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Article
Publication date: 3 April 2017

Atreya Chakraborty, Christopher F. Baum and Boyan Liu

The purpose of this paper is to provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders’ valuation of a firm’s cash holdings. This extends…

Abstract

Purpose

The purpose of this paper is to provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders’ valuation of a firm’s cash holdings. This extends previous work on this issue by highlighting the importance of the source of uncertainty. The findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors extend the analysis to financially constrained and unconstrained firms.

Design/methodology/approach

The authors test the hypothesis that the marginal effect of cash holdings on excess stock returns is sensitive to uncertainty. To compute this marginal effect, the authors adopt and extend the approach of Faulkender and Wang (2006) to the authors’ more elaborate model.

Findings

The findings indicate that different sources of uncertainty affect the value of cash holdings differently. Findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors also extend the findings to financially constrained and unconstrained firms.

Originality/value

The findings indicate that the source of uncertainty firm-specific vs macroeconomic risk matters. The two sources of risk may have quite different effects on shareholders’ valuation of a firm’s cash holdings. Results from alternative sources of findings are new. These new findings are robust to alternative definitions of the unexpected change in cash.

Details

International Journal of Managerial Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

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Article
Publication date: 5 October 2018

Atreya Chakraborty, Lucia Gao and Shahbaz Sheikh

The purpose of this paper is to investigate if there is a differential effect of corporate governance mechanisms on firm risk in Canadian companies cross-listed on US…

Abstract

Purpose

The purpose of this paper is to investigate if there is a differential effect of corporate governance mechanisms on firm risk in Canadian companies cross-listed on US markets and Canadian companies not cross-listed (Canadian only companies).

Design/methodology/approach

Using a sample comprised of all Canadian companies included in the S&P/TSX Composite Index for the period 2009–2014, this study applies OLS and fixed effect regressions to investigate the effect of corporate governance mechanisms on firm risk. Interaction variables between governance mechanisms and the cross-listing status are used to examine if this effect is different for cross-listed firms.

Findings

Results indicate that the effect of board characteristics such as size, independence and proportion of female directors remains the same in both cross-listed and not cross-listed firms. CEO duality and insider equity ownership impact firm risk only in cross-listed companies, while institutional shareholdings, environmental, social and governance disclosure and family control affect firm risk in Canadian only firms. Overall, the empirical results indicate that some governance mechanisms impact firm risk only in firms that cross-list, while others are well-suited for Canadian only firms.

Practical implications

This study suggests that some of the differences between Canadian companies that cross-list and the Canadian companies that do not cross-list in US stock markets may change the impact of governance mechanisms on firm risk. Therefore, these findings have important implications for the design of governance mechanisms in Canadian firms. Since some of these differences are common to other economies, the conclusions can be extended to companies in other countries with similar governance structures.

Originality/value

Although previous studies have investigated the effect of governance mechanism on firm risk, this is the first paper that studies the differential effect for companies that cross-list in US markets. Specifically, differences in the ownership structure, firm control and in the regulatory and institutional environment, may explain this differential effect. Unlike most of the previous studies that focus on the effect of individual governance mechanisms, this study uses several mechanisms and their interactions at the same time.

Details

Management Decision, vol. 57 no. 10
Type: Research Article
ISSN: 0025-1747

Keywords

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Book part
Publication date: 1 November 2008

Atreya Chakraborty and Shahbaz Sheikh

This study investigates the impact of corporate governance mechanisms on performance related turnover. Our results indicate that smaller boards and institutional block…

Abstract

This study investigates the impact of corporate governance mechanisms on performance related turnover. Our results indicate that smaller boards and institutional block holders are positively related to the likelihood of performance related turnover. CEOs that also hold the position of the chairman of the board or belong to a founding family face lower likelihood of turnover. CEO stock ownership is negatively related to turnover and CEOs who own 3 percent or more of their company stock face a significantly lower likelihood of performance related turnover. Moreover, protection from external control market has no effect either on the likelihood of turnover.

Details

Institutional Approach to Global Corporate Governance: Business Systems and Beyond
Type: Book
ISBN: 978-1-84855-320-0

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Book part
Publication date: 1 November 2008

Abstract

Details

Institutional Approach to Global Corporate Governance: Business Systems and Beyond
Type: Book
ISBN: 978-1-84855-320-0

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Article
Publication date: 10 April 2017

John Dorey, Sangwan Kim and Yong-Chul Shin

The purpose of this paper is to examine whether abnormal returns to a fundamental signal (FS) strategy disappear after the publication of Abarbanell and Bushee (1998).

Abstract

Purpose

The purpose of this paper is to examine whether abnormal returns to a fundamental signal (FS) strategy disappear after the publication of Abarbanell and Bushee (1998).

Design/methodology/approach

Using data on NYSE/AMEX firms from 1974 to 2012, this research estimates annual Fama and MacBeth (1973) cross-sectional regression of risk-adjusted buy-and-hold returns on the FSs after controlling for contemporaneous earnings changes and a proxy for market risk.

Findings

This paper finds that predictable hedge returns to the FSs substantially decrease and become statistically insignificant after the Abarbanell and Bushee’s publication date. This research also finds that the FSs have not lost their importance to equity valuation process; value relevance of the FSs has not diminished, and the FSs have retained their predictive ability over time. The evidence on changing information and trading environments appears to contribute to the disappearing abnormal returns to a FS strategy.

Originality/value

This paper adds to the growing body of literature on the persistence of pricing anomalies.

Details

Managerial Finance, vol. 43 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

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