Stockholders Research Articles

The Effect of the COVID-19 Pandemic on South Korea's Stock Market and Exchange Rate.

This study examines COVID‐19 pandemic effects on the stock market and exchange rate of South Korea. With daily data from January 2, 2019 to August 31, 2020, we show that a new infection spike increases stock price index volatility and decreases foreign investors' holdings of domestic stocks, and indirectly leads to the depreciation of the South Korean won. We indicate that investors may have repurchased the South Korean won seven days after an infection spike, thereby slightly increasing its value. We also find that the Bank of Korea's foreign exchange intervention had a short‐run effect with a limited impact. The intervention did not have a significant effect on exchange rate volatility.

New therapeutic agents marketed in 2020: Part 2

New therapeutic agents marketed in 2020: Part 2

Do ETFs Improve the pricing efficiency of the A-share market—examining ETF holdings of individual stocks

ABSTRACT Given the efficiency loss regarding the Chinese capital market, it is necessary to examine ways to improve pricing efficiency. Thus, this study considers A-share market listed companies (2005–2019) and adopts the proxy variable of pricing efficiency from the price adjustment speed to examine the effect of exchange traded funds (ETFs) holding shares on stock pricing efficiency. It also examines the effect of ETFs’ entry and exit regarding the underlying stocks on the stock pricing efficiency relative to traditional mutual funds. Accordingly, the pricing efficiency of ETF-holding stocks is significantly higher than that of stocks not held by ETFs. Pricing efficiency is significantly improved after ETFs enter the underlying stocks. Contrarily, there is a significant decline in pricing efficiency when ETFs exit the underlying stocks. Moreover, whereas ETFs can help improve the pricing efficiency of the Chinese stock market, traditional mutual funds have somewhat harmed market pricing efficiency. Further, mediating effect model tests showed that ETF improves the stock pricing efficiency mainly via a trading rather than a governance channel. Thus, this study provides a new theoretical basis for improving the pricing efficiency of China’s capital market.

Wealth heterogeneity, information acquisition and equity home bias: Evidence from U.S. household surveys of consumer finance

• Equity home bias occurs along both extensive and intensive margins. • Wealthy US households are more likely to participate in the foreign stock market. • As investor wealth increases, portfolio share invested in foreign equities decreases. • Overall international diversification is increasing with wealth. • A noisy rational expectations equilibrium model with wealth heterogeneity, entry costs, and information processing can explain both margins. The well-known equity home bias has two components: an extensive and intensive margin. Using data on direct stock holdings of U.S. households, we find that the decision to participate in foreign stock markets depends on investor wealth, with richer investors more likely to participate (the extensive margin). We document a new finding: as investor wealth increases, the portfolio share invested in foreign equities tends to decrease (the intensive margin). A noisy rational expectations equilibrium model with wealth heterogeneity, entry costs, and endogenously chosen information processing capacity can generate the new negative relationship and help understand the U.S. household equity home bias along both margins.

Discipline, risk, and the endogeneity between financial decisionmaking and health

We examine the effect of financial asset allocation and asset liquidity on individuals’ health. Earlier literature finds empirical evidence and provides theoretical justification of the impact of health on financial decisions but speculates that reverse causality is unlikely. Through panel data methods and an instrumental variable approach, we refute this claim and establish a causal effect of financial choices on physical and mental health outcomes. Our findings suggest that accounting for endogeneity changes the results from a basic specification. Stock holdings no longer significantly affect health while ownership of time accounts and retirement accounts have a strong positive effect on health outcomes. An exploration of the channels driving these effects provides confidence that the potential stress caused by the risk level of financial assets as categorized by the literature is not the primary driver of health outcomes. However, the findings support the time preference channel, i.e. willingness to forego financial satisfactions today in return for greater financial well-being in the future causes beneficial physical and mental health outcomes. There is also some support for the allostatic load hypothesis as well as a dopamine substitutability hypothesis.

