Search results
1 – 10 of over 13000When agents first become active investors in financial markets, they are relatively inexperienced. Much of the literature focuses on the incentives of presumably sophisticated…
Abstract
When agents first become active investors in financial markets, they are relatively inexperienced. Much of the literature focuses on the incentives of presumably sophisticated informed agents to produce information, and not on the nave agents. However, unsophisticated agents are important aspects of financial markets and worth analyzing further. In this paper, we provide a theoretical perspective that addresses the issue of how many nave traders would one expect in a financial market where policy makers try to educate the nave agents.We show that such policy balances the effects of nave trades on corporate investment and liquidity, as well as the monetary cost of increasing financial sophistication. The optimal proportion of nave agents varies with the value of information, the noise in private signals, and the inherent sensitivity of corporate investment to prices.We also show that the policy tool of encouraging insider trading can deter nave investors and thus improve corporate governance and the efficacy of corporate investment.
Details
Keywords
Mariam Jamaleh and Abha Shukla
Financial internationalization is of particular importance to emerging country firms. Its significance arises from the impact of institutional void and related agency problems…
Abstract
Purpose
Financial internationalization is of particular importance to emerging country firms. Its significance arises from the impact of institutional void and related agency problems (common to emerging markets) on the internationalization path of these firms. Building on concepts from international finance, agency theory and institutional theory, this paper aims to examine the main aspects of financial internationalization by emerging country multinationals, namely, cross-listing, foreign ownership and foreign independent directors.
Design/methodology/approach
This paper follows a multiple case study approach which is a good fit for the exploratory nature of this research. The interest is to examine the context-driven financial internationalization of each case firm and replicate the firm-level information to find a common strategy.
Findings
The findings suggest that financial internationalization by emerging country multinationals starts mainly as these firms plan to enter advanced country markets. It is a dynamic process that entails interaction between financial internationalization and real internationalization, as well as among different aspects of financial internationalization. Cross-listing comprises the first stage of the process. Then, foreign ownership, particularly foreign institutional investments, would increase gradually in response to advances in financial and factor markets. Recruiting foreign independent directors seems to be adopted last, possibly out of fear of losing control of strategic decisions.
Originality/value
This paper presents a unique perspective that delineates different stages of the process of financial internationalization by emerging country multinationals. This complements the efforts to explain the distinct path of internationalization followed by these firms and supplements scarce literature by including emerging multinationals from India where the matter has not yet attracted proper attention.
Details
Keywords
Nils Teschner and Herbert Paul
The purpose of this research is to study the impact of divestitures on shareholder wealth. This study covers selloffs of publicly traded companies in Germany, Austria and…
Abstract
Purpose
The purpose of this research is to study the impact of divestitures on shareholder wealth. This study covers selloffs of publicly traded companies in Germany, Austria and Switzerland (DACH region) during the period 2002–2018. It aims to understand the overall effect of selloffs on shareholder wealth as well as the impact of important influencing factors.
Design/methodology/approach
This study is part of capital market studies which investigate shareholder wealth effects (abnormal returns) using event study methodology. To determine the significance of abnormal returns, a standardized cross-sectional test as suggested by Boehmer et al. (1991) was applied. The sample consists of 393 selloffs of publicly traded companies with a deal value of at least EUR 10m.
Findings
The findings confirm the overall positive impact of selloffs on shareholder wealth. The average abnormal return on the announcement day of the sample companies amounts to 1.33%. The type of buyer, the relative size of the transaction as well as the financial situation of the seller in particular seem to influence abnormal returns positively.
Originality/value
This study investigates shareholder wealth creation through selloffs in the DACH region, a largely neglected region in divestiture research, but now very relevant due to increasing pressure of active foreign investors. Sophisticated statistical methods were used to generate robust findings, which are in line with the results of similar studies for the US and the UK.
Details
Keywords
Halina Frydman, Roman Frydman and Susanne Trimbath
This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial…
Abstract
This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial buyers play a potentially beneficial role in the allocation of corporate assets in the US. economy. Our analysis of determinants of takeovers initiated by financial buyers uses an application of the methodology developed in Trimbath, Frydman and Frydman (2001). In order to illustrate efficiency enhancements introduced by financial buyers, we select Forstmann Little’s acquisition of General Instrument for a brief case study. We show that their aggressive programs of cost management substantially improved the efficiency of General Instrument. Moreover, it allowed General Instrument to expand research and development to become the global leader in high definition television.
