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Article
Publication date: 8 September 2021

Qingzhong Ma, David A. Whidbee and Wei Zhang

This paper examines the extent to which noise demand and limits of arbitrage affect the pricing of acquirer stocks both at the announcement period and over the longer horizon.

Abstract

Purpose

This paper examines the extent to which noise demand and limits of arbitrage affect the pricing of acquirer stocks both at the announcement period and over the longer horizon.

Design/methodology/approach

An event study approach was adopted to measure announcement-period cumulative abnormal returns. Long-horizon returns are measured using buy-and-hold abnormal returns (BHARs), calendar time portfolios (CTPRs), and subsequent earnings announcement period abnormal returns. Main methodologies include ordinary least squared (OLS) regressions, Logit regressions, and portfolio analysis.

Findings

(1) Acquirer stocks with high idiosyncratic volatility (the proxy for the security level characteristic most directly associated with limits to arbitrage) earn higher announcement-period abnormal returns. (2) The return pattern reverses over the subsequent longer horizon, resembling news-driven transitory mispricing. (3) The mispricing is greater when deal and firm characteristics exacerbate the limits of arbitrage, and it weakens over time. (4) Transactions by higher idiosyncratic volatility acquirers are more likely to fail.

Originality/value

Limits of arbitrage theory have been tested mostly in information-free circumstances. The findings in this paper extend the supporting evidence for limits of arbitrage explaining mispricing beyond the boundaries of information-free circumstances.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 1 August 2016

Wenling Lu and David A. Whidbee

This paper aims to examine the characteristics of banks that were the target of intervention in the form of bailout or failure during the financial crisis and, of those…

Abstract

Purpose

This paper aims to examine the characteristics of banks that were the target of intervention in the form of bailout or failure during the financial crisis and, of those subjected to intervention, what characteristics distinguish those that received bailout funds from those that were deemed failures.

Design/methodology/approach

The study estimates a series of logit regressions in an effort to identify the causes of regulatory intervention while controlling for bank-level characteristics and the economic and regulatory environment.

Findings

The empirical results indicate that many of the same characteristics associated with banks receiving bailout funds are similar to the characteristics associated with failed banks. However, non-performing loans increased the likelihood of failure, but reduced the likelihood of a bank receiving Capital Purchase Program (CPP) funds, suggesting that regulatory authorities discriminated in their use of CPP funds based on the quality of a bank’s asset portfolio. Further, those banks located in states with limits on de novo branching and those banks that are part of a multi-bank holding company structure were less likely to fail but were more likely to receive CPP funds.

Originality/value

This paper provides a comprehensive analysis of regulatory intervention in the banking industry during the late 2000s financial crisis and the impact of different banking organizational structures, economic circumstances, and financial fragility on the likelihood of a bank failing or receiving bailout funds.

Details

Journal of Financial Economic Policy, vol. 8 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 1 November 1997

John S. Jahera and David A. Whidbee

The global banking environment is experiencing significant change as regulatory and geographical barriers to competition are reduced. As these barriers are removed…

Abstract

The global banking environment is experiencing significant change as regulatory and geographical barriers to competition are reduced. As these barriers are removed, greater integration of banking services is developing throughout the world affecting the performance and structure of banking institutions. This research examines the stock returns and volatility of stock returns for a sample of banks in the United States, Europe, Canada and Japan. The general focus is to identify factors influencing the return and risk and to examine cross‐country differences in these factors. The results suggest that while size does not affect return volatility for any of the categories of banks, it does affect returns for banks in Japan, the U.S. and other non‐universal banking systems. Likewise, the investment in fixed assets appears consistently to adversely affect returns. A number of differences are found across country borders and across type of institutions (i.e. universal versus non‐universal banks).

Details

Managerial Finance, vol. 23 no. 11
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 26 July 2013

Wenling Lu and David A. Whidbee

This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure…

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Abstract

Purpose

This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure during the late 2000s financial crisis.

