Level Of Investor Protection Research Articles

The value of say on pay

We measure the impact of “say on pay” (SoP) – mandatory shareholder votes on top-management compensation – on the market value of voting rights. By exploiting the staggered introduction of SoP across 14 economies, we show that SoP does not automatically increase the value of shareholder voting rights. While stricter, binding SoP reforms increase voting values, looser advisory SoP laws decrease them. Firms that do not pay their CEOs excessively experience the largest decreases in voting values. Voting values also reflect a country’s level of investor protection, past dissent in SoP ballots, and dynamically adjust to changes in managerial compensation.

Dividend signalling and investor protection: An international comparison

This study examines whether dividend changes signal future earnings growth in non-US markets following the Ham et al. (2020) methodology and whether the strength of the earnings signal varies with the level of investor protection. Based on the notion that weak investor protection reduces the cost of cutting dividends and as such increases managers’ discretion to change dividends, we expect that the strength of the earnings signal in dividend increases becomes weaker as investor protection decreases. In a sample drawn from 38 different markets, our results indicate while dividends can signal future earnings in non-US markets, the strength of the signal is weaker than that in the US. In line with our predictions, we find that for firms in a strong investor protection environment, dividend changes are correlated more strongly with subsequent earning changes than is the case for firms in weak investor protection environments.

The Impact of Enterprise Digitization on Investor Protection: Evidence from China

This paper takes China listed companies from 2011 to 2021 as a sample to explore the impact of digital transformation on investor protection. The study finds that the digital transformation of enterprises improves the level of investor protection, and the intermediary mechanism test shows that digital transformation improves the level of investor protection by improving corporate transparency. Further analysis shows that the level of enterprise risk exposure has a negative moderating effect in the process of improving the level of investor protection in the process of enterprise digital transformation, while executive shareholding and corporate ESG disclosure have a substitute role. This paper provides important enlightenment for protecting investors' interests, enhancing investors' investment confidence, and increasing the proportion of direct financing.

Capital structure and corporate litigation

This paper selects the data of A-share listed companies in Shanghai and Shenzhen from 2011 to 2022 as a sample to explore the relationship between capital structure and corporate litigation and finds that an unreasonable capital structure increases the litigation risk of enterprises. A reasonable capital structure not only helps enterprises maintain a sound financial position and efficient decision-making mechanism in litigation but also reduces their legal risks and improves their competitiveness; the role of capital structure on corporate litigation risk is more significant in regions with low rule of law than in areas with high rule of law. Firms may be more inclined to choose a robust capital structure to reduce litigation risk in areas with a strict legal environment and high investor protection. On the contrary, in regions with relatively lax legal environments and low levels of investor protection, firms may be more inclined to choose risky capital structures in pursuit of higher returns, but this also increases their exposure to litigation risk; financing constraints play a mediating role in the relationship between capital structure and corporate litigation.

When does digital merger and acquisition create shareholder value? An empirical investigation in the Chinese context

In China, acquiring firms are increasingly focused on the immediate financial returns that digital mergers and acquisitions (DM&A) can help them achieve in the stock market, but there is little literature that examines which acquiring firms achieve greater returns. Based on signaling theory, this study conceptualizes DM&A announcements as signals released by the acquiring firms to the stock market and explores the factors influencing the Chinese stock market's reaction to such signals. This research empirically investigates potential influencing factors using a short-term event methodology together with regression analysis based on the data collected in China's Shanghai and Shenzhen stock markets during 2012–2021. The research finds that the Chinese stock market reacts more positively to DM&A announcements for acquiring firms with high executive shareholdings, high executive openness, strong digital innovation capabilities, and in regions with higher levels of investor protection. This study is the first attempt to explore the factors influencing the stock market's response to DM&A in the Chinese context.

Impact of financial reporting quality on investment efficiency and role of investor protection in frontier markets

PurposeThis study aims to examine the link between financial reporting quality and investment efficiency in publicly listed firms in frontier markets, taking into account country-level investor protection. By comparing real and accrual earnings management, this paper demonstrates the context-dependent nature of the impact of financial reporting quality. It emphasises the importance of improving investor protection and reducing agency conflicts in promoting investment efficiency in frontier markets.Design/methodology/approachAccounting data from 1998 to 2020 are collected for all listed firms in six frontier market countries across 21 industries. Fixed-effect regression analysis is used to test causal relationships; several robustness checks are performed; and two-stage least squares is used to address endogeneity concerns.FindingsHigher financial reporting quality improves investment efficiency in frontier markets. Furthermore, the positive effect is amplified when country-level investor protection in frontier markets is strong.Originality/valueThese findings add to the growing body of evidence showing that financial reporting quality improves investment efficiency, even in frontier markets. Furthermore, the level of investor protection within a country strengthens this relationship, particularly in firms that are prone to underinvestment.

