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Audit quality studies document that accruals decrease when the audit firm is large, or the audit firm is an industry specialist, or the audit‐client tenure is long. The purpose of this paper is to posit that incentives related to highly‐valued equity mitigate these results, as managers use income increasing accruals to augment earnings.

To test this assertion, the authors regress discretionary accruals on: controls, a highly valued equity indicator variable equal to 1 if the client's lagged price‐to‐earnings ratio is in the highest P/E quintile, indicator variables equal to 1 for alternative measures of audit quality, and interaction terms between the highly valued equity indicator variable and audit quality indicator variables.

Results of tests show positive and statistically significant coefficients for each of the highly‐valued equity‐audit quality interaction terms, suggesting that when a firm is highly valued the accruals' decreasing effect of high quality auditors is reduced.

Beginning with Jensen's article regarding the agency costs of overvalued equity, a stream of research examining factors associated with highly priced firms has developed. The paper extends these findings, as well as the considerable body of audit quality studies, by examining the ability of a high quality auditor to attenuate this result.

The purpose of this paper is to contribute to the literature on seasoned equity offerings (SEOs) by examining the underpricing of European real estate corporations and identifying determinants explaining the phenomenon of setting the offer price at a discount at SEOs.

With a sample of 470 SEOs of European real estate investment trusts (REITs) and real estate operating companies (REOCs) from 2004 to 2018, multivariate regression models are applied to test for theories on the pricing of SEOs. This paper furthermore tests for differences in underpricing for REITs and REOCs as well as specialized and diversified property companies.

Significant underpricing of 3.06 percent is found, with REITs (1.90 percent) being statistically less underpriced than REOCs (5.08 percent). The findings support the market timing theory by showing that managers trying to time the equity market gain from lower underpricing. Furthermore, underwritten offerings are more underpriced to reduce the risk of the arranging bank, but top-tier underwriters are able to reduce offer price discounts by being more successful in attracting investors. The results cannot support the value uncertainty hypothesis, but they are in line with placement cost stories. In addition, specialized property companies are subject to lower underpricing.

An optimal issuance strategy taking into account timing, relative offer size and the choice of the underwriter can minimize the amount of “money left on the table” and therefore contribute to the lower cost of raising capital.

This is the first study to investigate SEO underpricing for European real estate corporations, pricing differences of REITs and REOCs in seasoned offerings and the effect of market timing on the pricing of SEOs.

The purpose of this research note is to examine the association between overvalued equities and audit fees in the USA.

The paper employs a standard audit fee regression model incorporating proxies for overvalued equities and controls for other known determinants of audit fees. Three proxies for overvaluation are used in this paper. These are: a lagged price‐earnings‐based overvaluation measure; a lagged price‐to‐book‐based overvaluation measure; and finally, a lagged abnormal‐return‐based overvaluation proxy measure.

Findings show that auditors charge higher audit fees for clients posing increased audit risks because of equity overvaluation, that this relationship did not change during and after the global financial crisis period, and is more pronounced for firms prone to aggressive earnings management.

This finding should assure investors about audit quality, since the positive finding potentially implies that auditors exert extra audit effort in auditing financial statements of firms that have been identified as overvalued. This finding should also provide some evidence to audit regulators that the audit profession incorporates audit risk into audit pricing. However, since no test has been conducted to identify the association between clients' business risk and audit effort, the positive association between equity overvaluation and audit fees should be interpreted in light of this limitation.

Jensen cautions that firms with overvalued equities suffer substantial agency costs. Although empirical research has documented managerial responses to overvaluation, there exists scant empirical evidence on auditors' response to the increased risk emanating from equity overvaluation. Since external auditors perform a significant role in ensuring the credibility of financial statements, it is important to understand whether auditors efficiently price this risk while determining audit fees.

The purpose of this paper is to investigate how the innovative firm’s proprietary information has an impact on its debt financing preference. This study also examines the impact of industry-level competition on the debt financing orders and investigates how two exogenous shocks impacted on innovative firms’ financing policies.

