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1 – 10 of 70Young-Won Her, Jennifer Howard and Myungsoo Son
The purpose of this study is to examine whether the timing of auditor terminations signals the riskiness of client firms.
Abstract
Purpose
The purpose of this study is to examine whether the timing of auditor terminations signals the riskiness of client firms.
Design/methodology/approach
This empirical study uses a sample of auditor switches during 2003-2014 to conduct univariate tests and multivariate regression analyses. Auditor switches occurring after the audit report date but before the shareholders’ meeting are classified as “planned” terminations and auditor switches that occur outside of this window are classified as “abrupt” terminations.
Findings
First, abrupt terminations are more strongly related to client risk factors than planned terminations. Second, relative to planned terminations, abrupt terminations are more likely to result from an auditor resignation rather than a client dismissal. Third, abrupt termination firms are more likely to have internal control weaknesses and experience delistings in the following year. Future operating performance is also worse after an abrupt termination. Finally, auditors and investors view abrupt terminations as riskier than planned terminations.
Practical implications
As the timing of the auditor termination is publicly available information, it can provide an important signal of deteriorating financial performance to shareholders and potential investors. Abrupt terminations could be costly to shareholders because those firms likely have lower quality financial reporting (due to internal control weakness) and deterioration of future operating performance.
Originality/value
While concurrent studies investigate the relation between the timing of new auditor appointment and audit quality, this is the first study to document the relation between the timing of auditor termination and the riskiness of client firms.
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Jinwoo Park, Kengo Shiroshita, Naili Sun and Yun W. Park
The purpose of this paper is to analyze the wealth effect of involuntary delisting and investigate insider opportunism and the role of corporate governance, liquidity and legal…
Abstract
Purpose
The purpose of this paper is to analyze the wealth effect of involuntary delisting and investigate insider opportunism and the role of corporate governance, liquidity and legal environment in involuntary delisting in Japan’s stock market.
Design/methodology/approach
The authors use a sample of 136 involuntarily delisted firms in Japan’s stock markets between 2002 and 2012. The authors examine ownership changes of inside shareholders prior to delisting and estimate regression models for the wealth effect of involuntary delisting.
Findings
Involuntary delisting is highly disruptive in Japan, and limited liquidity of delisted stocks appears to be an important cause. However, the ownership reduction of inside shareholders before delisting is limited, totaling 2–3 percent. For delisted firms with an insider bank, the decrease in share price leading up to a delisting announcement is much less, while the decrease in share price upon a delisting announcement is far greater.
Originality/value
The study investigates involuntary delisting in regard to the opportunistic behavior of inside shareholders and the role of institutional environment in Japan’s stock market. Insiders, especially insider banks, maintain ownership in a distressful context leading to the forcible delisting of a distressed firm. The authors find some evidence that suggests that the market believes the insider bank will try to prevent the ailing firm’s insolvency. The findings are consistent with the implicit relational contracts that characterize Japanese firms.
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Ettore Croci, Eric Nowak and Olaf Ehrhardt
The purpose of this paper is to examine minority squeeze-outs and their regulation in Germany, a country where majority shareholders have extensively used this tool since its…
Abstract
Purpose
The purpose of this paper is to examine minority squeeze-outs and their regulation in Germany, a country where majority shareholders have extensively used this tool since its introduction in 2002. Using unique hand-collected data, the authors carry out the first detailed analysis of the German squeeze-out offers from the announcement to the outcome of post-deal litigation, examining also the determinants of the decision to squeeze-out minority investors.
Design/methodology/approach
Using unique data on court rulings and compensations, the authors analyze a sample of 324 squeeze-outs of publicly listed companies from 2002 to 2011 to carry out the first detailed analysis of the squeeze-out procedure and the post-deal litigation. The authors employ the event study methodology to assess the stock market reaction around the announcement of the squeeze-out.
Findings
Large firms with foreign large shareholders are the most likely to be delisted. Positive stock price performance increases the likelihood of a squeeze-out, but operating performance has the opposite effect. Stock prices react positively to squeeze-out announcements, in particular when the squeeze-out does not follow a previous takeover offer. Post-deal litigation is widespread: nearly all squeeze-outs are legally challenged by minority shareholders. Additional cash compensation is larger in appraisal procedures, but actions of avoidance are completed in less time. Overall, the evidence suggests that starting post-deal litigation by challenging the cash compensation offered in a squeeze-out delivers high returns for minority investors.
