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We examine how the culture of origin of sell-side financial analysts in the United States influences their forecasting. We find that analysts from individualistic cultures are more likely to issue bold earnings forecasts and stock recommendations than analysts from collectivist cultures. Individualistic (collectivist) analysts' tendency to overweight (underweight) their private information at least partly explains the results. The effect of culture decreases with the analysts' professional skills and their exposure to the U.S. culture but increases with task difficulty. For market consequences, short-window market reactions are stronger to bold reports by collectivist analysts than to those by individualistic analysts, consistent with the analysts' differential weighting of their private information. On average, however, a higher level of analyst individualism is associated with lower stock price synchronicity of the firm covered, indicating that more firm-specific information is impounded in the stock price. Our study extends research on the effect of national culture in the capital market by demonstrating how individualism, a central element of culture, affects analysts' information processing and the value of their work. [ABSTRACT FROM AUTHOR]

The US entitlement programs such as Social Security and Medicare now make up over half the US annual budget (52% in 2022) but are heading for imminent collapse by 2033–35, as outlays exceed receipts. There appear to be only two options: increase tax receipts or reduce benefits, but neither of these is politically palatable. In this article, the author offers a third option: to make the trust funds themselves work harder, by investing them in US capital markets. This idea is not new, but the fear of major market downturns has always stopped this line of thinking. For the first time, the author offers a game changer: use algorithmic trading to invest trust funds. It is a method developed in previous articles and designed to both exceed market returns and reduce drawdowns. This two-sided win can be the catalyst to finally make these entitlement programs solvent for the long term. The author shows that if the Social Security Trust Funds had been invested in the market since 1991 as designed, then even after paying benefits, the funds would stand today at a healthy $6.2T, rather than the actual $2.8T. Going forward, bold action is needed to avert disaster and ensure solvency. Investing in the market is broadly supported by other informed observers, but some believe it is now too late. We advance a new way forward. But time is of the essence. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Financial auditing is one of the cornerstones of an effective capital market structure. When performed correctly, an independent financial audit provides investors with the security they need to effectively transact based on company disclosures. When this system fails, however, the results for investors and the economy as a whole can be devastating. In recognition of this danger, the market for financial auditing in the United States is regulated by a number of governmental and nongovernmental bodies charged with maintaining its health and effectiveness. But stakeholders within the U.S. market and government have criticized these regulators for failing to adequately respond to concerns lurking in the country's financial auditing system. While audit reform can be an expensive and convoluted process, this Note argues that U.S. regulators can streamline the field's development by monitoring and building upon the actions taken by U.K. regulators. This Note describes the current audit regulatory structure employed by the United States and examines the most pressing concerns expressed by interested parties. It then analyzes the findings and proposals offered in the U.K. Competition and Markets Authority's comprehensive report on competition and audit quality in the U.K. financial auditing market. This Note proposes that the conclusions of the Competition and Markets Authority's report should serve as both a warning and a guide for domestic audit regulators. The United States is past due for a comprehensive examination of their financial auditing system. Using the U.K. findings as a guide will provide more immediate and relevant data for policymakers and regulators alike. [ABSTRACT FROM AUTHOR]

Shariah compliant firms operating in an environment with little to no access to a robust Islamic capital market (such as in the United States (US) stock market) will exhibit a consistent bias towards certain corporate financial behaviour. Does this bias subsequently lead to a skewed asset pricing behaviour? To answer this question, this paper investigates the asset pricing behaviour of multiple samples of Shariah compliant firms listed in the US as compared to an overall conventional sample by employing the Fama & French Five-Factor Model. By applying contemporary Shariah stock screening methodology on a sample of all stocks listed in the NYSE, NASDAQ and the IEX from January 2000 to December 2019, this paper shows that asset pricing behaviour differs not only between Shariah compliant and conventional samples, but also amongst Shariah compliant samples themselves. Ultimately, this paper shows that when deriving the appropriate expected return for Shariah compliant portfolios in the US, there are evidence to suggest that the Fama & French Five-Factor model is more suitable compared to the traditional Capital Asset Pricing Model (CAPM) since the additional risk premiums show consistent significance across groups of Shariah compliant firms. [ABSTRACT FROM AUTHOR]

We compare the fraction of asymmetric shocks smoothed in the United States and in the Euro Area through risk-sharing channels. By building on a novel dataset, the paper addresses key comparability issues in the literature. Our findings confirm that total risk sharing is higher in the United States and that capital markets are a more powerful shock-absorption channel than in the Euro Area, but less so than previously reported. We also provide a detailed comparison of risk-sharing mechanisms over time and in the face of longer-lasting shocks. Our results suggest that the financial crisis was associated with a reduction in risk sharing through capital markets in the United States, while during the sovereign debt crisis counter-cyclical fiscal policies allowed for higher consumption smoothing in the Euro Area. Finally, both in the United States and in the Euro Area risk sharing tends to decline as shocks become more persistent. • We compare risk sharing between the US and the Euro Area. • We also address comparability issues in the literature on risk sharing. • Risk sharing is higher in the US, but less so than previously reported. • The financial crisis hampered risk sharing through capital markets in the US. • Fiscal policies were the main tool at work during the European debt crisis. • Considering the difference between data is key to compare the two entities. [ABSTRACT FROM AUTHOR]