Details
Keywords
Lisa M. Victoravich, Pisun Xu and Huiqi Gan
The purpose of this paper is to examine the association between institutional investor ownership and the compensation of executives at US banks during the financial crisis period.
Abstract
Purpose
The purpose of this paper is to examine the association between institutional investor ownership and the compensation of executives at US banks during the financial crisis period.
Design/methodology/approach
This paper uses a linear regression model to examine the association between institutional ownership and the level of executive compensation at US banks.
Findings
Institutional investors influence executive compensation at banks with the impact being most pronounced for the CEO. Ownership by the top five investors is associated with greater total compensation. Active investors have the strongest impact on executive compensation as evidenced by a positive association between active ownership and both equity compensation and total compensation. As well, active ownership is negatively associated with bonus compensation. The paper also finds that passive and grey investors influence compensation but to a less significant extent than active investors.
Research limitations/implications
The results suggest that the monitoring role of active and passive institutional investors is different in the banking industry. As well, institutional investors were likely a driving factor in shaping the compensation packages of the top executive team during the financial crisis period.
Practical implications
Stakeholders at banks should be aware that not all types of institutional investors act as effective monitors over issues such as controlling the amount of executive compensation paid to the highest paid executive, the CEO. Prospective investors should consider the type of institutional investor that owns large blocks of equity when making an investment decision. Namely, the interests of existing institutional investors may differ from their own interests.
Originality/value
This paper provides a new perspective on the monitoring roles played by different types of institutional investors. Furthermore, it provides a more comprehensive analysis by investigating the role of institutional investors in shaping the compensation packages of CEOs and other top executives including chief financial officers (CFOs) who play a vital role in risk management at banks.
Details
Keywords
Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that financial…
Abstract
Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.
Details
Keywords
Patrick Velte and Jörn Obermann
This paper aims to analyse whether and how different types of institutional investors influence shareholder proposal initiations, say-on-pay (SOP) votes and management…
Abstract
Purpose
This paper aims to analyse whether and how different types of institutional investors influence shareholder proposal initiations, say-on-pay (SOP) votes and management compensation from a sustainability perspective.
Design/methodology/approach
Based on the principal-agent theory, the authors conduct a structured literature review and evaluate 40 empirical-quantitative studies on that topic.
Findings
The traditional assumption of homogeneity within institutional investors, which is in line with the principal–agent theory, has to be questioned. Only special types of investors (e.g. with long-term and non-financial orientations and active institutions) run an intensive monitoring strategy, and thus initiate shareholder proposals, discipline managers by higher SOP dissents and prevent excessive management compensation.
Research limitations/implications
A detailed analysis of institutional investor types is needed in future empirical analyses. In view of the current debate on climate change policy, future research could analyse in more detail the impact of institutional investor types on proxy voting, SOP and (sustainable) management compensation.
Practical implications
With regard to the increased shareholder activism and regulations on SOP and management compensation since the 2007/2008 financial crisis, firms should be aware of the monitoring role of institutional investors and should analyse their specific ownership nature (time- and content-driven and as well as range of activity).
Originality/value
To the best of authors’ knowledge, this is the first literature review with a clear focus on institutional investor range and nature, shareholder proposal initiation, SOP and management compensation (reporting) from a sustainability viewpoint. The authors explain the main variables that have been included in research, stress the limitations of this work and offer useful recommendations for future research studies.
Details
Keywords
Falko Paetzold, Timo Busch and Marc Chesney
Investment advisors play a significant role in financial markets, yet the determinants of their behavior have not been explored in detail. The purpose of this paper is to explore…
Abstract
Purpose
Investment advisors play a significant role in financial markets, yet the determinants of their behavior have not been explored in detail. The purpose of this paper is to explore the determinants of how actively advisors communicate about sustainable investing with their clients, and differences in the preferences of advisors compared to investors.
Design/methodology/approach
Based on a survey with 296 retail and private banking investment advisors, this study employs an ordinary least squares regression model to explore the determinants of advisors activity in communicating about sustainable investing (SI) with their clients, differences in the aspects that matter to advisors and investors, and the role of the complexity of sustainability.