Bank stockholders’ vs bank bondholders’ market discipline during crisis time: an investigation based on supervisory stress test information disclosure

PurposeThis paper aims to investigate how stockholders and bondholders react to the information disclosed on the financial markets during crisis periods. This paper considers the 2011 European Banking Authority’s stress test as it disclosed detailed information about banks.Design/methodology/approachIt was conducted during the European sovereign debt crisis, and this paper uses an event study methodology. This paper analyzes the average cumulative abnormal returns for different subsamples of banks. This paper compares the reactions of stockholders and bondholders to the stress test by considering pre-results announcements (signal generating process) to the publication of the results on the disclosure date, using quantitative data for each individual bank that participated in the stress test (the signal provided to the financial market).FindingsThis paper finds that stockholders’ reaction is more sensitive to idiosyncratic components of the disclosed information, whereas bondholders are more influenced by systematic risk. A deeper investigation shows that subordinated bondholders tend to behave quite similarly to stockholders. This specific reaction of stockholders during financial distress may make them more likely than bondholders to impose market discipline during troubled periods.Originality/valueThis paper brings several new insights to the behavior of stock and bond holders during times of financial distress and makes recommendations to regulators that may serve to refine communication to markets to reduce the shock of negative news.

Trading leveraged Exchange-Traded products is hazardous to your wealth

Using a large set of both trading and survey data, we sketch the profile of the typical retail investor who trades Leveraged Exchange-Traded Products (LETPs). Our findings show that the typical user of LETPs looks like an overconfident gambler willing to take a high risk, though some highly loss averse investors use inverse leveraged Exchange-Traded Products (ILETPs) for hedging purposes. Aggregating holdings in both stocks and Exchange-Traded Products (ETPs), users of LETPs get a lower performance than retail investors who invest in vanilla ETPs (VETPs). The reason is twofold: they trade too much and hurt their returns when investing in LETPs. Though trading LETPs could be interpreted as rational gambling, the skewness of the monthly portfolio returns of LETP users does not offset the risk-return sacrifice in the mean-variance space.

Peran peringkat PROPER dan Biaya Lingkungan terhadap Nilai Perusahaan BUMN di Indonesia

Every companys goal is to make their stock holder prosperous by giving them dividend, capital gain, also the investor will add their money for the company aiming to achieve a better performance. However, as the business grows in the last few years, most company responsible to pay attention more to the environmental impact as the effect of its company activities. This research using saturated sampling technique which sampling technique makes all members of the population sampled. Sample of this research are 20 state-owned corporation (BUMN) that listed in Bursa Efek Indonesia (BEI) during 2013 2017. The type of data used is the secondary data, obtained from www.idx.co.id. The analytical method used in this research is analysis Structural Equation Modeling (SEM) which combine simultaneous system of equations or path analysis. Based on the result shows that environmental performance and environmental costs have a negative effect on firm value.Keywords: Environmental Performnce, Environmental Cost, Firm Value.

New therapeutic agents marketed in 2020: Part 1

New therapeutic agents marketed in 2020: Part 1

A Study on the Relationship between Accrual Earnings Management and Cash Flow Manipulation

Recently exposed financial fraud cases show that the financial manipulation means of enterprises are becoming more and more complex, showing the characteristics of the coordination between accrual earnings management and cash flow manipulation. However, the existing literature either ignores the particularity of cash flow manipulation based on cash basis and does not consider the difference between cash flow manipulation and real earnings management, or fails to alleviate the endogeneity between the two types of earnings management and pay no attention to the internal interaction and interaction mechanism between them.Based on the understanding that cash flow manipulation is different from real earnings management, this paper selects Chinese A-share listed companies from 2007 to 2018 as research samples, and establishes the simultaneous equation model and adopts the three-stage least squares（3SLS）method to study the internal interaction between accrual earnings management and cash flow manipulation. It is found that there is a two-way asymmetric interaction between accrual earnings management and cash flow manipulation, that is, there is an interaction between cash flow manipulation and accrual earnings management, but in the process of cooperative control, the magnitude of cash flow manipulation is usually larger than the corresponding magnitude of accrual earnings management. When enterprises carry out positive accrual earnings management, the interaction between them will be stronger. Further research shows that excessive debt will further deepen the interaction between the two. Compared with state-owned enterprises, the coordination between accrual earnings management and cash flow manipulation in non-state-owned enterprises is more serious. Internal control, managerial stock holdings and proportion of independent directors, as the main means of corporate governance, have a significant inhibitory effect on the above relationship.The main contributions of this paper are as follows: Firstly, by establishing a simultaneous equation model, this paper uses the 3SLS method to conduct an empirical analysis on the relationship between accrual earnings management and cash flow manipulation, which alleviates the endogeneity between variables and improves the scientificity of the research results. In addition, it deeply studies the interactive mechanism, focuses on the direction and symmetry of the above-mentioned relationship, and deepens the understanding of the relationship between accrual earnings management and cash flow manipulation. Secondly, this paper studies the regulating effect of the relationship between accrual earnings management and cash flow manipulation on debt stress motivation, and provides new evidence to clarify the regulatory focus of interactive fraud and reveal the internal linkage of the three major financial statements when financial fraud takes place. Finally, this paper is helpful to reveal the internal relationship between cash flow manipulation and accrual earnings management, as well as the interactive mechanism of the three major statements in the process of corporate financial manipulation. And it has enlightenment significance for comprehensively and accurately understanding the mutual influence and external influence of various financial manipulation behaviors, and building comprehensive and systematic governance, auditing, and supervision mechanism based on corporate financial manipulation.