This article examines how the organizational structures and purposes of securities regulators affect securities law and its enforcement. Securities regulators in different jurisdictions can have either hierarchical or horizontal organizational structures, and their mission can be either policy‐implementing or dispute‐resolving. The securities regulators in China and the United States are two typical examples. The two countries can be roughly categorized as activist and reactive states, respectively. This article shows that the organizations of regulators and the disposition of governments affect the ends of securities regulation and provides some evidence that they also affect the means, which would explain the express differences in securities enforcement as well as those applied in practice. While a reactive state mainly seeks to protect investors and facilitate capital formation, an activist state tends to consider other state goals, including industrial policies and redistribution of wealth. Additionally, hierarchically organized securities regulators tend to focus more on technical rules and routines, whereas horizontally organized regulators employ more flexible standards and are better equipped to deliver substantive justice. This article contributes to the literature of law and finance and cautions against the "capital‐market‐centrist" view. [ABSTRACT FROM AUTHOR]

Stock trades pass through several phases before completion, from placing an order via a brokerage firm, to the delivery of securities versus payment. This paper sheds light on the later phases of the trading process for equity securities in USA capital markets. In a continuous effort to improve the settlement process, the National Securities Clearing Corporation makes several substantial changes every year to the rules and regulations that govern the settlement process. This paper investigates the impact of rule changes on the efficiency of settlement, based on the volume of shares that failed to deliver from 2004 to 2017. The rule changes are modeled with a dummy variable in a vector autoregressive (VAR) model, where the quantity of fails and market returns are both included in the VAR model as endogenous variables. The results show a considerable impact of rule and regulation changes on the quantity of shares failed to be delivered in time for settlement; especially, the regulations implemented to improve short selling had a statistically significant impact on reducing settlement failures and improving market returns. The finding of this study provides important information for regulators and investors with regard to the settlement process and investment strategies. [ABSTRACT FROM AUTHOR]

This paper deals with the historical development of the legislation of the capital markets of the USA and the EU. It is divided into two parts: the general part contains a brief history of the development of the capital market in this context and I identify several milestones that had a significant impact on the development of the capital markets. The special part, first dealing with the development of the legislation of the capital market in the USA from the Great Depression to date and further by the development of the EU capital market from the foundation of the European Economic Community in 1957 to the implement of the MIFID 2 Directive and MIFIR Regulation, concludes with a comparison of both legislative systems and their common objectives and the interests pursued by individual regulations. The main sources for this paper are in particular the relevant laws regulating the area in question, Czech and foreign scientific papers on the given topic and online economic platforms. [ABSTRACT FROM AUTHOR]

Governments have a history of intervention in the market to aid small, minority, and women-owned businesses. This research explores women-owned business development programs across the United States. The paper begins with a discussion of programs to serve women-owned businesses, noting barriers that exist for women business owners to access markets and capital. Analysis considers program offerings and how they are communicated to the public and client businesses via government websites. Policy approaches may reinforce patterns of suppression, rather than opening maximum opportunities for women business owners. [ABSTRACT FROM AUTHOR]

Social capital and value creation are concepts that have been associated in financial literature for a long time and still remain controversial. Social capital refers to a firm´s attributes, such as trust, civic attitudes, and relationship networks that enable greater economic development. It is also related to corporate social responsibility, corresponding to a voluntary interest by firms in social and environmental issues with effects upon others. The last global financial crisis - which began in the United States in 2007 - is an exogenous event that allows a study of the impact of a higher level of corporate credibility. In other words, we may verify whether attributes such as trust - measured by social capital - create value. Thus, this study aims at verifying if there was a positive relationship between social capital and corporate value, during the last global financial crisis. To this end, a difference-in-difference test was applied to a sample of 418 Latin American firms. The results confirm the hypothesis that in a financial crisis, firms with more social capital have their value less affected. This fact points to practical implications both for investors and capital market regulators. [ABSTRACT FROM AUTHOR]

Growing economic inequality in the United States has reduced social mobility, placing financial security farther out of reach for a growing number of Americans. During the COVID-19 pandemic, U.S. stock prices have grown simultaneously with unemployment and food insecurity, highlighting the fact that prosperity is unequally distributed in the U.S. economy. Many Americans do not benefit when the stock market soars because they do not have the means to invest. However, even ordinary American families who do have wealth to invest in the capital markets will face enormous obstacles in narrowing the wealth divide through investment. This is because ordinary American investors regularly earn a lower rate of return from investing than their wealthy counterparts. Wealthy investors are growing a larger mass of wealth at a faster rate of return, making it virtually impossible for ordinary investors to catch up. The disparity in rate of return is the result of both regulation and practicalities that limit the investment options of ordinary investors. Scholars have long acknowledged this disparity in investment opportunities, and many have proposed lifting regulatory barriers to expand investment access for ordinary investors. This Article offers a new perspective, focusing on the other side of the wealth divide. That is, perhaps wealthy investors have too many investment opportunities. Examining the regulation of short selling as a case study, this Article demonstrates how regulators have different motivations when regulating ordinary investments-like retirement savings-as opposed to exclusive investments-like short selling. This bifurcated regulation exacerbates the capital markets' contributions to economic inequality by favoring the expansion of the markets, and thereby facilitating disparities in rates of return. This Article argues that regulators should re-examine the "more is better" presumption in capital markets regulation in light of the fact that additional exclusive investment opportunities fuel the wealth divide. [ABSTRACT FROM AUTHOR]

