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1 – 10 of 288Andrea Schertler and Saskia Stoerch
The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil…
Abstract
Purpose
The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010.
Design/methodology/approach
Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations.
Findings
Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations.
Research limitations/implications
These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper.
Originality/value
Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.
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Raheel Safdar, Mirza Sultan Sikandar and Tanveer Ahsan
The purpose of this paper is to investigate whether liquidity risk (i.e. the returns’ vulnerability to the unexpected changes in overall market liquidity) is a priced risk factor…
Abstract
Purpose
The purpose of this paper is to investigate whether liquidity risk (i.e. the returns’ vulnerability to the unexpected changes in overall market liquidity) is a priced risk factor in China. Moreover, it investigates the potential role of a stock’s information quality in reducing its liquidity risk during the period of post-non-tradable shares reforms in China.
Design/methodology/approach
The authors collect data of all the A-share issuing firms listed either on the Shanghai Stock Exchange or Shenzhen Stock Exchange during the period 2006–2016. The authors perform two-stage cross-sectional regression testing. First, the authors perform firm-specific time-series regressions of excess returns over Fama–French’s three-factor model and a liquidity factor. Second, to test whether firm-specific liquidity risk is a priced risk factor, the authors apply Fama and MacBeth’s regressions.
Findings
Firm-level asset pricing tests provide substantial evidence for market pricing of liquidity risk in China. The authors find a significant negative association between information quality and liquidity risk. The authors also find that the reduction in liquidity risk induced by better information quality is substantial enough to reduce required returns. These findings are robust to alternative measures of liquidity risk and information quality.
Practical implications
The study underscores that a policy initiative to enhance the information environment can significantly reduce the market volatility in China.
Originality/value
To the best of authors’ knowledge, this is the first study that considers the Shanghai Stock Exchange as well as Shenzhen Stock Exchange to investigate market pricing of liquidity risk in China.
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Heonsoo Kim, Byung-Uk Chong and In-Deok Hwang
This paper investigates the effects of the volatility of debt financing on cross-sectional variation of stock returns. Through the empirical analysis of listed firms in Korea for…
Abstract
This paper investigates the effects of the volatility of debt financing on cross-sectional variation of stock returns. Through the empirical analysis of listed firms in Korea for the 2005-2016 estimation period, this paper provides persistent and significant evidence that the volatility of debt financing has negative impacts on stock returns while controlling for market factor and firm characteristics such as size factor (firm size, market capitalization), value factor (book-to-market ratio), and momentum factor. While using both monthly average of stock returns and Fama-French-Carhart 4-factor risk-adjusted stock returns as dependent variables, the estimations of Fama-MacBeth cross-sectional regressions produce negative and statistically significant coefficient on the volatility of debt financing. The findings of this paper makes an academic contribution by providing the evidence that the volatility of debt financing, as a measure of financial constraint, plays a role as an anomaly factor for “financial constraint pricing puzzle” in Korean stock market.
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Sefa Takmaz, Pınar Evrim Mandaci and M. Banu Durukan
The purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.
Abstract
Purpose
The purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.
Design/methodology/approach
The sample of this study comprises listed firms on the stock market of Turkey, Borsa Istanbul, with 2,438 observations during the period 1999–2015. In line with previous studies in the literature, appropriate control variables are used that may have an impact on Turkish firms' dividend policy. Control variables are examined in the likelihood of paying dividends by using Fama–Macbeth (1973) style cross-sectional logistic regressions. In addition, the linkage between the dividend premium and the propensity to pay is revealed to test the validity of the catering theory.
Findings
The findings of the study confirm the tenets of the catering theory for Turkey. When a positive dividend premium exists, that is when investors demand dividend, firms cater them and distribute dividend; on the contrary, when there is no demand, firms prefer not to pay. The effect of catering incentives on the dividend policy provides useful information for managers because the catering theory claims that investors' demand for dividends has an impact on the valuation of firms.
