Search

This research applies the dynamic slack-based measure (DSBM) model to evaluate the dynamic efficiency of manufacturing companies in the long run and uses the Censored Least Absolute Deviations (CLAD) model to analyze the effect of corporate governance on their overall efficiency and the efficiency of each input factor. We find the following main results. First, overall efficiency of the manufacturing industry listed companies is low. 2) Debt efficiency is lower than the efficiency of shareholders' equity and exhibits a downward trend. 3) Labor efficiency is the lowest among all inputs. 4) The efficiency of the medicine and bio-products industry is the highest, while the efficiency of the paper and printing industry (which causes serious pollution) is the lowest. 5) Companies with low export intensity and high capital intensity are the most efficient, while companies with high export intensity and low capital intensity are the least efficient. 6) Ownership concentration and efficiency have a significantly positive U-shape relationship. 7) Board size and efficiency have a significantly inverted U-shape relationship. 8) An actual controller with a state-owned nature has a significantly negative impact on efficiency. 9) Executive compensation, equity incentive, and institutional ownership have a significantly positive impact on efficiency. [ABSTRACT FROM AUTHOR]

Listed companies with a higher separation of two rights have less risk of control transfer of the ultimate controlling shareholder. The ultimate controlling shareholder's equity pledge ratio plays a remarkable mediating role in this process. At different pledge rates, the ultimate controlling shareholder's equity pledge exhibits an 'encroachment' or 'incentive' effect on corporate governance, respectively, resulting in an inverted U-shaped relationship between equity pledge rate and the risk of control transfer. Company size has a heterogeneous effect on the risk of control transfer, while shareholding concentration has heterogeneous and single threshold impacts on this risk. [ABSTRACT FROM AUTHOR]

In the past literature, the prediction model of financial distress mainly used the information of corporate finance and corporate governance, and less considered the predictive effect of controlling shareholder information. Based on the sample of A-share listed companies in China from 2014 to 2019, this paper empirically investigates the incremental effect of controlling shareholder's equity pledge on improving the accuracy of financial distress prediction. It is found that the information of controlling shareholder's equity pledge can significantly improve the accuracy of financial distress prediction. After changing the definition of the explained variable and the data source, the conclusion remains robust. This paper verifies the role of controlling shareholder's equity pledge in predicting financial distress, extends the selection of financial distress prediction model variables to the controlling shareholder level, and enriches the research on the economic consequences of equity pledge. [ABSTRACT FROM AUTHOR]

Unrealized gains and losses on available-for-sale securities (AFSGL) are included in Other Comprehensive Income (OCI) and directly affect shareholders' equity but are not included in earnings. We investigate whether unrealized AFSGL help predict future earnings and whether analysts and investors incorporate the information conveyed by unrealized AFSGL in a timely manner. We conduct our investigation on a sample of banks because unrealized AFSGL are material in the banking industry. First, we show that unrealized AFSGL are material and help in predicting next period realized AFSGL and future earnings change. Second, we document that financial analysts are slow to react to unrealized AFSGL and update their forecasts after AFSGL are realized in earnings. Third, we find that investors are also slow to react to unrealized AFSGL and do so only after AFSGL are included (realized) in earnings and after financial analysts update their forecasts. We document an annual difference of 5% in future abnormal returns between banks in the top and bottom quintiles of past unrealized AFSGL. A zero-cost trading strategy that relies on public information about unrealized AFSGL generates a sizeable monthly alpha that ranges between 1.8% and 1.9%. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to examine alternative reporting formats of comprehensive income (CI) information and measures the extent to which losses are being accumulated in other comprehensive income (OCI) in the specific context of two major FASB updates: Summary of Financial Accounting Standard (SFAS) No. 130 and Accounting Standard Update (ASU) 2011–05. Design/methodology/approach: This paper investigates alternative reporting formats of CI information and its effect on Earnings Per Share (EPS) of 100 top US firms over the 1997–1999 period. The pattern of Other Comprehensive Income (OCI) is then examined using a sub-sample of ten companies with 31 December year ends over the 1995–2014 period. Findings: The results indicate that several firms show OCI items as part of shareholders' equity. On average, the difference between CI and net income is significant for the majority of firms, fluctuating by up to 15% (in absolute terms) over three-years. The negative effect on EPS is significant. For sub-sample firms, OCI is predominantly negative (i.e., is reported as a loss). Research limitations/implications: The effect of the above findings is that reported earnings generally provide an overly optimistic picture of book values. Conservative book values are shown to be a more sufficient statistic for returns than earnings for investors. [ABSTRACT FROM AUTHOR]

