Search results

1 – 10 of 17
To view the access options for this content please click here
Article

Lawrence Kryzanowski and Trang Phuong Tran

This paper aims to test the extent to which downward bias due to a floating-point exception in probability of informed trading (PIN) estimates obtained using the Easley…

Abstract

Purpose

This paper aims to test the extent to which downward bias due to a floating-point exception in probability of informed trading (PIN) estimates obtained using the Easley, Hvidkjaer and O’Hara (EHO; 2002) method is remedied using the Yan and Zhang (YZ; 2012) method. The paper also aims to test the sample-size sensitivity of EHO PIN and identify PIN determinants for acquirers and targets in the biotech sector.

Design/methodology/approach

EHO and YZ PIN performances are compared for US biotech acquirers and targets around their mergers and acquisition (M&A) announcements. The sampling method of Kryzanowski and Lazrak (2007) is used to assess sample-size sensitivity of announcement window EHO PIN estimates. Cross-sectional regressions are estimated to identify PIN determinants.

Findings

EHO and YZ PIN are not significantly different. EHO PIN exhibits significant sample-size sensitivity. Information leakage prior to M&A announcements is strongly affected by some firm characteristics. Significant determinants of PIN behavior around M&A announcements include insider and institutional holdings and research and development (R&D) expense.

Research limitations/implications

Findings imply that PIN partially reflects the activities of insiders and other informed investors about takeover intentions. Subsequent research can examine PIN behavior around pre-announcement rumors for M&As in the same or other industries and for potential targets that are peers of the M&A targets.

Originality/value

This paper contributes to the ongoing debate in the empirical finance literature on whether PIN measures informed trading by examining its behavior and the importance of some methodological issues associated with its use in examining market behavior around M&A announcements.

Details

Studies in Economics and Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

To view the access options for this content please click here
Article

Ashrafee Tanvir Hossain and Lawrence Kryzanowski

The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on…

Abstract

Purpose

The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual-class firms, and on methodological issues that should be addressed in such research.

Design/methodology/approach

The research design consists of three parts: an introduction to dual-class firms (motivations for; firm life cycle effects) in Part 1; concerns with firms with such share class structures (valuation; governance; accounting and corporate policy issues) in Part 2; and some solutions or ways to accommodate the trade-offs involved with such share class structures (retention arguments; index/exchange exclusions; contractual provisions; external monitoring) in Part 3. Throughout the paper, the authors provide some critiques of existing studies, particularly from a methodological perspective, the authors’ opinion on the state of the literature and suggestions for future areas of research.

Findings

While motivations for the use of dual-class voting structures include flexibility so that the idiosyncratic vision of their entrepreneurs/founders can be pursued in a less encumbered fashion, greater innovation and long-term managerial orientation, there are many possible costs (e.g. underinvestment and managerial entrenchment) to this ownership structure. Nevertheless, the authors believe that such firms should have provisions in place that facilitate a reversion to a single-class structure longer term when such firms have become more mature, less dependent on the idiosyncratic vision of the entrepreneurs/founders at IPO and have attracted more managerial talent.

Originality/value

The literature arrives at no consensus on the benefits/drawbacks of this type of share ownership structure which means that many topics of research require further academic examination. The authors provide suggested directions for such future enquiries.

Details

Managerial Finance, vol. 45 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

Lingfeng Guo, Lawrence Kryzanowski and Yinlin Nie

The purpose of this paper is to test if relative asset purchase values (RAPVs) differ between single- and dual-class purchasers (not) differentiated by family ownership…

Abstract

Purpose

The purpose of this paper is to test if relative asset purchase values (RAPVs) differ between single- and dual-class purchasers (not) differentiated by family ownership for Canadian firms.

Design/methodology/approach

The paper uses multivariate regressions and 2SLS estimations of simultaneous equations models with both continuous and dichotomous endogenous variables. Data on share structures and family involvements are hand collected.

Findings

RAPVs for dual-class purchasers are significantly different (larger) than their single-class counterparts only for family-controlled samples. Larger RAPVs for dual-class purchases are associated with higher degrees of dual-class structures, higher family ownerships and with boards with no more than one family member.

Research limitations/implications

RAPV is important because of its common use as a primary determinant of the wealth effects of M&As, its use as an exchange-rate proxy in two-stage regressions used to determine the amount of abnormal returns attributable to short selling activity around M&A announcements, and its use as a channel for conveying information about deal complexity, seller’s bargaining power, additional monitoring benefits from purchase and/or greater challenges in incorporating a purchase into existing assets. Larger sample size would facilitate more differentiated examinations.

Practical implications

Findings imply that dual-class share structures assist family shareholders in elevating their control over corporate decisions involving asset purchases.

Social implications

This paper furthers the authors’ knowledge about the effects of agency issues on corporate decisions.

Originality/value

It provides an extension and robustness test of the US evidence for asset purchases by providing evidence for Canada given its greater preponderance of families as the ultimate controlling shareholders, restricted or subordinated voting shares issued and pyramidal structures.