Originality/value
In the aftermath of the 2001 financial crisis, Turkey implemented far-reaching reforms and policy initiatives to improve the efficiency of capital markets and to overcome the obstacles sourcing from their culture and civil law origin. With the adoption of these major economic and structural reforms, as a civil law origin country, Turkey has managed to ameliorate the protection of investors as in common law countries. Ferris et al. (2009) state that the catering theory is applicable to firms in common law countries but not in civil law countries. In addition, prior research is not so extensive regarding the impact of catering incentives on the dividend policy of firms in emerging markets. The results of the analyses suggest that the catering theory is valid for Turkey as a civil law origin emerging country, and to the best of authors' knowledge, this study is the first to test the catering theory in the Turkish capital markets.
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– The purpose of this paper is to investigate how and why a firm’s product market power affects its dividend policy.
Abstract
Purpose
The purpose of this paper is to investigate how and why a firm’s product market power affects its dividend policy.
Design/methodology/approach
This paper uses three measures of market power? The degree of import competition, Herfindahl-Hirschman index, and Lerner Index? To examine how a firm’s product market power affects its dividend policy. Further, it proposes and tests a risk-based explanation for this impact.
Findings
This paper shows that market power positively affects the dividend decision, in terms of both the probability of paying a dividend and the amount of dividend payment. It also provides evidence that the route through which market power affects the dividend decision is business risk: firms with less market power are riskier and hence less likely to pay dividends than firms with more market power.
Practical implications
The results show that product market power may have played an important role in reshaping dividend policy of corporate America.
Originality/value
This study documents the relevance of market power behind dividend policy and therefore adds to the knowledge on the relationship between product markets and corporate financial policies, which is an important and understudied area of corporate finance.
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Ron Yiu Wah Ho, Roger Strange and Jenifer Piesse
This paper aims to examine the pricing effects of risks conditional on market situations.
Abstract
Purpose
This paper aims to examine the pricing effects of risks conditional on market situations.
Design/methodology/approach
The model used to test for the conditional pricing effects of risks is a modified version of Pettengill et al.'s cross‐sectional regression model, based on Hong Kong equity data.
Findings
The paper postulates a five‐factor asset pricing model, which hypothesizes that five risk factors are relevant in the pricing of equity stocks, namely beta, size, book‐to‐market equity, market leverage, and share price, but conditional on market situations, i.e. whether the market is up or down.
Practical implications
The findings enrich our understanding of capital market behaviour, and should prove helpful to investors and corporate managers in both their domestic and international financial decisions.
Originality/value
This study yields important results on a Chinese market, which lend support to the conditional risk pricing hypotheses originally developed in the US, implying that conditional risk pricing is applicable not only in the US market but also in other markets around the globe.
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Jonathan Ross, Linna Shi and Hong Xie
The purpose of this paper is to investigate country-level and firm-level determinants of within-country accounting comparability for 16 European Union countries plus the USA in…
Abstract
Purpose
The purpose of this paper is to investigate country-level and firm-level determinants of within-country accounting comparability for 16 European Union countries plus the USA in the post-International Financial Reporting Standards adoption period.
Design/methodology/approach
The authors use ordinary least squares regression to test the hypotheses with a correction for heteroscedasticity.
Findings
The authors find that firms in countries with rules-based accounting, higher quality public auditor work environments, stricter enforcement of accounting standards and more reliance on equity-market financing have higher within-country comparability with each other. At the firm-level, the authors find that firms which are larger, engage in less earnings management, and have lower return-on-asset volatility have higher within-country comparability with each other.
Research limitations/implications
The authors use one measure of accounting comparability. Alternative measures of accounting comparability could test the hypotheses more completely.
Practical implications
The findings of the paper may help the regulators make more efficient policies to establish an efficient financial market within their country.
Originality/value
The paper is the first, to the authors’ knowledge, to identify country-level and firm-level determinants of within-country accounting comparability. It contributes to the accounting literature by completing the theory of international accounting comparability from the within-country perspectives, as prior literature focuses on the cross-country perspective of international accounting comparability.