Since 2004, commercial banks in the United States have been allowed to elect Subchapter S (hence Sub-S) status with up to 100 shareholders. That limitation may promote more effective monitoring of bank managers by shareholders which can, in turn, explain previous findings of superior performance among Sub-S banks. The present research focuses on the possibility that the shareholder limitation also constrains opportunities for bank growth, or a slow growth hypothesis for Sub-S banks. Using a differences-in-differences regression approach for a sample of community banks (i.e., less than $1b in assets) from 2004 to 2014, and controlling for initial assets and urban location, it is found that annual growth in real assets and equity was significantly higher among banks that never held Sub-S status than for banks that always held Sub-S status, and that banks switching to Sub-S later grew significantly faster than those that always held Sub-S status. Fixed effects regressions show that switching to Sub-S status significantly reduced equity growth, with asset growth significantly reduced after 2008. In conjunction with earlier findings, the results suggest that the availability of Sub-S status helped to protect and strengthen community banks across a time period including substantial financial turmoil. [ABSTRACT FROM PUBLISHER]

Finance theory implies equity returns should be positively related to financial leverage. However, a recent article decomposes the book-price ratio into financing and operating components and report a negative association between financial leverage and returns. We shed new light on this puzzle by examining a region in which previous research has established that firms’ financial leverage choices are motivated by factors other than maximizing shareholders’ wealth: we hypothesize that this must be reflected in both how financial leverage is priced and the book-price ratio. We show that the relationship between equity returns and financial leverage for stocks in our sample is indeed very different to the findings of previous research, and this is reflected in the decomposed elements of the book-price ratio. [ABSTRACT FROM AUTHOR]

The aim of this article is to find out whether or not consideration of significant shareholders announcement of intention to exercise subscription rights makes a difference in eliminating or reducing the effects of asymmetrical information in equity offerings with pre-emptive rights on the Spanish Stock Market. For the 17 years of equity issues covered, we find that the type of underwriting arrangements has not a statistically significant impact on the issues' Excess Risk Adjusted Return. The main contribution of this study is the finding of a statistically significant negative impact on returns either when the significant shareholders indicate their intention not to subscribe or when not enough information is provided about their intention. We also find a statistically significant reinforcing negative effect on returns in the case of simultaneous lack of commitment on the part of significant shareholders, and non-underwritten equity issues. [ABSTRACT FROM AUTHOR]

The cost of using private finance is at the centre of the public private partnerships (PPPs) debate, but until now most works considered only the direct financial costs such as the loan interest rate and the shareholders return on equity and were based on various secondary sources. This paper focuses on seven shadow toll deals closed in Portugal between 1999 and 2002 and reports the financial costs of the PPP model considering also the associated transaction costs and is based on detailed information included in each concession's financial base case. The transaction costs include financial costs such as banking fees, due diligence costs and the impact of all cash distribution traps, such as reserve accounts or minimum-level of debt ratios. The PPP financial costs were then compared with the costs arising from raising public debt through a government or a public agency bond. Our analysis shows that the PPP ‘true' financing costs are, on average, 370 basis points above the cost of raising public debt and that the ‘transaction costs' account for around 40% of that financial premium. [ABSTRACT FROM PUBLISHER]