Details

Managerial Finance, vol. 46 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

Ashrafee Tanvir Hossain and Lawrence Kryzanowski

The purpose of this paper is to review the relevant literature on the causes of and regulatory reactions to the financial crisis of the last decade, popularly known as the…

Abstract

Purpose

The purpose of this paper is to review the relevant literature on the causes of and regulatory reactions to the financial crisis of the last decade, popularly known as the “Global Financial Crisis (GFC)” or the “Housing Crisis” in the USA.

Design/methodology/approach

This review primarily focuses on the four main causes of the crisis, namely, excessive household leverage, securitization, corporate governance and credit ratings. The main reaction vis-à-vis recovery measures taken by most governments were quantitative easing (QE), bailouts and more stringent regulations of banks, though the discussion mainly focuses on QE.

Findings

In this paper, the authors summarize the literature on the causes and regulatory reactions to the GFC and propose future avenues of research for various topics.

Originality/value

Research on the GFC spans multiple disciplines as well as multiple facets of financial economics. A review paper such as this should help future researchers in generating ideas and gathering information for their research. Given that no review uncovers all worthy papers, the authors apologize in advance to the authors of any papers that the authors have inadvertently not reviewed in this paper.

Details

Managerial Finance, vol. 45 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

Lawrence Kryzanowski and Ying Lu

The purpose of this paper is to assess the market impact of announcements that publicly traded limited liability firms would convert to business income trusts, and to test…

Abstract

Purpose

The purpose of this paper is to assess the market impact of announcements that publicly traded limited liability firms would convert to business income trusts, and to test the robustness of the tax motive as the primary determinant of any conversion announcement effects by estimating the market impact of the announcement by the Canadian Federal Government that the corporate income of Canadian income trusts would be taxed at the trust level.

Design/methodology/approach

Event‐study methodology (including various tests of robustness) is used to examine the market impacts of the initial conversion announcement and the announcement that the corporate income of Canadian income trusts would be taxed at the trust level. Cross‐sectional regressions are used to identify the determinants of the market effect associated with income trust conversion announcements.

Findings

The paper finds that the market‐ and risk‐adjusted abnormal returns (ARs) are positive and very significant on the announcement dates and not significant on the conversion effective dates. The price discovery process is not as smooth for the Canadian government's announcement after the market close on Halloween day 2006, that it would tax income trusts at the trust level. While the ARs are negative and very significant on the first and second trading days after the announcement, much of the second day ARs are reversed in the subsequent two days. Furthermore, negative and significant ARs precede the government announcement. The market impact of trust conversion announcements is primarily related to the tax savings associated with such conversions and more weakly related to potential agency problems associated with free cash flows.

Research limitations/implications

The research indicates the importance of any taxation changes associated with changes in organization form on firm value. It also identifies the potential for informational leakage associated with government decisions.

Originality/value

The paper highlights the importance of taxes and tax changes and organization form changes on firm valuation.

Details

Managerial Finance, vol. 35 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

Wassim Dbouk and Lawrence Kryzanowski

Most of the credit spread literature deals with the determinants of credit spread changes for individual bonds. The purpose of this paper is to investigate the explanatory…

Abstract

Purpose

Most of the credit spread literature deals with the determinants of credit spread changes for individual bonds. The purpose of this paper is to investigate the explanatory power of credit spread changes and their determinants for portfolios.

Design/methodology/approach

Using ordinary least squares (OLS) regressions and monthly data from 1990 to 1997, this paper tests several new potential determinants (e.g. portfolio diversification) and expectations (and realizations) for some previously identified determinants (e.g. gross domestic product (GDP)) of credit spread changes for portfolios of financials as derived from spot curves.

Findings

Strong empirical support is reported that default risk and undiversified risk are priced in credit spreads. The paper finds that forecasts for GDP and inflation are better determinants of credit spread changes than the realized values previously used in the literature, which is consistent with the notion that term structures convey expectations about future interest rates.

Research limitations/implications

Interesting issues for future research include the sensitivity of the results to the use of other procedures for deriving zero‐coupon spot rates, and whether forecasts of macrovariables (such as GDP) are better determinants of credit spreads for other industrial categories, such as utilities and industrials.

Practical implications

The findings provide guidance for the management of risk for fixed income portfolios, for the pricing of fixed income securities differentiated by the difficulties encountered in achieving well‐diversified portfolios, and for assessing the performance of credit spread portfolios managed by financial institutions.

Originality/value

The empirical model, which achieves substantial explanatory power while being parsimonious, is the first to support the usage of forecasts instead of realized values in determining credit spreads, and to show that undiversifiable risk is an important component of the credit spreads of portfolios.

Details

Studies in Economics and Finance, vol. 27 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

To view the access options for this content please click here
Article

Zhongzhi (Lawrence) He and Lawrence Kryzanowski

Researchers have proposed characteristics‐based pricing models as an alternative to risk‐based pricing models. While supported empirically, these characteristic‐based…

Abstract

Purpose

Researchers have proposed characteristics‐based pricing models as an alternative to risk‐based pricing models. While supported empirically, these characteristic‐based models lack theoretical support. This paper seeks to reformulate an asset‐pricing model (RAPM) to demonstrate why firm characteristics help to explain stock returns.