Using the multivariate quantile autoregression technique, we examine how equity returns of Islamic and conventional banks are affected by shocks to major financial indices such as the DJUSI index, the MSCI World Index, the VIX index and the United States 10-years Treasury bond interest rate. We compare the stability of the two banking systems to financial risk spillovers at the global and regional levels based on data from 16 countries for the period after the 2008 crisis. The empirical findings suggest that Islamic banks' equities have weaker codependency with major equity markets than conventional banks at the global level while Islamic banks' codependency with the 10-years US Treasury bond rate tends to be stronger than conventional banks indicating the sensitivity of Islamic banks to global interest rates. The empirical results also reveal that there does not seem to be any significant difference between stock price reactions of Islamic and conventional banks both at the regional and global levels in response to shocks to major financial indices. Regarding regional comparison of Islamic banks only, we find that Islamic bank performance does not vary much across heterogeneous geographic regions. [ABSTRACT FROM AUTHOR]

Practice and Policy Abstract Rapid improvements in underlying technologies coupled with the diminution of contact-based interactions are resulting in a commensurate increase in the supply and demand of contact-free commerce, necessitating firms to offer innovative electronic services over self-service technologies (SSTs). This raises critical questions regarding value creation as prior research suggests mixed effects of SSTs on customers and unclear implications of SSTs for firm customer growth. These complexities are accentuated when firms offer innovative electronic services because of customers' unfamiliarity with the services. In turn, this dynamic raises questions about (a) how SSTs influence firm customer growth, particularly when the firm's electronic services are more innovative, and (b) what complementary investments help firms achieve customer growth from SSTs and innovative electronic services. In this study, the authors argue that innovative electronic services on SSTs aimed at bringing the enterprise to the customer will only be beneficial if managers enhance customers' awareness of, trust in, and experience of SSTs through complementary investments in marketing and human capital. The authors use data from more than 3,800 credit unions in the United States and find support for their arguments. The findings can help managers improve the success of their digital transformation efforts of offering digital services on SSTs. Rapid improvements in underlying technologies coupled with the diminution of contact-based interactions are resulting in commensurate increases in the supply of and demand for innovative electronic services over self-service technologies (SSTs). This situation raises critical questions regarding value creation as prior research suggests mixed effects of SSTs on customers and unclear implications of SSTs for firm customer growth. These implications are accentuated when firms offer innovative electronic services because of customers' unfamiliarity with the services. In turn, this dynamic raises vital questions about (a) how SSTs influence firm customer growth, particularly when the firm's electronic services are more innovative, and (b) what complementary investments help firms achieve customer growth from SSTs and innovative electronic services. In this study, we conceptualize the theoretical mechanisms underlying these relationships and empirically examine seven-year longitudinal secondary data of over 3,800 credit unions in the United States to obtain three main findings. First, consistent with prior views of SSTs, we find no significant unconditional effect of SSTs on firm customer growth. Second, we find that the innovativeness of the firm's electronic services (IES) negatively moderates the influence of SSTs on firm customer growth, suggesting that SSTs may positively influence growth when IES is low but may deter growth when IES is high. Third, marketing intensity and human capital intensity positively moderate the influence of IES on the effect of SSTs on customer growth. In supplementary analysis, we find similar results using cross-sectional primary data from a sample of 186 U.S. credit unions and their customers matched with secondary data. Our unique theoretical contribution lies in highlighting that innovative electronic services on SSTs aimed at bringing the enterprise to the customer may not be enough for firms to achieve customer growth unless those services are accompanied by complementary investments in marketing and human capital. [ABSTRACT FROM AUTHOR]

Capital structures of United States (US) firms may be influenced by changes in interest rate levels, which may be in relation to lower borrowing costs of firms in different periods of conventional and unconventional monetary policies (UMPs). The present article is the first comparative study of the capital structure of Standard & Poor's 500 (S&P 500) firms for subperiods between 1997Q4 and 2019Q3. Subperiods are defined based on the evolution of the effective federal funds rate (EFFR), which include a period of decreasing EFFR in response to the Dotcom Bubble, and the near-zero EFFR for the period of UMP. The hypothesis of this article is that S&P 500 firms increase the proportion of debt financing in periods of decreasing or low interest rate levels, and the opposite is implemented in periods of increasing interest rates. To provide a robust test of the hypothesis, the new score-driven panel data model is introduced. The hypothesis is supported for debt-to-capital of S&P 500 firms by the empirical results. [ABSTRACT FROM AUTHOR]

