Search

Based on a quadratic form of audit tenure in explaining audit quality, we estimate a reference point that is potentially optimal for audit firm rotation for 22 countries across legal regimes with high versus low levels of investor protection. We find that our estimate for the high investor protection regime is longer than that for the low investor protection regime (24 years vs. 14 years for our main measure). However, very few firms from our sample would have been affected if there were a requirement of a mandatory rotation term, suggesting that mandatory audit firm rotation may not be necessary. In additional analyses, we not only evaluate the empirical validity of the quadratic form but also use various measures of our key variables, to conduct several other robustness tests. We continue to find a longer optimal point for countries with stronger investor protection in these robustness tests. Our findings imply that stronger country-level investor protection is a substitute for a shorter term of mandatory audit firm rotation. [ABSTRACT FROM AUTHOR]

We provide evidence that analyst coverage affects security issuance. First, firms covered by fewer analysts are less likely to issue equity as opposed to debt. They issue equity less frequently, but when they do so, it is in larger amounts. Moreover, these firms depend more on favorable market conditions for their equity issuance decisions. Finally, debt ratios of less covered firms are more affected by Baker and Wurgler's (2002) “external finance-weighted” average market-to-book ratio. These results are consistent with market timing behavior associated with information asymmetry, as well as behavior implied by dynamic adverse selection models of equity issuance. [ABSTRACT FROM AUTHOR]

The purpose of this study is to investigate the relation between investor protection and firm liquidity. We posit that less protective environments lead to wider bid-ask spreads and thinner depths because they fail to minimize information asymmetries. The Hong Kong equity market provides a unique opportunity to compare liquidity costs across distinct investor protection environments, but still within a common trading mechanism and currency. Our empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts. [ABSTRACT FROM AUTHOR]

The author examines the relationship between the Arbitrage Pricing Theory of Ross and mean-variance analysis. In particular, conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum-variance frontier. Also, a sufficient condition is given under which the existence of a positive minimum-variance portfolio of all the assets in the economy will imply the existence of a positive minimum-variance portfolio on a subset. This means that rejection of the hypothesis of the existence of a positive minimum-variance portfolio on a subset satisfying this condition implies rejection for the whole set. [ABSTRACT FROM AUTHOR]

This paper addresses the investor's decision to employ multiple managers for the management of investment funds. Under conditions such that specialization of managers and diversification among managers are not motives for the use of multiple managers, the paper shows that risk sharing considerations may be sufficient. A model is developed in which the decision to use multiple managers is explicitly treated, and conditions are studied such that an increase or decrease in the number of managers would be desirable. Under some conditions, a multiple manager solution is preferred over a single manager solution. [ABSTRACT FROM AUTHOR]

The Markowitz (12, 13) paradigm for mean-variance portfolio analysis involves two main components: (1) the preferences (indifference curves in mean-variance space) of the beneficiary of the portfolio's performance and (2) the opportunity set (feasible region in mean-variance space) based on someone's subjective estimates of security expected returns, risks and correlations. Most discussions assume that two people are involved—the “client” (beneficiary) and the “investment manager.” The former's preferences and the latter's judgments are somehow brought together and an optimal portfolio selected. In practice the situation is often more complex. Some investment funds (e.g. mutual funds) have many beneficiaries. Others (\e.g. some pension funds) are managed by more than one investment firm. The problem of optimal portfolio selection in such a context is considerably more difficult than in the traditional setting. We will not deal with the problems associated with more than one beneficiary here. Instead we will focus on situations in which more than one investment manager is employed in the process of selecting an investment portfolio. What might explain the use of such procedures? What types of objective functions should such managers be given? How should funds be allocated among managers? Under what circumstances can myopic decision rules lead to overall results that are optimal? These are the questions we address. [ABSTRACT FROM AUTHOR]

The article focuses on how investment companies are a useful device for private international investments. The article states that nine Canadian investment companies have offered their securities to U.S. investors. These are open-end investment companies that in 1958 are worth approximately $400,000,000. U.S. investors are choosing Canadian investment companies because there is no Canadian tax on capital gains. Also discussed are foreign exchange problems related to multinational portfolio management.

