Reena Aggarwal, Isil Erel, René M. Stulz, Rohan Williamson
We compare the governance of foreign firms to the governance of similar U.S. firms. Using an index of firm governance attributes, we find that, on average, foreign firms have worse governance than matching U.S. firms. Roughly 8% of foreign firms have better governance than comparable U.S. firms. The majority of these firms are either in the U.K. or in Canada. When we define a firm's governance gap as the difference between the quality of its governance and the governance of a comparable U.S. firm, we find that the value of foreign firms increases with the governance gap. This result suggests that firms are rewarded by the markets for having better governance than their U.S. peers. It is therefore not the case that foreign firms are better off simply mimicking the governance of comparable U.S. firms. Among the individual governance attributes considered, we find that firms with board and audit committee independence are valued more. In contrast, other attributes, such as the separation of the chairman of the board and of the CEO functions, do not appear to be associated with higher shareholder wealth.
{"title":"Do U.S. Firms Have the Best Corporate Governance? A Cross-Country Examination of the Relation between Corporate Governance and Shareholder Wealth","authors":"Reena Aggarwal, Isil Erel, René M. Stulz, Rohan Williamson","doi":"10.2139/ssrn.954169","DOIUrl":"https://doi.org/10.2139/ssrn.954169","url":null,"abstract":"We compare the governance of foreign firms to the governance of similar U.S. firms. Using an index of firm governance attributes, we find that, on average, foreign firms have worse governance than matching U.S. firms. Roughly 8% of foreign firms have better governance than comparable U.S. firms. The majority of these firms are either in the U.K. or in Canada. When we define a firm's governance gap as the difference between the quality of its governance and the governance of a comparable U.S. firm, we find that the value of foreign firms increases with the governance gap. This result suggests that firms are rewarded by the markets for having better governance than their U.S. peers. It is therefore not the case that foreign firms are better off simply mimicking the governance of comparable U.S. firms. Among the individual governance attributes considered, we find that firms with board and audit committee independence are valued more. In contrast, other attributes, such as the separation of the chairman of the board and of the CEO functions, do not appear to be associated with higher shareholder wealth.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129693216","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine four separate classifications (high quality corporate, general corporate, government Treasury, and general government) of investment grade bond funds over the 1994-2004 period. We verify that distinct differences exist in investment styles across the classifications. We also document significant differences in performance as corporate funds outperform government funds on a risk adjusted basis. The performance results are robust to alternative evaluation metrics. An examination of cash flows to the funds indicates that bond fund investors are aware of the performance difference and have directed their investment dollars accordingly.
{"title":"Corporate and Government Bond Funds: An Analysis of Investment Style, Performance, and Cash Flows","authors":"George Comer, Javier Rodríguez","doi":"10.2139/ssrn.929490","DOIUrl":"https://doi.org/10.2139/ssrn.929490","url":null,"abstract":"We examine four separate classifications (high quality corporate, general corporate, government Treasury, and general government) of investment grade bond funds over the 1994-2004 period. We verify that distinct differences exist in investment styles across the classifications. We also document significant differences in performance as corporate funds outperform government funds on a risk adjusted basis. The performance results are robust to alternative evaluation metrics. An examination of cash flows to the funds indicates that bond fund investors are aware of the performance difference and have directed their investment dollars accordingly.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"81 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125940125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the cross-sectional relation between idiosyncratic volatility and expected stock returns. The results indicate that (i) data frequency used to estimate idiosyncratic volatility, (ii) weighting scheme used to compute average portfolio returns, (iii) breakpoints utilized to sort stocks into quintile portfolios, and (iv) using a screen for size, price and liquidity play a critical role in determining the existence and significance of a relation between idiosyncratic risk and the cross-section of expected returns. Portfolio-level analyses based on two different measures of idiosyncratic volatility (estimated using daily and monthly data), three weighting schemes (value-weighted, equal-weighted, inverse-volatility-weighted), three breakpoints (CRSP, NYSE, equal-market-share), and two different samples (NYSE/AMEX/NASDAQ and NYSE) indicate that there is no robust, significant relation between idiosyncratic volatility and expected returns.
{"title":"Idiosyncratic Volatility and the Cross-Section of Expected Returns","authors":"Turan G. Bali, Nusret Cakici","doi":"10.2139/ssrn.886717","DOIUrl":"https://doi.org/10.2139/ssrn.886717","url":null,"abstract":"This paper examines the cross-sectional relation between idiosyncratic volatility and expected stock returns. The results indicate that (i) data frequency used to estimate idiosyncratic volatility, (ii) weighting scheme used to compute average portfolio returns, (iii) breakpoints utilized to sort stocks into quintile portfolios, and (iv) using a screen for size, price and liquidity play a critical role in determining the existence and significance of a relation between idiosyncratic risk and the cross-section of expected returns. Portfolio-level analyses based on two different measures of idiosyncratic volatility (estimated using daily and monthly data), three weighting schemes (value-weighted, equal-weighted, inverse-volatility-weighted), three breakpoints (CRSP, NYSE, equal-market-share), and two different samples (NYSE/AMEX/NASDAQ and NYSE) indicate that there is no robust, significant relation between idiosyncratic volatility and expected returns.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128056129","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Managers make different decisions in countries with poor protection of investor rights and poor financial development. One possible explanation is that shareholder-wealth maximizing managers face different tradeoffs in such countries (the tradeoff theory). Alternatively, firms in such countries are less likely to be managed for the benefit of shareholders because the poor protection of investor rights makes it easier for management and controlling shareholders to appropriate corporate resources for their own benefit (the agency costs theory). Holdings of liquid assets by firms across countries are consistent with Keynes' transaction and precautionary demand for money theories. Firms in countries with greater GDP per capita hold more cash as predicted. Controlling for economic development, firms in countries with more risk and with poor protection of investor rights hold more cash. The tradeoff theory and the agency costs theory can both explain holdings of liquid assets across countries. However, the fact that a dollar of cash is worth less than $0.65 to the minority shareholders of firms in such countries but worth approximately $1 in countries with good protection of investor rights and high financial development is only consistent with the agency costs theory.
