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This Article presents evidence showing that boards of directors "bargain" with executives about the profits they expect to make from trades in firm stock. The evidence suggests that executives whose [...]

This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also [...]

I. INTRODUCTION II. BACKGROUND AND EXISTING LITERATURE A. Brief Note on Self-Regulation in Modem Securities Markets B. Securities Enforcement for Capital Market Development: An Ongoing Debate III. SELF-REGULATION IN THE [...]

INTRODUCTION Accurately and precisely modeling financial risk is something of a Holy Grail for financial theorists, regulators, and market participants. But like the Holy Grail, the location of a comprehensive [...]

NOTE CONTENTS INTRODUCTION I. THE U.S. CAPITAL MARKETS AND THE CROSSLISTING PHENOMENON A. An Overview B. The Bonding Hypothesis C. Crosslisting: Procedural and Substantive Requirements 1. How Foreign Issuers Become [...], While proponents of the bonding hypothesis have posited that foreign firms crosslist in the United States to signal compliance with the strict U.S. corporate governance regime, these scholars have taken the enforcement of U.S. securities laws largely for granted. This Note presents an empirical examination of previously unexplored data on the enforcement of U.S. securities laws against foreign issuers. The results suggest that relative to domestic issuers, foreign issuers in the United States have benefited not only from a more lax set of rules, but also from a more forgiving public enforcement agency. At the same time, U.S. courts have limited private enforcement against foreign issuers, thus restricting an alternative to public enforcement and further widening the gap between the corporate governance regime for U.S. issuers and the one for foreign issuers.

The introduction of the Transaction Reporting and Compliance Engine (TRACE) in 2002 resulted in increased transparency and reductions in bid-ask spreads. The quality and quantity of services provided by bond dealers decreased with the decline in corporate bond trading costs.

Abstract: We examine the relation of active equity fund managers' location proximity to a stock's headquarter and fund managers' stock selection skill and investment behaviour using a representative sample of [...]

Public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information. When the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports, equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees. There are a number of empirical implications. The theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good. Also, when investors are risk averse, this leads to negative serial correlation of asset returns. Other points of contact with the empirical literature are discussed. KEYWORDS: Disclosure games, residual uncertainty, binomial trees.

The flow of information between a company and its investors can be complicated. Corporations must attempt to maintain a balance between private disclosure and public disclosure, but often find it necessary to engage in private communications with their core financial institutions. Such types of financial information can have an impact on the behavior of the stock market.

Optimal disclosure policy when two signals are available to be disclosed but the manager is constrained to disclose, at most, one of two estimates about the value of the firm's net assets is investigated. Findings reveal that the market price incorporates the disclosed estimate but likewise adjusts the share price depending on the news contained in the second undisclosed estimate, when the manager follows a policy of reporting either the greater or lower of the two estimates. In particular, share price is adjusted downwards to reflect bad news in the undisclosed estimate, or is adjusted upwards if the news embodied in the undisclosed estimate is good. The unique optimal disclosure policy when both signals are observed but only one is disclosed, and when both may be disclosed, is examined. In case of the latter, the extra cost of disclosing the second signal guarantees that a second signal will be disclosed for some realizations.

The disclosure of information by companies during periods of stock price vulnerability is studied. Results show a decline in the amount of information published during periods of vulnerability. On the other hand, new equity offerings are accompanied by increased information disclosures a month before the announcement and a month following the issue while no changes in disclosure were observed for nonunderwritten convertible debts.

The permanent price effects that are observed in block trades are investigated in terms of how they are affected by earnings announcements. These price effects are examined before and after earnings announcements to test the hypothesis that expected public disclosures facilitate the acquisition of private information. The study seeks to determine whether there is greater price adjustments before earnings announcements or after earnings announcements. It also investigates the impact of earnings disclosure on the temporary price effects of block trades. Findings indicate that the acquisition of private information may be more valuable in pre-earnings announcement periods when earnings have greater potential to be informative.

Corporate insiders have access to more accurate information about their company's profit potential and can use this knowledge to boost their expected trading profits. They may also play a role in the firm's decision to make voluntary corporate disclosures. A model is developed that investigates the incentives of insiders who trade in their company's stock for themselves in making these disclosures. The results show that disclosure incentives are affected by the nature of the market for the company's stock at any given time. These incentives are determined by the fact that the trading behavior of all traders is altered by a public disclosure such that strategic insiders can boost their trading profits to the detriment of other traders.

Market value of equity or firm size is a better empirical proxy for predisclosure information than number of analysts. This was gleaned from an analysis of the ability of market value of equity and number of analysts to proxy for predisclosure information. However, findings confirm the expectation that a greater number of analysts or greater market value of equity correlates to lower analyst forecast dispersion.

