Institutional investors, monitoring and corporate finance policies

2017 ◽  
Vol 13 (2) ◽  
pp. 186-212 ◽  
Author(s):  
W. Sean Cleary ◽  
Jun Wang
Keyword(s):  
Corporate Finance ◽  
Institutional Investors ◽  
Information Quality ◽  
Cash Holdings ◽  
Specific Area ◽  
Supporting Evidence ◽  
Data Set ◽  
Corporate Policies ◽  
Content Type

Purpose The purpose of this paper is to examine the influence of institutional investors’ investment horizons (IIIH) on a wide variety of key corporate policies. Design/methodology/approach The authors perform regression analysis to a panel data set of quarterly financial statement data for US firms over the 1981-2014 using several measures of IIIH. Findings The authors argue that an increase in the presence of long-term investors contributes to more effective monitoring and information quality. This results in a reduction in agency costs and informational asymmetry problems for firms that are more heavily influenced by long-term investors, which in turn influences the corporate policies they pursue. Consistent with these arguments, the evidence suggests that firms with a greater long-term institutional investor base maintain lower investment outlays, higher dividend payments, lower levels of cash and higher levels of leverage. All results hold after controlling for potential endogeneity issues. Originality/value The authors show that a greater presence of long-term institutional investors leads to higher dividends, lower investment outlays, lower cash holdings and higher leverage. The comprehensive nature of the predictions with respect to overall corporate finance policies and the supporting evidence provided represents an important contribution, as previous studies have tended to focus on one specific area of corporate behavior (i.e. such as cash holdings).

Information search in times of market uncertainty: an examination of aggregate and disaggregate uncertainty

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marshall A. Geiger ◽  
Rajib Hasan ◽  
Abdullah Kumas ◽  
Joyce van der Laan Smith
Keyword(s):  
Information Search ◽  
Institutional Investors ◽  
Volume Index ◽  
Individual Investor ◽  
Market Uncertainty ◽  
Data Set ◽  
Current Time ◽  
Content Type ◽  
Information Demand ◽  
Google Search

PurposeThis study explores the association between individual investor information demand and two measures of market uncertainty – aggregate market uncertainty and disaggregate industry-specific market uncertainty. It extends the literature by being the first to empirically examine investor information demand and disaggregate market uncertainty.Design/methodology/approachThis paper constructs a measure of information search by using the Google Search Volume Index and computes measures of aggregate and disaggregate market uncertainty using institutional investors' trading data from Ancerno Ltd. The relation between market uncertainty, as measured by trading disagreements among institutional investors, and information search is analyzed using an OLS (Ordinary Least Squares) regression model.FindingsThis paper finds that individual investor information demand is significantly and positively correlated with aggregate market uncertainty but not associated with disaggregated industry uncertainty. The findings suggest that individual investors may not fully incorporate all relevant uncertainty information and that ambiguity-related market pricing anomalies may be more associated with disaggregate market uncertainty.Research limitations/implicationsThis study presents an examination of aggregate and disaggregate measures of market uncertainty and individual investor demand for information, shedding light on the efficiency of the market in incorporating information. A limitation of our study is that our data for market uncertainty is based on investor trading disagreement from Ancerno, Ltd. which is only available till 2011. However, we believe the implications are generalizable to the current time period.Practical implicationsThis study provides the first concurrent empirical assessment of investor information search and aggregate and disaggregate market uncertainty. Prior research has separately examined information demand in these two types of market uncertainty. Thus, this study provides information to investors regarding the importance of assessing disaggregate component measures of the market.Originality/valueThis paper is the first to empirically examine investor information search and disaggregate market uncertainty. It also employs a unique data set and method to determine disaggregate, and aggregate, market uncertainty.

scholarly journals Board structure and institutional ownership at the time of IPO