The international accounting classification literature emphasises the importance of understanding how institutional factors shape accounting regulations and practices. With the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union and Australia in 2005, our empirical study examines whether three international accounting classification systems relating to equity financing, law and culture still had merit as measured on transition to IFRS and explore whether they are effective in grouping accounting systems. Using IFRS as the yardstick, we find statistically significant differences in the measurement of shareholders’ equity as between strong (Class A) versus weak (Class B) equity financing systems, common law versus code law systems and cultural systems based on ‘Anglo’, ‘Nordic’ and ‘More Developed Latin’ cultural groups. With regard to the measurement of net income, however, we find statistically significant differences only in respect of strong (Class A) versus weak (Class B) equity financing systems. Our findings demonstrate that traditional international accounting system differences still persisted at the time of IFRS adoption even after long periods of harmonisation and growing international accounting convergence. [ABSTRACT FROM PUBLISHER]

Using a large sample of listed Chinese companies, we investigate how the equity ownership of business group insiders affects subsidiary cash holdings. We find that ownership by the largest shareholders and senior managers in the listed parent firm is negatively related to its subsidiaries’ cash holdings, whereas there is a positive relationship with minority equity in subsidiaries. We also find that the market places a more significant value discount on listed firms whose cash holdings are more located in the affiliated subsidiaries. Our evidence demonstrates how cash policy inside business groups is influenced by insider ownership, and it reveals to what extent cash allocated in subsidiaries may suffer from losses in efficiency. [ABSTRACT FROM PUBLISHER]

This paper presents an instructional case based on the 2001 annual report of the Campbell Soup Company (CPB). During that year, CPB's shareowners' equity went from a surplus of USD137 million to a deficit of USD247 million. The analysis will allow students to determine that the change resulted from borrowing to purchase treasury stock. Students are asked to consider why CPB's lenders allowed the firm to purchase so much treasury stock with borrowed funds. The case provides an opportunity for students to improve their understanding of the impact of shareowners' equity transactions on the entire balance sheet, and to examine the effect of unreported and under-reported assets on financial statement information. [ABSTRACT FROM AUTHOR]

Using the data on related-party transactions between Chinese publicly listed firms and their controlling shareholders in 2005, this article empirically examines the characteristics of related-party transactions and their impact on the firms’ performance. The results show that the companies that completed related-party transactions with their large shareholders possess a higher concentration of ownership structure and lower P/E ratios, and their performance is significantly improved after these transactions. The current related-party transaction is also not used to achieve the necessary requirements for refinancing and the tunneling behavior of large shareholders follows a significant declining trend. Further regression analysis shows that the size of related-party transactions is positively correlated with the large shareholders’ equity ratio, and is negatively related to the P/E ratio and the performance of listed companies prior to the transactions. Finally, the research reveals that Chinese listed company performance has a significant positive correlation with the size of related-party transactions and the large shareholders’ equity ratio. Since China launched the split share structure reform (SSSR) in 2005, we have attributed all the above results to the change in the environment caused by the SSSR and concluded that large shareholders prop up a listed company through related-party transactions. [ABSTRACT FROM PUBLISHER]

This study focuses on a possible mediation by communication in the identification-organizational performance and identification-corporate reputation relationships. The review of the literature indicates that (a) companies with good reputations have better performances, (b) the stronger employee identification is, the better the reputation and performance, and (c) communication plays an important role in emphasizing the mode in which the organization presents itself to its stockholders. This study reveals that communication is a partial mediator in the relationships studied, suggesting that managers early on establish the form of communication, emphasize to a greater degree managerial communication, and not concentrate all their attention on marketing communication. The study involved 1,025 employees in various organizations and applied modeling of structural equations and the method proposed by Baron and Kenny (1986) to evaluate the mediation between the variables. [ABSTRACT FROM AUTHOR]

