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This paper aims to examine the question of whether external auditors incorporate equity holdings by overlapping audit committee members as a priced governance factor and tests whether this attribute, as a mechanism for ensuring good governance, affects the propensity for external auditors to issue modified audit opinions.

Overlapping membership in this context refers to the arrangement where at least one audit committee member also sits on the compensation committee. Both ordinarily least square and logistic regression are used to capture the impact of overlapping committee members and equity holding of those overlapping committee members.

Using archival data from Australian Stock Exchange listed companies, the authors find support for the beneficial effect of having overlapping audit committee members with equity holdings. The authors also find that auditor propensity to issue modified audit opinions is lower for firms with equity holdings by overlapping audit committee members.

The finding has practical implication to the investors and regulators as overlapping audit committee members with equity holdings may provide especially effective oversight by monitoring opportunistic accounting policy choices for maximizing compensation pay. To the extent that this occurs, audit risk will decrease, requiring less audit effort and lower audit fees than would otherwise be necessary. Similarly, such oversight is likely to make financial reporting more credible and will reduce the possibility of receiving modified audit opinions by reporting organizations.

Both audit and compensation committees are equally important in modern organizations. While both of the committee have distinctive responsibilities, questions remain on the desirability of overlapping audit committee. Also, this is the first study to the authors’ knowledge that incorporates overlapping membership on audit and compensation committee as an important component of auditor risk perception which regards in pricing the audit fees.

The Growth of Institutional Shareholdings 1966–1980. Institutional investors, particularly insurance companies and pension funds, are consistent purchasers of company and overseas securities. Of particular interest is the ownership of U.K. quoted equities, rather than ownership of debentures, preference shares and overseas securities. Ownership of the ordinary share capital is of particular interest because the votes attached to equities give the holders legal powers to influence management through general meetings. The impact of the growth of institutional shareholdings on corporate management and the London Stock Exchange will be discussed in later articles. This article demonstrates the growth of institutional ownership of British industry, comments on the concentration of institutional holdings in large companies, illustrates the avoidance of new issues by financial institutions, and comments on the future pattern of U.K. share ownership.

A comprehensive review of UK share ownership during the 1966–1980 period, with particular reference to the work of Revell and Moyle at the Department of Applied Economics, Cambridge.

The authors analyze the equilibrium effects of non-tradable assets on optimal policy portfolios. They study how the existence of non-tradable assets impacts optimal asset allocation decisions of investors who own such assets and of investors who do not have access to non-tradable assets.

In this theoretical analysis, the authors analyze a model with tradable and non-tradable asset classes whose cash flows are jointly normally distributed. There are two types of investors, with and without access to non-tradable assets. All investors have constant absolute risk aversion preferences. The authors derive closed form solutions for optimal investor demand and equilibrium asset prices. They calibrated the model using US data for listed equity, bonds and private equity. Further, the authors illustrate the sensitivities of quantities and prices with respect to the main parameters.

The study finds that the existence of non-tradable assets has a large impact on optimal asset allocation. Investors with (without) access to non-tradable assets tilt their portfolios of tradable assets away from (toward) assets to which non-tradable assets exhibit positive betas.

The model provides important insights not only for investors holding non-tradable assets such as private equity but also for investors who do not have access to non-tradable assets. Investors who ignore the effect of non-tradable assets when reverse-engineering risk premia from asset covariances and market capitalizations might severely underestimate the equity risk premium.

The authors provide the first comprehensive analysis of the equilibrium effects of non-tradability of some assets on optimal policy portfolios. Thus, this paper goes beyond analyzing the effects of market imperfections on individual portfolio choices.

The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in advertising, capital expenditures and research and development (R&D). The elements of compensation are salary, bonuses, options and restricted stock grants. The authors proxy the design of CEO equity portfolios by the price performance sensitivity of the holdings and the portfolio deltas.

The authors use the components of executive compensation and portfolio risk as the dependent variables, regressing these against measures for the level of strategic investment. The authors test for non-linear relationships between the components of CEO compensation and strategic investments. The sample is a broad cross-section from 1992 to 2016.

The authors find strong support for non-linear relationships of capital expenditures and R&D with CEO bonuses, option grants and restricted stock grants. There are very complex relationships between the components of executive compensation and R&D expenditures, but little evidence of a relationship with advertising expenditures. The authors also find strong complex relationships in the design of CEO equity portfolios with advertising and R&D.

Little earlier research has considered advertising, capital expenditures and R&D in a unified framework. Also, testing for non-linear associations provides much greater insight into the relationship between the components of executive compensation and strategic investment. The findings represent a valuable incremental contribution to the executive compensation literature. The results also have normative policy implications for compensation committees’ design of optimal annual CEO compensation packages to incentivize or discourage particular strategic investment behavior.

This study aims to examine the behavior of cash raised through market timing efforts and the success of such efforts in creating value to shareholders.