Tax-Loss Harvesting Under Uncertainty

Numerical calculations imply that tax-loss harvesting is valuable to holders of taxable stock accounts. These calculations are based on the assumption that a capital loss on a stock portfolio can always be netted against ordinary income (up to a limit) or a capital gain on the same stock portfolio. We provide market-based evidence that a capital loss that is realized in the beginning of the year is substantially less valuable than a loss that is taken at the end of the year. A simple binomial tree model that captures the resolution of tax rate uncertainty closely mimics observed market prices. Allowing investors to postpone unused losses into the future does not alter the conclusion that realized losses are less valuable early in the year.

Do Activist Directors Add Value?

Since the financial crisis and with the help of large passive investors, activist hedge funds, who initially served as a catalyst in resolving agency conflict, have increased influence beyond their concentrated stock holdings advocating for board representation. We study the performance of companies with activist directors using a hand-collected dataset and attempt to fill a void in the emerging study of corporate activism. Our data covers a complete list of activist hedge fund directors, their tenure, and operating performance and returns associated with their board service. Additionally, our findings provide context for the ongoing policy debate on the attributes of activism and corporate governance. We find scant statistically significant evidence that activist hedge funds that nominate directors by winning a proxy contest or by consulting with management generate long-term value for shareholders in the form of superior operating performance and outsized monthly returns during their board tenure.

Managerial equity incentives portfolio and the moral hazard of technology investment

ABSTRACT Modern literature emphasises the enterprise innovation theory of balancing explorative and exploitative activities to control the moral hazards of technology investment. Many studies overlook the noisy perspective of innovation and offer various instruments for more or less innovation. We attempt to diverge the debate and unfold the sensitivity of managerial equity incentive schemes on the subject of the quality of innovation. Investment in patents and R&D is applied to account for quantity and quality innovation, respectively. Fixed-effects and logit regression modelling are used for basic estimations and a two-step system GMM is applied to control the endogeneity. The estimations validate that stock appreciation incentives are more sensitive to the quantity of innovation, whereas, stock options and restricted equity rights have a strong impact on the quality of innovation. Subsample analysis revealed that the explanatory power of our predictions is highly pronounced in large and young firms. Innovative firms are suggested to design the managerial equity incentive portfolio as per their technological choices. Firms should consider the sensitivity of equity incentive schemes to control effort ex-ante, especially to attain technology leadership and optimal corporate value in the long run.

Financial Reporting Fraud and Delegated Investment

Following the public revelation of financial reporting fraud against a company in their portfolio, professional money managers decrease (increase) their holdings in stocks with high (low) expected financial reporting fraud risk, reduce the total risk level of their funds, and allocate their portfolios closer to their respective benchmarks. Portfolio managers exposed to financial reporting fraud rely less on accounting information in their trading decisions subsequently, suggesting that fraud alters the behavior of investment managers by reducing their trust in security issuers. The results provide insight into the implications of fraud for professional investment decisions.

