J. Aharony, J. Aharony, Chi-Wen Jevons Lee, T. Wong
This paper examines the earnings patterns of initial public offering (IPO) firms in China to shed light on the role of earnings management in the "financial packaging" of Chinese state-owned enterprises (SOEs) for public listing. We base our analysis on the case of B-Shares and H-Shares in China, two types of securities that now allow foreign investors to buy shares in SOEs previously wholly owned by the state. These IPOs mark the beginning of the stock market in China and signify an important step of Chinese economic reform. We examine the pre- and post-IPO earnings patterns for the entire sample, and separately for firms in protected vs. unprotected industries and for B-Shares vs. H-Shares. We find a statistically significant post-issue earnings decline for unprotected industry firms. This earnings decline is most significant for unprotected B-Share firms, and marginally significant for protected B-Share and unprotected H-Share firms, but not significant for protected H-Share firms. In addition, we find some evidence that the accounting accruals of sample firms in unprotected industries decline whereas their cash flows from operations increase after the IPO. Taken together, earnings management in the process of financial packaging seems to depend on the firm's relationship with the central government and on where the securities are listed. The evidence also suggests that the SOEs in unprotected industries may manage accounting accruals to boost earnings and/or list those business units with temporarily high profits resulting from high accounting accruals during the process of financial packaging.
{"title":"Financial Packaging of IPO Firms in China","authors":"J. Aharony, J. Aharony, Chi-Wen Jevons Lee, T. Wong","doi":"10.2139/ssrn.201093","DOIUrl":"https://doi.org/10.2139/ssrn.201093","url":null,"abstract":"This paper examines the earnings patterns of initial public offering (IPO) firms in China to shed light on the role of earnings management in the \"financial packaging\" of Chinese state-owned enterprises (SOEs) for public listing. We base our analysis on the case of B-Shares and H-Shares in China, two types of securities that now allow foreign investors to buy shares in SOEs previously wholly owned by the state. These IPOs mark the beginning of the stock market in China and signify an important step of Chinese economic reform. We examine the pre- and post-IPO earnings patterns for the entire sample, and separately for firms in protected vs. unprotected industries and for B-Shares vs. H-Shares. We find a statistically significant post-issue earnings decline for unprotected industry firms. This earnings decline is most significant for unprotected B-Share firms, and marginally significant for protected B-Share and unprotected H-Share firms, but not significant for protected H-Share firms. In addition, we find some evidence that the accounting accruals of sample firms in unprotected industries decline whereas their cash flows from operations increase after the IPO. Taken together, earnings management in the process of financial packaging seems to depend on the firm's relationship with the central government and on where the securities are listed. The evidence also suggests that the SOEs in unprotected industries may manage accounting accruals to boost earnings and/or list those business units with temporarily high profits resulting from high accounting accruals during the process of financial packaging.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"1 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"2000-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89685514","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 essay discusses two recent episodes in the financial derivatives industry and the television coverage of those episodes. Our discussion focuses on (1) the 1994 bankruptcy of Orange County and the 60 Minutes television program describing that county's derivatives losses and (2) the 1998 near-collapse of Long-Term Capital Management (LTCM) and the PBS NOVA program describing that hedge funds' losses. Orange County and LTCM appear at opposite ends of the spectrum of recent derivatives losses. Orange County's Treasury was a one-man show, and its now-infamous treasurer, Robert L. Citron, was a seventy-year-old college dropout. In contrast, LTCM was a slick, sophisticated hedge fund, led by John Meriwether, whose principals included two Nobel laureates and several "rocket scientists" recruited from the investment bank Salomon Brothers. Notwithstanding these differences, Orange County and LTCM had two things in common: each lost more than a billion dollars on derivatives and each shrouded the details of its operations in secrecy. Coverage of LTCM was more accurate than coverage of Orange County. We discuss possible reasons for the difference and make some recommendations about how television programs could depict the derivatives markets more accurately, an important issue given the substantial number of policymakers who learn about derivatives through television. We conclude that television, when done properly, is more than capable of keeping pace with derivatives markets.
