Tony Naughton

Going public with good governance: evidence from China

Board characteristics have not been a significant area of study in the IPO literature. We focus on the emerging corporate governance reform in China to investigate the relationship between a range of board characteristics and IPO initial returns and long-term performance. We find evidence that board size is positively related to short-term returns, while in the long-term, a positive relationship exists between performance and the voluntary post-listing separation of the roles of CEO and Chair of the Board. Our long-term results suggest that at least some Chinese listed firms are actively and voluntarily moving toward better governance structures.

Ownership and ownership concentration: which is important in determining the performance of China's listed firms?

This article investigates the impact of ownership and ownership concentration on the performance of China’s listed firms. By recognizing the differences between ownership and ownership concentration and between total ownership concentration and tradable ownership concentration, we find that ownership concentration is more powerful than any category of ownership in determining firm performance; tradable ownership concentration has a more significant and positive influence on firm performance than total ownership concentration; the highest level of firm performance is approached when a firm is characterized by both total ownership concentration and tradable ownership concentration. Thus, we propose a conclusion that ownership concentration enhances firm performance regardless of who the concentrated owners are.

Short Term Equity Returns of Chinese IPOs, 1999 to 2004 Excess Demand, Social Policy and Wealth Effects

Our study of 531 Initial Public Offerings (IPOs) on the two Chinese Stock Exchanges during the period 1999 to 2004 indicates initial returns to investors of approximately 114.04 per cent and these earnings were sustained through the first month of trading. High initial returns on IPOs are most often characterised as a reflection of state policy acting with a view to longer-term economic gains and sound social policy. The sample IPOs were found to be oversubscribed by 243 times the share offered. Such a level of excess demand is a major factor in high initial returns to Chinese IPOs. Regression analysis indicated other major factors associated with these high initial returns including company size, offer size, general market conditions in the period of lead up to the first listing, the proportion of tradable-A shares available and the signal PE ratio at the time of offer. In addition, the paper emphasises the potential for very significant wealth effects, capital formation and development of a private capital market which arises from private sector gains linked to the IPOs.

Idiosyncratic volatility and security returns: evidence from Germany and United Kingdom

Purpose – Malkiel and Xu state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. The purpose of this paper is to ask whether idiosyncratic volatility is useful in explaining the variation in expected returns; and whether the findings can be explained by the turn of the year effect. Design/methodology/design – Monthly stock returns and market values of all listed firms in Germany and UK covering the period 1991-2001 from Datastream are used as the basis of the evaluation. Findings – The paper finds that the three-factor model provides a better description of expected returns than the Capital Asset Pricing Model (CAPM). That is, it is found that firm size and idiosyncratic volatility are related to security returns. In addition, it is noted that the findings are robust throughout the sample period Originality/value – The paper shows that the CAPM beta alone is not sufficient to explain the variation in stock returns.

Robust and fragile firm-specific determinants of the capital structure of Chinese firms

We demonstrate, using Extreme Bounds Analysis (EBA), that some of the firm-specific determinants of the capital structure of Chinese firms reported as important in previous studies may be fragile, in the sense that the sign and/or significance of the coefficients on these variables change depending on model specification (the variables included in or excluded from the model). For this purpose, data on 344 publicly listed shareholding companies are used, covering nine potential firm-specific determinants of capital structure. The robust variables, whose coefficients remain significant and of the same sign irrespective of model specification, turn out to be size, liquidity, profitability and growth opportunities. Although conventional cross-sectional analysis would lend support to the importance of tangibility and stock price performance, these two variables are indeed fragile. Other variables turn out to be insignificant.

Are Price Limits Priced? Evidence from the Taiwan Stock Exchange

In this article, a multifactor asset pricing model incorporating a price limit factor is developed to explain the cross section of asset returns following closely the mimicking portfolio methodology of Fama and French (1996). Differing regulatory environments in the Asian region suggest that empirical studies consider the features of each market. Price limits on the daily movement of stock prices are common in the emerging markets of Asia; however, research on the sensitivity of asset prices to price limits has been lacking. Prior research suggests that price limits are a significant institutional feature of the Taiwan Stock Exchange and this market is used for empirical analysis. Our findings show that the overall market factor, firm size and price limits capture the cross section of average stock returns in a meaningful manner. However, caution is needed as the relationship between excess returns, firm size and price limits remains primarily at an empirical level. Opinion also remains divided as to whether explanatory factors in addition to the market are in fact a premium for risk, or are simply associated with firm characteristics.

The Impact of Ownership and Ownership Concentration on the Performance of China’s Listed Firms

This paper investigates the impact of ownership and ownership concentration on the performance of China’s listed firms. By recognizing the differences between ownership and ownership concentration and between total ownership concentration and tradable ownership concentration, we conduct simplex, interactive and joint analyses. We find that ownership concentration is approximately associated with higher firm performance. Ownership concentration is more powerful than any category of ownership in determining firm performance. Firm performance is better when the state is the largest of the top shareholders and/or institutions dominate ownership among the top tradable shareholders. Our results support the theory that high ownership concentration mitigates the agency problem.

A SURVEY OF CORPORATE GOVERNANCE STUDIES IN CHINA

This paper reviews the theoretical and empirical corporate governance literature in China, concentrating on relationships between ownership, board characteristics and firm performance. In addition, we explore the recent floatation of non-tradable shares and relationship contracting (Guanxi), which are two unique corporate governance issues in China. Overall, the understanding of the key driving forces of firm organizational structure, corporate governance practices, and performance remains largely inconclusive and we make recommendations for future research