Publicly-traded Companies Research Articles

The impact of activism on the performance of publicly-traded companies

Institutional investors hold the largest volume of financial resources in the world. The role of the institutional investor as a shareholder has evolved, and now institutional investors are engaged with increasing participation in companies. This active positioning, or activism, is defined as an increase of direct involvement by the investors in the management of companies and influence over corporate executives by vastly increased corporate governance. This paper proposes to analyze the impact of institutional investors' activism on the performance of publicly-traded companies in Brazil. The final sample composed of economic data from 351 companies. The financial and market performance was measured in the years from 2006 to 2015. For data analysis, a panel data effects model was chosen. Results suggest that the governance index moderates the effect of activism on performance, especially in companies where governance practices are not very developed.

RE-EXAMINING ANALYST SUPERIORITY IN FORECASTING RESULTS OF PUBLICLY-TRADED BRAZILIAN COMPANIES

ABSTRACT Purpose: This research examines the superiority of analysts over random walk models in forecasting the results of publicly-traded Brazilian companies in the short and long term. Originality/value: The literature indicates the uncontested superiority of market analysts because of their temporal and informational advantages. However, recent international studies call for a re-evaluation of this superiority, indicating that, for certain company characteristics, and primarily for long-term estimates, the superiority of analysts is not confirmed. Design/methodology/approach: This work evaluates the profit forecasting of analysts and simple and growth random walk models over the short and long term over 2010-2015 for publicly traded Brazilian companies, using the information available for the period with annual intervals. Findings: The results indicate: 1. the greater forecasting accuracy of simple random walk models compared to the growth random walk models; and 2. the greater forecasting accuracy of random walk models overall, with analyst forecasts only being superior for cases with three months of lag. The evidence suggests the forecasting superiority of the random walk models when compared to the market analysts' forecasts. The results suggest low efficiency of the forecasts of market analysts for the forecast of future results of publicly traded Brazilian companies in the analyzed period.

Sustainability reporting and strategic legitimacy: The influence of operating in emerging economies on the level of GRI reporting in Canada’s largest companies

Corporate sustainability reporting is a contributor to strategic legitimacy (Chelli, Durocher, & Fortin, 2018) and certain traditional corporate characteristics (size, industry vulnerability) can influence the level of sustainability reporting (Drempetic, Klein, & Zwergel, 2020). However, limited literature exists in regards to sustainability reporting by Canadian companies operating in emerging countries. Content analysis of sustainability reports examined the current use of the Global Reporting Initiative (GRI) framework. Principal component analysis (PCA) provided a sustainability reporting index (SRI) measure for each firm using factor scores. Correlations and independent-samples t-testing tested the association of the level of reporting to a firm’s size, industry, level of internationalization, and level of activity in emerging economies. A review of 234 large Canadian-based, publicly-traded companies found a total of 86 companies employed the GRI framework, and data from these companies was used in this study. Asset size and vulnerable industries had no significant association with the level of sustainability reporting contrary to prior studies. Operating in emerging economies resulted in greater levels of sustainability reporting when compared to firms that do not. This finding is consistent with the external legitimacy strategy and contributes to the limited literature in this area

Reconsidering the Evolutionary Erosion Account of Corporate Fiduciary Law

This Article reconsiders the dominant account of corporate law’s duty of loyalty, which asserts that the courts have steadily relaxed standards of fiduciary scrutiny applied to self-dealing by corporate managers across more than a century of history—to the great detriment of the shareholder interest. The account originated in Harold Marsh, Jr.’s foundational article, Are Directors Trustees? Conflicts of Interest and Corporate Morality, published in The Business Lawyer in 1966. Marsh’s showing of historical lassitude has been successfully challenged in a recent book by Professor David Kershaw. This Article takes Professor Kershaw’s critique a step further, asking whether the evolutionary erosion account continues to exert normative power in today’s corporate governance context. The answer is that it does not, a result that obtains even though erosion of the standards that courts apply to management self-dealing has continued unabated ever since Marsh published in 1966, and even though there is no reason to think that management self-dealing benefits the shareholder interest. The result follows from the operation of the corporate governance system, which has assimilated and redeployed the erosion account’s motivating insight that officer and director self-dealing transactions do not make cost-benefit sense from the shareholder point of view. Regulation backs up the norm of aversion. Disclosure rules make self-dealing transparent to shareholders, who have no reason to like self-dealing and who now stand ready and able to register their preferences regarding such matters in corporate boardrooms. At the same time, the requirement of a majority independent board makes self-dealing transactions by board members highly inconvenient, because self-dealing undercuts independence. The practice reflects all of this, as shown by reference to hand-collected datasets of self-dealing transactions at publicly-traded companies and of litigation in respect of self-dealing transactions in the Delaware Chancery Court. The classic self-dealing transaction, although still a focal point of academic discourse on corporate fiduciary law, does not matter all that much in real world companies with dispersed shareholders. It is no longer an unsolved problem stemming from separated ownership and control.