{"title":"Derivatives on TV: A Tale of Two Derivatives Debacles in Prime-Time","authors":"P. H. Huang, Frank Partnoy, K. Krawiec","doi":"10.2139/ssrn.259854","DOIUrl":"https://doi.org/10.2139/ssrn.259854","url":null,"abstract":"This essay discusses two recent episodes in the financial derivatives industry and the television coverage of those episodes. Our discussion focuses on (1) the 1994 bankruptcy of Orange County and the 60 Minutes television program describing that county's derivatives losses and (2) the 1998 near-collapse of Long-Term Capital Management (LTCM) and the PBS NOVA program describing that hedge funds' losses. Orange County and LTCM appear at opposite ends of the spectrum of recent derivatives losses. Orange County's Treasury was a one-man show, and its now-infamous treasurer, Robert L. Citron, was a seventy-year-old college dropout. In contrast, LTCM was a slick, sophisticated hedge fund, led by John Meriwether, whose principals included two Nobel laureates and several \"rocket scientists\" recruited from the investment bank Salomon Brothers. Notwithstanding these differences, Orange County and LTCM had two things in common: each lost more than a billion dollars on derivatives and each shrouded the details of its operations in secrecy. Coverage of LTCM was more accurate than coverage of Orange County. We discuss possible reasons for the difference and make some recommendations about how television programs could depict the derivatives markets more accurately, an important issue given the substantial number of policymakers who learn about derivatives through television. We conclude that television, when done properly, is more than capable of keeping pace with derivatives markets.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"23 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"2000-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82434875","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 Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.
{"title":"Coase V. The Coasians","authors":"Simon Johnson, Andrei Shleifer","doi":"10.2139/ssrn.193776","DOIUrl":"https://doi.org/10.2139/ssrn.193776","url":null,"abstract":"The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"4 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87432737","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 article analyzes how financial innovation, particularly the development of the derivatives market, has changed basic corporate law concepts, in two primary ways. First, derivatives have altered fundamental notions of fiduciary duty. Corporations are able to slice and dice cash flows in so many novel ways that it no longer makes sense to speak of a fiduciary duty owed by managers and directors to shareholders. Options theory contributes principally to this analysis. Second, derivatives lurk beneath the surface in a variety of corporate law cases, in ways that illuminate and challenge the legal rules established in those cases. For example, in the well-known case of Smith v. Van Gorkom, an option to purchase shares can be analyzed using finance theory in ways that contribute to an understanding of the court's duty of care discussion and provide additional insight into the behavior of the parties. In similar ways, derivatives are "uncovered" in other cases.
本文主要从两个方面分析了金融创新，特别是衍生品市场的发展如何改变了基本的公司法概念。首先，衍生品改变了信义义务的基本概念。企业能够以如此多的新颖方式分割现金流，以至于说经理和董事对股东负有信托责任已经没有意义了。期权理论主要有助于这一分析。其次，衍生品潜伏在各种公司法案件的表面之下，以阐明和挑战这些案件中建立的法律规则的方式。例如，在著名的Smith v. Van Gorkom案中，可以使用金融理论来分析购买股票的期权，从而有助于理解法院的注意义务讨论，并为各方的行为提供额外的见解。类似地，衍生品在其他情况下也“未被发现”。
{"title":"Adding Derivatives to the Corporate Law Mix","authors":"Frank Partnoy","doi":"10.2139/ssrn.245553","DOIUrl":"https://doi.org/10.2139/ssrn.245553","url":null,"abstract":"This article analyzes how financial innovation, particularly the development of the derivatives market, has changed basic corporate law concepts, in two primary ways. First, derivatives have altered fundamental notions of fiduciary duty. Corporations are able to slice and dice cash flows in so many novel ways that it no longer makes sense to speak of a fiduciary duty owed by managers and directors to shareholders. Options theory contributes principally to this analysis. Second, derivatives lurk beneath the surface in a variety of corporate law cases, in ways that illuminate and challenge the legal rules established in those cases. For example, in the well-known case of Smith v. Van Gorkom, an option to purchase shares can be analyzed using finance theory in ways that contribute to an understanding of the court's duty of care discussion and provide additional insight into the behavior of the parties. In similar ways, derivatives are \"uncovered\" in other cases.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"25 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89784550","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}
Prepared for a festschrift in honor of Philip Selznick, this essay looks back at his 1969 book Law, Society, and Industrial Justice. The focus is on employee participation in corporate decisionmaking. Taking an interdisciplinary approach (law and sociology), Selznick treats employee involvement as a means to an end; namely, industrial justice. In this model, employee participation is channeled through the collective bargaining system, especially the grievance arbitration process. Participation through such means is desirable, Selznick posits, because it promotes employee self-actualization, confers legitimacy on the enterprise, and protects employees from opportunism. Although acknowledging that LSIJ was an important scholarly work, this essay argues that the decline of private sector collective bargaining and the move towards alternative forms of participatory management calls into question the continuing vitality of Selznick's argument. The essay concludes that a transaction costs economics-based approach to employee involvement is far more revealing than Selznick's sociology-based model, in that it offers generalized predictions about the function of employee involvement that have proven explanatory over time.