Design/methodology/approach

The study estimates a series of logit regressions in an effort to identify the causes of failure and assess the role of the bank‐level characteristics while controlling for the economic and regulatory environment.

Findings

The empirical results indicate that established institutions were more likely to fail, dependent upon whether a bank received bailout funds or not, if they were relatively large, had relatively low capital ratios, had relatively low liquidity, relied more heavily on brokered deposits, held a relatively large portfolio of real estate loans, had a relatively large proportion of non performing loans, and had less income diversity. Consistent with being financially fragile, de novo banks and those banks that grew substantially prior to the crisis faced an increased likelihood of failure relative to established banks. However, capital levels were not significantly related to the likelihood of failure in de novo institutions.

Originality/value

This paper provides a comprehensive analysis of the possible business models' impact on the likelihood of failure during the recent financial crisis. It contributes to the ongoing debate regarding appropriate regulatory reform in the banking industry by shedding light on the extent to which the business model decisions made by bank managers have an impact on the stability of the banking system.

Details

Journal of Financial Economic Policy, vol. 5 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 10 January 2018

George Gao, Qingzhong Ma and David Ng

The purpose of this paper is to empirically examine whether corporate insiders extract information from activity of outsiders, specifically the short sellers.

Abstract

Purpose

The purpose of this paper is to empirically examine whether corporate insiders extract information from activity of outsiders, specifically the short sellers.

Design/methodology/approach

Using portfolio approach and Fama-MacBeth regressions, this study examines the relation between short interest and subsequent insider trading activities.

Findings

The following results are reported. First, there is a strong inverse relation between short selling and subsequent insider trading, which is partially due to common private information and same target firm characteristics. Second, insiders extract information from shorts. This information extraction effect is more pronounced for firms whose insiders have stronger incentives to extract shorts information (insider purchases, higher short sale constraints, and better information environments). Third, during the September 2008 shorting ban, the information extraction affect disappeared among the large banned firms, whose shorting activities were distorted.

Research limitations/implications

The findings contradict the of-cited accusations corporate executives hold against short sellers. Instead, corporate insiders appear to trade in the same direction as suggested by shorting activities.

Practical implications

Among the vocal critics of short sellers are corporate insiders, who allege that short sellers beat down their stock prices. Many corporations even engage in stock repurchases to show confidence that the stock will perform well going forward despite the short sellers’ actions. This paper’s analysis on their personal portfolios suggests the other way around.

Originality/value

By focusing on how corporate insider trading is related to shorts information, this paper sheds new light on whether corporate decisions convey the true information the corporate insiders possess.

Details

China Finance Review International, vol. 8 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 1 April 2003

Roberto Pascual and Martí Larraza‐Kintana

The control role of the Board of Directors is aimed at monitoring the decisions and actions undertaken by managers in order to protect stockholders’ interests…

Abstract

The control role of the Board of Directors is aimed at monitoring the decisions and actions undertaken by managers in order to protect stockholders’ interests. Considerable theoretical and empirical research has analyzed whether directors’ behavior is consistent with their fiduciary responsibility, but this research has reported inconsistent findings. This paper offers a comprehensive review of both theoretical and empirical literature on the control role of the board and suggests several guidelines for future research.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 1 no. 1
Type: Research Article
ISSN: 1536-5433

Keywords

Article
Publication date: 14 October 2013

Hongyan Fang and David Whidbee

– The purpose of this paper is to provide evidence in support of incentive and retention-based explanations for backdating.

Abstract

Purpose

The purpose of this paper is to provide evidence in support of incentive and retention-based explanations for backdating.

Design/methodology/approach

The authors use matching-firm techniques and the bivariate logistic model.

Findings

Backdating firms tend to be younger and faster growing – the characteristics of firms with growing demand for skilled labor. Further, rather than experiencing poor performance, backdating firms tend to outperform matching firms in both prior- and post-backdating years.