It is shown that in two quarters, subsequent to raising equity, cash balance of market timers is higher but after that, there is no significant difference between timers and non-timers. Results of speed of adjustment regressions indicate that market timers move faster toward their target cash levels.

Market timers are small firms that suffer from asymmetric information. They have limited access to capital market, and raising external capital is an opportunity that should be timed. The results suggest that, on average, these firms are managed by more able executives, who are 10 per cent more likely to time the market; however, it is found that timing efforts are unsuccessful in creating value to shareholders even after controlling for the mitigating effect of managerial ability. Subsequent to market timing, on average, market timers earn significantly lower abnormal return over different holding periods relative to their comparable non-timer counterparts.

Overall, the results undermine the validity of market timing as a value-maximizing financial policy.

This paper aims to assess the ability of New Zealand (NZ) actively managed funds to generate risk-adjusted outperformance using portfolio holdings data. Focusing on domestic equity allocations addresses the benchmark selection issue, particularly for funds with national and international exposures.

The authors assess performance using several asset pricing models including the CAPM, three-factor and four-factor models. The authors also assess performance across funds with different characteristics such as fund size, size of local holdings, type of fund provider, past returns and fees. The authors further examine whether funds engage in any stock-picking or market timing by considering the active share and tracking error.

The returns on NZ equity holdings of NZ actively managed funds from 2010 to 2017 provide little evidence of risk-adjusted outperformance and stock-picking skill. These exposures yield pre-cost returns that have a nearly perfect correlation with the market index and an insignificant alpha. Funds show little tendency to bet on any of the main characteristics known to predict stock returns, such as size, book-to-market and momentum. In addition, the authors show that the average active shares and tracking errors are low, suggesting that the majority of funds hold NZ equity portfolios that closely mimic the market index.

Existing studies rely on returns data which aggregate performance across all asset classes with varying exposures. This may lead to benchmark selection issues (particularly for funds with international exposures) which may obscure the fund manager’s true stock-picking skills. Assessment using holdings data would enable suitable performance measurement by researchers and industry analysts.

From a financial stability viewpoint, this paper aims to study cyclical interdependencies arising from the cross-holding of securities in the Colombian financial system.

Cross-holding of securities in financial systems occurs when two financial institutions hold securities issued by each other or when more than two financial institutions hold securities issued by each other in a circular structure. Securities cross-holding is key for financial stability because of potential contagion arising from cyclical interdependencies in the connective architecture of financial systems. The presence of cyclical interdependencies is studied based on network analysis. The data set is a multilayer network that comprises bonds, certificates of deposit and equity issued and held by Colombian financial institutions from 2016 to 2019.

Results show that the extent of securities’ cyclical interdependencies is particularly low and stable – even when cross-holding across different types of securities is considered.

The monetary value of exposures and their size with respect to financial institutions’ balance sheets are not considered. Studying the impact on the financial system’s solvency is a compulsory research path.

The network topology suggests that increased potential contagion by cyclical interdependencies and feedback effects from securities cross-holding is rather limited.

To the best of the authors’ knowledge, this is the first time that cyclical interdependencies arising from the securities cross-holding are studied. From a financial stability perspective, the methodology is general and promising for monitoring and analytical purposes.

We investigate whether active involvement of private equity firms in their portfolio companies during the holding period of a later-stage private equity investment is related to increased levels in operating performance of these companies. Our analysis of unique survey data on 267 European buyouts and secondary performance data on 29 portfolio companies using partial least squares structural equation modeling indicates that private equity firms, that is, their board representatives, can increase operating performance not only by monitoring the behavior of top managers of portfolio companies, but also by becoming involved in strategic decisions and supporting top managers through the provision of strategic resources. Strategic resources, in particular expertise and networks, provided by private equity firm representatives in the form of financial and strategic involvement are associated with increases in the financial performance and competitive prospects of portfolio companies. Operational involvement, however, is not related to changes in operating performance. In addition to empirical insights into the different types of involvement and their effects, this chapter contributes to the buyout literature by providing support for the suggested broadening of the theoretical discussion beyond the dominant perspective of agency theory through developing and testing a complementary resource-based view of involvement. This allows taking into account not only the monitoring, but also the more entrepreneurial supporting element of involvement by private equity firms.

This study aims to examine the impact of independent directors' ownership on corporate social responsibility (CSR) performance. In line with the stakeholder-agency paradigm's prediction, the authors propose that higher independent directors' ownership is associated with higher CSR performance. By drawing on the attention-based view, the authors further examine firm-level conditions that impact the situated attention of independent directors holding high equity ownership as they are active agents.

The authors collected data covering the years 2009–2013 for firms listed in the S&P 500 index. The authors tested the hypotheses using firm fixed-effects models.

The results show that higher independent directors' ownership is associated with higher CSR performance. Prior firm performance and available slack resources are found to have diverse impacts on the association between independent directors holding high equity ownership and CSR performance.

This study highlights the importance of examining the performance-based incentives of independent directors on firms' CSR performance. This study also provides a better understanding of factors impacting independent directors' situated attention as boundary conditions.