{"title":"Employee Involvement in Workplace Governance Post-Collective Bargaining","authors":"Stephen M. Bainbridge","doi":"10.2139/ssrn.183869","DOIUrl":"https://doi.org/10.2139/ssrn.183869","url":null,"abstract":"Prepared for a festschrift in honor of Philip Selznick, this essay looks back at his 1969 book Law, Society, and Industrial Justice. The focus is on employee participation in corporate decisionmaking. Taking an interdisciplinary approach (law and sociology), Selznick treats employee involvement as a means to an end; namely, industrial justice. In this model, employee participation is channeled through the collective bargaining system, especially the grievance arbitration process. Participation through such means is desirable, Selznick posits, because it promotes employee self-actualization, confers legitimacy on the enterprise, and protects employees from opportunism. Although acknowledging that LSIJ was an important scholarly work, this essay argues that the decline of private sector collective bargaining and the move towards alternative forms of participatory management calls into question the continuing vitality of Selznick's argument. The essay concludes that a transaction costs economics-based approach to employee involvement is far more revealing than Selznick's sociology-based model, in that it offers generalized predictions about the function of employee involvement that have proven explanatory over time.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"6 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83211631","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}
Agency theory embeds the influential relationship that exist between managers and shareholders of firms. This relationship has the potential to influence decision-making in the firm which in turn has potential impacts on firm characteristics such as firm value. Prior evidence has demonstrated an association between ownership structure and firm value. This paper extends the literature by proposing a further link between ownership structure and capital structure. Using an agency framework we argue that the distribution of equity ownership among corporate managers and external blockholders has a significant relationship with leverage. The paper tests four hypotheses that explore various aspects of this relationship. The empirical results provide support for a positive relationship between external blockholders and leverage, a curvilinear relationship between the level of managerial share ownership and leverage and finally, the results suggest that the relationship between external block ownership and leverage varies across the level of managerial share ownership. These results parallel and are consistent with the "active monitoring hypothesis", "convergence-of-interests" and the "entrenchment" hypotheses which have been proposed in a different context.
{"title":"Theory and Evidence on the Relationship between Ownership Structure and Capital Structure","authors":"T. Brailsford, B. Oliver, Lay Hwa Sandra Pua","doi":"10.2139/ssrn.181888","DOIUrl":"https://doi.org/10.2139/ssrn.181888","url":null,"abstract":"Agency theory embeds the influential relationship that exist between managers and shareholders of firms. This relationship has the potential to influence decision-making in the firm which in turn has potential impacts on firm characteristics such as firm value. Prior evidence has demonstrated an association between ownership structure and firm value. This paper extends the literature by proposing a further link between ownership structure and capital structure. Using an agency framework we argue that the distribution of equity ownership among corporate managers and external blockholders has a significant relationship with leverage. The paper tests four hypotheses that explore various aspects of this relationship. The empirical results provide support for a positive relationship between external blockholders and leverage, a curvilinear relationship between the level of managerial share ownership and leverage and finally, the results suggest that the relationship between external block ownership and leverage varies across the level of managerial share ownership. These results parallel and are consistent with the \"active monitoring hypothesis\", \"convergence-of-interests\" and the \"entrenchment\" hypotheses which have been proposed in a different context.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"25 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85230107","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 structure of share ownership and control in companies listed on the Australian Stock Exchange (ASX). A comparison is made with the structure of share ownership and control in companies listed on the London Stock Exchange. The paper shows that the level of institutional share ownership and control has been increasing in Australia in recent decades. The paper explores the implications of this for securities regulation, corporate governance, and corporate performance. The empirical evidence presented in this paper demonstrates that large non-institutional shareholders are also prominent in the Australian share market. This too has several implications, especially in the areas of corporate governance, corporate performance, and takeovers regulation and practice, which are discussed.