Benford’s Law gives the expected frequencies of the digits in tabulated data. The expected frequencies show a large bias toward the low digits. An analysis of the Center for Research in Security Prices (CRSP) data shows that the daily returns have a near-perfect fit to Benford’s Law. The daily volumes also have a close fit to Benford’s Law but there are deviations due to round lot trading and the fact that some of the data are rounded to the nearest hundred. An analysis of Compustat data also shows a close fit to Benford’s Law with some explainable deviations. The expected returns and the abnormal returns used in event studies over an extended period showed that these numbers also conformed to Benford’s Law. Recent studies have divided a population into subsets and then tested the subsets for conformity to Benford’s Law. The conclusions are that the subsets with the weakest fit to Benford were fraudulent. The problems with this approach are discussed, and these include statistical considerations, issues with using Compustat data, other plausible explanations for a lack of conformity, and the fact that there is no clear link between a change in the leading digit of a number and the materiality of the dollar value of the change. [ABSTRACT FROM AUTHOR]

Copyright of Estudios Gerenciales is the property of Universidad ICESI and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Developments in capital markets have fueled a concentration of horizontal ownership across competing firms, and this has been linked to anticompetitive effects and economic underperformance. The debate about such ownership concentration has proven contentious and controversial. This symposium titled "Common Ownership: Illuminating a Great 21st Century Antitrust Debate" brings together key new works on the topic that confirm, extend, and illuminate the prior empirical findings and policy implications. Among other things, these contributions survey the recent empirical literature, provide new important empirical results about the extent and effect of horizontal ownership, offer a methodological critique, highlight concepts that address core capital market and labor market linkages, and articulate ideas for policy development to tackle emerging contingencies. [ABSTRACT FROM AUTHOR]

As constraints on government funding to public universities become a trend in higher education internationally, clarifying the impact of government policies on donor behavior from a comparative perspective is an issue of higher education research. This paper aims to explore the impact of government appropriations and tax policies on macro trends in donations to public research universities in Japan and USA. Panel data of donation revenue to public research universities in both countries is used to answer the following two research questions: (1) whether the trends in capital markets affect the donation revenue of public research universities operating under different tax systems in Japan and USA, and (2) how the level of government support to higher education affects donations to American and Japanese public research universities. The primary finding is that stock prices are positively associated with donations in USA; however, there is no evidence that stock prices have a positive impact on donations to Japanese public research universities. These contrasting results imply that higher stock prices do not always induce donations to universities and that it is important to consider each country's tax structure when looking for possible links between stock prices and donations to universities. Also, donor behavior is independent of the amount of government appropriations received by universities in both Japan and USA; therefore, the recent decreasing trends in government appropriations in both countries do not necessarily attract donors. [ABSTRACT FROM AUTHOR]

In 2019, for the first time in the history of U.S. capital markets, passive funds surpassed active funds in terms of total assets under management. The continuous growth of passive funds at the expense of active funds is a genuine cause for concern. Active funds monitor the management and partake of decision-making in their portfolio companies. Furthermore, they improve price efficiency and managerial performance by engaging in informed trading. The buy/sell decisions of active funds provide other market participants reliable information about the quality of firms. The cost of active investing is significant and it is exclusively borne by active funds; the benefits, by contrast, are spread over all shareholders, including passive funds that freeride on the efforts of their active peers. Therefore, the contraction of active funds threatens to set back the quality of corporate governance in U.S. firms. This Essay proposes a way to reverse this trend. To preserve the benefits presented by active funds, we explore the possibility of employing tax mechanisms to help defray the extra cost borne by active funds. Perversely, at present, our tax laws exacerbate the problem. Since active funds trade more frequently than passive ones, they face a substantially heavier tax burden. We argue that taxation is the key to leveling the playing field in capital markets. Specifically, we establish a prima facie case for using tax credits to support active funds and enhance their market share. We focus on two types of tax credits: effort-based tax credits and result-based tax credits. Effort-based tax credits would be granted whenever an active fund undertakes prespecified measures to improve corporate governance irrespective of their success. Result- based tax credits would be contingent on the attainment of certain outcomes. The two types are not mutually exclusive and, as we will show, can be combined for maximal effect. Our proposal has three potential advantages over competing initiatives that seek to induce passive funds to become more active. First, taxes constitute a highly effective tool for altering behavior as they transform the underlying motivations of the subject. Second, our proposal has the potential to create a virtuous financial cycle: the expected increase in tax revenues from the improved performance of firms generated by the tax credit should cover the cost of providing the credits. Third, and finally, from a political economy standpoint, our proposal, on account of its noncoercive nature, will not attract opposition from the investment industry and thus stands a realistic chance of being adopted. [ABSTRACT FROM AUTHOR]

Using frequency domain analysis, this paper examines the volatility spillover from the United States and Japanese stock markets to the Vietnamese stock market. Daily data of S&P 500, Nikkei 225 and VN-Index from January 01, 2012 to May 31, 2016 is used. In terms of estimation, the GARCH model is used to estimate volatilities in these stock markets; the Granger Causality Test is used to examine volatility spillover; and the test for causality in the frequency domain by Jorg Breitung and Bertrand Candelon (2006) is used to examine the volatility spillover at different frequencies. The empirical results provide two main contributions: (i) there is a significant volatility spillover from the United States to the Vietnamese stock markets, but the evidence of volatility spillover from the Japanese to the Vietnamese stock market is not found; and (ii) the volatility spillover may vary across frequency spectrum bands. To our best understanding, volatility spillover analysis using frequency domain approach was not previously reported in literature. [ABSTRACT FROM AUTHOR]

