Thomas Kaspereit

Asymmetric Information and Corporate Social Responsibility

This article addresses the question whether companies benefit from their commitment to corporate social responsibility (CSR). The authors argue that firms which score high on CSR activities build investor confidence and find evidence that they benefit from lower information asymmetry. The authors measure information asymmetry by insider trading, which is defined as the trading of a company’s shares by corporate insiders who have an information advantage with the aim to reap gains or avoid losses. Using a sample of U.S. firms listed in the MSCI World Index during the period 2004 to 2013 and the firm- and industry-level CSR rating from Global Engagement Service (GES), the authors show that insider transactions in firms with a high score on CSR activities lead to lower abnormal returns. This investigation extends current literature on the business case for CSR by explaining the influence of CSR activities on asymmetric information.

Does compliance with the German Corporate Governance Code pay off?: An investigation of the implied cost of capital

Purpose - – This paper aims to empirically investigate the relationship between the level of compliance with the German Corporate Governance Code’s (GCGC) recommendations and the implied cost of equity capital (ICC). German listed companies are required by law to annually disclose their compliance with the recommendations of the GCGC. Whether the GCGC achieves its aim to promote the trust of stakeholders in the management and supervision is still an open question. Design/methodology/approach - – ICC is regressed on a score that captures compliance with the GCGC and several control variables. The dataset covers the period of 2003-2012 with declarations of compliance from 447 companies. ICC is chosen as an outcome variable, as it captures general investment risk as well as risk arising from asymmetric information and mistrust of investors in management. Findings - – The results of the empirical analysis demonstrate that a higher level of GCGC compliance is associated with lower ICC. Research limitations/implications - – It is expected that the results of this study will strengthen acceptance of the GCGC and empirically support the work of the government commission that is responsible for it. It has not been analyzed yet whether the firms cite good reasons why they do not adhere to certain items. Originality/value - – This empirical analysis is the first to provide statistically reliable evidence on how compliance with the GCGC affects ICC and whether the work of the government commission reflects good corporate governance as perceived by capital markets.

Sustainability Reporting out of a Prisoner's Dilemma

Listed firms increasingly strive for a sustainable appearance, which has made sustainability reporting very popular in recent years. This would be completely rational if sustainability reporting could enhance shareholder value. This paper investigates from a theoretical perspective which conditions are sufficient for the individual and collective rationality of sustainability reporting. The analysis leads to the conclusion that, due to the competition between firms, sustainability reporting generates a separation equilibrium as long as the reporting costs are proportional to the reported level and the marginal costs of reporting differ with the true level of sustainability. Although it might be preferable, a pooling equilibrium with no sustainability reporting cannot be sustained, which is a result of the so-called prisoners dilemma that firms find themselves caught within. The most important practical implication of the model is a call for external auditing with high assurance levels to ensure an efficient separation of highly and weakly sustainable firms.

Systemic operational risk: Spillover effects of large operational losses in the European banking industry

Purpose - The aim of this paper is to study the information content of operational loss events occurring at European financial institutions with respect to the announcing bank’s industry rivals from an equity investor’s perspective. Design/methodology/approach - We conduct an event study to identify spillover effects of operational loss events using the Carhart (1997) four-factor model as a benchmark model. In addition, we conduct multiple regression analyses to investigate the extent to which firm-specific factors or the market environment affect abnormal returns. Findings - We observe significant negative abnormal returns following operational loss announcements exceeding € 50 million for both the announcing firms and their competitors. In addition, we find that stock market reactions occur only within a very small event window around the announcement date, indicating a high degree of market efficiency. Finally, abnormal returns tend to be insignificant for smaller loss amounts. Originality/value - While operational risk is often believed to be strictly firm-specific, our results show that large operational risk events are not purely idiosyncratic; rather, they are systemic in the sense that they have contagious effects on non-event banks. Thus, we shed new light on how operational risk affects equity investors’ investment behaviour in an opaque and highly interconnected banking market.

The Solar Shakeout - Capital Market Reactions to Bankruptcy Announcements in the German Solar Industry

This paper investigates how bankruptcy announcements in the German solar industry affect the stock market returns of announcing firms and their competitors. We show that German solar firms experience negative capital market reactions to their own bankruptcy announcements and to the announcements of their competitors. Cross-sectional analysis reveals that these negative information externalities are magnified by higher leverage. Further analysis also indicates that these negative information externalities are valuable predictors in short-term default probability models.