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Article
Publication date: 20 January 2023

He Xiao, Jianqun Xi and Hanjie Meng

This study aims to investigate the impact of mandatory audit partner rotation (MAPR) on Chinese listed firms’ insider trading, as well as the moderating effects of firm…

Abstract

Purpose

This study aims to investigate the impact of mandatory audit partner rotation (MAPR) on Chinese listed firms’ insider trading, as well as the moderating effects of firm characteristics on this impact. The economic mechanism behind this impact is also explored.

Design/methodology/approach

This study conducts a regression analysis on firms associated with mandatory and voluntary audit partner rotation based on 2009–2019 firm data and examines whether corporate insiders of these two types of firms increase their share sales within 12 months before their financial statements are submitted to a new rotated auditor.

Findings

Client firms’ corporate insiders increase their share sales within 12 months before their financial statements are submitted to a new mandatory rotated auditor. In addition, such an association is less pronounced for client firms that changed from Big 4 auditors to those with higher financial constraints. This is more pronounced for client firms with higher information asymmetry. The economic mechanism of the finding is that is the MAPR implementation reduces earnings management activities from client firms. Moreover, client firms’ buy-and-hold stock returns decline in the first year after MAPR.

Research limitations/implications

This study should assist investors, corporate shareholders and Chinese policymakers. Investors can be well protected through the adoption of MAPR because upcoming auditors enhance the audit quality of clients by restraining managers’ manipulation of reported earnings and declining firms’ insider trading afterwards. Investors, Chinese policymakers and corporate shareholders should pay more attention to firms’ financial report quality, auditor selection, financial situation, corporate governance and the information environment. Explicitly, firms with less transparent financial report quality, non-big 4 auditors and fewer financial constraints are more likely to be involved in insider trading.

Originality/value

To the best of the authors’ knowledge, none of the extant studies have examined the impact of MAPR on insider sales. This study extends the research on the effect of the audit process on firm market performance by investigating the impact of audit partner rotation policy on insider trading behaviors.

Details

Managerial Auditing Journal, vol. 38 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Open Access
Article
Publication date: 21 February 2024

Mostafa Saidur Rahim Khan

This study delves into the nuanced implications of short-sale constraints on stock prices within the context of stock market efficiency. While existing research has explored this…

Abstract

Purpose

This study delves into the nuanced implications of short-sale constraints on stock prices within the context of stock market efficiency. While existing research has explored this relationship, inconsistencies persist in their findings. The purpose of this study is to conduct a comprehensive review of literature to elucidate the reasons behind these disparities.

Design/methodology/approach

A systematic review of existing theoretical and empirical studies was conducted following the PRISMA method. The analysis centered on discerning the factors contributing to the divergence in projected stock prices due to these constraints. Key areas explored included assumptions related to expectations homogeneity, revisions, information uncertainty, trading motivations and fluctuations in supply and demand of risky assets.

Findings

The review uncovered multifaceted reasons for the disparities in findings regarding the influence of short-sale constraints on stock prices. Variations in assumptions related to market expectations, coupled with fluctuations in perceived information uncertainty and trading motivations, were identified as pivotal factors contributing to differing projections. Empirical evidence disparities stemmed from the use of proxies for short-sale constraints, varied sample periods, market structure nuances, regulatory changes and the presence of option trading.

Originality/value

This study emphasizes the significance of not oversimplifying the impact of short-sale constraints on stock prices. It highlights the need to understand these effects within the broader context of market structure and methodological considerations. By delineating the intricate interplay of factors affecting stock prices under short-sale constraints, this review provides a nuanced perspective, contributing to a more comprehensive understanding in the field.

Details

Journal of Capital Markets Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2514-4774

Keywords

Article
Publication date: 22 June 2012

Tse‐Chun Lin

The purpose of this paper is to take advantage of a natural experiment in Taiwan to test the effect of short‐sales constraints on price dynamics.

Abstract

Purpose

The purpose of this paper is to take advantage of a natural experiment in Taiwan to test the effect of short‐sales constraints on price dynamics.

Design/methodology/approach

Since September 1998, short‐selling is banned at a price below the close price of the previous trading day. The new rule creates unique daily dynamics of short‐sales constraints. The paper employs a difference‐in‐difference method to evaluate whether the short‐sales constraint rule plays an important role in the price dynamics.

Findings

The results show that stock prices react to information in a way similar to if short‐selling was not banned. This is in line with the implication of a rational expectation framework like Diamond and Verrecchia.