Long-Term Results from a Phase 1b Study of Avadomide in Combination with Obinutuzumab in Patients with Relapsed and/or Refractory B-Cell Non-Hodgkin Lymphoma

Long-Term Results from a Phase 1b Study of Avadomide in Combination with Obinutuzumab in Patients with Relapsed and/or Refractory B-Cell Non-Hodgkin Lymphoma

Do Latin American universities engage industry in the scientific publication? A bibliometrics approach through Scopus

The main objective of this work is to determine the collaboration level of Latin American universities with companies in terms of scientific co-authorship, and to identify the main institutions involved in these collaborations. To do this, all publications from 2009 to 2018 with at least one co-author belonging to each of 20 Latin American countries, and another co-author affiliated to a company, were extracted from Elsevier’s Scival (powered by Scopus data), obtaining a set of 22,469 records, from which 1,531 companies (both of public and private nature) and 428 Latin American universities were identified. Despite publications co-authored by universities and companies are highly-cited, results evidence low percentages of academic collaboration between Latin American universities and companies over the period. Just few firms (mainly from Pharmacy, Technology and Petroleum markets) have established strong connections with few universities, mainly from Brazil, whose performance masks the remaining minor linkages established in other countries. Otherwise, the presence of publicly-traded companies (e.g., Petrobras, Agrosavia, Embrapa, YPF or Petróleos Mexicanos) is also remarkable. The establishment of stable public policies aimed at promoting and strengthening University-Industry relations in the region, and based on the integration and regulation of these actions in the researcher's activities, is recommended.

Board diversity and firm performance in the U.S. tourism sector: The effect of institutional ownership

Abstract This study examines the relationship between board diversity and firm performance in the U.S. tourism sector by using institutional ownership as a contingency that moderates this relationship. The study's sample includes publicly-traded companies from the U.S. restaurant, hotel and airline industries. The hypotheses are tested via two-way fixed-effects regression, and the findings of the study indicate that board diversity is positively associated with financial performance (Tobin's Q), and the effect of board diversity on performance is contingent on the degree of institutional ownership. More precisely, the study finds that board diversity has a larger effect on financial performance when institutional ownership is low on a tourism firm's ownership structure. Overall, the findings suggest that boards' internal control and monitoring on management is important to derive higher financial performance, and even yet it is more important when external monitoring by institutional owners, proxied by percentage of institutional ownership, is weak.

Audit quality indicators: Perspectives from Non-Big Four audit firms and small company audit committees

Through a combined study, we explore the professional perspectives of two distinct PCAOB constituent groups related to the PCAOB's proposed regulatory approach for audit quality indicators. First, we examine the comment letters of Non-Big Four audit firms and find that this specific constituent group views most of the PCAOB's proposed audit quality indicators as infeasible and redundant. Further, Non-Big Four audit firms contend that the indicators require greater clarification from the regulator as well as substantial accompanying qualitative context to avoid misinterpretation that may lead to unintended consequences. Second, we survey a collection of audit committee members from small, publicly-traded companies regarding the current evaluation and perceived effectiveness of eleven specific PCAOB audit quality indicators, each of which is well-established in the extant audit quality literature. We find indicators related to auditor personnel with specialized skill and knowledge, experience of audit personnel, and the timely reporting of internal control issues are perceived to possess the highest level of effectiveness in the evaluation of audit quality.