Copyright of Legal Records / Pravni Zapisi is the property of Union University Law School, Belgrade and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Purpose: The increasing incidence of fraudulent financial reporting by firms in recent years raises concerns about investors' confidence in capital markets. Academicians and industry practitioners adopt diverse risk management techniques to detect fraudulent reporting of financial statements. This paper aims to determine the effectiveness of the Beneish M-score and Altman Z-score models for the early detection of material misstatements at Comscore, Inc., a media analytics firm in the United States of America. Design/methodology/approach: The financial statements of Comscore Inc. from 2012 to 2018 were analyzed with the primary objective of early fraud detection by employing the Beneish M-score and the Altman Z-score. Findings: The study's outcomes indicate that the Beneish M-score is less predictable in fraud detection compared to the Altman Z-score. The study results did not confirm the efficacy of the Beneish model in predicting fraudulent financial statements. The study concludes that the choice of forensic tool greatly influences fraud detection outcomes. Practical Implication: The research findings can guide the policy decision-making of investors, financial auditors, and forensic auditors as this study provides some evidence of the effectiveness of forensic tools in the detection of financial statement fraud in corporate entities. Originality/value: This is the first study to apply these two widely used tools to the most recent big corporate scandal: Comscore, Inc. [ABSTRACT FROM AUTHOR]

This paper challenges the widely accepted stylized fact that chief executive officers (CEOs) in the United States are paid significantly more than their foreign counterparts. Using CEO pay data across fourteen countries with mandated pay disclosures, we show that the U.S. pay premium is economically modest and primarily reflects the performance-based pay demanded by institutional shareholders and independent boards. Indeed, we find no significant difference in either level of CEO pay or the use of equity-based pay between U.S. and non-U.S. firms exposed to international and U.S. capital, product, and labor markets. We also show that U.S. and non-U.S. CEO pay has largely converged in the 2000s. [ABSTRACT FROM PUBLISHER]

We focus on the core institution of the capital market and the institutional work of professional service firms that provide ratings on corporate issuers, initially in a bid to maintain this institution, which suffered when those involved relied solely on information from the issuers themselves. Through our analysis we identify a new type of decoupling-complicit decoupling. Complicit decoupling evolves over time, beginning with the creation of a new practice, here corporate ratings as a form of policing work, which emerges to help to maintain a core institution. This practice is then adopted, implemented and later becomes decoupled. Exposure does not undermine the legitimacy of the practice because external actors collude in the 'window dressing' and, because it has become normalized, only partial repairs are enacted. It is by nature field-level institutional work, benefiting the majority of the field and inherently involves a violation of promise keeping. We conclude with implications for managers and behavioral ethics researchers. [ABSTRACT FROM AUTHOR]

This paper analyzes the market reaction towards capital structure adjustment through seasoned equity offerings in the United States. It recognizes that capital structure and equity mispricing are closely associated with seasoned equity offering. We specifically propose that if the trade‐off theory holds and firms follow target capital structures, then, firms that are overlevered would effectively exploit an overvalued equity in a cost‐effective adjustment of their capital structures through seasoned equity offerings. We also test how the market then reacts to such capital structure adjustment attempts. Controlling for other motives of seasoned equity offerings in a sample of 1,725 secondary issues by 1,016 U.S. nonfinancial firms from 2004 to 2013, we found that firms that were ex ante overlevered and overvalued were more likely to announce a seasoned equity offering. As regards the market reaction to such capital structure adjustments, it is found that the market favorably reacted in both the short term and long term, as evidenced by positive 3‐day cumulative abnormal returns and buy‐and‐hold abnormal returns, respectively. Moreover, post‐event evidence suggests that on the average, overlevered firms reduced their deviations from the target and that their leverage levels mainly stayed around the targets until at least 3 years after the secondary equity issues. [ABSTRACT FROM AUTHOR]

Copyright of Financing is the property of Financing and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The common ownership debate has become one of the most contentious issues in corporate law today. This debate is a byproduct of major changes to capital market ownership structure, which have triggered concerns about the rise of institutional investors, the growth of index investing, and the rapid concentration of ownership in major international financial markets. The common ownership theory focuses on concerns about the incentives of large financial institutions holding widely diversified portfolios of shares in competing companies within a particular economic sector. Proponents of the common ownership theory argue that, even where institutional investors have relatively small ownership stakes, their collective holdings in competing companies produce anticompetitive effects. Other scholars, however, have challenged both the common ownership theory and its regulatory prescriptions. Although the common ownership theory began in the United States, it is now being discussed around the world. This Article examines three conflicting narratives that emerge in this literature concerning institutional investors and the common ownership theory. The Article seeks to position these narratives within the context of the rising influence of institutional investors since the early 1990s and its relation to major international corporate governance developments. It analyzes aspects of the common ownership theory in light of these contemporary corporate governance developments and argues that drawing regulatory and policy conclusions from the current body of conflicting empirical findings on the effects of common ownership is premature. [ABSTRACT FROM AUTHOR]