{"title":"Share Ownership and Control in Listed Australian Companies","authors":"G. Stapledon","doi":"10.2139/ssrn.164129","DOIUrl":"https://doi.org/10.2139/ssrn.164129","url":null,"abstract":"This paper examines the structure of share ownership and control in companies listed on the Australian Stock Exchange (ASX). A comparison is made with the structure of share ownership and control in companies listed on the London Stock Exchange. The paper shows that the level of institutional share ownership and control has been increasing in Australia in recent decades. The paper explores the implications of this for securities regulation, corporate governance, and corporate performance. The empirical evidence presented in this paper demonstrates that large non-institutional shareholders are also prominent in the Australian share market. This too has several implications, especially in the areas of corporate governance, corporate performance, and takeovers regulation and practice, which are discussed.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"17 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85030806","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 study the derivative holdings of firms facing interest rate and/or currency risk. We net long and short positions to measure the extent of hedging with net notional values. We find that hedging increases with expected financial distress costs, firm size, and investment opportunities. Our evidence is also consistent with firms hedging to increase debt capacity and therefore firm value. We explicitly estimate the convexity in each firm's tax function but do not find evidence that convexity affects corporate hedging. We estimate that the potential increase in value related to tax convexity is much smaller than the tax gain associated with increased debt capacity.
{"title":"Is Corporate Hedging Consistent with Value Maximization? An Empirical Analysis","authors":"J. Graham, D. A. Rogers","doi":"10.2139/ssrn.170348","DOIUrl":"https://doi.org/10.2139/ssrn.170348","url":null,"abstract":"We study the derivative holdings of firms facing interest rate and/or currency risk. We net long and short positions to measure the extent of hedging with net notional values. We find that hedging increases with expected financial distress costs, firm size, and investment opportunities. Our evidence is also consistent with firms hedging to increase debt capacity and therefore firm value. We explicitly estimate the convexity in each firm's tax function but do not find evidence that convexity affects corporate hedging. We estimate that the potential increase in value related to tax convexity is much smaller than the tax gain associated with increased debt capacity.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"14 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77188955","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 widespread financial crisis in East Asia caused large economic shocks, which varied by degree across the region. That crisis provides a unique opportunity for investigating the factors that determine the use of bankruptcy processes in a number of economies. The authors study the use of bankruptcy in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand. These economies differ in their institutional frameworks for resolving financial distress, partly because of the different origins of their judicial systems. One difference is the strength of creditor rights, which the authors document. They expect that differences in legal enforcement and judicial efficiency should affect the resolution of financial distress. Using a sample of 4,569 publicly traded East Asian firms, they observe a total of 106 bankruptcies in 1997 and 1998. They find that: 1) The likelihood of filing for bankruptcy is lower for firms with ownership links to banks and families, controlling for firm and country characteristics. 2) Filings are more likely in countries with better judicial systems. 3) Filings are more likely where there are both strong creditor rights and a good judicial system. These results alone do not allow the authors to address whether increased use of bankruptcy is an efficient resolution mechanism.
{"title":"Resolution of Corporate Distress: Evidence from East Asia's Financial Crisis","authors":"S. Claessens, Simeon Djankov, Leora F. Klapper","doi":"10.1596/1813-9450-2133","DOIUrl":"https://doi.org/10.1596/1813-9450-2133","url":null,"abstract":"The widespread financial crisis in East Asia caused large economic shocks, which varied by degree across the region. That crisis provides a unique opportunity for investigating the factors that determine the use of bankruptcy processes in a number of economies. The authors study the use of bankruptcy in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand. These economies differ in their institutional frameworks for resolving financial distress, partly because of the different origins of their judicial systems. One difference is the strength of creditor rights, which the authors document. They expect that differences in legal enforcement and judicial efficiency should affect the resolution of financial distress. Using a sample of 4,569 publicly traded East Asian firms, they observe a total of 106 bankruptcies in 1997 and 1998. They find that: 1) The likelihood of filing for bankruptcy is lower for firms with ownership links to banks and families, controlling for firm and country characteristics. 2) Filings are more likely in countries with better judicial systems. 3) Filings are more likely where there are both strong creditor rights and a good judicial system. These results alone do not allow the authors to address whether increased use of bankruptcy is an efficient resolution mechanism.","PeriodicalId":47357,"journal":{"name":"Corporate Communications","volume":"17 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"1999-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87221638","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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