Originality/value

The results suggest that backdating reflects a firm's demand for valuable employees rather than strictly a manifestation of agency problems, as evidenced by previous study.

Details

Managerial Finance, vol. 39 no. 11
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 April 2003

Dorothy A. Feldmann and David L Schwarzkopf

We investigate the relationship between institutional shareholdings and the firm's corporate governance by looking at changes in the composition of the board of directors…

Abstract

We investigate the relationship between institutional shareholdings and the firm's corporate governance by looking at changes in the composition of the board of directors and audit committee while institutional ownership increases over time. Our comparison of 74 firms showing increased institutional ownership with a matched control group of 62 firms finds that increased institutional ownership is positively associated with a higher proportion of outsiders on the board and with audit committee and board members who are less entrenched. These factors are widely regarded as signs of a strengthened system of corporate governance and control, underscoring the important role that institutional ownership may play in the firm's corporate governance structure.

Details

Review of Accounting and Finance, vol. 2 no. 4
Type: Research Article
ISSN: 1475-7702

Article
Publication date: 3 April 2017

Tsung-Ming Yeh

This study aims to provide additional insights by further investigating the governance aspects including board composition, risk monitoring and management by the board…

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Abstract

Purpose

This study aims to provide additional insights by further investigating the governance aspects including board composition, risk monitoring and management by the board, ownership structures as well as the incentive compensation.

Design/methodology/approach

This study investigates the relationships between corporate governance, risk-taking behaviors and default risk by analyzing 78 publicly listed Japanese regional banks during the 2007-2008 crisis period.

Findings

Banks that were more diversified in the run-up to the crisis were associated with higher default risk during the crisis. Foreign shareholders may have prompted banks to engage in higher risk-taking activities in pursuit of higher returns, putting banks at a higher risk of default. On the other hand, board-level risk management committees may have mitigated the risks to protect firms from rising default. Finally, banks perceived to have better quality accounting information, by being audited by one of the Big 4 auditors, benefitted by mitigating price misevaluation and thus reducing default risk during the crisis.

Originality/value

Different from the majority of previous related studies on the relationship between governance and performance of stock returns, the current study focuses on the relationship between governance and default risk during the crisis which has a more direct link through which governance practices can affect risk-taking behaviors and thus the default risk during the crisis. In addition to examining conventional governance aspects, this study also focuses on the more relevant aspects of banks’ risk monitoring functions.

Details

Corporate Governance: The International Journal of Business in Society, vol. 17 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 21 May 2018

Lars Schweizer and Andreas Nienhaus

Sensemaking models generally lack an objective determinant to distinguish between CEO fault and changes in systematic risk caused by exogenous negative shocks like a

Abstract

Purpose

Sensemaking models generally lack an objective determinant to distinguish between CEO fault and changes in systematic risk caused by exogenous negative shocks like a banking crisis. The interdisciplinary approach of this paper combines attribution theory with econometric time series analyses to provide an objective measure of exogeneity and persistence of a negative shock to an organization. The purpose of this paper is to address the exploratory research question, of how scapegoating by managers can be avoided by the use of an objective and empirical measurement and if the recent financial crisis can be seen as an exogenous shock to manufacturing firms.

Design/methodology/approach

By testing for stationarity with a structural break with an econometric time series analysis, the model helps to reduce agency costs during organizational crisis by effectively determining crisis causation and avoid scapegoating by managers.

Findings

By combining the sensemaking models of Haleblian and Rajagopalan (2006), Staw (1980), and Weick (1988), an integrated model of sensemaking in performance crises under the specific context of simultaneously occurring external crises is provided. By applying the authors approach the results suggest that the financial crisis of 2008/2009 has true exogenous adverse effects on US manufacturing firms.

Originality/value

The interdisciplinary approach encourages the integration of econometric time series analysis as an objective determinant in sense making models.

Details

Journal of Strategy and Management, vol. 11 no. 2
Type: Research Article
ISSN: 1755-425X

Keywords

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