Findings
Advisors activity in communicating about SI relates to their expectation of SI regarding financial return, real-world impact, and the fuzziness and trustworthiness of SI. Advisors appear not to be influenced by expected risk and their personal values, which runs against prior research findings and the interest of investors.
Research limitations/implications
Future research should assess cultural differences and explore asymmetries between advisors and investors in regard to the role of volatility, values, impact measurement, and complexity.
Practical implications
Investment advisors underweighting aspects related to risk and self-transcendent values relative to their clients might limit the suitability of clients ' portfolios, skew capital allocation, and depress the role of SI in financial markets. Generalized to salespeople this behavior might depress the market success of products related to sustainability at large.
Social implications
The findings and their generalization indicate that salespeople might systematically deviate from their clients’ interests in regard to social responsibility. Advisors and salespeople in their mediating role might be an important barrier to sustainable development.
Originality/value
This is the first quantitative study that explores the decision-making by investment advisors in the context of SI, and as such answers to specific calls in literature to explore the micro-foundations of decision making in regard to SI and social responsibility, and on the relationship between private investors and investment advisors. This study is based on unique and original empirical data on advisors that work with retail and wealthy private investors.
Details
Keywords
Rupali Misra, Puneeta Goel and Sumita Srivastava
Even after appreciating multi-faceted merits of retail participation in stock markets and extensive efforts by policymakers and financial service industry to increase it, the…
Abstract
Purpose
Even after appreciating multi-faceted merits of retail participation in stock markets and extensive efforts by policymakers and financial service industry to increase it, the present low retail participation in Indian stock markets is cause of grave concern. The purpose of this paper is to identify plausible drivers and deterrents of prospective and current household individuals through a multi-stage qualitative enquiry.
Design/methodology/approach
Two qualitative studies are conducted. In Study 1, scholarship of stakeholders is engaged through participative diamond model to propose behavioural classification of retail investors based on two-parameter framework. In Study 2, behavioural substructures of retail investors that drive or deter investment intentions and actions are identified through in-depth interviews.
Findings
Financial self-efficacy, past experience (own or peer group), financial eco-system, operational literacy, higher charges by financial experts and low liquidity in the hands of the investors are some key factors that influence investment intension and action of individual investors. Though digital platforms have helped to overcome hurdles faced by an investor but its availability, awareness and ease of use still remain a concern.
Practical implications
The inductive findings of this study uncover some important take-aways for the financial service industry – improve operational literacy, digital awareness, ease of use and incorporate risk assessments in client portfolios – and for the policymakers – improve investment eco-system through digital availability, financial literacy workshops focussed on operations.
Originality/value
To the best of the authors’ knowledge, this study is one of the initial attempts to adopt a multi-stage qualitative enquiry to propose behavioural classification of retail investors and uncover reasons that drive or deter individual investors’ intentions and actions in the context of Indian stock market. Moreover, this study provides necessary impetus to analyse and improve operational literacy (instead of financial literacy) and financial eco-system for higher retail participation.
Details
Keywords
Yanlin Sun, Siyu Liu and Shoudong Chen
This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the…
Abstract
Purpose
This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the interests of minority investors.
Design/methodology/approach
This paper takes all the non-financial companies on the Chinese Growth Enterprise Market from 2011 to 2020 as study object and selects securities investment funds of their top ten circulation stocks to study the relationship between fund style drift and stock price crash risk.
Findings
Fund style drift is likely to add stock price crash risk. Financial risk is positively correlated with stock price crash risk. Fund style drift affects stock price crash risk via the mediating effect of financial risk, and fund style drift and financial risk have a marked impact on the stock price crash risk of non-state enterprises, yet a non-significant impact on that of state-owned enterprises.
Originality/value
This paper links fund style drift with stock price crash risk in an exploratory manner and enriches the study perspectives of relationship between institutional investors’ behaviors and stock price crash risk, thus enjoying certain academic value. On the one hand, it furnishes a new approach to the academic frontier issue concerning financial risk and stock price crash risk, and proves that financial risk is positively correlated with stock price crash risk. On the other hand, it regards financial risk as a mediating variable of fund style drift for stock price crash risk and further explores different influencing mechanism of institutional investors’ behaviors.
Details