2017 ◽  
Vol 43 (9) ◽  
pp. 950-965 ◽  
Author(s):  
Suman Neupane ◽  
Biwesh Neupane
Keyword(s):  
Institutional Investors ◽  
Critical Time ◽  
Institutional Ownership ◽  
Board Independence ◽  
Board Structure ◽  
Data Set ◽  
Content Type ◽  
Institutional Holdings ◽  
Foreign Institutional Investors ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of mandatory regulatory provisions on board structure and the influence of such board structure on institutional holdings. Design/methodology/approach The study uses unique hand-collected data set of Indian IPOs during the 2004-2012 period after the corporate governance reforms with the introduction of clause 49 in the listing agreements in 2001. Using OLS regression, the paper empirically analyses the determinants of board size and board independence at the time of the IPOs and the influence of such a board structure on shareholdings by domestic and foreign institutional investors. Findings The authors find that complying with mandatory regulatory provisions does not impede firms from structuring their boards to reflect the firms’ advising and monitoring needs. The authors also find that complying with provisions have positive implication for the firm, as firms with greater board independence appear to attract more foreign institutional investors. Originality/value To the authors’ best knowledge, this is the first study to examine the issue in a regime where regulation mandates the composition of the board of directors. The paper also extends the literature on institutional holdings by providing evidence on the impact of board structure on institutional ownership at a critical time in a firm’s life cycle when concerns for endogeneity for empirical investigations are weaker.

scholarly journals Effects of agricultural credit on wheat productivity of small farms in Sindh, Pakistan

2018 ◽  
Vol 78 (5) ◽  
pp. 592-610 ◽  
Author(s):  
Abbas Ali Chandio ◽  
Yuansheng Jiang ◽  
Feng Wei ◽  
Xu Guangshun
Keyword(s):  
Wheat Yield ◽  
Considerable Proportion ◽  
Small Scale ◽  
Small Farms ◽  
Short Term ◽  
Agricultural Credit ◽  
Data Set ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to evaluate the impact of short-term loan (STL) vs long-term loan (LTL) on wheat productivity of small farms in Sindh, Pakistan. Design/methodology/approach The econometric estimation is based on cross-sectional data collected in 2016 from 18 villages in three districts, i.e. Shikarpur, Sukkur and Shaheed Benazirabad, Sindh, Pakistan. The sample data set consist of 180 wheat farmers. The collected data were analyzed through different econometric techniques like Cobb–Douglas production function and Instrumental variables (two-stage least squares) approach. Findings This study reconfirmed that agricultural credit has a positive and highly significant effect on wheat productivity, while the short-term loan has a stronger effect on wheat productivity than the long-term loan. The reasons behind the phenomenon may be the significantly higher usage of agricultural inputs like seeds of improved variety and fertilizers which can be transformed into the wheat yield in the same year. However, the LTL users have significantly higher investments in land preparation, irrigation and plant protection, which may lead to higher wheat production in the coming years. Research limitations/implications In the present study, only those wheat farmers were considered who obtained agricultural loans from formal financial institutions like Zarai Taraqiati Bank Limited and Khushhali Bank. However, in the rural areas of Sindh, Pakistan, a considerable proportion of small-scale farmers take credit from informal financial channels. Therefore future researchers should consider the informal credits as well. Originality/value This is the first paper to examine the effects of agricultural credit on wheat productivity of small farms in Sindh, Pakistan. This paper will be an important addition to the emerging literature regarding effects of credit studies.

