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The 30th Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management was held at National Chung Cheng University, Taiwan on May 13 and 14, 2022. The first conference was held at Rutgers University in 1993. Since then, the conference has been held in Hong Kong (1994, 1998), Taipei (1995, 1999, 2003, 2006, 2011, 2016, 2019, 2020), Bangkok (2000, 2004, 2009), Rutgers (1996, 2001, 2005, 2012, 2018, 2021), Singapore (1997, 2002, 2017), Vietnam (2007, 2015), Australia (2008, 2013), China (2010), and Japan (2014). The program directors of the conference were Cheng-Few Lee, Rutgers University, USA.

We assess information embedded in the difference between the reported book income and the taxable income (the book-tax difference, BTD hereafter) from the debtholders’ point of view. Using bank loan contracts of the U.S. publicly traded companies over years 2001–2017, we find that firms with larger book-tax differences pay higher interest for bank loans than do firms with smaller book-tax differences. Moreover, we find that banks reduce the use of financial covenants while increasing the use of general covenants for borrowers that have larger book-tax differences. In addition, banks are more likely to shorten loan maturity and require their loans to be collateralized for borrowers with larger book-tax differences. Furthermore, we find that the effects of BTDs on loan contracting are stronger if the CEOs of the borrowers are overconfident. Taken together, our findings suggest that larger book-tax differences increase a bank’s concerns regarding a borrower’s information risk and default risk. Thus, banks tend to take price and non-price protection against borrowers which have large BTDs.

We investigate how a firm manipulates its real activities in production to meet the earnings target in product market competition against its product-market rivals. We show that the equilibratory way to reach the earnings target is to set a higher first-period output level, reaching a higher short-term profit level. However, once the expected level of demand uncertainty is high, a firm will exploit this effect on its output choice by taking a mixed strategy and raising its short-term output level. This result suggests that one should consider longer-horizon paths of variables to detect opportunistic real activities manipulation.

The primary purpose of this paper is to discuss how to use the active and interdisciplinary approaches to teach corporate finance. First, I describe the content and structure of the book entitled Corporate Finance and Strategy: An Active Learning Approach [Lee, CF, AC Lee, JC Lee and M Lee (2022). World Scientific]. Second, I discuss how the interdisciplinary approach is used to integrate corporate finance and strategy with other subjects. Third, I discussed how I require students to write three projects to make this course become active instead of passive to learn corporate finance. Finally, I discuss how students can benefit from active and interdisciplinary approach to learn finance.

The properties of the heteroscedasticity non-consistent variances and heteroscedasticity consistent variances are reviewed. Unlike the related existing results, the following cases are discussed separately: (i) the cases where the explanatory variables are strictly exogenous; and (ii) the cases where the explanatory variables may or may not be strictly exogenous. The latter cases allow weakly dependent explanatory variables such as those generating from an autoregressive process. New results on the original robust variance (denoted by H C 0 ) and its variants (denoted by H C 1 , H C 2 , H C 3 , H C 4 and H C j ) are derived. In particular, the followings are shown: (i) the ordering of the original robust variance and its variants; (ii) the asymptotic equivalence among different variants of robust variance; and (iii) under quadratic form of heteroscedasticity (with mesokurtic/leptokurtic normalized error) or GARCH(1,1)-error, non-robust variance rejects more often than robust variance. Simulation studies suggest H C 4 by and large does not over-rejects or mildly under-rejects.

This study explores the value of the tax deferral option. By examining ex-day stock-price-change ratios for taxable stock dividends in Taiwan, we find that the tax deferral option is valuable to investors. For a $1 taxable stock dividend, the tax deferral option produces 33.9 ¢ in tax savings, which suggests a tax deferral parameter of 11.3%. We also find that stocks with the tax deferral option have higher trading volumes around ex-days than those without this option, and that higher investor-level tax rates lead to higher value of the tax deferral option. We contribute to the literature by cleanly determining the value of the tax deferral option; our result is not confounded by the restart option.

The main purposes of this paper are to study (1) a differential effect of inside debts on components of the firm risk, and (2) how it relates to the diversification of CEOs’ portfolios to reduce exposures to the firm risk. We find that compensating CEOs with inside debts (e.g., pensions and other deferred compensation plans) leads to reductions in firms’ systematic risk and idiosyncratic risk, but to disproportionate degrees. CEOs with larger inside debts draft and implement policies, which lead to a significantly larger reduction in the idiosyncratic firm risk and investment. We then show that the differential effect is the result of an asymmetry in CEOs’ perceived benefits of diversifying exposures to individual firm risk components. We further show that granting excessive debt-based pay may divert executives from firm specific but productive activities (e.g., R&D investments), therefore may compromise the long-run corporate success.

In this study, we develop alternative dividend stickiness measures as a proxy for managerial reluctance to cut dividends and investigate the information content of dividend stickiness. We find that firms with stickier dividend payout have greater earnings persistence, earnings growth, and pricing multiples on earnings. Further analysis shows that the signaling effect of dividend stickiness on future earnings is more pronounced for firms with less catering incentives to avoid dividend cuts. Our results suggest that dividend stickiness has incremental explanation over dividend payout for signaling future earnings.