This paper uses the three types of debt data, including bonds, private debt placements and bank loans and patent application data, in the USA from 1987–2008. The number of patents applications and industry-level competition are used as proxies for a firm’s innovation and industry-level sensitivity. In addition, to minimize endogenous concern, this study uses the propensity score matching analysis and difference-in-differences.

The patents are the primary determinants for innovative firms to choose the debt types. The paper shows that innovative firms have the debt preference order – public debt, private placement and bank loans. However, as competition increases, innovative firms devise the order reverse. Finally, the paper provides evidence that the American Inventor’s Protection Act (AIPA) and the tech bubble crash made investors depend more on firms with more patents.

This paper is the first to study the impact of the AIPA on innovative firms’ financial policies using the propensity score matching analysis. The findings imply that both patents and industry-level competition are important factors to understand the capital structures for innovative firms.

The purpose of this paper is to examine the ways in which stock market valuation and managerial incentives jointly affect merger and acquisition (M&A) decisions and post‐M&A performance, and to provide new evidence on the agency implications where such acquisitions are driven by the stock market.

Utilizing all publicly‐traded US firms in the NYSE, AMEX and NASDAQ during the period from 1992 to 2005 (excluding financial and utility firms), obtained from COMPUSTAT, CRSP, I/B/E/S, and the M&A database provided by SDC Platinum, this paper adopts a two‐stage approach: the first stage, predicts the probability of an M&A based on the market valuation variables; the second stage, regresses the post‐M&A firm performance on the predicted probability of a merger or acquisition from the first stage and other control variables.

Market valuation has a significant influence on corporate acquisition decisions, particularly for those firms whose compensation packages include less managerial equity ownership, more executive stock options and no long‐term incentive plans, and in those firms where CEOs are serving on the board of directors. The value‐destroying acquisitions made by these types of managers are likely to be financed using the firms' stocks, executed with high premiums and undertaken during periods of high market valuation.

The main finding suggests that market‐driven acquisitions could be value destroying when managers engage in opportunistic acquisitions for reasons of self‐interest. Managerial myopia, overconfidence, misaligned incentives, empire‐building motives and poor corporate governance can all exacerbate the agency problem of market‐driven acquisitions.

In this chapter we analyze the role of financial factors in the undertaking of cross-border acquisitions. We discuss financial firm-specific advantages as drivers of these acquisitions as well as the role of the development of the home financial market in exploiting these advantages. Based on a sample of 1,447 European firms' cross-border acquisitions amounting to a total of 566 acquisitions spanning from 0 to 18 for individual firms, we find strong evidence in favor of a cost-of-equity effect on the occurrence of FDI, whereas the stand-alone effect of debt costs is indeterminate. However, allowing firm-specific financial characteristics to be conditioned by home-country financial development, both equity costs and debt costs are found highly significant explanatory factors for cross-border acquisitions undertaken by the sample firms.

The purpose of this paper is to explore the role of perceived fit and brand personality as means of building the brand equity of the sponsor in a basketball sponsorship setting both for team fans (fans) and fans of a rival team (rivals).

The sponsorship deal between Microsoft (X-BOX), a global software company, and Panathinaikos BC, a popular basketball team located in Athens, Greece, was selected for this examination. Empirical data were collected through self-administered questionnaires from 222 fans and 271 rivals. Structural equation modeling was run to test the research hypotheses.

Results provided evidence that brand personality mediates the effect of fans’ perceived fit evaluations on brand equity variables. No mediation of brand personality was found for rivals, as perceived fit did not significantly affect either positively or negatively any of the brand equity variables for those study participants.

The timing of data collection, which took place a short period after the sponsorship deal was announced, the low degree of rivalry reported as well as the fact that sponsorship activation initiatives were not taken into consideration are seen as limitations of this study. Suggestions for future research that would address each of these limitations are offered.