Democracy and stock market returns

AbstractIn this article, we empirically examine the relation between democracy level and stock index returns in a sample of 74 countries. Compared with democracies, autocratic states are characterized by lower returns despite exhibiting higher return volatility. Even though this higher volatility can be mostly attributed to diversifiable country‐specific risk, the capital asset pricing model cannot explain the return differential. Instead, it is the level of investor protection that can fully account for the phenomenon described here. Autocratic leaders may be reluctant to promulgate regulations shielding investors, and the resultant expropriation depresses the returns realized by outsiders.

Political Connections, Corporate Transparency, and Investor Protection

This paper examines the impact of political connections of listed companies on the level of investor protection using China A-share listed companies as research samples from 2010 to 2021. The research reveals that corporate political connections can enhance the level of investor protection, and this conclusion holds true after a series of robustness tests. Mediation mechanism tests indicate that political connections, by increasing corporate transparency, contribute to the improvement of investor protection. This study provides important insights for safeguarding investor interests, boosting investor confidence, and reducing the difficulty of corporate financing.

The impact of investor protection on stock market volatility

PurposeThis study aims to advance knowledge on the direct impact of the investor’s protection level on the stock market volatility, that is, whether investor’s protection is an important stock market volatility determinant.Design/methodology/approachA panel data was estimated using a sample of 48 countries, from 2006 to 2018, totalizing 31,808 observations. To measure stock market volatility and the investor protection level, a generalized autoregressive conditional heteroskedasticity model and the World Bank Doing Business investor protection index were used, respectively.FindingsThe results evidence that the protection of investors’ rights reduces the stock market volatility. This result indicates that a high level of investor protection, which is the result of a better quality of laws and policies in place that protect investor’s rights, promotes the country as a “safe haven.”Practical implicationsThe relationship that the authors intend to analyze becomes important, given that investor protection will give outsiders guarantees on the materialization of their investments. This study contributes important knowledge for investors and for the establishment of government policies as a way of attracting investment.Originality/valueAlthough there have been a few studies addressing this relationship, to the knowledge, none of them directly analyses the influence of investor protection on the stock market volatility.

Financial reporting complexities: Association with accounting expertise of board and audit committee

AbstractThe purpose of our study is to examine the financial reporting complexity of listed firms in Indonesia and the association between the financial reporting complexity and the accounting expertise of boards (Board of Directors/BOD and Board of Commissioners/BOC) and audit committee members. We use samples of listed firms in Indonesia over the period from 2013 to 2019. We find that financial reporting complexity is negatively associated with the accounting expertise of the BOD, BOC, and audit committee. These results indicate that companies do not try to engage in higher accounting expertise to mitigate the unfavourable impact of financial reporting complexity and that companies tend to use the financial reporting complexity to obfuscate the financial reporting. The novelty of our study is developing an aggregate measure of the financial reporting complexity that has not been used in extant studies. We also have not found any previous studies examining this issue in emerging countries, including Indonesia. The previous study has examined similar issues in the USA, where the USA is a developed country with a high level of investor protection. The varying levels of investor protection may affect the results.

The role of investor protection in stock price crash risk: a comparison of developing and developed Asian economies

PurposeThis study examines the influence of investor protection on stock price crash risk (SPCR) in Asian economies.Design/methodology/approachThis study used yearly data from 432 nonfinancial companies publicly listed firms in six countries (i.e., China, India, Pakistan, Hong Kong, Japan and Singapore) from 2007 to 2020 to investigate the relationship between investor protection and the risk of stock price crashes. The hypothesis was tested using a generalized least square panel regression.FindingsThe results suggest that investor protection significantly affects SPCR in Asian economies. Furthermore, the findings show that the stocks of firms whose investors received the best protection were less prone to crash in developed Asian economies. However, in developing Asian economies, the stocks of firms whose investors received the best protection were more prone to crashes.Practical implicationsIt provides awareness and understanding of how the level of investor protection affects SPCR, which could be useful for decision-makers and professionals across a spectrum of financial and non-financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This knowledge enables informed decision-making and the formulation of effective policies to manage stock market volatility.Originality/valueThis study appears to be the first of its kind to focus on the link between investor protection and SPCR within the specific context of developed and developing Asian economies.

