Corporate political connections and the 2008 Malaysian election

We examine whether the relationship between political connections and firm value is moderated by the length of time firms have been politically connected. We find that compared to firms with political connections for a short period, firms with political connections for a long period have a smaller magnitude of negative stock price reaction to the 2008 General Election loss of the supermajority by the ruling party in Malaysia. We also find that the smaller magnitude of negative stock price reaction is, in part, attributable to improvements in board of director characteristics. Furthermore, we find that while the performance subsequent to the General Election of politically connected firms is worse than that of non-politically connected firms, firms with political connections for a long period exhibit better performance than those connected for short periods. Collectively, the evidence shows that the length of political connections is an important factor that moderates economic value.

Gender-diverse boards and properties of analyst earnings forecasts

Using a sample of 2,200 U.S. listed firm-year observations (2001-2007), this study shows a positive (negative) relation between gender diversity on corporate boards and analysts' earnings forecast accuracy (dispersion), after controlling for earnings quality, corporate governance, audit quality, stock price informativeness, and potential endogeneity. Our findings are important as they suggest that board diversity adds to the transparency and accuracy of financial reports such that earnings expectations are likely to be more accurate for these firms.

Investor protection, firm informational problems, big N auditors, and cost of debt around the world

This paper examines the effects of investor protection, firm informational problems (proxied by firm size, firm age, and the number of analysts following), and Big N auditors on firms' cost of debt around the world. Using data from 1994 to 2006 and over 90,000 firm-year observations, we find that the cost of debt is lower when firms are audited by Big N auditors, especially in countries with strong investor protection. Second, we find that firms with more informational problems (i.e., higher information asymmetry problems) benefit more from Big N auditors in terms of lower cost of debt only in countries with stronger investor protection.

Political connection and leverage: Some Malaysian evidence

This paper extends prior work on the linkage between politically connected (PCON) firms and capital structure in developing countries. Specifically, this paper focuses on the association between Malaysian PCON firms and leverage, and is motivated by the results of Fraser et al. (2006) who report a positive association between leverage and political patronage. Controlling for a potential misspecification in that paper, this study documents that a significant proportion (almost 12%) of the Malaysian PCON firms have negative equity, and builds on the previous paper by providing fresh evidence that market to book ratio is positively associated with leverage, and that borrowing PCON firms have significantly lower ROA compared to non-PCON firms. © 2012.

City-level auditor industry specialization, economies of scale, and audit pricing

We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000-2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are "forced" to pass on scale economies to clients with greater bargaining power.

Political connection and cost of debt: Some Malaysian evidence

This paper investigates the association between Malaysian politically connected (PCON) firms and the cost of debt. We extend previous research that finds Malaysian PCON firms are perceived as being of higher risk by the market, and by audit firms, by providing evidence that lenders also perceive these firms as being of higher risk. We also find that PCON firms have a significantly (1) higher extent of leverage, (2) higher likelihood of reporting a loss, (3) higher likelihood of having negative equity, and (4) higher likelihood of being audited by a big audit firm. We suggest that PCON firms are charged higher interest rates by lenders as a result of efficient contracting given their higher inherent risks. Additionally, we find that CEO duality present in PCON firms is perceived by lenders as being more risky, and that a higher proportion of independent directors on the audit committee mitigate this perceived risk. © 2012.

Does board gender diversity improve the informativeness of stock prices?

We show that stock prices of firms with gender-diverse boards reflect more firm-specific information after controlling for corporate governance, earnings quality, institutional ownership and acquisition activity. Further, we show that the relationship is stronger for firms with weak corporate governance suggesting that gender-diverse boards could act as a substitute mechanism for corporate governance that would be otherwise weak. The results are robust to alternative specifications of informativeness and gender diversity and to sensitivity tests controlling for time-invariant firm characteristics and alternative measures of stock price informativeness. We also find that gender diversity improves stock price informativeness through the mechanism of increased public disclosure in large firms and by encouraging private information collection in small firms. © 2011 Elsevier B.V.

A random coefficient approach to the predictability of stock returns in panels

© The Author, 2014. Most studies of the predictability of returns are based on time series data, and whenever panel data are used, the testing is almost always conducted in an unrestricted unit-by-unit fashion, which makes for a very heavy parametrization of the model. On the other hand, the few panel tests that exist are too restrictive in the sense that they are based on homogeneity assumptions that might not be true. As a response to this, the current study proposes new predictability tests in the context of a random coefficient panel data model, in which the null of no predictability corresponds to the joint restriction that the predictive slope has zero mean and variance. The tests are applied to a large panel of stocks listed at the New York Stock Exchange. The results suggest that while the predictive slopes tend to average to zero, in case of book-to-market and cash flow-to-price the variance of the slopes is positive, which we take as evidence of predictability.