The study contributed theoretically to sport sponsorship literature by introducing the concept of brand personality as a means to enhance sponsors’ brand equity in a basketball sponsorship setting for both team fans and rivals. Interesting managerial implications have emerged for marketing managers of both sponsors and sponsees.

This is one of the very few studies that propose a process by which sponsors can deal with rivals’ negative associations, uncovering opportunities that may exist for companies in sponsoring competing teams.

The internal factors that influence the decision to change dividend growth rates include two competing models: the earnings and free cash flow models. As far as each of the components of each model is considered, the informative and efficient dividend payout decisions require that managers have to focus on the significant component(s) only. This study examines the cointegration, significance, and explanatory power of those components empirically. The expected outcomes serve two objectives. First, on an academic level, it is interesting to examine the extent to which payout practices meet the premises of the earnings and free cash flow models. The latter considers dividends and financing decisions as two faces of the same coin. Second, on a professional level, the outcomes help focus the management’s efforts on the activities that can be performed when considering a change in dividend growth rates.

This study uses data for the firms listed in two indexes: Dow Jones Industrial Average (DJIA30) and NASDAQ100. The data cover quarterly periods from 30 June 1989 to 31 March 2011. The methodology includes (a) cointegration analysis in order to test for model specification and (b) classical regression in order to examine the explanatory power of the components of earnings and free cash flow models.

The results conclude that: (a) Dividends growth rates are cointegrated with the two models significantly; (b) Dividend growth rates are significantly and positively associated with growth in sales and cost of goods sold only. Accordingly, these are the two activities that firms’ management need to focus on when considering a decision to change dividend growth rates, (c) The components of the earnings and free cash flow models explain very little of the variations in dividends growth rates. The results are to be considered a call for further research on the external (market-level) determinants that explain the variations in dividends growth rates. Forthcoming research must separate the effects of firm-level and market-level in order to reach clear judgments on the determinants of dividends growth rates.

This study contributes to the related literature in terms of offering updated robust empirical evidence that the decision to change dividend growth rate is discretionary to a large extent. That is, dividend decisions do not match the propositions of the earnings and free cash flow models entirely. In addition, the results offer solid evidence that financing trends in the period 1989–2011 showed heavy dependence on debt financing compared to other related studies that showed heavy dependence on equity financing during the previous period 1974–1984.

The traditional discounted cash flows (DCF) valuation procedure used by financial analysts assumes that firms maintain a policy of fixed debt. However, empirical evidence suggests that many firms rebalance their debt. This paper seeks to explore the implication of this discrepancy for valuation of firms that undergo a capital structure change.

The approach taken is both theoretical and empirical.

The authors show how the valuation process should be modified for firms that are expected to rebalance their debt and demonstrate the distortion in value that results if the traditional DCF valuation procedure is used instead. Furthermore, they illustrate the significance of their results using a sample of the largest largest leveraged buyouts of the current decade.

To the authors' knowledge, this is the first investigation into this issue.

This paper (which is Part 1 of 2) seeks to explore the development and implementation of good corporate governance in the financial services industry in Nigeria.

The paper reflects upon the identification of current problems and official legislative responses in Nigeria and tests the policy and theory against actual responses and practices.

With the collapse of such mega companies as Enron in the USA and the near‐collapse symptoms observed in such a relatively big company as Cadbury Nigeria, such research as this, on the issue of compliance or otherwise with corporate governance practices by organizations, could not have been undertaken at a more appropriate time than now. Considering the ever‐increasing scope and complexity of the subject, which cannot be covered by a single project, the particular focus here is on the impact of the Companies and Allied Matters Act (1990) and the Insurance Act (2003) on the Boards of insurance companies in Nigeria. In other words, do the said statutes contain sufficient provisions and sanctions to ensure effective performance by Boards of insurance companies in Nigeria?

While this research paper may not claim to fill this gap completely, it is hoped that it will create sufficient awareness to serve as a springboard for effective entrenchment and enforcement of corporate governance practices in the Nigerian financial services industry (including insurance) in particular and the economy in general.