Dividend smoothing and ownership concentration: Evidence from Latin America

AbstractWe evaluate the impact of ownership concentration on dividend smoothing for six Latin American economies characterized by both a low level of investor protection and high ownership concentration. Using a panel data set, we find that firms with higher ownership concentration tend to engage more in dividend smoothing, which is more evident for firms with high growth opportunities and greater financial constraints. Our results also show that companies with a mandatory minimum dividend rule (Brazil and Chile) do not engage in dividend smoothing as much as companies without this regulation (Argentina, Colombia, Mexico, and Peru). These results are consistent with the idea that in countries where the legal system does not protect minority shareholders, firms would smooth dividends to build a reputation for moderation in expropriating shareholders. According to our results, this need for reputation would be more important for firms with high ownership concentration, more growth opportunities, and greater financial constraints.

How economic uncertainty influences the performance of investor perceptions and behavior

In the presence of high uncertainty and asymmetric information, firms might opportunistically shift earnings from uncertain to more certain times. Thus, this paper examines how investor perceptions and risk-taking behavior fluctuate under high economic uncertainty and how earnings quality influences stock return synchronicity and analyst forecast accuracy during periods of high uncertainty. Using a large sample obtained from 24 countries worldwide over the period from 1997 to 2017, we find that investors take a bearish attitude and stocks are more synchronized during years with high economic uncertainty. Furthermore, we find a negative association between analyst forecast accuracy and economic uncertainty. Second, a low level of investor protection indicates a low level of market sentiment. Third, stocks become more synchronous and analyst forecasts are more accurate during periods of high investor sentiment and in the presence of higher levels of earnings quality. Fourth, higher stock return synchronicity implies greater analyst forecast accuracy. Overall, we show that all these effects are more intense during periods of high economic uncertainty.

Does financial education help to improve the return on stock investment? Evidence from China

Individual investors are important capital market participants, and improving their financial welfare has been a long-standing objective for policymakers and researchers. Using the data from a national survey on individual investor behavior in China, we explore the relationship between individual investors' financial education attainment and the performance of their stock portfolios. The results show that individual investors who receive financial education are more likely to increase their profits in the stock market because they have good investment habits and elevate theirare more risk tolerant. Further, financial education demonstrates a greater effect on stock market profit making among investors with less experienced and from areas with lower levels of investor protection.

How does mandatory IFRS adoption affect tax planning decision? Evidence from tax avoidance distributions

ABSTRACT The extant literature has provided much evidence on the consequences of adopting the International Financial Reporting Standards (IFRS), but studies that pertain to taxes and the IFRS are rare. This study investigates whether IFRS adoption affects corporate tax avoidance and how the impact of IFRS varies with country-level institutions. We find that the effect of an IFRS mandate on corporate tax avoidance is conditional; that is, firms with a lower (higher) initial level of tax avoidance tend to be more (less) tax aggressive after IFRS adoption. In addition, this conditional impact is more pronounced in regimes with higher levels of investor protection. We also find that the strength of country-level tax enforcement might erode (bolster) the positive (negative) effects of IFRS adoption.

Nonfinancial Corporate Social Responsibility Reporting and Firm Value: International Evidence on the Role of Financial Analysts

Using a large international sample of 24,293 observations from 3,991 unique firms in 56 countries, we examine the role of financial analysts in the relationship between voluntary corporate social responsibility (CSR) reporting and firm value. We find that after controlling for firms’ CSR performance ratings and other factors, voluntary CSR reporting increases firm value in countries worldwide, and analysts strengthen the positive relationship between CSR reporting and firm value. More importantly, our results show that the positive role of analysts in the relationship between CSR reporting and firm value varies with country-level institutional characteristics, such as the level of investor protection, the development of capital markets and the analyst profession, and stakeholder orientation. Furthermore, the positive role of financial analysts varies according to CSR reporting characteristics, including CSR reporting assurance, choice of assurer, CSR reporting coverage, CSR reporting quantity, and length of CSR report. We also find that financial analysts can strengthen the positive association between CSR reporting and firm value for CSR disclosures published in all types of media (standalone, annual report-based, and web-based CSR disclosures). Overall, our results present global evidence that shows the important role of financial analysts in improving the valuation implications of voluntary CSR reporting.