Design/methodology/approach

The RAPM is grounded in an economic setting where two groups of agents hold different beliefs about firm fundamental values, and the more sophisticated group (rationals) adopts contrarian strategies against the naïve group (quasis). The model is derived in a static equilibrium within the consumption‐investment framework with heterogeneous agents.

Findings

The key theoretical result is a parsimonious equation of cross‐sectional expected returns that not only are specified by the traditional risk‐return relation, but also are determined by contrarian adjustments at both market‐wide and firm‐specific levels. When the model is taken to empirical specifications, it leads to consistent explanations for the behaviors of growth and value stocks, and for size and book‐to‐market effects.

Research limitations/implications

The RAPM is a one‐period model that assumes that “rationals” have perfect knowledge about “quasis” sentiment parameter and their relative market weights. In future research, it is planned to extend this static model to multiple periods to incorporate a learning process by which “rationals” learn these parameters over time.

Practical implications

The RAPM clearly identifies four criteria for implementing arbitrage opportunities in investments. These criteria formalize the common practices in the mutual/hedge fund industry.

Originality/value

The paper develops an original framework that formally supports the characteristics‐based models. It offers insights for researchers in behavioral finance and guidelines for investment practitioners.

Details

Studies in Economics and Finance, vol. 23 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

To view the access options for this content please click here
Article

Claudia Champagne and Lawrence Kryzanowski

The purpose of this paper is to study the impact of cross‐listing and cross‐listing location on the terms of the private debt of firms not located in the USA…

Abstract

Purpose

The purpose of this paper is to study the impact of cross‐listing and cross‐listing location on the terms of the private debt of firms not located in the USA. Specifically, the paper examines the empirical relationship between three syndicated loan terms (pricing, maturity and amount) at loan initiation and the cross‐listed status of the borrower (cross‐listed in the USA, UK, through depository receipts or not at all), while (not) differentiating between the stage of economic development of the borrower's home country.

Design/methodology/approach

The three loan terms are modeled as a simultaneous system of equations and are estimated on a very extensive sample of 3,883 observations. The impact of endogeneity biases due to the sequential choices to and where to cross‐list are examined using the inverse Mill's ratios from a bivariate probit model.

Findings

All else held equal, foreign borrowers that are cross‐listed directly in the UK obtain loans with higher spreads, longer maturities and larger loan amounts if they are from economically developed countries. Borrowers from emerging economies pay lower spreads but receive shorter maturities on syndicated loans if cross‐listed in the UK. Cross‐listings in the USA are not associated with any significant differential impacts on the three loan terms.

Originality/value

This paper makes an important contribution to the cross‐listing and capital structure literatures by providing evidence that the net benefit from being cross‐listed for one debt component of the cost of capital (i.e. syndicated loans) depends on the listing destination and upon whether or not the borrower is from an emerging economy. The paper provides practical guidance to corporate financial officers on the benefits of international cross‐listing and the choice of cross‐listing venues on the terms of private debt issues.

Details

Managerial Finance, vol. 35 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

Robert WT Leung and Mandy Li

This study examines whether the Hong Kong stock market overreacts. By using monthly return data of all the common stocks listed on the Hong Kong Stock Exchange from…

Abstract

This study examines whether the Hong Kong stock market overreacts. By using monthly return data of all the common stocks listed on the Hong Kong Stock Exchange from January 1980 to December 1995, it examines the profitability of a contrarian strategy of buying prior losers and selling prior winners. The evidence shows that prior losers outperform prior winners by up to 68.59% in the subsequent five‐year test period. This finding can be interpreted as investors' tendency to react over‐optimistically to positive information and over‐pessimistically to negative information, thus causing stock prices to take temporary swing away from their intrinsic values and then reverse back subsequently. Our result is consistent with that documented by Debondt and Thaler (1985) for the U.S. market. This study also investigates whether seasonality accounts for the abnormal return but finds that the overreaction effect is not caused by the well‐known January effect. Further tests are conducted to investigate whether changes in betas of the winners and losers account for the abnormal return. The evidence shows that such changes are also minor, which cannot explain the price reversal phenomenon.

Details

Asian Review of Accounting, vol. 6 no. 2
Type: Research Article
ISSN: 1321-7348

To view the access options for this content please click here
Article

Lee Sarver and George C. Philippatos

This study explores the nature of the spot foreign exchange risk premium. Employing Ross's Arbitrage Pricing Theory (APT) as a vehicle, it tests the hypothesis that…

Abstract

This study explores the nature of the spot foreign exchange risk premium. Employing Ross's Arbitrage Pricing Theory (APT) as a vehicle, it tests the hypothesis that cross‐sectional differences in pure currency returns depend on measures of systematic (covariance) risk. These tests have greater power, in the sense of an enhanced ability to reject the hypothesis, since they explicitly allow for the possibility that idiosyncratic risk is priced. A battery of tests is unable to reject the hypothesis that expected exchange returns can be explained by a single‐factor APT. One implication of these results is that official intervention in exchange markets is unnecessary and undesirable.

Details

Managerial Finance, vol. 19 no. 3/4
Type: Research Article
ISSN: 0307-4358

1 – 10 of 17