This paper evaluates a well-known approach from the economic history literature that uses grain prices to shed light on interest rates. Although this method has been applied in influential work starting with McCloskey and Nash (Am Econ Rev 74:174–187, 1984) and has potentially wide applicability in situations where interest rates are not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market performance on a number of different dimensions. Using matched data on bank interest rates and grain prices for early 19th century U.S. regions, we find that the storage cost approach is useful for quantifying the performance of capital markets. The storage cost approach captures well regional differences in market performance implied by bank rates data, in terms of both the average interest rates and capital market integration. Moreover, the results are stronger than interest rate figures derived from the bills of exchange rates. The paper also assesses the storage cost approach's robustness to measurement error, incomplete information, outliers, and other factors. [ABSTRACT FROM AUTHOR]

Following the central themes of this special forum, this article aims to move beyond binary debates on how China relates to the hitherto dominant US-led liberal order. The most debated outcomes – slipping into a Thucydides trap versus the resilience of the liberal international order – should be seen as two extreme cases that are unlikely to occur. Much more likely is a period with diminishing global leadership – a Kindleberger trap – and a metamorphosis of the liberal order as neo-liberal economics is increasingly infused with neo-statism. Analytically, I utilize a two-level analysis that traces historical processes at the level of the international political economy as well as the Chinese domestic level. China's emergent form of capitalism, Sino-capitalism, is conceived of as a multifarious force, both neo-statist and neo-liberal. It combines top-down state-centric modes of governance with bottom-up networked modes of entrepreneurship. By using the internationalization of the Chinese Renminbi (RMB) as a case study, I illustrate the dynamics by which Sino-capitalism impinges on the International Monetary System. Sino-capitalism's interactions with the liberal order are generating a mélange that joins neo-liberalism's emphasis on private capital and unfettered market forces with a neo-statist reinsertion of government to manage economies. This mélange is likely to be chaotic as the United States becomes selectively isolationist, while China's support of the existing order remains half-hearted. The developing chaotic mélange indicates that the global capitalist system could increasingly exhibit disorderly, dysfunctional and even dangerous trends. [ABSTRACT FROM AUTHOR]

Americans have trillions of dollars invested in public and private companies, yet stock ownership is highly unequal: the wealthiest 1 percent of households possess 40 percent of all wealth, and there is a large and persistent racial wealth gap. What if innovations in distributed technologies allowed for democratic facilitation of new opportunities for wealth and a rebalancing of power within the capital markets? This article proposes using innovative financial technologies to create a "Public Investment Platform"—a public option for participation in capital markets—and a "Public Investment Account" to universalize access to investment opportunities. Capital markets are currently governed by public policies that submerge the role of the public in structuring them and enable an inequitable accumulation of wealth. To democratize finance, new policies are required to democratize participation in investment. [ABSTRACT FROM AUTHOR]

Passive investors--ETFs and index funds--are the most important development in modern-day capital markets, dictating trillions of dollars in capital flows and increasingly owning much of corporate America. Neither the business model of passive funds, nor the way that they engage with their portfolio companies, however, is well understood, and misperceptions of both have led some commentators to call for passive investors to be subject to increased regulation and even disenfranchisement. Specifically, this literature takes a narrow view both of the market in which passive investors compete to manage customer funds and of passive investors' participation in the capital markets. We respond to this failure by providing the first comprehensive theoretical framework for passive investment and its implications for corporate governance. To start, we explain that to understand passive funds, it is necessary to understand the institutional context in which they operate. Two key insights follow. First, because passive funds are simply a pool of assets, their incentives are a product of the overall business operations of fund sponsors. Second, although passive funds are locked into their investments, their shareholders are not. Like all mutual fund investors, shareholders in index funds can exit at any time by selling their shares and receiving the net asset value of their ownership interest. Consequently, the sponsors of passive funds compete on both price and performance with other investment options--including other passive funds as well as actively managed funds--for investor dollars. As we explain, this competition provides passive fund sponsors with a variety of incentives to engage with the companies in their portfolios. Furthermore, the size of the major fund sponsors and the breadth of their holdings affords them economies of scale that not only justify engagement economically but also enable them to engage effectively. An examination of passive investor engagement in corporate governance demonstrates that passive investors behave in accordance with this theory. Passive investors are devoting greater sophistication and resources to engagement with their portfolio companies and are exploiting their comparative advantages--their size, breadth of portfolio, and resulting economies of scale--to focus on issues with a broad market impact, such as potential corporate governance reforms, that have the potential to reduce the underperformance and mispricing of portfolio companies. Passive investors use these tools, as opposed to analyzing firm-specific operational issues, to reduce the relative advantage that active funds gain through their ability to trade. We conclude by exploring the overall implications of the rise of passive investment for corporate law and financial regulation. We argue that, although existing critiques of passive investors are unfounded, the rise of passive investing raises new concerns about ownership concentration, conflicts of interest, and common ownership. We evaluate these concerns and the extent to which they warrant changes to existing regulation and practice. [ABSTRACT FROM AUTHOR]