Sectorial Holdings and Stock Prices: The Household-bank Nexus

We analyze the evolution and price implications of aggregate sectorial holdings of stocks, using detailed information on the universe of publicly traded stocks in the euro area. We document that: i) households’ (HH) direct holdings represent a higher fraction of total ownership in domestic bank stocks than in non-financial corporation (NFC) stocks; ii) HH holdings of stocks increase (decrease) following a decline (increase) in the stock price, especially for domestic bank stocks; and iii) an increase in domestic HH holdings is followed by future (persistent) increases in the price of NFC stocks, but not for bank stocks. Moreover, during equity issuances, an increase in the share of domestic HH holdings is followed by a future (persistent) decrease in the stock price of bank stocks, but not for NFC stocks. Our results are consistent with HH being liquidity providers in the stock market, and at the same time subject to negative information asymmetries. We argue that this latter effect is more prevalent in domestic bank stocks than in NFC given the close relationships between HH and banks.

Technology Rhetoric and Institutional Ownership

We compare actual R&D spend with the managerial rhetoric around technology and innovation contained within corporate disclosures of US-listed firms. We find that, whilst actual R&D spend and patents do not entice institutional investors to increase their stock holdings, firms that espouse technology and innovation in their corporate disclosures are quite successful in drawing in short-term horizon investors. Yet, such firms are more prone to future sudden idiosyncratic stock price crashes. Although it may seem that talk of technology and innovation represents a self-interested managerial effort to retain investors’ expectations, this would not explain why so many short-term horizon investors opt for such stocks in the face of persistent evidence of adverse market performance outcomes. As suggested by the economics of expectation, investors may become reluctant to timely face up to bad news in terms of unfulfilled technology and innovation outcomes, a behaviour that can hype investors’ expectations and overinflate stock prices for long periods. Eventually, when such investors become disillusioned by unjustifiable expectations that enables them to better discern the firm’s true state of economic fundamentals, the sudden and abrupt decline in their expectations triggers extreme firm-specific left-tail outcomes.

Local IPOs and Household Stock Market Participation

We posit that IPOs of local companies will lead to increased stock market participation. First, local IPOs attract attention to the market, through both increased information production and publicity. Second, local IPOs generate wealth, not just for people associated with the heretofore private company but also for the wider community through local agglomeration effects. Consistent with predictions, we find that local IPOs increase both households’ propensity to own stock and equity holdings as a percent of wealth. Tests of the mechanisms underlying this relation support the attention channel. We find little evidence in support of the wealth channel. Given prior evidence that stock market participation represents a key factor toward building wealth, our findings highlight that the benefits of IPOs extend beyond those people directly involved with the offering.

The Role of Hedge Funds in Asset Pricing: Evidence from China

We document that hedge funds nurture mispricing in the Chinese financial market. We exploit the relationship between hedge fund holdings and the degree of mispricing in case that hedge fund holdings of stocks are mainly for arbitrage purpose but not for hedging, and that with and without short-selling restrictions. Hedge funds intentionally hold overvalued stocks. Their trades, which generate an abnormal return to 1.78% per month, also impede the dissipation of stock mispricing. Further, we find trend chasing may be the reason why hedge funds prefer to hold overvalued stocks. This research sheds new lights on the information content and potential investment value of hedge funds holdings in emerging markets.

Who Owns What? A Factor Model for Direct Stock Holding

Who Owns What? A Factor Model for Direct Stock Holding

Credit Rating and Stock Return Comovement

Firms with similar credit ratings, especially junk-rated ones, tend to comove strongly in stock returns with each other, which is not fully explained by their exposures to systematic factors. Following a firm’s downgrade into the junk-grade group, it tends to comove much more strongly in stock returns with firms in the junk-grade group and less with those in the investment-grade group. There is no similar trend in comovement with either credit rating group in the one-year window prior to the downgrade, indicating that changes in comovement are unlikely driven by changes in fundamentals of affected firms. Finally, we find evidence consistent with the investor clientele effect explanation for excessive comovement related to credit ratings by examining a) how mutual funds with different credit preferences adjust their stock holdings of firms being downgraded into junk-grade ratings and b) how flows to mutual funds that tend to invest in junk-rated firms affect these firms’ stock returns and their comovement.