1187 What Types Of Organizations Provide Sleep-focused Workplace Health Promotion Programs For Their Employees? An Analysis Of The 2017 CDC Workplace Health In America Survey

Abstract Introduction There has been a rise in workplace health promotion programs (WHPP)’s in the U.S., designed to improve a variety of employee health behaviors such as exercise and nutrition. Yet, relatively few focus on the third pillar of health: Sleep. Methods The CDC collected data from a nationally-representative cohort of companies in 2017. Participants in this Workplace Health in America study completed online surveys reporting the type of WHPP offerings at their worksite and characteristics of their worksite, including occupational field (e.g., agriculture, management, wholesale/retail), workforce size (i.e., small: <100; moderate: 100-499; and large: 500+) and company type (e.g., non-profit, profit-private, profit-public, government). We identified factors associated with an increased likelihood of sleep-focused WHPP using logistic regression adjusted for company size and type. Analyses were weighted for nationally-representative estimates. Results Of the N=2,843 companies that provided information, N=261 (11.74%) reported having a sleep program. Worksites with large workforces (OR=4.8, p<0.0005), for-profit public companies (OR=9.0, p<0.0005), in wholesale/retail (OR=3.8, p<0.0005), and those with employer-subsidized full health insurance (OR=12.7, p<0.0005) were more likely to have a sleep-focused WHPP. Other predictors included more long-standing WHPP programs (6 years, OR=4.4, p<0.0005), the presence of employee health in the company’s mission (OR=4.5, p<0.0005), leadership buy-in (OR=3.5, p=0.007), and an annual health promotion budget >$50,000 (OR=11.3, p<0.0005). Conclusion In general, workplaces with higher budgets, more well-established health promotion programs, and a mission to promote workplace health are more likely to include a sleep program. Also, publicly-traded companies and government were more likely than private companies to have a sleep program. Future research may consider defining barriers among small business and non-profit organizations for implementing sleep-focused workplace health programs. Support T32HL007901

Does the use of hedge derivatives improve the credit ratings of Brazilian companies?

ABSTRACT The purpose of this study is to identify the factors that may explain the attribution of credit ratings to firms, focusing especially on the impact of derivatives. The gap explored by this research lies in the novelty of analyzing how rating agencies perceive the effects caused by information related to derivatives use by Brazilian publicly-traded companies. In addition, this study shifts the previous findings from stock analysts to rating agencies, reinforcing the discussion about the complexity of derivatives in the credit risk assessment process. This research topic is currently of interest due to the adoption of International Financial Reporting Standard (IFRS) 9 (Accounting Pronouncements Committee - CPC - 48), which came into effect in January of 2018. Based on these rules, the main novelty presented in this article was its verification of the effect of the derivatives used by companies in order to hedge their credit ratings, thus helping to fill the empirical gap that exists in the literature from the area. The results found challenge the theory that the use of hedge derivatives is viewed positively by investors. However, although no significant statistical impact was found on the ratings of companies that use derivatives, it was observed that the companies that use derivatives and have the highest notional values were those that received the best ratings from Moody’s. With this we broadened the debate about the complexity of the information linked to derivatives use. In the study, 2,090 ratings attributed to non-financial companies with stocks traded on the Brasil, Bolsa, Balcão [B]³ exchange were examined between 2010 and 2016 by using panel data analysis, which lends robustness to the analysis and findings. Contrary to the central hypothesis of this research, the results presented here show that, in Brazil, companies that use derivative financial instruments for hedging do not receive the best credit ratings from rating agencies. One of the main contributions of this study is the evidence that Standard & Poor’s and Moody’s were unable to consistently incorporate information related to derivatives use, thus broadening the discussion about the complexity of these financial instruments.

Different disclosure activities and sophisticated investors

ABSTRACT This article aims to verify what the influence is of different disclosure activities on the concentration of more sophisticated investors in Brazilian companies. The study fills a gap regarding the influence that disclosure activities can have on the concentration of sophisticated investors in Brazilian firms, considering that this may occur due to their ability to maximize the usefulness of the information disclosed and the return on investments, with a reduction in the cost of allocated funds. This subject is relevant because it verifies not the clientless effect of disclosure, presented by the only study previously developed on the subject in the United States (Kalay, 2015), but rather the influence that disclosure activities (earnings forecasts, market communications, and investor relations [IR]) have on the most sophisticated investors’ decisions to allocate funds in companies in the Brazilian market. As an impact on the area, it was noted that those companies that release market communications attract the investment of funds and the concentration of sophisticated investors much more than those that present better IR and release profit forecasts. We studied 89 publicly-traded companies whose reference forms were published in the period from 2011 to 2016. The number of institutional investors disclosed in the reference forms was used as a proxy to categorize them as more sophisticated. The different disclosure activities were represented by the disclosure of profit forecasts, the number of market communications, and the best IR. The best IR proxy was categorized using the companies awarded by IR Magazine Brazil that presented the best IR in the study period. The results of this study show that the most sophisticated investors concentrated in companies with better IR, in those that do not disclose profit forecasts, and in companies with a greater number of disclosed market communications. The disclosure of market communications is the disclosure activity that most influences the concentration of sophisticated investors in Brazilian companies that use more voluntary disclosure than discretionary disclosure to allocate their funds.