A new marijuana industry has emerged in the United States in the wake of state-by-state legalization of marijuana, and entrepreneurs, investors, and other advisory services are increasingly viewing the marijuana industry as an area of legitimate business opportunity. However, potential investors have been hesitant to establish formal relationships with marijuana businesses that operate legitimately in the eyes of the state but in a cloud of legal uncertainty at the federal level because the Controlled Substances Act criminalizes marijuana. This Note identifies two economic consequences of the conflicts of state and federal law and suggests a temporary solution that would allow states to capture the financial benefits of this industry while the federal government works towards a more permanent, nation-wide solution. The first economic consequence that this Note identifies is that foreign marijuana companies have strategic advantages over U.S. marijuana companies. Investors prefer foreign marijuana companies, particularly those in Canada, instead of the U.S. companies operating in a similar manner. Further, some of these foreign marijuana companies have successfully listed on public U.S. stock exchanges while their domestic counterparts have not been able to, giving foreign competitors greater access to U.S. capital markets than U.S marijuana companies. The second economic consequence this Note discusses is that marijuana companies have been precluded from seeking the protections of bankruptcy law. This Note also suggests that federal bankruptcy courts are equipped to address some of the financial consequences created by this legal disparity. In doing so, they could provide a greater level of comfort to investors and encourage legitimate business development, thus allowing states that have chosen to legalize marijuana to realize the economic benefits of the industry while the federal government navigates the broader issue of federal policy on marijuana. [ABSTRACT FROM AUTHOR]

We assess the impact of initial seeds on the long-run growth of biotechnology startups, including the response of the capital market, in the U.S. and Japan. For this purpose, we collected a comprehensive dataset of the matched sample of listed firms from their foundations to the post-IPO period. We find that the quality of initial seeds predicts significantly both the level and the growth rate of the patent stock as well as those of the asset size of the U.S. startups, even controlling for their alliances and acquisitions, while it predicts only the level of the patent stock for the Japanese startups. Furthermore, the asset growth and the patent stock growth in turn account for the market value performances of the U.S. firms much more significantly than those of the Japanese firms. On the other hand, there are only small differences with respect to the time to IPO and the asset growth through the IPO. These results suggest that higher quality of initial seeds significantly enhanced long-run growth of biotechnology startups in the U.S. but not in Japan, and that the differences in fertility of the initial seeds and in efficiency of the capital market could significantly explain the difference. [ABSTRACT FROM AUTHOR]

We examine how residents of the United States allocate their stock portfolios internationally. We find that a large U.S. Foreign Direct Investment (FDI) position in a destination country in 1990 is associated with a relatively large stock portfolio position in that country in the 2001–2006 period. Moreover, a change in the U.S. FDI position from 1980 to 1990 helps predict the change in the U.S. Foreign Portfolio Investment position from 1994 to 2006. These results are rationalized by Van Nieuwerburgh and Veldkamp’s (2009) equilibrium model of learning and portfolio choice under an information processing constraint. FDI establishes marginal differences in the endowments of information about different countries, which later translate into differences in stock portfolio holdings. We control for cross-country differences in capital controls, proximity along different dimensions, corporate governance, and economic and capital market development. Our results also hold for the G6 countries collectively. [ABSTRACT FROM PUBLISHER]

We investigate how firms weigh the costs and benefits of being public in the decision to opt out of the public market and go private. We draw on previous studies of going private and on the subsequent well-developed theoretical literature on why firms go public to develop our hypotheses. We employ a comprehensive sample of going-private transactions from 1980 to 2004 in the United States and examine how these firms differ over their public life (from IPO to going private) relative to a sample of firms that went and remained public. Our results provide strong support for the importance of information and liquidity considerations in being a public firm. These factors are evident at the IPO, on average thirteen years before the going-private decision. Access to capital and control considerations become increasingly important in the choice of going private over the public life of the firm. [ABSTRACT FROM PUBLISHER]

The article examines if general market conditions influence assurance services that auditors provide on initial public offerings (IPO). It states that IPO markets experience significant fluctuations in volume, known as hot and cold markets, and that underwriters and issuers see hot markets as windows of opportunity to maximize proceeds from IPOs. It mentions that assurance fees are lower during hot markets and examines if client size, filing type, risk, and IPO delays impact assurance fees differentially during hot markets compared to neutral or cold market conditions. It comments that there was no evidence that the effect hot markets have on assurance feeds results from characteristic differences between companies issuing securities in different market conditions.

We find a significant positive relation between a firm's advertising spending in the United States and its contemporaneous foreign cash flow. This relation holds even after controlling for factors that should be related to the optimal level of domestic advertising, and it is stronger for subsets of firms that we expect to be relatively more financially constrained. Our evidence supports the hypothesis that there is a causal and economically substantial link between cash flow and investment spending, even for intangible investments such as advertising. Our evidence also suggests that firms have active internal capital markets in which capital is moved across geographic regions. [ABSTRACT FROM AUTHOR]

Although a number of prior papers have argued the benefits to foreign firms of cross-listing their shares in the U.S., the number of foreign firms exiting U.S. capital markets has been increasing. This has occurred despite the difficulties foreign firms face in deregistering from the Securities and Exchange Commission (SEC). This paper examines the reasons underlying this trend. One of our main findings is that the passage of the Sarbanes-Oxley Act has reduced the net benefits of a U.S. listing and registration, particularly for smaller foreign firms with lower trading volume and stronger insider control. [ABSTRACT FROM AUTHOR]