Research limitations/implications
The lack of data concerning the identity of minority shareholders in firms undergoing a squeeze-out does not allow a proper investigation of the incentives of the different types of investors.
Practical implications
The paper provides evidence about the incentives of the different players in a squeeze-out offer. The findings of the paper could be helpful in assessing the impact of the squeeze-out rule. The results also contribute to the understanding of minority investors’ incentives to start post-deal litigation.
Originality/value
This paper provides new evidence about post-deal litigation, in particular how investors use the procedures that the system provides them to protect themselves against controlling shareholders. The paper examines all the phases of the squeeze-out procedure and challenges.
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The authors compare the post-issue stock and operating performance of rights issue versus public offer firms using Korean data. The authors find that the stock returns of rights…
Abstract
The authors compare the post-issue stock and operating performance of rights issue versus public offer firms using Korean data. The authors find that the stock returns of rights issue firms are less negative than those of public offering firms during the three years subsequent to the seasoned equity offering. The authors further find that the profitability of rights offering firms is superior to those of public offering firms and that the ratio of sales to assets for rights issue firms is much higher over the post-issue period. The results substantiate Heinkel and Schwartz’s (1986) and Eckbo and Masulis’ (1992) theoretical models that posit firms with better quality tend to select the rights issue rather than public offer method when issuing seasoned equity.
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The purpose of this paper is to examine the moderating effect of brand preference and type of shopping trip on the relationship between replacing a delisted national brand (NB…
Abstract
Purpose
The purpose of this paper is to examine the moderating effect of brand preference and type of shopping trip on the relationship between replacing a delisted national brand (NB) with a retailer’s private label (PL) brand (premium vs standard) and private label switching (PLS), that is switching from NB to PL.
Design/methodology/approach
Inside a major French retail chain store, an experiment with 1,392 NB buyers tested the impact of replacing NB with PL on PLS.
Findings
Results stress the positive contribution of PL replacements after NB delisting on buyers’ switching behaviour at different brand preference levels and shopping trip types. A main-choice NB for a major trip shopping benefits a PLS to premium PL. However, when a fill-in shopper looks for a secondary brand, competition between PL standard and NB may not be as weak as suggested in earlier studies.
Research limitations/implications
The limitation of this study is that respondents reported their purchases instead of actually buying.
Practical implications
This study highlights that the retailers that delist some NB brands in the category should adopt a strategy either to develop premium or standard PLs, depending on consumers’ brand preference and shopping trip type.
Social implications
Delisting is an opportunity to question the NB product competitiveness towards PL.
Originality/value
The study is based on actual delisting and replacement, combined with a large sample, unlike previous studies. Moreover, it bridges two important areas of research: conflict in marketing channels and PL introduction in retailers’ assortment decisions.
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Denisa Hebblethwaite, Andrew G. Parsons and Mark T. Spence
Retailers may respond to a manufacturer discontinuing a brand or product range in three ways: not offering an alternative, thus reducing the assortment size; replacing it with a…
Abstract
Purpose
Retailers may respond to a manufacturer discontinuing a brand or product range in three ways: not offering an alternative, thus reducing the assortment size; replacing it with a substitute; or introducing a rebranded product by the same manufacturer, if such an option is available. This study aims to evaluate all three scenarios and assess the extent to which total category sales are affected; how these discontinuations affect alternative offerings within the product category; and whether usage levels moderate within category switching behaviour. Shoppers did not have the option of switching stores to acquire the discontinued brand – their preferred brand/product range ceased to exist.
Design/methodology/approach
All three studies are quasi-experiments using scanner panel data. The product discontinuations examined are real events that took place within the major supermarket chain in New Zealand.
Findings
In all the three scenarios, average category sales decreased for the three-month period following the discontinuation. In Study 1, where a preferred brand of milk was discontinued with no replacement, overall category sales decreased but competing brands gained sales; introducing a replacement corn chip range (Study 2) successfully captured the spend on the discontinued range, but other brands lost sales; and rebranding a cereal (Study 3) decreased both brand sales and category sales. With the exception of Study 1, near-substitute product offerings did not capture a greater proportion of the spend from the discontinued brand as compared to less similar substitutes. Expectations were that heavy users would have a greater propensity to shift to near alternatives than would medium/light users; however, none of the studies lend support.
Originality/value
This is the first research effort to use scanner panel data to explore the reactions by brand loyal customers to three different brand discontinuation scenarios initiated by the manufacturer.