The article reports on a study of information management at Investment Centers, which have been established in the United States and are quasi-governmental agencies that promote foreign investment in their own developing countries or domestic business enterprises. The agencies, which offer information and advice to potential investors and investment promoters, also act as liaisons by matching investment opportunities to the prospective investors' needs. The four countries in this study are Israel, Greece, Taiwan, and Ireland. Data ranks the sources of information by order of importance and reliability, including market research firms, overseas financial institutions, and U.S. government agencies. The difficulty in acquiring information is mentioned.

We consider a new family of derivatives whose payoffs become strictly positive when the price of their underlying asset falls relative to its historical maximum. We derive the solution to the discretionary stopping problems arising in the context of pricing their perpetual American versions by means of an explicit construction of their value functions. In particular, we fully characterise the free-boundary functions that provide the optimal stopping times of these genuinely two-dimensional problems as the unique solutions to highly nonlinear first order ODEs that have the characteristics of a separatrix. The asymptotic growth of these free-boundary functions can take qualitatively different forms depending on parameter values, which is an interesting new feature. [ABSTRACT FROM AUTHOR]

The article focuses on the role of the U.S. Securities Exchange Act of 1934 in regulating the securities market and broker-dealer registration. Topics discussed include the role of Exchange Act in charging the Securities and Exchange Commission (SEC) to govern securities market for protecting investors, laws for regulating the sales of securities and laws for regulating negotiations made during sales and purchase of securities.

This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment. [ABSTRACT FROM AUTHOR]

The article focuses on the international investment system in reference to the U.S. International Centre for Settlement of Investment Disputes (ICSID). Topics discussed include role of ICSID in dispute settlement using bilateral and multilateral investment treaties (BITs and MITs), impact of the claim like expropriation of the investors on the international investments and the role of effective compensation in protecting the international investors.

This study examines the market valuation of accounting earnings during the period before it is publicly revealed that the earnings are fraudulent. Using both cross-sectional and time-series valuation models, we first find that the market accords less weight to earnings when the accounting numbers are fraudulent. We also show that the market better anticipates the presence of fraud when there is information in the public domain indicating a high ex-ante risk of fraud. Our findings suggest that investors are able to accurately assess the probability of fraud and that such assessments affect the market's valuation of earnings even before it is publicly announced that fraud has occurred. [ABSTRACT FROM AUTHOR]

Class actions on behalf of aggrieved shareholders and other investors have become the most common form of group litigation fi led in the Federal Court of Australia. This increasing importance of investor class actions has raised a number of important practical and conceptual issues. One such issue is how this private enforcement of the laws that are intended to protect investors interacts with the operation of the public enforcement model and their respective abilities to deter illegal conduct and secure compensation for the losses suffered by investors. The aim of this article is to explore this issue by comparing and contrasting the enforcement actions that have been undertaken by the Australian Securities and Investments Commission, the public regulator, with the federal class actions that have been fi led on behalf of investors with respect to the same conduct or legal disputes over a 17 year period. This empirical study focuses on the nature of the relief that was sought, the persons and entities against whom this relief was sought and/or secured, the outcomes of these actions and the problems that may be encountered when the same conduct prompts public and private enforcement activity. [ABSTRACT FROM AUTHOR]

The article reviews the revenue recognition methodology under the traditional accounting principles. Topics discussed include the evaluation of the Financial Accounting Standards Board (FASB) and the generally accepted accounting principles (GAAP), impact of the FASB on the valuation of shares of the company, and the laws of the U.S. Securities and Exchange Commission (SEC) in protecting investors from fraud.