Research limitations/implications

The paper has implications on the short selling bans in the 2008/2009 credit crisis and the European debt crisis because the bans are public information as those in this setting. The rational agents in the market could incorporate the bans into price beliefs which could lead to the ineffectiveness of the policy. The short‐sales constraints may be widely imposed in the crisis but they are not the effective tools to alleviate downward price pressures.

Practical implications

The results suggest that the effort of the government to boost stock price by imposing short sales constraints will not be effective if rational investors take the constraints into account while forming their beliefs.

Originality/value

Unlike existing short‐sales constraint proxies like short interest or lending fees, the dynamic constraints do not suffer from endogeneity. Moreover, the constraints are public information and thus ideal for testing the rational expectation models, in which investors have to be aware of the level of the constraints.

Details

International Journal of Managerial Finance, vol. 8 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 23 March 2021

Daniel Dupuis, Virginia Bodolica and Martin Spraggon

Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two…

Abstract

Purpose

Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two modified metrics, the free-float liquidity and the alternative free-float illiquidity ratios. These measures are well suited to estimate liquidity in the presence of trading constraints, as can be found in closely held/state-owned entities, IPOs/SEOs with lockup restrictions, dual-class share structures and family-owned businesses.

Design/methodology/approach

The authors modify the turnover illiquidity ratio, where the number of outstanding shares is scaled by the public free float, and use natural log transformation to normalize free-float liquidity. Our dataset is composed of daily observations for US stocks included in the S&P 500 index over the 2015–2018 period. To test the validity of free-float (il)liquidity ratios, the authors perform a correlation analysis for various liquidity metrics. To examine their empirical efficiency, the authors employ pooled OLS regression models for family firms as a subsample of liquidity-constrained entities, relying on five different identifiers of family-owned businesses.

Findings

The authors’ empirical testing indicates that the proposed free-float (il)liquidity ratios compare favorably with other volume-based methods, such as Amihud's ratio, liquidity ratio and turnover ratio. For the subsample of family organizations as a restricted-share setting, the authors report significant coefficients for our free-float measures across all the family firm identifiers used. In particular, as free-float decreases with progressive family influence, the advanced ratios capture an increase (decrease) in perceived liquidity (illiquidity) that is absent in the other benchmarks.

Originality/value

This study allows the authors to inform the ongoing debate on the management and governance of publicly listed companies with various impediments to trade. Traditional measures understate illiquidity (overstate liquidity) as the fraction of free trading shares is limited by design or circumstances. The authors’ proposed free-float metrics offer informational gains for family leaders to aid in their financing decisions and for non-family outsiders to guide their investment choice. As a constrained free float inhibits price discovery processes, the authors discuss how restricted stock issuers may alleviate the attendant negative effects on governance and information opacity.

Article
Publication date: 1 March 2004

Stuart Galloway, Keshav Dahal, Graeme Burt and James McDonald

Market liberalisation has resulted in significant changes not only in the way electricity is traded, but also for the market participants themselves. The bidding behaviour of…

Abstract

Market liberalisation has resulted in significant changes not only in the way electricity is traded, but also for the market participants themselves. The bidding behaviour of market participants who are active in a liberalised UK‐like market has been modelled. Both operational and technical parameters associated with the market and its participants are accounted for. Explicit characterization of risk (value at risk) is made with respect to market participants and their attitude to trading. Profit maximization strategies for market participants are then developed based on the minimization of price‐risk under uncertainty. Results are presented for a selected case study and the effect of alternative strategies is compared. The case study concerns several generators who need to determine what proportion of their production they should sell to the market. The results show that based on cost and price forecasts there is scope for generators to profitably take advantage of both contractual and within‐day market trades.

Details

COMPEL - The international journal for computation and mathematics in electrical and electronic engineering, vol. 23 no. 1
Type: Research Article
ISSN: 0332-1649

Keywords

Article
Publication date: 6 February 2017

Emmanuel Igbinoba

This paper aims to test the political-economy hypothesis that country sizes are related with constraints associated with Chinese trade.

Abstract

Purpose

This paper aims to test the political-economy hypothesis that country sizes are related with constraints associated with Chinese trade.

Design/methodology/approach

This study applies a generalized linear mixed approach on panel data of Southern African (henceforth SADC) economies from 2001 to 2014 to observe common Chinese trade patterns among SADC countries.

Findings

Empirical results support the hypothesis that structural differences exist and smaller SADC countries are disadvantaged in their trade relations with China.

Research limitations/implications

This paper is exploratory by nature. Its scope and the depth of analysis is constrained by data availability.