This article empirically examines the relationship between insider (entrepreneurs and venture capitalists) trading and underpricing and long-run performance in a sample of 120 initial public offerings (IPOs) that took place on the Nouveau Marche in France during the high-tech bubble. We hypothesize that insiders were better informed than the market about the future prospect of the firms, particularly during the high-tech bubble characterized by strong information asymmetry. Trading activity was measured at the IPO date and over a three-year period after this date. We find no evidence suggesting that entrepreneurs and venture capitalists knowingly issue overvalued equity at the IPO date. However, there is weak, but statistically significant, evidence that suggests that entrepreneurs and venture capitalists acquire private information during the first years of flotation and have the ability to take advantage of it by selling overvalued equity. Both these types of insider seem to be the best informed on the future value of the firm. However, changes in ownership of banks and other shareholders are not followed by significant change in the firm's long term value. [ABSTRACT FROM AUTHOR]

This paper links the financialization of non-financial corporations to the extensive development of global value chains by these corporations. The main focus is the US and its offshoring in China. Financialization has encouraged a restructuring of production, with firms narrowing their scope to core competence. And the rising ability of firms to disintegrate production vertically and internationally has allowed them to maintain cost mark-ups - and thus profits and shareholder value - even in a context of slower economic growth. The resulting rise in the profit share has not supported dynamic gains from offshoring as often predicted, since financialization pressures have reduced fixed investment to allow for higher dividend payments, share buybacks, M&A activity and other financial asset purchases. The paper explores the sustainability of the global value chain-financialization link and its operation in other industrialized countries. The conclusion briefly considers the role of the non-financial corporate sector in the face of the current financial sector decline. [ABSTRACT FROM AUTHOR]

Stakeholder theory was utilized in this empirical study of resident attitudes toward tourism. Full time and part time residents differed in terms of their perceptions of what was at stake with regard to living in a popular tourist destination. Four stakeholder groups were identified with members identifying three types of stakes: equity, economic, and influencer. [ABSTRACT FROM AUTHOR]

Based on a survey of the appropriate literature and on separate investigations concerning distributions of asset lives and depreciation patterns of vehicles, gross and net capital stocks as well as depreciation at constant prices and at replacement cost have been estimated for Austria using the Perpetual Inventory Method. The problem of the limited length of investment time series has tried to be overcome by assigning a fixed age to each initial stock. The level of disaggregation for the calculations is ÖNACE 2-digit and this has been further broken down to the categories buildings, machinery and equipment, and vehicles. All available a priori knowledge and data have been incorporated. All estimates of capital stocks and depreciation based on industry level investment data are subject to uncertainty due to the lack of information at the asset type level. In order to give a quantitative assessment of this uncertainty, for the public as well as for the private enterprise sector, several scenarios have been calculated. In addition a thorough sensitivity analysis with respect to all relevant parameters including the age assigned to the initial stock has been performed. [ABSTRACT FROM AUTHOR]

This paper reviews the evidence of public infrastructure's impact on economic development. The evidence indicates the marginal net social returns is low. The paper also examines the effect of economic, demographic, and political forces on infrastructure investment. Finally, the literature suggests that improving maintenance and reducing congestion can greatly increase the benefits from the existing public capital stock. [ABSTRACT FROM AUTHOR]

In the pages of the daily financial press, 'shareholder value' is a loose rhetoric. For business consultants who sell financial metrics and implementation, shareholder value is also a product and a promise that purposive management action will be rewarded. This paper begins by considering the consultant's promise and the more guarded academic responses. It then presents empirics on micro performance and the meso limits to shareholder value and argues that most corporate managements cannot easily deliver what consultants promise and the capital markets demand. The paper ends by taking a broader view of value-based management as part of a process of financialization. If the results are contradictory and disappointing, a persistent gap between expectations and outcomes can nevertheless drive management behaviours, which change the world. [ABSTRACT FROM AUTHOR]

