of family control, and remained valid after controlling other influential factors for stock market reactions to innovation announcements.

Does a Family-Controlled Firm Perform Better in Corporate Venturing?

Family control involves issues of agency costs and nepotism. This study investigated the impacts of family control on stock market reactions to corporate venturing announcements by public firms. Moreover, in this paper we examined whether the monitoring effect of institutional investors influenced the relationship between family control and stock market reactions. In terms of research findings/results, with different measures of family control, the evidence indicated that family control is significantly and negatively associated with the abnormal returns of corporate venturing announcements. Furthermore, we found that the divergence of cash flow and voting rights had a strong negative impact on abnormal returns. Finally, the empirical results suggested that institutional ownership had a significant positive moderating effect on the relationship of family control and stock market reactions. Prior research focused on the influence of private family firms on venturing activities. This study contributes to the literature by highlighting the unique characteristics of family control in public firms. This research suggests that nepotism embedded in public family firms is likely to create agency costs resulting from deviations in cash flow and voting rights. This study further shows that institutional ownership plays an important role in reducing agency costs associated with public family firms. Our findings suggest that family control is an important consideration for investors in evaluating the wealth impacts of corporate venturing. Therefore, a well-established governance system could be a crucial signal of the quality of corporate venturing for family businesses, particularly the outside governance mechanism.

Underwriter reputation, earnings management and the long-run performance of initial public offerings

This study contributes to the extant literature on the nature of earnings management surrounding initial public offerings (IPOs) by investigating the role of underwriter reputation. We argue that prestigious underwriters will protect their reputation by carefully monitoring and certifying financial information on IPO firms, thereby limiting any potential earnings manipulation. As a result, those IPO firms that are associated with more prestigious underwriters are likely to exhibit substantially less-aggressive earnings management. Conversely, we find the existence of a negative relationship between earnings management and the post-offer performance of an IPO firm’s stocks only for those firms associated with less-prestigious underwriters.

The impact of relational bonds on brand loyalty: the mediating effect of brand relationship quality

Purpose – While the literature attends to how customer retention strategies develop relationship quality (e.g. trust), it does not account for the potential mediator (s) in this relationship. The purpose of this paper is to examine the mediating role of brand relationship quality (BRQ) in the relationship between relational bonds and brand loyalty in retail service contexts. Design/methodology/approach – A total of 524 valid questionnaires from respondents aged between 15 and 24 are analyzed using structural equation modeling. Findings – First, BRQ significantly mediates the relationship between relational bonds and brand loyalty. Second, structural bonds are the only driver of attitudinal attachment; social and structural bonds lead to a sense of community. Third, attitudinal attachment is the main influence on both behavioral and attitudinal loyalty. Research limitations/implications – First, a focus on a single market segment, i.e. 15-24 year olds. Second the dimensions used to measure relational bonds...

The Wealth Effect of Domestic Joint Ventures: Evidence from Taiwan

This study presents important international evidence by examining the wealth effect of domestic joint ventures by Taiwanese firms. In opposite to United States evidence, we find that announcements of domestic joint ventures by Taiwanese firms are, on average, associated with significantly negative abnormal stock returns. We also find that the stock market response to announced domestic joint ventures is significantly positively related to the announcing firms investment opportunities, size of investment and debt ratio, and is significantly negatively related to the business relatedness variable. In contrast, free cash flow, firm size, relative firm size and managerial ownership are found to have no significant power in explaining the market response. Our results support the investment opportunities, synergy and complementarity hypotheses as well as a broad interpretation of the free cash flow hypothesis, but reject the absolute size, relative size and alignment-of-interests hypotheses. This study makes valuable contributions to the literature by providing the first direct evidence on the role of investment opportunities, synergy and alignment-of-interests in explaining the wealth effect of domestic joint ventures Copyright Blackwell Publishers Ltd 2002.

Knowledge management capacity and organizational performance: the social interaction view

Purpose - This study aims to investigate the relationship between knowledge management capacity and organizational performance from the social interaction perspective. Design/methodology/approach - The empirical study employs a questionnaire approach. The sample for this study is drawn from the population of the top 5,000 Taiwanese firms listed in the yearbook published by the China Credit Information Service Incorporation. Regression analysis is used to test the hypotheses in a sample of 105 Taiwanese firms. Findings - The findings suggest that two assessments of knowledge management capacity, knowledge acquisition and dissemination, and the communication factor of social interaction are positively related to organizational performance. Further, social interaction has complementary or synergistic interaction effects with knowledge management capacity on organizational performance. Practical implications - Given the need for the use of knowledge management capacity as an enabler to improve organization outcome, firms need to be aware that social interaction would moderate the link between knowledge management capacity and organizational performance. Therefore, firms should pay special attention to formulate appropriate social interaction conditions under which knowledge acquisition and dissemination are most likely to enhance organizational performance. Originality/value - This study contributes to the literature by theoretically developing a conceptual model and then empirically examining the relationships among knowledge management capacity, social interaction, and organizational performance.

The effect of prior alliance experience on acquisition performance

Information asymmetry usually results in acquiring a target where post-acquisition performance is often disappointing. In this study, we examine whether previous bidder–target alliances mitigate the negative effect of information asymmetry. Further, in cases when the target firms in an acquisition are from the high technology or service industries or privately held firms, whereby the firms are composed of unique knowledge, intangible assets and less disclosed information, respectively, we test whether there are significantly more acquisitions when prior bidder–target alliances exist, as it is assumed that these alliances reduce the level of information asymmetry. We find on average the post acquisition stock performance is better when the purchasing firm acquires a prior alliance partner. Furthermore, when acquiring privately held target firms, the target firms are more likely to be previous alliance partners. Finally, when the target firms are ‘more informed’ (i.e. high technology, service or privately held firms), the post acquisition performance is disappointing. However, bidder–target alliances reduce the amount of value destroyed.

Information Uncertainty, Earnings Management, and Long-run Stock Performance Following Initial Public Offerings

We examine how information uncertainty surrounding IPO (initial public offering) firms influences earnings management and long-run stock performance. For low-information-uncertainty issuers, at-issue earnings’ management is positively related to subsequent unmanaged earnings and has no relationship to market reaction to earnings announcement and long-run stock performance following the offering. For high-information-uncertainty issuers, however, at-issue earnings’ management is unrelated to subsequent unmanaged earnings and negatively related to market reaction to earnings announcement and long-run stock performance following the offer. The evidence suggests that, on average, managers in low-information-uncertainty firms tend to engage in earnings’ management for informative purposes, while managers in high-information-uncertainty firms engage in earnings’ management for opportunistic purposes.

Long-run performance of mergers and acquisition of privately held targets: evidence in the USA

In this study, we examine the long-run performance of firms acquiring privately held targets. Past studies have documented a positive market reaction to the announcement of Mergers and Acquisitions (M&A) of privately held targets. The M&As of privately held targets involve uncertain information, which investors are more likely to misestimate. In this study, we tested the long-run performances of acquiring firms and found negative results. We further found that the stock performance of acquiring firms was superior prior to the M&A. Our results suggest that investors may over-extrapolate prior good performance and that the long-run reversed return corrects the overestimation in response to announcements of M&A.