Category Archives: Accounting & Finance

A study of cross‐border profit shifting channels: Evidence from Australia

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Abstract

We investigate two cross-border profit shifting channels used by foreign multinational enterprises (MNEs) in Australia and assess the effectiveness of the related measures adopted by the Australian Parliament to combat base erosion and profit shifting (BEPS). Overall, we find that Australian subsidiaries of foreign MNEs used tax-induced intra-group transfer pricing and, to a lesser extent, interest expense loading to shift profit out of Australia throughout the period from 2007 to 2020. However, we find no evidence indicating that profit shifting out of Australia via the two channels has reduced after the implementation of related BEPS countermeasures in Australia from 2013.

The crowding‐out effects of innovation information disclosure on peers’ innovation: Evidence from innovation‐driven M&As in China

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Abstract

This study investigates the impact of rivals' announcements of innovation-driven mergers and acquisitions (M&As) on focal firms' ex-post corporate innovation performance. Exploiting a hand-collected dataset of Chinese listed firms from 2011 to 2018, we find that focal firms file fewer patents after rivals' announcements of innovation-driven M&As. Further analyses show that focal firms become more conservative and hold more cash when rivals intend to obtain innovation resources through M&As. We find that such crowding-out effects are more pronounced for focal firms that are more financially constrained, those facing higher competition, those whose rivals are industry leaders, and those operating in traditional industries.

CEO turnovers and capital structure persistence

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Abstract

Firm fixed effects in panel leverage regressions act as a noisy proxy for managerial effects that drive persistence in leverage. Firms that do not change their chief executive officer (CEO) for prolonged periods of time are more likely to keep debt ratios within a narrow bandwidth and to display persistent differences in their time-series averages for up to 20 years. A CEO turnover is associated with considerable modifications to the financing policy of the firm. Significant capital structure changes take place immediately after a new executive takes office and leverage ratios remain relatively stable for the remaining tenure of the CEO.

CEO narcissism and firm’s cash conversion cycle: The moderating role of CEO’s gender

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Abstract

This study investigates the effect of CEO narcissism on firm's cash conversion cycle (CCC), and how this influence is moderated by CEO gender. Based on a sample of 354 CEOs in 229 S&P 500 firms, our results indicate that firms led by more narcissistic CEOs tend to have a shorter CCC and this effect is weaker in companies led by a female CEO. Our additional analyses show that the effect of CEO narcissism on the CCC may improve or damage firm performance depending on the firm's CCC level.

Institutional investor horizons, ownership structure and investment efficiency in China

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Abstract

This paper investigates the effects of institutional investor horizons on investment efficiency in China. By analysing 26,831 firm-year observations from Chinese listed companies, we find that long-term (short-term) institutional ownership is negatively (positively) associated with the level of inefficient investments. A battery of robustness tests indicates causality. Further analyses reveal that the rise in environmental uncertainty and information asymmetry are transmission channels for increased inefficient investments. Moreover, we find that the single controlling shareholder and state owner can curb the management myopia induced by short-term institutional investors while they do not impede the monitoring effort of long-term institutional investors.

Do buy‐side analysts inform sell‐side analyst research?

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Abstract

This paper examines whether sell-side analysts' interactions with buy-side analysts influence the quality of sell-side research output. We hypothesise that these interactions offer the sell side a view of the buy side's private information, which enhances the quality of sell-side research. Our findings show that analyst earnings forecast accuracy improves with these interactions with diminishing returns. Results are robust to alternative proxies for research quality and information flow from buy-side to sell-side analysts. Additional tests rule out endogeneity concerns, strengthening the inference that feedback from interactions with buy-side analysts improves the quality of sell-side research output.

Bagging or boosting? Empirical evidence from financial statement fraud detection

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Abstract

Ensemble learning, specifically bagging and boosting, has been widely used in the financial field for detecting financial fraud, but their relative performance still lacks consensus. This study compares the performance of five ensemble learning models based on bagging and boosting, using data from Chinese A-share listed companies from 2012 to 2022, including the COVID-19 pandemic period. Results show that bagging outperforms boosting in various evaluation indicators, with profitability and asset quality positively affecting financial fraud. This study reveals the mechanism by which ensemble learning affects financial fraud detection and expands related research in the financial field.

Pricing cloud stocks: Evidence from China

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Abstract

Using factor models, we examine two pricing issues of cloud stocks in China's stock market. In particular, we test whether the Fama and French factor models are useful to explain the stock prices of cloud stocks and whether there are abnormal returns unexplained by these models. Using the daily stock prices of 1670 cloud stocks from 2012 to 2022, we find that the factor models explain up to nearly 97% of the stock return variations of the cloud stocks, and mispricing. The results are robust to alternative measure of factors, outliers, sampling period and different approaches of factor modelling.

Family ownership and speed of adjustment towards targeted capital structures: A study of ASEAN firms

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Abstract

Utilising a sample of ASEAN firms, we examine the effects of family ownership on firms' speed of adjustment to targeted capital structure. We find that family firms adjust their capital structure more slowly than non-family firms. This is due to the higher costs of adjustment associated with high information asymmetry and agency conflicts between family owners and external investors. The effect of family ownership on capital structure adjustment speed is more pronounced when family firms have a higher level of family board involvement and higher ownership concentration. There is also an asymmetric effect of family ownership on capital structure adjustment speed at different levels of debt, by the distance from the targeted capital structure, and between overleveraged and underleveraged firms. Overall, evidence in our study suggests that family ownership is a key determinant on how quickly ASEAN firms may adjust their capital structure towards targeted levels.

The impact of board ethnic diversity and Chief Executive Officer role on corporate social responsibility

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Abstract

We examine the influence of board ethnic diversity on firms' corporate social responsibility (CSR) activities within modern day corporations. Using firm-year observations in Australia from the period 2004–2017, we document that board ethnic diversity leads to better CSR performance and CSR disclosure. Our results suggest that for every additional ethnic cluster represented on the board, on average, a firm's CSR performance rating from ASSET4 is higher by 2.6% and the odds ratio of producing a CSR report increases by 38.8%. The results are robust to controlling for endogeneity (using both instrumental variable approach and difference-in-differences analysis) and alternate proxies to measure CSR performance and ethnic diversity. We also document the moderating impact of Chief Executive Officer (CEO) power on the relationship between board ethnic diversity and firms' CSR activities. Specifically, a less powerful CEO and a CEO of ethnic minority (i.e., non-Anglo) are more likely to facilitate this relationship. This study adds to our understanding of how board ethnic diversity, an often-overlooked factor in prior research, can have significant impacts on firm outcomes.