Gerenciamento de resultados por mudança de classificação e governança corporativa no Brasil

Classification shifting is a new approach of earnings management, which verifies when there is a deliberate change in the classification of items in the income statement for the year, withdrawing items from core earnings and assigning for special items. As corporate governance reduces opportunistic behavior of the manager, this paper aims to verify the influence of corporate governance in earnings management by classification shifting. For this purpose, 236 publicly-traded companies listed in Brasil, Bolsa, Balcao (B3) between 2005 and 2016 were analyzed. As a metric for earnings management, the classification shifting proposed by McVay (2006) was used, and as metrics of corporate governance, the differentiated levels of corporate governance provided by B3 were used. findings show that earnings management by classification shifting happens in Brazil, and corporate governance, measured by the differentiated levels of corporate governance of B3, is a factor that reduces the classification shifting, thus, governance is able to change the behavior of the manager. Therefore, corporate governance is a relevant attribute for companies vis-a-vis investors, because it ensures the trust and transparency of the disclosed information.

Persistent Negative Cash Flows, Staged Financing, and the Stockpiling of Cash Balances

Negative net cash flows have become substantially more pervasive, persistent, and greater in magnitude within US publicly-traded companies since 1971. Companies with negative cash flows, particularly those that also have high intangible capital, account for most of the rise in average cash balances in recent decades. These firms build cash balances through frequent equity offerings; however, the cash holdings are transitory as subsequent negative cash flows lead firms to rapidly burn through the cash. We conclude that funding needs and staged equity financing within negative cash flow firms are central features of the secular rise in average cash balances.

The Relationship between CEO Characteristics & External Auditing Quality: A Longitudinal Assessment

All publicly-traded companies are required by law to disclose their accurate financial information in order to reduce information asymmetries. This study focuses quantitatively on the impact of top management on the quality of corporate audits. Using company financial data, this study found that there is a positive correlation between highquality audits and company performance, as a higher quality audit can ensure rigorous follow-up to financial reports. This study also broadens the understanding of a higher-level manager in the presence of a quality audit.

Privately-Held Companies: Legislation, Regulation, and Limited Dissemination of Financial Information

Publicly-traded companies have reporting and disclosure requirements set by the U.S. Securities and Exchange Commission (SEC), which includes the public disclosure of financial statements and an annual 10-K report. In contrast, privately-held companies most often do not meet the SEC filing requirements, and therefore, are not required to disclose financial information. For investors and business researchers, this can provide clear challenges for researching privately-held companies. This paper first highlights a sample of the significant legislation and rules affecting disclosure requirements of public and private companies. Then, it offers other government sources for company and industry financial information. Finally, it suggests further resources to educate business owners, investors, and business researchers.

Key drivers of financial performance of insurers in the Affordable Care Act market exchange.

While most publicly-traded insurers have experienced losses and exited the Affordable Care Act individual insurance market exchange, insurers specializing in Medicaid managed care have been profitable in this market. Accessing individual market data, this study compares the financial performance of 20 state insurers owned by two publicly-traded companies that historically focused on insuring Medicaid members compared to 40 insurers owned by other publicly-traded companies. Medicaid-focused insurers incurred a significantly lower medical loss ratio of 83.3% compared to the medical loss ratio of 93.7% of other publicly-traded insurers, and they earned a significantly higher profit margin of 4.6% compared to the operating loss of 6.5% incurred by other publicly-traded insurers. This superior financial performance of Medicaid-focused insurers could be due to one or a combination of: their care management experience with the Medicaid population, other cost reducing strategies such as provider contracting, or the enrollment of a healthier than average population.