Executive equity risk-taking incentives and audit pricing

Using a large sample of U.S. firms spanning the period 2000-2010, we document a strong positive association between the sensitivity of CEO compensation portfolio to stock return volatility (vega) and audit fees. We also show that the positive association between vega and audit fees is weaker in the post-Sarbanes-Oxley Act (SOX) period. In supplementary tests, we show that the relation between vega and audit fees is stronger for firms with older CEOs and in firms where the CEO is also chairman of the board. Collectively, our results suggest that audit firms incorporate executive risktaking incentives in the fees they charge for their services.

The Effectiveness of Golden Handcuffs

Executive compensation includes components intended to acquire and retain executives as well as to align their goals with those of shareholders. This paper focuses on retention compensation, commonly known as "golden handcuffs", including stock options, long-term incentive plans and restricted stock. The extant literature examines CEOs that change jobs despite their golden handcuffs, and argues that such compensation is not an effective means of executive retention. In this paper, I compare the golden handcuffs of a set of CEOs who change jobs to a matched set of those who do not in order to determine the efficacy of such compensation for executive retention. I find that restricted stock is positively related to CEO turnover whereas stock options are negatively related.

The Impact of Regulatory Heterogeneity on Agri-food Trade

We estimate the impact of regulatory heterogeneity on agri-food trade using a gravity analysis that relies on detailed data on non-tariff measures (NTMs) collected by the NTM-Impact project. The data cover a broad range of import requirements for agricultural and food products for the EU and nine of its major trade partners. We find that trade is significantly reduced when importing countries have stricter maximum residue limits (MRLs) for plant products than exporting countries. For most other measures, due to their qualitative nature, we were unable to infer whether the importer has stricter standards relative to the exporter, and we do not find a robust relationship between these measures and trade. Our findings suggest that, at least for some import standards, harmonising regulations will increase trade. We also conclude that tariff reductions remain an effective means to increase trade even when NTMs abound.

Firm Market Performance and Volatility in a National Real Estate Sector

We present empirical evidence using daily data for stock prices for 17 real estate companies traded in the Sao Paulo, Brazil stock exchange. from August 26, 2006 to March 31, 2010. We use the U.S. house price bubble, financial crisis and risk measures to instrument for momentums and reversals in the domestic real estate sector. We find evidence of conditional premium persistence and conditional volatility persistence in the market. We find that the conditional risk-return relationship in the sector is consistent with the prospect theory of risk attitudes in this period. Certain companies seem to be operating on a perceived potential industry return above the target, while most others are below the target, and the whole sector is below target on average. (C) 2011 Elsevier Inc. All rights reserved.

The relationship between banking market competition and risk-taking: Do size and capitalization matter?

This paper addresses the effects of bank competition on the risk-taking behaviors of banks in 10 Latin American countries between 2003 and 2008. We conduct our empirical approach in two steps. First, we estimate the Boone indicator, which is a measure of competition. We then regress this measure and other explanatory variables on the banking "stability inefficiency" derived simultaneously from the estimation of a stability stochastic frontier. Unlike previous findings, this paper concludes that competition affects risk-taking behavior in a non-linear way as both high and low competition levels enhance financial stability, while we find the opposite effect for average competition. In addition, bank size and capitalization are essential factors in explaining this relationship. On the one hand, the larger a bank is, the more it benefits from competition. On the other hand, a greater capital ratio is advantageous for banks that operate in collusive markets, while capitalization only enhances the stability of larger banks under high and average competition. These results are of extreme importance when considering bank regulations, especially in light of the recent turmoil in the global financial markets. (C) 2012 Elsevier B.V. All rights reserved.

Lumpiness, capital adjustment costs and investment dynamics

Aggregate investment in the US economy displays a hump-shaped pattern in response to shocks, and the autocorrelation of aggregate investment growth is positive for the first few quarters, turning negative for the later quarters. This paper shows that this feature of the data is the natural outcome of a two-sector consumption/investment model designed and calibrated to reproduce plant-level evidence on capita: accumulation. (C) 2012 Elsevier B.V. All rights reserved.