The home stigma : adverse selection in ADRs and the home capital market environment

We investigate whether characteristics of the home country capital environment, such as information disclosure and investor rights protection continue to affect ADRs cross-listed in the U.S. Using microstructure measures as proxies for adverse selection, we find that characteristics of the home markets continue to be relevant, especially for emerging market firms. Less transparent disclosure, poorer protection of investor rights and weaker legal institutions are associated with higher levels of information asymmetry. Developed market firms appear to be affected by whether or not home business laws are common law or civil law legal origin. Our finding contributes to the bonding literature. It suggests that cross-listing in the U.S. should not be viewed as a substitute for improvement in the quality of local institutions, and attention must be paid to improve investor protection in order to achieve the full benefits of improved disclosure. Improvement in the domestic capital market environment can attract more investors even for U.S. cross-listed firms.

XBRL : the future of financial reporting and a catalyst for capital market development

There has never been a better time to strengthen financial reporting in Fiji. With increased interest shown by prospective companies in capital market participation, the pressing problems in the public sector reporting and accountability and global emphasis on the increasing need to strengthen the corporate governance structure, this is perhaps the opportune time to consider the potential of XBRL.

The cost of carbon : capital market effects of the proposed emission trading scheme (ETS)

In March 2008, the Australian Government announced its intention to introduce a national Emissions Trading Scheme (ETS), now expected to start in 2015. This impending development provides an ideal setting to investigate the impact an ETS in Australia will have on the market valuation of Australian Securities Exchange (ASX) firms. This is the first empirical study into the pricing effects of the ETS in Australia. Primarily, we hypothesize that firm value will be negatively related to a firm's carbon intensity profile. That is, there will be a greater impact on firm value for high carbon emitters in the period prior (2007) to the introduction of the ETS, whether for reasons relating to the existence of unbooked liabilities associated with future compliance and/or abatement costs, or for reasons relating to reduced future earnings. Using a sample of 58 Australian listed firms (constrained by the current availability of emissions data) which comprise larger, more profitable and less risky listed Australian firms, we first undertake an event study focusing on five distinct information events argued to impact the probability of the proposed ETS being enacted. Here, we find direct evidence that the capital market is indeed pricing the proposed ETS. Second, using a modified version of the Ohlson (1995) valuation model, we undertake a valuation analysis designed not only to complement the event study results, but more importantly to provide insights into the capital market's assessment of the magnitude of the economic impact of the proposed ETS as reflected in market capitalization. Here, our results show that the market assesses the most carbon intensive sample firms a market value decrement relative to other sample firms of between 7% and 10% of market capitalization. Further, based on the carbon emission profile of the sample firms we imply a ‘future carbon permit price’ of between AUD$17 per tonne and AUD$26 per tonne of carbon dioxide emitted. This study is more precise than industry reports, which set a carbon price of between AUD$15 to AUD$74 per tonne.

Corporate Funding on the European Debt Capital Market

The integrated European debt capital market has undoubtedly broadened the possibilities for companies to access funding from the public and challenged investors to cope with an ever increasing complexity of its market participants. Well into the Euro-era, it is clear that the unified market has created potential for all involved parties, where investment opportunities are able to meet a supply of funds from a broad geographical area now summoned under a single currency. Europe’s traditionally heavy dependency on bank lending as a source of debt capital has thus been easing as corporate residents are able to tap into a deep and liquid capital market to satisfy their funding needs. As national barriers eroded with the inauguration of the Euro and interest rates for the EMU-members converged towards over-all lower yields, a new source of debt capital emerged to the vast majority of corporate residents under the new currency and gave an alternative to the traditionally more maturity-restricted bank debt. With increased sophistication came also an improved knowledge and understanding of the market and its participants. Further, investors became more willing to bear credit risk, which opened the market for firms of ever lower creditworthiness. In the process, the market as a whole saw a change in the profile of issuers, as non-financial firms increasingly sought their funding directly from the bond market. This thesis consists of three separate empirical studies on how corporates fund themselves on the European debt capital markets. The analysis focuses on a firm’s access to and behaviour on the capital market, subsequent the decision to raise capital through the issuance of arm’s length debt on the bond market. The specific areas considered are contributing to our knowledge in the fields of corporate finance and financial markets by considering explicitly firms’ primary market activities within the new market area. The first essay explores how reputation of an issuer affects its debt issuance. Essay two examines the choice of interest rate exposure on newly issued debt and the third and final essay explores pricing anomalies on corporate debt issues.