The viability and desirability of a finance-led growth regime is first assessed against the historical evidence about the many alternative regimes that have been proposed as successors to Fordism. A purely hypothetical model is then built by assembling various hypotheses derived from the observation of current American trends. The imposition of financial norms, such as shareholder value, requires a new and coherent architecture for the mode of governance of firms, the form of competition, the wage labour nexus and the objectives of monetary policy, public budget and tax system. According to the model, any requirement for increased profit has a variable macro-economic impact on wages and economic activity according to the size of accelerator effects and the relative importance of wage and profit in income formation. The stability of an equity-based regime depends on monetary policy which controls financial bubbles and thus the diffusion of finance may push the economy into a zone of structural instability. The next major financial crisis may originate in the USA whose economy approximates most closely to the model. But, the so-called American 'new economy' combines diverse but interdependent structural transformations: diffusion of Information and Communication Technologies, search for new rules for competition, increased flexibility in wages and employment, shift from manufacturing to services. Finance is an element in, but not the whole of, this complex emerging regime. [ABSTRACT FROM AUTHOR]

This article introduces a journal special issue which examines how shareholder value and financialization have changed priorities and behaviours in present-day capitalism. This article opens the debate by reviewing three key issues: first, it considers the impact of shareholder value on national capitalisms in France, Germany and the USA; second, it analyses the effects of financialization on corporate strategy and sectoral performance; and, third, it reviews current conjectures about a finance-led macroeconomy and the possibility of a wealth-based growth regime. [ABSTRACT FROM AUTHOR]

The decade-long boom in the US stock market and the more recent boom in the US economy have fostered widespread belief in the economic benefits of the maximization of shareholder value as a principle of corporate governance. In this paper, we provide an historical analysis of the rise of shareholder value as a principle of corporate governance in the United States, tracing the transformation of US corporate strategy from an orientation towards retention of corporate earnings and reinvestment in corporate growth through the 1970s to one of downsizing of corporate labour forces and distribution of corporate earnings to shareholders over the past two decades. We then consider the recent performance of the US economy, and raise questions about the relation between the maximization of shareholder value and the sustainability of economic prosperity. [ABSTRACT FROM AUTHOR]

This article explores the French model of shareholding and management, identifying a significant transformation in the pattern of shareholding in the largest companies. In earlier configurations of ownership, first the State and then the system of cross shareholdings were at the centre of French capitalism; the new pattern of shareholding operates under a different logic and motivation. In effect, France has undergone rapid change from a 'financial network economy' to a 'financial market economy'. This new pattern of shareholding has not only broken the traditional system of cross shareholding, but it has also facilitated the arrival of foreign institutional investors who bring with them new techniques and demands on corporate management. [ABSTRACT FROM AUTHOR]

The German political economy has often been cited as a classical case of non-shareholder value orientation. Its productionist, long-term, consensus orientation has often been contrasted with the 'Anglo-Saxon approach'. The influence of shareholders who press for shareholder value and the importance of the equity market have traditionally been low. But there are signs of change. In this article we describe some of these changes and try to assess the dynamics of this change process. First we show that the limited role of the equity market for company financing and for private household savings still provides a very narrow base for a shareholder value economy in Germany. The central pillars of the German system of corporate governance - the dominating role of banks, the system of co-determination and the company centred management system - are not crumbling. Change in the direction of shareholder value is therefore limited. [ABSTRACT FROM AUTHOR]

In this paper, a dynamic decision model of the firm with a delayed adjustment of employment and investment is developed. Special attention is devoted to dynamic inefficiencies, i.e. underutilizations of the capital stock and labour hoarding. Market disequilibrium is introduced by allowing for a sluggish adjustment of wages and prices. The model of the firm is complemented by explicit aggregation, and the aggregate model is estimated for the FRG for the period 1960 to 1989. The empirical results reveal that dynamic adjustment constraints for employment and capital contributed to the persistence of unemployment in Germany in the 1980s. [ABSTRACT FROM AUTHOR]

The balanced growth restrictions implied by the neoclassical growth model imply that output, the private capital stock and the public capital stock share the same stochastic trend. We analyse the postwar US data on real output, real private capital stock and real public capital stock and find that the balanced growth restrictions cannot be rejected by the data. Removing the common stochastic trend from each series allows the estimation of output elasticities that is free from the spurious regression problem. The results support Aschauer's (1989) claim that, at the margin, public capital is more productive than private capital. [ABSTRACT FROM AUTHOR]

