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In this paper we test two recently developed liquidity measures the Return-to-Turnover (hereafter RtoTR) proposed by Florackis et al. (2011) and Return-to-Volume (hereafter RtoV) recommended by Amihud, 2002 , for 386 companies listed on the Pakistani Stock Exchange (PSX). Our data is obtained from January 2005 to December 2019. We firstly show the Amihud, 2002 ratio has limited ability to distinguish illiquidity from size effects in asset pricing. Second, the Florackis et al. (2011) measure has distinct features to overcome the limitations of the Amihud, 2002 ratio in the PSX. Our results show that the Capital Asset Pricing Model cannot completely account for the significant RtoV premium. However, this weak evidence for the existence of this premium disappears when Fama–French or Carhart alphas are considered as measures of risk-adjusted performance. This suggests that the RtoTR price impact ratio is more effective in the PSX compared to the RtoV ratio. Our findings suggest that both trading frequency and trading cost are significant factors in examining the returns. The RtoV ratio has a negative correlation with the market capitalization, which suggests that small stocks are inherently illiquid.

Despite the well-documented mixed results of hedging on firm value, empirical evidence of why hedging reduces firm value is rare. Theory suggests that hedging can increase firm value by reducing bankruptcy cost and volatility, although it can also decrease firm value through a manager’s utility maximization. This study explores the reduction of market dependence and the over-investment hypothesis that results in decreasing firm value. By studying UK domiciled oil and gas companies, we found that capital expenditure accompanied by hedging reduces firm value, although capital expenditure itself increases firm value. This effect is pronounced when capital expenditure is made by firms with foreign operations, suggesting that hedging reduces the effect of the market’s monitoring role and, therefore, capital expenditure with hedging tends to be perceived as over-investment. This paper is one of the first studies that empirically examine the reduction of market dependence and over-investment through hedging.

This article analyses factors influencing the choice of performance measure in CEO equity-based compensation, for a sample of 3,400 plans from 400 UK firms between 2007 and 2015. We examine the effect of the volatility of earnings per share (EPS) and of total shareholder returns (TSR) on the choice of performance measures, taking into account four categories of measure: EPS alone, TSR alone, EPS and TSR jointly, or neither EPS nor TSR. This allows us to utilize a comprehensive cross-section of plans. The results are robust to controlling for plan types, the use of different compensation consultants, industry and time-specific effects. We find that “EPS and TSR jointly” is the most common category of performance measure employed by firms. Our empirical results show that firms with higher EPS volatility and lower TSR volatility are more likely to choose TSR as a performance measure and that firms with higher EPS volatility are less likely to choose EPS alone; we argue that these results are consistent with optimal contracting theory. Second, we conduct a novel, detailed description of the performance measures, comparator groups, plan choices, threshold targets and vesting levels at minimum and maximum thresholds, used in CEO compensation contracts. We further argue that commonalities across firms in the elements of target-setting are evidence of institutional isomorphism.

Applying recently developed Diebold and Yilmaz (2012) spillover index, this paper investigates the oil–stocks returns and volatility connectedness with weekly data between January 14, 2000 and March 31, 2017. For the purpose of robustness, we have both used WTI and Brent oil prices. Sensitivity of overall spilover index is also examined using different lag‐structures and different forecast horizons. The empirical results are qualitatively similar either when WTI or Brent oil prices are used to examine the spillover amongst series under consideration. Specifically, the spillover index value for WTI and Brent, respectively, is 71.60 and 72.32%. We show that total spillover connectedness, as measured by a rolling‐window approach, has dynamic and volatile characteristics in returns and volatility series across major markets. Last but not least, we find from the net spillover analysis that NYK, SPTSX, IBOV, MICEX, SENSEX, Shanghai, TOP40 and WTI stock markets are net receiver of return spillover, whereas SPX, DAX, UKX, FTSEMIB and CAC40 are the net contributors.

This paper investigates the connectedness, in time and frequency domain, between daily returns series of crude oil and petroleum products for the period 2003/01/11-2018/03/12. In doing so, we have applied DY (2012) and BK (2018) spillover method. The overall spillover index value obtained from DY (2012) method is 62.29% and from BK method index value fluctuates with frequency. Further empirical evidence shows that the total connectedness, in time and frequency domain, as measured by a rolling-window approach, has dynamic and volatile characteristics. Our overall results show that there is a high level of partial contemporaneous relationship between jet fuel, heating oil, US gasoline as well as diesel. Furthermore, results from the Wavelet multiple correlations and cross-correlation show that heating oil act as a leader for a short time horizon, whereas gasoline at medium and longer time scale. The results from the DY spillover analysis suggest that among the series analysed heating oil has the highest contribution to others, which is confirmed across frequencies by BK spillover method (and the Brent contributes least to others at all frequency bands). These findings have important implications for a wide range of market participants, including investors, hedge funds, speculators, as well as for energy policy, with different temporal horizons.