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Alex Meisami, Sung-Jin Park and Mohammad Meysami
We conducted this study to examine the relationship between revenue concentration and a firm's financial leverage. We aimed to analyze whether revenue concentration influences a…
Abstract
Purpose
We conducted this study to examine the relationship between revenue concentration and a firm's financial leverage. We aimed to analyze whether revenue concentration influences a firm's capital structure decisions and whether this relationship is driven by customer-specific investments or the direct effect of revenue concentration itself. Additionally, we investigated the role of asset redeployability in mediating or moderating the relationship between revenue concentration and financial leverage.
Design/methodology/approach
The paper investigates the relationship between revenue concentration and a firm's financial leverage. The results indicate a negative association between revenue concentration and financial leverage. This finding holds across various regression models and is statistically significant. Furthermore, the paper explores the potential role of asset redeployability in explaining the relationship between revenue concentration and financial leverage. The results indicate that even after controlling for asset redeployability, the negative relationship between revenue concentration and leverage remains significant, suggesting that revenue concentration affects capital structure decisions independently of the risks associated with relationship-specific investments. Robustness tests are conducted using a three-stage least squares approach to account for the simultaneity between revenue concentration, asset redeployability and capital structure.
Findings
Our findings demonstrate that revenue concentration is negatively associated with financial leverage, even after accounting for asset redeployability. This suggests that revenue concentration affects capital structure decisions independently of the risks associated with customer-specific investments. Furthermore, we performed robustness tests to address potential simultaneity issues between revenue concentration, asset redeployability and capital structure.
Research limitations/implications
The study relies on available data sources, which may have inherent limitations in terms of accuracy, completeness or consistency. The quality of the data used in the analysis could impact the robustness of the findings. Time Period: The study focuses on more recent years, which might limit the ability to compare the findings with studies conducted over different time periods. Historical trends or structural changes that could impact the relationship between revenue concentration and financial leverage might not be fully captured.
Practical implications
Firms with higher revenue concentration tend to have lower financial leverage. Recent years show a negative relationship between profitability and market leverage compared to earlier periods. Revenue concentration has a distinct effect on financial leverage, not fully explained by risks from relationship-specific investments or asset redeployability. Insights for firms in managing capital structure decisions, considering revenue concentration and its implications for leverage.
Originality/value
This research is one of the first papers that investigates the impact of revenue concentration on the capital structure choices of firms. By exploring the relationship between revenue concentration and financial leverage, the study contributes to the existing literature by shedding light on an underexplored area. Thus, this study adds originality to the field by addressing a research gap and contributing to the understanding of the relationship between revenue concentration and capital structure choices.
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Steven A. Dennis, Prodosh Simlai and Wm. Steven Smith
Previous studies have shown that stock returns bear a premium for downside risk versus upside potential. We develop a new risk measure which scales the traditional CAPM beta by…
Abstract
Previous studies have shown that stock returns bear a premium for downside risk versus upside potential. We develop a new risk measure which scales the traditional CAPM beta by the ratio of the upside beta to the downside beta, thereby incorporating the effects of both upside potential and downside risk. This “modified” beta has substantial explanatory power in standard asset pricing tests, outperforming existing measures, and it is robust to various alternative modeling and estimation techniques.
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Alyta Shabrina Zusryn, Muhammad Rofi and Rizqi Umar Al Hashfi
Environmental, social, and governance (ESG) issues have recently received much attention. This research investigates the daily performance of socially responsible investment…
Abstract
Environmental, social, and governance (ESG) issues have recently received much attention. This research investigates the daily performance of socially responsible investment (SRI). To do that, the authors construct portfolios consisting of the SRI, non-SRI, and matched non-SRI. The portfolios can be compared with the market benchmark based on α adjusted asset pricing models. Due to using high-frequency data, the authors use ARCH/GARCH to deal with time-varying volatility. Moreover, the authors also utilized Fama–MacBeth pooled regression to confront the SRI stocks and the non-SRI counterpart. In sum, the findings of this study confirm the superior performance of the value-weighted (VW) SRI portfolio against the market. On a head-to-head basis, the SRI yields a higher return than the non-SRI. The results are robust in the quarterly analysis. It is essential for investors that put their money in socially responsible (SR) portfolios to either promote sustainable development or chase a return on it.
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