{"title":"Do Firms in Countries with Poor Protection of Investor Rights Hold More Cash?","authors":"Lee Pinkowitz, Rohan Williamson, René M. Stulz","doi":"10.2139/ssrn.476442","DOIUrl":"https://doi.org/10.2139/ssrn.476442","url":null,"abstract":"Managers make different decisions in countries with poor protection of investor rights and poor financial development. One possible explanation is that shareholder-wealth maximizing managers face different tradeoffs in such countries (the tradeoff theory). Alternatively, firms in such countries are less likely to be managed for the benefit of shareholders because the poor protection of investor rights makes it easier for management and controlling shareholders to appropriate corporate resources for their own benefit (the agency costs theory). Holdings of liquid assets by firms across countries are consistent with Keynes' transaction and precautionary demand for money theories. Firms in countries with greater GDP per capita hold more cash as predicted. Controlling for economic development, firms in countries with more risk and with poor protection of investor rights hold more cash. The tradeoff theory and the agency costs theory can both explain holdings of liquid assets across countries. However, the fact that a dollar of cash is worth less than $0.65 to the minority shareholders of firms in such countries but worth approximately $1 in countries with good protection of investor rights and high financial development is only consistent with the agency costs theory.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"05 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127192613","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze institutional allocation in initial public offerings (IPOs) using a new dataset of US offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong pre-market demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in pre-market demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone.
{"title":"Institutional Allocation in Initial Public Offerings: Empirical Evidence","authors":"Reena Aggarwal, N. Prabhala, M. Puri","doi":"10.2139/ssrn.285141","DOIUrl":"https://doi.org/10.2139/ssrn.285141","url":null,"abstract":"We analyze institutional allocation in initial public offerings (IPOs) using a new dataset of US offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong pre-market demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in pre-market demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128308229","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper introduces the concept of the second exchange in customer relationships that is distinct from the first exchange of goods or services. The second exchange is based on the information consumers disclose in the course of a marketing transaction where personal information is exchanged for benefits derived from the use of the information. Propositions developed from our model demonstrate how strategically managing the benefits and risks (invasion of privacy) of this exchange process can impact customer acquisition and retention and thus, the firm's bottom line.
{"title":"The Second Exchange: Managing Customer Information in Marketing Relationships","authors":"M. Culnan, Sandra J. Milberg","doi":"10.2139/SSRN.2621796","DOIUrl":"https://doi.org/10.2139/SSRN.2621796","url":null,"abstract":"The paper introduces the concept of the second exchange in customer relationships that is distinct from the first exchange of goods or services. The second exchange is based on the information consumers disclose in the course of a marketing transaction where personal information is exchanged for benefits derived from the use of the information. Propositions developed from our model demonstrate how strategically managing the benefits and risks (invasion of privacy) of this exchange process can impact customer acquisition and retention and thus, the firm's bottom line.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127259308","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We argue and show that aggregation of accrual components (changes in inventories, changes in accounts payable, changes in accounts receivable and depreciation expense) into total accruals results in a loss of mispricing-related information in individual accrual components. This motivates us to examine whether the recent evidence that operating cash flows subsume the mispricing effect associated with total accruals holds when accruals are disaggregated into accrual components. We find that accrual components are associated with future abnormal returns even after controlling for operating cash flows and growth. The three-day earnings announcement period abnormal returns also support the finding. The evidence with respect to change in accounts payable is especially noteworthy because its inclusion in total accruals reduces the mispricing effects of other components considerably. Overall, the prior evidence that operating cash flows subsume the mispricing effects associated with total accruals is likely caused by the aggregation of accrual components into total accruals. Future research would benefit from focusing on accrual components rather than total accruals.
{"title":"The Accrual Anomaly and Operating Cash Flows: Evidence from Accrual Components","authors":"Zhaoyang Gu, Prem C. Jain","doi":"10.2139/ssrn.892250","DOIUrl":"https://doi.org/10.2139/ssrn.892250","url":null,"abstract":"We argue and show that aggregation of accrual components (changes in inventories, changes in accounts payable, changes in accounts receivable and depreciation expense) into total accruals results in a loss of mispricing-related information in individual accrual components. This motivates us to examine whether the recent evidence that operating cash flows subsume the mispricing effect associated with total accruals holds when accruals are disaggregated into accrual components. We find that accrual components are associated with future abnormal returns even after controlling for operating cash flows and growth. The three-day earnings announcement period abnormal returns also support the finding. The evidence with respect to change in accounts payable is especially noteworthy because its inclusion in total accruals reduces the mispricing effects of other components considerably. Overall, the prior evidence that operating cash flows subsume the mispricing effects associated with total accruals is likely caused by the aggregation of accrual components into total accruals. Future research would benefit from focusing on accrual components rather than total accruals.","PeriodicalId":322512,"journal":{"name":"Georgetown University McDonough School of Business Research Paper Series","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131547855","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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