Originality/value

The manuscript has been approved by the author and has never been published, or has been considered for publication elsewhere.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 10 no. 1
Type: Research Article
ISSN: 1754-4408

Keywords

Book part
Publication date: 18 August 2006

Michele Fratianni

Two fundamental reasons that account for the domestic bias of consumption are distance and borders. Distance proxies for unobservable trading costs, which include, among other…

Abstract

Two fundamental reasons that account for the domestic bias of consumption are distance and borders. Distance proxies for unobservable trading costs, which include, among other things, transport and administrative costs. Distance is a powerful deterrent to international trade. This fact is illustrated by considering the situation of Bahrain and Qatar, Belgium and India, and Indonesia and Guyana, which are, respectively, the closest (55.5mi), the median (4,414.7mi), and the farthest (12,351.1mi) country pairs in a large sample of bilateral trade flows (see Chapter 2). For Bahrain and Qatar, distance is estimated to reduce the estimate of bilateral trade flows by 39%; for Belgium and India, the reduction is 58%; for Indonesia and Guyana, the reduction is 121% (it exceeds the value of bilateral transactions). The success of the gravity model in explaining bilateral trade flows is due, to no small measure, to distance. For example, the standard trade model of complete specialization, without trading costs, makes two strong predictions. The first is that a country will import goods from all other countries in the world and the second that bilateral trade flows are proportional to the income of the two countries. Both predictions are way off the mark. Countries import from a small fraction of the potential pool of exporters and incomes alone over-predict actual trade flows by a large margin.

Details

Regional Economic Integration
Type: Book
ISBN: 978-0-76231-296-2

Article
Publication date: 31 August 2012

Shengfei Han and Pei He

The purpose of this paper is to develop a new approach to market analysis, and test how the China‐US soybean market integration and arbitrage efficiency have changed across…

Abstract

Purpose

The purpose of this paper is to develop a new approach to market analysis, and test how the China‐US soybean market integration and arbitrage efficiency have changed across 1995/1‐/2004/1 – a period covering strengthened government efforts to join WTO, and the institutional changes following WTO accession.

Design/methodology/approach

The authors employ a regime‐switching model with parametric, semi‐parametric, and nonparametric measures to discern different market conditions in the sample period, as well as detect the structural shifts over time. Three types of data – expected prices, transaction costs, and trade flow – are used for the analysis.

Findings

Results of the analysis indicate better integration over time, but deteriorating efficiency. The markets often departed from efficient arbitrage throughout the study periods, and counter‐intuitively worsened after China's elimination of quota in 1999, and accession to WTO in 2001. One other interesting finding is that the state monopoly practice in soybean trading during the early periods produced seemingly competitive equilibrium price relationships.

Originality/value

The paper is an original work that provides policy implications regarding the impacts and effectiveness of government policies on China's international soybean markets, the remaining bottlenecks, and the challenge to both Chinese soybean farmers and the US exporters. The method of identifying trade variation in a price model and the combination of parametric and semi‐parametric analyses with comprehensive data further permits more accurate and intuitive interpretations previously unavailable.

Details

China Agricultural Economic Review, vol. 4 no. 3
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 19 November 2018

Rabia Manzoor, Abbas Murtaza Maken, Shujaat Ahmed Syed and Vaqar Ahmed

This study aims to examine the possible gains and challenges for the enhancement of bilateral trade ties between India and Pakistan. It is interested specifically in analyzing and…

Abstract

Purpose

This study aims to examine the possible gains and challenges for the enhancement of bilateral trade ties between India and Pakistan. It is interested specifically in analyzing and deliberating an attempt to identify the key challenges and bottlenecks in cross-border trade.

Design/methodology/approach

This paper offers in-depth case study of trade between India and Pakistan using time-series data and through various stake holders' interviews. As further discussed in the paper, the data investigation and interviews highlight impediments in India–Pakistan trade from trade policy to other policies involved in this process.

Findings

Based on time series data and stakeholders’ interviews, the study concludes that poor trade logistics and abysmal transport infrastructure, high tariffs and non-tariff measures, lengthy customary procedures, heavy import duties, port restrictions, lack of appropriate storage facilities, strict visa regime, financial transaction barriers and lack of telecommunication facilities are the major challenges in the way of regional trade.

Originality/value

The study proposes some key reforms and policy measures to boost the formal trade to minimize the trade obstacles such as public–private partnerships and inclusion of private sector in a joint trade commission to strength the business relations between the two countries.

Details

Journal of International Trade Law and Policy, vol. 18 no. 1
Type: Research Article
ISSN: 1477-0024

Keywords

Abstract

Details

The Peace Dividend
Type: Book
ISBN: 978-0-44482-482-0

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