Recently, savings rates have fluctuated considerably in the USA. The implications of these movements have interested both policy makers and economists. This paper considers two reasons why savings may change: (i) a change in the economy's desired long-run capital stock, and (ii) the economy's desire to smooth its consumption through time. To identify both kinds of movements in US savings, the permanent income hypothesis (PIH) is modified to incorporate discrete breaks. Evidence suggests that discrete breaks in saving occurred during 1972-74 and again during the mid 1980s. And, when breaks are accounted for, it is found that rises (falls) in saving anticipate falls (rises) in output, suggesting that people use savings to help smooth consumption over time, consistent with the PIH. [ABSTRACT FROM AUTHOR]

Capital stock variables appearing in investment and other equations are almost always constructed by the 'perpetual inventory method'. A major problem with this method is that the initial real capital stock, K(O), that is implicitly a component of every measure of the capital stock, can rarely be measured with any degree of accuracy. It is shown that such measurement error can frequently lead to severe bias in the estimated coefficients of investment functions. This paper proposes a method to bypass this source of measurement error and illustrates its use with a practical application. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to make a quantitative comparative analysis of differences between Swedish accounting practice and US GAAP. The empirical data consisted of eighty-four US GAAP reconciliations of income statements and shareholders' equity, disclosed in Swedish annual reports during 1981–90. Prior qualitative research has suggested that Swedish accounting practice is conservative compared with that in the USA. However, the empirical analysis of profits and return on equity provided little support for this hypothesis. Instead, there were indications of a less conservative accounting treatment in the Swedish accounts compared with US GAAP. The most material differences between Swedish profits and those calculated using US GAAP were caused by differences in treatment of foreign currency translation, income taxes, sale and leaseback transactions and business combinations. [ABSTRACT FROM AUTHOR]

In the common law there always existed a duty of full disclosure on the part of a fiduciary dealing with his principal or beneficiary, and some of the major debates in corporation law today center on the extent to which the disclosure notion can be broadened by widening the definition of a fiduciary. But the federal securities legislation of the thirties marks the first time that business regulation on a grand scale required public disclosure of substantial information about both personal and corporate financial matters. Thus every new public security issue entails the publication of a small book containing a mass of detailed information about the issuing corporation, its officers, directors and stockholders. In addition, most larger corporations are required to make monthly reports of important developments and detailed annual reports to shareholders. One of the thorniest issues intertwined with the whole disclosure concept is insider trading, for it is timely disclosure and not the stopping of trading by insiders that the SEC says it wants.

This article describes a computer algorithm that solves the stochastic growth model by iterating on a fixed-point equation in the decision rule determining consumption as a function of the state variables. This algorithm does not discretize the state space, but rather it preserves the continuous domain of the capital stock and the productivity shock. The main advantage of this algorithm is that it is based on a Euler equation and thus it has a straightforward generalization to dynamic economies that cannot be solved by a central planner, such as a non-Pareto optimal competitive economy. [ABSTRACT FROM AUTHOR]

In this article, the author discusses the steps in the redistribution of income away from the owners of residential capital to labor in the U.S. With the threat of freer trade ever looming, it might be long past due to examine the possibilities for redistributing wealth from capital to labor. Fortunately, the U.S. Department of Commerce provides estimates of the current-cost net stock of fixed reproducible tangible wealth. This official tally can help guide us to the sources from which the income redistributions ought to come. For 1993, the capital stock was estimated to be worth $16,718.4 billion in the August 1994 of the periodical "Survey of Current Business." Of that sum, government owned $3,091.2 billion. The first step should be to design tax cuts so that, after all the redistributing is completed, the government will receive less revenue. Nearly one-half of the $ 11,290.9 billion worth of fixed private capital consists of residential capital that is worth $5,521.3 billion. Repeal of the mortgage interest tax deduction could serve as the first step in redistributing income away from the owners of residential capital. Repeal of tax breaks that originally attracted businesses to build structures in their current locations seems to be in order. Tax exemptions for church buildings might be adjusted.