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Johanna Småros and Markus Hellström
The paper presents how a European pick‐and‐mix confectionery company has employed a new forecasting approach – assortment forecasting – to reduce significantly time spent on…
Abstract
The paper presents how a European pick‐and‐mix confectionery company has employed a new forecasting approach – assortment forecasting – to reduce significantly time spent on forecasting by working with an entire assortment at a time instead of producing a forecast for each product individually. The implementation of a less time‐consuming forecasting method has enabled the company to involve its salespeople in forecasting and in this way gain access to their product and market knowledge. The case company's implementation of the new forecasting method is described and its forecasting accuracy and time spent on forecasting before and after the implementation are measured. The results demonstrate a remarkable increase in forecasting efficiency as well as improved communication within the company.
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This study aims to analyse, from a corporate finance and governance perspective, the reasons why managers decide to delist their companies from a stock exchange. On the basis of…
Abstract
Purpose
This study aims to analyse, from a corporate finance and governance perspective, the reasons why managers decide to delist their companies from a stock exchange. On the basis of the five hypotheses of voluntary delisting, this study examines why listed companies delist themselves voluntarily in the construction and real estate sectors.
Design/methodology/approach
By using actual data to examine contractors and real estate companies listed on the Tokyo Stock Exchange between 2004 and 2014, this study analyses whether these companies delist themselves voluntarily. The pooled binary logit model is used as the statistical method.
Findings
In both the construction and real estate sectors, the concentration of shareholders has a significantly positive effect on voluntary delisting, thus supporting the transfer of wealth effect hypothesis. In construction, market capitalisation has a significantly negative effect on voluntary delisting, thus supporting the maintenance cost reduction hypothesis. In the real estate sector, the ratio of market capitalisation to total assets has a significantly negative effect on voluntary delisting, thus supporting the undervalue elimination hypothesis.
Originality/value
By comparing the construction and real estate sectors, this study reveals both unique and common reasons for voluntary delisting in each sector. It also offers valuable insights to managers, regulators setting standards in securities markets and investors.
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Karyn L. Neuhauser and Thomas H. Thompson
The purpose of this paper is to examine the survivability of 810 reverse splits during the 1995-2006 period and show that companies that undertake reverse stock splits often fail…
Abstract
Purpose
The purpose of this paper is to examine the survivability of 810 reverse splits during the 1995-2006 period and show that companies that undertake reverse stock splits often fail within a relatively short time following the split.
Design/methodology/approach
Applying both a logit model and an adapted version of the Hensler et al. (1997) accelerated failure time model to 810 reverse splits during the 1995-2006 period, the authors are the first to study the survivability of reverse split companies.
Findings
The paper finds that the market reaction to the reverse split on the ex-date is an important predictor of the likelihood of survival and of survival time. The paper finds that the likelihood of survival also depends on firm size, pre-split firm returns, and the post-split share price level. The paper finds that post-split survival time also depends on firm size, pre-split operating performance as measured by return on assets, pre-split firm returns, leverage, and the post-split share price level.
Practical implications
The study may be of interest to investors considering investing in stocks that have undergone reverse splits.
Originality/value
The research sheds light on which reverse splitting firms are most likely to survive and for how long.
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Because increasing product variety in retail conflicts with limited shelf space, managing assortment and shelf quantities is a core decision in this sector. A retailer needs to…
Abstract
Purpose
Because increasing product variety in retail conflicts with limited shelf space, managing assortment and shelf quantities is a core decision in this sector. A retailer needs to define the assortment size and then assign shelf space to meet consumer demand. However, the current literature lacks not only information on the comprehensive structure of the decision problem, but also a decision support system that can be directly applied to practice in a straightforward manner. The paper aims to discuss these issues.
Design/methodology/approach
The findings were developed and evaluated by means of explorative interviews with grocery retail experts. An optimization model is proposed to solve the problem of assortment planning with limited shelf space for data sets of a size relevant in real retail practice.
Findings
The author identifies the underlying planning problems based on a qualitative survey of retailers and relates the problems to each other. This paper develops a pragmatic approach to the capacitated assortment problem with stochastic demand and substitution effects. The numerical examples reveal that substitution demand has a significant impact on total profit and solution structure.
Practical implications
The author shows that the model and solution approach are scalable to problem sizes relevant in practice. Furthermore, the planning architecture structures the related planning questions and forms a foundation for further research on decision support systems.
Originality/value
The planning framework structures the associated decision problems in assortment planning. An efficient solution approach for assortment planning is proposed.
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