This study develops a 'comply or explain' index which captures compliance and quality of explanations given for non-compliance with the corporate governance codes in UK and Germany. In particular, we explain, how compliance and quality of explanations provided in non-compliance disclosures, and various other internal corporate governance mechanisms, affect the market valuation of firms in the two countries. A dynamic generalised method of moments (GMM) estimator is employed as the research technique for our analysis, which enabled us to control for the potential effects of endogeneity in our models. The findings of our content analysis suggest that firms exhibit significant differences in compliance, board independence and ownership structure in both countries. The 'comply or explain' index is positively associated with the market valuation of UK firms suggesting that compliance and quality governance disclosure is value relevant in the UK. Institutional blockholders' ownership is however, negatively associated with the market value of firms, which raises questions about the monitoring role of institutional shareholders in both countries. We argue that both compliance and explanations given for non-compliance are equally important, as long as valid reasons and justifications for non-compliance are provided by the reporting companies. These findings thus imply that the 'comply or explain' principle is working well and that UK and German companies could benefit from the flexibility offered by this principle. With respect to the role of board size, board independence, ownership structure, and institutional ownership of firms, this study offers policy implications.

This paper studies the relationship between executive compensation and corporate performance of global energy companies. Data from 121 listed energy companies from 2010 to 2019 were collected for empirical analysis. The results show that in the energy industry, executive compensation has a significant positive impact on corporate performance, which is consistent with agency theory, tournament theory and social network theory. In addition, we found that cash incentives are more useful than equity incentives for senior executives. Therefore, we recommend that energy companies establish a reasonable compensation incentive system to address agency issues in the sector.

This paper examines corporate governance (CG) and corporate accountability practices in the African context, by focusing on the case of Kenya. Our data comprises a combination of 29 semi-structured interviews, field observations and archival evidence. We reveal how western-originated CG and accountability reforms are constrained or subverted by a vigorous neo-patrimonial regime. The Kenyan corporate sector has well defined legal-rational structures, including an elaborate corporate sector regulatory framework, professionals (i.e. accountants and auditors) and corporate boards. In contrast, however, informal networks and patronage interfere with the nomination and work of non-executive board members, thereby hindering the possibility of an independent monitoring of executive management. A conflictual and inadequately resourced regulatory framework plays a more symbolic than an effective regulative role in enforcing CG and accountability practices. We also find a widespread rent-seeking culture that significantly hinders the exercise of corporate accountability. Furthermore, external auditor independence is problematic due to conflicts of interest and the auditors’ dependence on advisory fees, thereby favouring a clientelist association with auditee firms. Overall, our findings reveal that CG and accountability practices, while ostensibly present in Kenya, are largely ineffective due to the influence of neo-patrimonial realities on the mind-set and actions of corporate actors.

This study examines evidences of executive reactions to say-on-pay (SOP) votes in terms of strategic policies which could affect firms' long-run growth and eventual survival. We employed an unbalanced panel data from 1932 firms taken from four countries in the Anglo-Saxon economy, covering time periods when different forms of SOP were implemented in these countries. Using Limited Information Maximum Likelihood (LIML) estimator to gauge the simultaneous determination of SOP votes and firm strategic policies, we find that, in line with shareholders preferences, US firms had increased capital expenditure ratio; Australian and US firms had reduced reliance on debt financing; US managers had shifted focus on current rather than long-term profit, but evidences emerged from other countries are unclear. Corroborations also suggest that excess liquidity was shunned by Canadian shareholders, but the reactions of their company executives were overly disproportionate. UK firm policies did not appear to have been affected by SOP, and vice versa. Overall, the varying effects of SOP votes on firms' strategic policies might be ascribed to either the adoption of a specific SOP practice or the effectiveness of the board.

This paper presents empirical evidence on how Chinese firms perceive and tackle risks associated with their overseas investments. Using a first-hand survey dataset of Chinese firms who invest abroad, we depict variations in (1) the levels of different types of perceived risk, and (2) the risk management approaches taken by these firms. These variations are assessed with respect to three prominent factors: firm ownership structure, investment motives, and the host country institutional quality. Our evidence uncovers a significant degree and pattern of heterogeneity in the strategic behaviour of Chinese investors in risky environments.