This study has a two-fold purpose. First, it seeks to determine the importance of financial accounting information to railroad investors (and speculators) in 1880s America. Second, a further goal is to ascertain what financial accounting information was readily available for use by these investors. Based on a comprehensive search of books of the era, the 1880s were a time of expanding advice for railroad securities holders that required the use of financial accounting information. Furthermore, new information sources arose to help service investors' needs. Statistics by Goodsell and The Wall Street Journal were two such sources. This article reviews these publications along with the ongoing Commercial and Financial Chronicle and Poor's Manual of the Railroads of the United States. Each of these sources helped railroad investors to follow contemporary advice of gathering financial accounting and other information when investing. [ABSTRACT FROM AUTHOR]

The article presents a study on the on the effect of the U.S. Troubled Asset Relief Program (TARP) on the management earning forecasts in firm which accepted the TARP fund from 2008 to 2010. The management forecast bias was investigated using the data of the firms prior to the receipt of the government fund and results show evidence that the managers have increased earning management after receipt of TARP fund. It adds that the study will be useful on future investors of the firms.

The article presents a speech by Elisse B. Walter, commissioner of the U.S. Securities and Exchange Commission (SEC), delivered at a symposium on Compensation of Plaintiffs in Mass Securities Litigation on November 16, 2009 in which she discussed how to enhance investor protection and regulate securities markets, the fundamental principle on broker dealers and investment advisers and its legislative approach.

Abstract: It is the first duty of investors to transform financial resources into investments in the right places at the right times and earn benefits. However, where to invest and how to invest is always a risky and complicated problem. The decision which will be made under a variety of factors might result in a terrible mistake if it is not felicitous. It is necessary to utilize scientific methods when deciding to make these types of complicated investments which can cause large financial losses. Analytical network process (ANP) can show us the best alternative based on different criteria from a variety of alternatives. However, the network structure should model the actual in a very good way. Analytical network process will give us the best result in span after the correctly built network structure’s comparisons are made correctly. It is important to design the structure flexibly in this work in order for it to lead to improvements. Shipyard location is selected in this work which provides reference to investors based on numerical and solid essences. At the end, the study has received a successful application with the help of expert people and the correct fuzzy analytical network process’s success over the criteria which have a close relationship with each other. [Copyright &y& Elsevier]

The characteristics of bank capital determine the existence of capital stakeholder. This explains why bank corporate governance is to protect the interests not only of investors but also of creditors, supervisors and outer bargainers. Bank capital structures, optimization of capital and asset risks, stringent capital supervision and multiple capital restrictive relation affect the corporate governance of commercial banks. As the kernel of bank governance, a sound mechanism of internal governance means strengthening not only the decision-making and supervision of directors and operators, but also the internal risk management and incentive mechanism, so that capital supervision may play an important role in commercial bank governance. [ABSTRACT FROM AUTHOR]

The enterprise income tax law in China has for a long time been characterized by the co-existence of two tax codes applied to foreign investment enterprises and indigenous enterprises respectively. Tax privileges granted to foreign investors give rise to the inequality of tax treatment among enterprises in the country. Under the newly released Enterprise Income Tax Law, a unified tax code is to be applied to all enterprises alike, and tax impetus is no longer reserved for foreign investors. This is a move towards developing a platform on which all enterprises in China can compete equally in terms of taxation. A way forward is contemplated over integrating current laws on foreign investment enterprises into the general domain of the commercial law regime, in order that those mutually exclusive legal regulations presently applied to foreign investment enterprises and their local counterparts can eventually be unified in the same way as in the field of taxation. [ABSTRACT FROM AUTHOR]

Providing the manager of a firm with suitable incentives to act in the investors' interest may be socially efficient, but not individually rational for the investors themselves. This paper specifies a second-best arrangement and shows how investors can be induced to implement it by means of an optimal bankruptcy code in the case where only standard financial contracts are available. It explains why bankruptcy law should, in some states of nature, let shareholders and senior creditors decide jointly, and provides a rationale for the existence of junior debt, which never enjoys any power of decision. [ABSTRACT FROM AUTHOR]

Reports that value-based management (VBM) theories in the U.S. have fallen short in practice, especially when it comes to investor strategy. Shortcomings in traditional VBM principles; Importance of the focus on investor value among managers; Primary indicators of company valuation; Reason why investors discount company values.