Review of Quantitative Finance and Accounting最新文献

In academic research, stock returns are frequently regressed on financial variables such as profitability, value, and investment. Managers, who are incentivized through equity compensation, may make decisions which affect financial variables. If such decisions are endogenous, statistical significance in the financial variable coefficient estimates may stem from correlation rather than causation. This study presents a causality framework between U.S. firm decisions and stock returns. A set of instruments is first correlated with stock returns. When fitted values predict returns, there is a confirmed anomaly. Fitted values then replace profitability, investment, and investment growth. Return significance falls by more than half for profitability and investment, while its predicted growth is insignificant. Vector autoregressions and graphic analysis confirm the flow of causality from predicted profitability and investment to stock returns.

We examine the relationship between investment bank (IB) reputation and fees paid in ABS issuance. We compile an extensive instrument level dataset of over 35,000 ABS issued between 1997 and 2018 in the US and the European market. We find that reputation of IBs is influential in determining the compensation they are paid for their services in ABS issuance. On average, reputable IBs receive 3.74% higher fees in comparison to others. Moreover, our results show IBs’ ability to obtain lower initial yield spreads in ABS issuance. Overall, our findings provide evidence to the arguments that reputable IBs with high market presence offer high-quality services and assurance to the market participants (i.e., certification effect) leading to better deals. In return, they are able to charge higher fees.

We investigate the association between CEO power and firm risk at the onset of the global financial crisis in 2007 and the COVID-19 pandemic health crisis in 2020. Examining an international sample of publicly listed firms in the G7 nations between 2006 and 2021, we show that firms led by CEOs with greater power are exposed to higher risk than firms led by CEOs with lesser power. The result is primarily driven by the impact of CEO power on idiosyncratic risk rather than systematic risk. Further, we find that powerful CEOs tend to be more cautious and conservative during crises that they have no reference for or experience of, as in the case of the pandemic, during which the positive power–risk associations are less pronounced. Nevertheless, the power–risk association remains relatively unchanged during the more familiar financial crisis. This study has important implications for firms, investors, regulators, and policymakers.

This study examines the impact of pay-performance sensitivity (PPS) dispersion within top management teams (TMT) on firm-level investment efficiency. Utilizing data from 1994 to 2022, we find a positive association between TMT PPS dispersion and investment efficiency, indicating that a broader incentive spread is associated with more prudent investment decisions. The research extends beyond traditional compensation level disparities, highlighting the influence of executive compensation structures on strategic resource allocation. Robustness checks, including various econometric approaches and the inclusion of corporate governance factors, confirm the persistence of this relationship. Additionally, channel analysis reveals that firms with higher R&D intensity experience amplified benefits from PPS dispersion. Our findings suggest that nuanced TMT incentive structures are crucial in aligning managerial actions with shareholder interests, thereby fostering optimal investment strategies and contributing to long-term firm growth.

Modern central banking offers policymakers innovative tools to safeguard price stability and the normal functioning of the financial system. However, the unintended impact of the implementation of non-standard monetary policy measures, especially on systemic risk, remains underexplored from a microeconomic point of view. This study investigates the effect of non-standard monetary policy measures on systemic risk of listed financial institutions in the Euro area. Our results show the presence of the systemic risk-taking channel of monetary policy, whereby systemic risk increases following further enforcement of non-standard monetary policy measures, with the effect being stronger for smaller and undercapitalised banks. The results are robust to various alternative measures of bank systemic risk and non-standard monetary policy. Our findings bear critical policy implications for financial stability.

In this article, we investigate accounting deregulation and analyze whether a reduction in the minimum content requirements for quarterly reporting negatively impacts information asymmetry and reduces firm value. Taking advantage of one of the rare deregulating measures, namely the transposition of the EU’s Transparency Directive into German law, and using a novel dataset of firms listed on the Frankfurt Stock Exchange, we manually examine firms’ quarterly reports for their content elements and construct a new quarterly reporting measure with an ordinal quality dimension. The results show that deregulation reverses beneficial regulatory effects and, on average, increases information asymmetry and decreases firm value. We find that this effect is stronger for first-tier stocks, highlighting the importance of quarterly reporting for these firms. The results are robust to potential selection effects regarding firms’ choice of quarterly reporting content levels.

We examine the impact of holding more redeployable assets on corporate social responsibility (CSR). Using a large panel sample of U.S. public companies, we posit and find a significant negative relation between asset redeployability and CSR performance, suggesting that firms with more redeployable assets demonstrate lower overall CSR performance. Our findings are robust to different time periods, alternative measures of redeployability, a changes analysis, and a two-stage regression analysis.

We examine the effect of raising equity during the exogenous shock of Covid-19 economic downturn. Using a difference-in-differences methodology, we find that firms that issue equity during Covid-19 exhibit higher stock performance and lower likelihood of financial distress. Also, issuing firms maintain their payout and investment decisions and increase dividends and R&D through the pandemic. We further show that early issuers use the capital raised to build up more cash reserves while later issuers use the capital to increase investment activities. Firms that issue equity publicly tend to increase their dividend and R&D activities, while private equity issuers tend to increase more their cash reserves. Finally, issuers from industries that were highly affected by the pandemic experience higher stock performance and build more cash reserves, while those from less affected industries exhibit lower likelihood of default and increase dividends and R&D activities.

Piotroski’s Fscore has become increasingly important to investment managers and analysts as a simple measure of a company’s financial strength. However, how it changes over time, and in particular how it reacts under different economic conditions, has not been considered until now. Macroeconomic conditions and the business cycle affect corporate valuations via stock prices. They also affect corporate liquidity, cash flow, profitability, efficiency, financing, capital structure, and thus Fscores. The Fscore is currently used as if it gives similar results in all economic states, but this is not the case. While macroeconomic conditions strongly affect the aggregate Fscore, the effect of particular variables changes greatly depending on the stage of the economic cycle. During contractionary episodes, monetary and macro-economic factors become much more critical and outweigh firm-level factors in determining Fscore values. Investors should, therefore, be particularly cautious in applying the Fscore equally during contractions as during expansionary periods.

This paper examines whether the Federal Reserve (Fed) communication has significant impact on the level of uncertainty and risk aversion in the U.S., U.K., and Eurozone equity markets. We first apply computational linguistic tools to the Federal Open Market Committee (FOMC) meeting minutes to measure the tone of Fed communication and then decompose the option-implied volatility into proxies for risk aversion and expected market volatility (“uncertainty”). We provide novel evidence that the Fed's optimistic tone decreases both uncertainty and risk aversion in global equity markets, with the former effect being stronger. We also find a stronger response of market participants to central bank communication during recessions and in periods of high policy uncertainty. Further analysis reveals that, in formulating their risk preferences, investors pay particular attention to FOMC's discussion about financial market, credit condition, employment, and growth. Overall, our results suggest that central bank communication plays an important role in shaping perceptions and risk appetite of financial market participants.