Relationship between Working Capital Management Efficiency and Long-Term Financial Performance

In corporate financial management, short-term financial performance involving collection and conversion of assets (assets and rights) into cash in order to meet short-term financial obligations, termed as liquidity, is of key importance for the balance and short-term financial health, as well as for attaining long-term financial performance (profitability and return). The purpose of this article is to analyze the existing correlation between liquidity, stemming from the Current Liquidity Ratio - CLR and Net Profit Margin – NPM (profitability) and Return on Assets - ROA (return). Indicators from seven fiscal years were analyzed during the economic crisis period (2011 to 2017) of twelve Brazilian publicly-traded companies, of three different sectors, with shares negotiated on the BM & FBovespa. Analyzes were performed in two phases, the first being a graphical analysis of the CLR, NPM and ROA indicators and the trends throughout the period under analysis. During the second phase a correlation analysis was performed – Spearman correlation coefficient – with the use of the SPSS software. The results obtained indicate a correlation between the liquidity, profitability and return indicators.

Shareholder Engagement by Large Institutional Investors

While shareholder engagement has captured much attention recently, the evidence on the role of large institutional investors remains relatively scarce. Large asset managers have become an increasingly powerful force since the financial crisis of 2008, with the top 20 managers controlling together almost 22% of votes in the FTSE 350 companies. The prevailing view, however, holds that large fund families avoid active shareholder engagement. This study aims to contribute to the ongoing discussions about the stewardship role of large institutional investors by identifying the biggest investors in UK listed companies and revealing how these institutional investors behave and vote at shareholders’ meetings. The results show growing shareholder stewardship efforts by large asset managers, including index (often described as passive) fund managers, over the last five years and thus challenge some common assumptions about large institutional investors. The study also reveals that the primary target of these engagement efforts has been corporate governance standards, rather than business strategy or performance. These findings have important implications and will better inform discussions and efforts to build regulatory frameworks for effective shareholder engagement in publicly-traded companies. The results suggest that regulators need to remain realistic by not placing impractical engagement expectations on large institutional investors alone. To go beyond corporate governance engagement, regulatory efforts need to take a broader approach towards investor stewardship and shareholder rights. In particular, hedge funds and other shareholder activists can improve corporate strategy and performance engagement by supplying large asset managers with firm-specific information through activist demands.

Assessing the Preparedness of Major Oil and Gas Companies for a Low-Carbon Energy Transition

Given the volume of capital already embedded in the energy sector, the transition of the oil and gas majors towards low-carbon energy will be crucial in meeting global climate objectives. Various commercial indices currently attempt to track climate change risks embedded in these firms. The methodologies employed are largely based on the carbon footprint of a company’s assets, operations and supply chains. These approaches rely on objective information about a company’s greenhouse gas emissions, thereby avoiding inherently subjective evaluations of corporate governance, strategic planning, and risk management policies. The indices generally do not consider the steps being taken by companies to engage in new lines of business and re-shape business models in response to changes in the global energy system. In short, they act as a poor proxy for the investment risks facing oil and gas sector investors. In this paper, we introduce a methodology for identifying strategic differentiation among major international oil and gas companies with regards to a low-carbon energy transition. Our technique scores companies based on the degree of portfolio exposure, R&D, diversification, and observable business development in low-carbon activities. We track stated targets, board-level commitment, and monitoring by senior management. Our multi-dimensional analysis produces a within-sector, relative scoring of the degree of preparedness for the energy transition by the largest publicly-traded oil and gas companies. Our approach offers a path towards meaningful interpretation of qualitative information that is becoming available as a result of recommendations by the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (TCFD) and national regulatory initiatives. The framework has potential application in other sectors by simplifying the assessment of potential strategic responses in energy-intensive industries. We conclude that existing information disclosures made by the oil and gas majors facilitate a robust evaluation of strategic positioning ahead of a potential shift to a lowcarbon economy.

Misvaluation and behavioral bias in the Brazilian stock market

ABSTRACT The study sought to apply the model developed by Gokhale et al. (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country. The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year. From the FVI index, the undervalued shares were identified, indicating that the sales price does not reflect their economic fundamentals, and portfolio simulations were carried out for investment over three months or the next year. The results indicate the possible existence of overreaction and behavioral biases in the Brazilian stock market, which lead to the possibility of higher abnormal returns than those of the Ibovespa. Similar to the US market, at the end of the 2006-2016 period simulated portfolios yielded more than 274%, while the Ibovespa yielded approximately 80%. The robustness tests attest to the effectiveness of the model. The various investment portfolios, simulated over different time horizons, yielded more than the Ibovespa on average. The study also confirmed the assumptions of Gokhale, Tremblay, and Tremblay (2015) regarding the model's inadequacy for short-term strategies.