Shareholder lawsuits are currently a hot issue. This article compares the characteristics and disclosure policies of companies that were targets of shareholder litigation with those of similarly at-risk companies that were not sued. In contrast to widely held beliefs, a sharp stock price decline does not automatically trigger a lawsuit. Litigation targets experience an abnormally good operating and stock market performance prior to litigation, where the non-sued companies are typically mediocre performers. The litigated companies communicated with investors more extensively than control companies, issuing more optimistic announcements but fewer warnings of forthcoming disappointments. Moreover, as a group, the litigated companies did not resume their high-flying performance after litigation. Shareholder litigation should be viewed as a potential cost of disclosure, however it does not overshadow the considerable benefits of an active disclosure policy. (Reprinted by permission of the publisher.)

In existing models of information acquisition, all informed investors receive their information at the same time. This article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others. The model implies that, under some conditions, investors will focus only on a subset of securities ('herding'), while neglecting other securities with identical exogenous characteristics. In addition, the model is consistent with empirical correlations that are suggestive of oft-cited trading strategies such as profit taking (short-term position reversal) and following the leader (mimicking earlier trades). (Reprinted by permission of the publisher.)

Analyses are performed on two samples of biotechnology, computer, electronics and retailing companies to examine the relationship between adverse corporate disclosures and shareholder litigation. The 'shareholder lawsuit' sample is comprised of firms that were subject to shareholder litigation under Rule 10b-5 of the federal securities laws between Jan. 1988 to Sep. 1992. The second sample consists of corporations 'at risk' for such litigation due to negative earnings announcements. Examination of share returns and patterns of disclosure of the 'at risk' group shows that only one out 51 was sued by shareholders over adverse earnings disclosure. This suggests that there is no simple causal relationship between incidence of shareholder litigation and existence or extent of negative earnings news. Analyses of the 'shareholder lawsuit' sample indicates that litigation is triggered by earnings forecasts and preemptive earnings reports and not by earnings announcements.

A study is conducted that goes beyond previous studies on voluntary disclosure that examine why companies do not willingly disclose all value-relevant information. Unlike past models, the new model demonstrates that, by generating credibility for voluntary disclosures, proprietary costs may actually boost such disclosures. It argues that, although credibility is low for information disclosed privately to the capital market or the competitor, both groups may find a company's equilibirum public disclosures believable and informative due to the trade off between the advantages of overstating demand to the capital market and those of understating the demand to the product market. Findings indicate that, in general, companies are averse to completely disclosing its private information.

This paper examines the issue of voluntary disclosure of information by firms with heterogenous shareholders. It shows that in a rational expectations setting, better informed shareholders prefer less disclosure than less well-informed shareholders. This is due to differences in the adverse risk-sharing effect and the beneficial cost-saving effect of disclosure among shareholders with different risk tolerances and information acquisition cost functions. The presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm's disclosure policy. (Reprinted by permission of the publisher.)

This paper shows that revealing public information to reduce information asymmetry can reduce a firm's cost of capital by attracting increased demand from large investors due to increased liquidity of its securities. Large firms will disclose more information since they benefit most. Disclosure also reduces the risk bearing capacity available through market makers. If initial information asymmetry is large, reducing it will increase the current price of the security. However, the maximum current price occurs with some asymmetry of information: further reduction of information asymmetry accentuates the undesirable effects of exit from market making. (Reprinted by permission of the publisher.)

The efficacy of geographically segmented (GEOG) data in providing predictive information on the earnings process was analyzed. Previous research has ignored GEOG disclosures and concentrated on line-of-business (LOB) segment reports. Research into the predictive ability of GEOG disclosures is particularly relevant since the SEC is considering requiring LOB and GEOG disclosures in all interim financial statements. Research results indicated that GEOG data offers predictive ability for annual income and sales.

The impact of Internet stock messaging on stock price forecasting and stock market volatility is examined. Computational linguistics methods are used for the study.

The authors conclude that increased disclosure in corporations relates to higher international capital mobility.

It is generally assumed by some academics and policy makers that voluntary disclosures by management enhance the credibility of a company's information. Research was conducted comparing the stock price effects of voluntary disclosures to those of mandatory annual earnings announcements to analyze the extent to which traders view voluntary management forecasts of earnings as less credible than regulated, mandated forms of disclosure. Research results indicate voluntary management forecasts are correlated with large stock price effects. The effect is not uniform and seems to be more closely correlated with the timing of the disclosure.