The early-stage risk capital market in Scotland since 2000: issues of scale, characteristics and market efficiency

In this paper we provide a detailed profile and analysis of the regional risk capital market in Scotland, using an innovative methodology and specially developed databases which cover risk capital investment in young companies in the periods 2000–04 and 2005–07. This identifies the investment activity of all actors in the market and provides estimates of the total flow of risk capital investment into early-stage Scottish companies over the period. The paper concludes by drawing out the implications for policy makers (providing a more robust evidence base for the development, implementation and monitoring of policy) and for academic researchers (on the methodologies for estimating market scale and efficiency).

Why Do Firms Pay Dividends?: Evidence from an Early and Unregulated Capital Market

Why do firms pay dividends? To answer this question, we use a hand-collected data set of companies traded on the London stock market between 1825 and 1870. As tax rates were effectively zero, the capital market was unregulated, and there were no institutional stockholders, we can rule out these potential determinants ex ante. We find that, even though they were legal, share repurchases were not used by firms to return cash to shareholders. Instead, our evidence provides support for the information–communication explanation for dividends, while providing little support for agency, illiquidity, catering, or behavioral explanations. © The Authors 2013. Published by Oxford University Press [on behalf of the European Finance Association]. All rights reserved.

Towards the "cult of the equity"? Insurance companies and the interwar capital market

This article examines the ways in which insurance companies modified their investment policies during the interwar years, arguing that this period marked the start of the transition from ‘traditional’ to ‘modern’ investment practice. Economic and financial conditions raised considerable doubts regarding the suitability of traditional insurance investments, while competitive conditions forced insurance offices to seek higher-yielding assets. These pressures led to a considerable increase in the proportion of new investment devoted to corporate securities, including ordinary shares. Meanwhile new insurance investment philosophies began to be advocated, which accorded both legitimacy and importance to the role of ordinary shares in insurance portfolios.

Capital market expectations and the London office market

The analysis of office market dynamics has generally concentrated on the impact of underlying fundamental demand and supply variables. This paper takes a slightly different approach to many previous examinations of rental dynamics. Within a Vector-Error-Correction framework the empirical analysis concentrates upon the impact of economic and financial variables on rents in the City of London and West End of London office markets. The impulse response and variance decomposition reveal that while lagged rental values and key demand drivers play a highly important role in the dynamics of rents, financial variables are also influential. Stock market performance not only influences the City of London market but also the West End, whilst the default spread plays an important role in recent years. It is argued that both series incorporate expectations about future economic performance and that this is the basis of their influence upon rental values.

Revisiting capital structure theory : a test of pecking order and static order trade-of model from Malaysian capital market

This study revisits the capital structure theory and test Pecking Order Hypothesis (POH) and Static Order Trade-off theory (STOT) using Malaysian Listed firms over a period from 1999 to 2002. The evidence from pecking order model suggests that the internal fund deficiency is the most important determinant that possibly explains the issuance of new debt in Malaysian capital market despite the lower predicting power.  While static trade off-model is not fit to explain the issuance of new debt issue in Malaysian capital market. This is an interesting findings that confirm the fact that Malaysian firms do not too much care about tax-shield benefit derive from employ both debt and non-debt tax-shield. The finn's size, which is used to neutralize the size effect, appears to provide some explanation for the variation in its capital structure policy choice; however asset structure and growth no evidence of static-order-trade-off is observed in Malaysian capital market.