Gender Diversity in the Boardroom and Corporate Cash Holdings: The Moderating Effect of Investor Protection

This paper investigates whether gender diversity in the boardroom is associated with corporate cash holdings and whether investor protection moderates the effect of corporate board gender diversity on corporate cash holdings. Using 20,750 firm-year observations from 33 countries, our analyses show that firms with high levels of corporate board gender diversity exhibit low corporate cash holdings. Furthermore, firms in countries with high levels of investor protection have low corporate cash holdings. Moreover, the negative association between board gender diversity and corporate cash holdings is weaker in high-level investor protection countries than in low-level investor protection countries. Our results are robust to various specification tests, such as the endogeneity issue, weighted least-squares regression, the global economic crisis effect, alternative measures for corporate cash holdings, and various country-level institutional features. Taken together, the findings reveal that board gender diversity and investor protection have significant influences on corporate cash holdings. These findings have significant implications for politicians, governments, and regulators in devising policies relating to the United Nations Sustainable Development Goal (SDG Number 5) on achieving gender equality and women empowerment.

Legal protection systems, corporate governance and firm performance: a cross-country comparison

PurposeThis paper builds on the “Law and Finance” theory and aims to examine the effect of the legal and institutional environment on the governance–performance relationship in the context of non-US firms. More precisely, it examines whether and how the country’s legal system and the level of investor protection interact with the firm-level corporate governance and affect firm performance.Design/methodology/approachThe authors used the “G-Index” governance score developed by the Governance Metrics International rating for a sample of 12,728 firm-year observations from 23 countries over the 2009–2016 period.FindingsThe results show that the interaction between the country-level institutions and corporate governance system significantly affect the firm performance. In particular, the findings indicate that firms operating in common law countries tend to exhibit a positive valuation effect and higher performance than firms with a comparable corporate governance level operating in civil law countries. More precisely, the authors find that in common law countries, higher investor protection with enhanced corporate governance is associated with better firm performance. However, firms operating in civil law countries with weaker investor protection and a comparable corporate governance level tend to experience a negative valuation effect.Originality/valueThe findings suggest that the institutional and legal environment is crucial and important in determining the value-maximizing level of good governance practices. Managers and regulators should carefully analyze the cost of these initiatives and should coordinate it with the needs of the country’s legal system. The challenge for the company will be how to adjust its corporate governance strategy according to the needs and demands of the country’s legal system in which the company operates to improve its performance. The regulators should ensure a fit between the specifics of the national legal and institutional environment and corporate governance standards and practices.

Ownership Structure and Tax Avoidance in Asia: a Systematic Literature Review and a Research Agenda

The paper aims to understand the impact of corporate ownership structure on tax avoidance in Asian contexts. The ownership structure in Asia is concentrated in one group of shareholders, which enables this shareholder to have a significant influence on tax avoidance. This research mainly reviews published research articles. Search terms, such as ownership, tax avoidance, and tax aggressiveness were used in the search function in all fields of the papers from Scopus and Web of Science databases. This study captured nine pieces of empirical research after applying several filtrations (inclusion and exclusion) in the article search. Most of selected researches were conducted in China, while some in Southeast Asia. There are four review questions in this research, namely: (1) How do shareholders influence tax avoidance levels in Asia; (2) What is the best way to measure the level of ownership and tax avoidance; (3) What type of corporate owners do scholars study the most and the least; (4) What are the methodological gaps in the research topic (corporate ownership and tax avoidance) that future scholars should be aware of. The paper finds that different shareholders behave differently towards tax, and the behaviour is according to the host country’s attributes, such as country settings, national tax policy, and investor protection levels. The study primarily helps governments and regulators understand the motives and techniques shareholders apply to avoid tax. Furthermore, it also provides repeatable methodological guidance in detail for future researchers to conduct a systematic literature review and for research students to formulate their hypothesis on the relationship between ownership structure and tax avoidance.

The effect of comprehensiveness levels and assurance quality of sustainability report and investor protection levels on information asymmetry

The effect of comprehensiveness levels and assurance quality of sustainability report and investor protection levels on information asymmetry