We develop an equilibrium model in which exchange rates, stock prices, and capital flows are jointly determined under incomplete foreign exchange (forex) risk trading. Incomplete hedging of forex risk, documented for U.S. global mutual funds, induces the following price and capital flow dynamics: Higher returns in the home equity market relative to the foreign equity market are associated with a home currency depreciation. Net equity flows into the foreign market are positively correlated with a foreign currency appreciation. The model predictions are strongly supported at daily, monthly, and quarterly frequencies for 17 OECD countries vis-à-vis the United States. Correlations are strongest after 1990 and for countries with higher equity market capitalization relative to ODP, suggesting that the observed exchange rate dynamics is indeed related to equity market development. [ABSTRACT FROM AUTHOR]

The immediate expensing of research and development (R&D) expenditures is often justified by the conservatism principle. However, no accounting procedure consistently applied can be conservative throughout the firm's life. We therefore ask the following questions: (I) When is the expensing of R&D conservative and when is it aggressive, relative to R&D capitalization? (2) What are the capital-market implications of these reporting biases? To address these questions we construct a model of profitability biases (differences between reported profitability under R&D expensing and capitalization) and show that the key drivers of the reporting biases are the differences between R&D growth and earnings growth (momentum), and between R&D growth and return on equity (ROE). Companies with a high R&D growth rate relative to their profitability (typically early life-cycle companies) report conservatively, while firms with a low R&D growth rate (mature companies) tend to report aggressively under current generally accepted accounting principles. Our empirical analysis, covering the period 1972-2003, generally supports the analytical predictions. In the valuation analysis we find evidence consistent with investor fixation on the reported profitability measures: we detect undervaluation of conservatively reporting firms and overvaluation of aggressively reporting firms. These misvaluations appear to be corrected when the reporting biases reverse from conservative to aggressive and vice versa. This evidence is consistent with behavioral finance arguments about investor cognitive biases. [ABSTRACT FROM AUTHOR]

This paper models a bank with access to two segmented capital markets, the market for insured deposits and the market for uninsured claims. We illustrate how higher costs of accessing either market leads to lower firm values and a greater incentive to carry liquid assets. We test our model on a sample of large banking firms, and label banks with relatively lower costs of accessing the two markets as more "financially flexible." Our two key findings are (1) banks with greater financial flexibility have greater value, and (2) banks with greater financial flexibility devote a smaller percentage of assets to cash and marketable securities, consistent with the notion that financial flexibility reduces the sensitivity of firm profits to internal wealth shocks, thus reducing the firm's need to carry financial slack. [ABSTRACT FROM AUTHOR]

The author presents discussion and reflection in response to the article "Disclosure Practices of Foreign Companies Interacting with U.S. Markets," by Tarun Khanna, Krishna G. Palepu, and Suraj Srinivasan from the May 2004 issue. During the course of the author's exploration of the study, he raises three questions. He asks if entire countries are conforming to U.S. disclosure systems models or if this is happening on the basis of individual companies. He also questions global disclosure practices and whether there are general models or unique regional systems. Finally, what kind of costs do companies face as a result of deviating from their disclosure strategy?

We develop a model of informal financial networks and present corroborating evidence by studying the role of property brokers in the U.S. commercial real estate market. Our model demonstrates that service intermediaries, who do not themselves supply loans, can facilitate their clients' access to finance through informal relationships with lenders. Empirically we find that, controlling for endogenous broker selection, hiring a broker strikingly increases the probability of obtaining bank finance. Our results demonstrate that even in the United States, with its well-developed capital markets, informal networks play an important role in controlling access to finance. [ABSTRACT FROM AUTHOR]

Informational scope economies provide a cost advantage to universal banks offering "one-stop shopping" for lending and underwriting that enables them to "lock in" their clients' subsequent business. This market power reduces universal banks' incentive, relative to that of specialized investment banks, to apply costly underwriting efforts; consequently, universal banks are less successful in selling their clients' securities. Our results suggest that an integrated financial services market is less innovative than one with specialized intermediaries. Our analysis also identifies economy, intermediary, and firm characteristics that motivate either the integration or segmentation of bank lending and underwriting. [ABSTRACT FROM AUTHOR]

Capital budgeting in multidivisional firms depends on the external assessment of the whole firm, as well as on headquarters' assessment of the divisions. While corporate headquarters may create value by directly monitoring divisions, the external assessment of the firm is a public good for division managers who, consequently, are tempted to free ride. As the number of divisions increases, the free-rider problem is aggravated, and internal capital markets substitute for external capital markets in the provision of managerial incentives. The analysis relates the value of diversification to characteristics of the firm, the industry, and the capital market. [ABSTRACT FROM AUTHOR]

We measure the postsplit performance of 12,747 stock splits from 1927 to 1996 using two methods to measure abnormal returns: size and book-to-market reference portfolios with bootstrapping, and calendar-time abnormal returns combined with factor models. Between 1927 and 1996, neither method applied to splits 25 percent or larger finds performance significantly different from zero. Over selected subperiods, subsamples of 2-1 splits restricted by book-to-market availability requirements display positive abnormal returns using some methods. However, these samples show small or negligible abnormal returns using the calendar-time method. Overall, the stock split evidence against market efficiency is neither pervasive nor compelling. [ABSTRACT FROM AUTHOR]