Large institutional investors and the pressure to manage earnings surrounding seasoned equity offerings

2019 ◽  
Vol 61 (2) ◽  
pp. 402-420
Author(s):  
Mouna Njah ◽  
Raoudha Trabelsi
Keyword(s):  
Earnings Management ◽  
Institutional Investors ◽  
Information Quality ◽  
Management Practices ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Content Type ◽  
Multivariate Tests ◽  
Regulated Firms ◽  
Investor Activism

Purpose The purpose of this paper is to investigate the monitoring role exerted by large institutional investors and their ability to restrict the earnings management practices conducted around seasoned equity offerings (SEOs). Design/methodology/approach The sample includes 130 French SEOs by non-regulated firms during 2004-2015. The authors used various cross-section, univariate and multivariate tests using several proxies for earnings management. They attempt to highlight that firms issuing SEOs are more able to manage earnings around SEOs owing to the predominance of large speculative institutional investors. Noteworthy, the monitoring role exerted by sophisticated institutional investors turns out to restrict the earnings management opportunities surrounding a SEOs event. Findings The results show that the issuing firms tend to manipulate earnings in an upward trend with respect to the year preceding the SEO offer. Thus, a special attention has been drawn on the fact that the issuing companies strive to prove their ability to manage earnings around SEOs in presence of large speculative institutional investors. Practical implications The results provide useful insights into the role different types of institutional investors play in terms of enhancing both governance and accounting information quality. Originality/value This paper adds to the literature questioning the evidence that institutional investor activism frequently engage in misleading earnings management around corporate events. The authors provide an alternative explanation for earnings management around SEOs in the French context.

scholarly journals How director identification shapes accountability and scope of contribution

2020 ◽  
Vol 33 (8) ◽  
pp. 1815-1834
Author(s):  
Natalie Elms ◽  
Gavin Nicholson
Keyword(s):  
Board Members ◽  
Specific Knowledge ◽  
Data Set ◽  
Content Type ◽  
Role Identification ◽  
Optimal Outcomes ◽  
Analysis Process ◽  
Self Interest ◽  
Rich Data

PurposeThe purpose of this paper is to explore why different directors feel different levels of accountability toward board tasks.Design/methodology/approachThe paper employs a reflexive three wave data and analysis process culminating in a rich data set of 49 interviews with Australian directors and 15 h of boardroom observations.FindingsDifferences in role identification lead directors to perceive their accountability differently resulting in wide variation in levels of firm specific knowledge, eventually affecting their breadth of contribution to board tasks.Research limitations/implicationsResearchers should question the application of traditional governance theory (such as agency theory) if it fails to account for individual differences in intrinsic self-interest.Practical implicationsSelecting board members for their functional knowledge alone may not always produce optimal outcomes for the board and firm. Board induction processes and ongoing director training are important tools to inform and remind directors of their role and accountabilities on a board.Originality/valueThis paper establishes that the strength of directors' identification with either the director role or expert role affects what they feel accountable for, the development of firm specific knowledge and long-term efficacy as a director.

Investigating sponsor decision-making: the role of schema theory, agency conflicts, and signaling theory in the persistence of naming rights agreements

2020 ◽  
Vol 21 (3) ◽  
pp. 467-486 ◽  
Author(s):  
Jonathan A. Jensen ◽  
David Head ◽  
Christopher Mergy
Keyword(s):  
Decision Making ◽  
Schema Theory ◽  
Agency Conflicts ◽  
Data Set ◽  
Content Type ◽  
Naming Rights ◽  
High Level ◽  
Sport Facilities

PurposeNaming rights sponsorships of sport facilities are among the most highly visible marketing agreements in the world. However, factors that may lead one sponsorship to persist for decades, while others end after just a few years, have yet to be investigated. Thus, this study examines the decision-making of brand marketers by investigating the predictors of a sponsoring brand's decision to either continue or dissolve such agreements.Design/methodology/approachUtilizing a global data set of 219 naming rights agreements, an empirical approach is utilized to isolate whether a variety of factors increase or decrease the probability of sponsorship dissolution.FindingsResults indicate that agreements entered into with new, as of yet-unnamed facilities lead to a reduction in the probability of dissolution, with a high level of brand equity also reducing the probability of dissolution. Agency conflicts may also play a role, as the sponsoring firm being headquartered in the same metropolitan area as the facility also contributes to the persistence of such agreements.Originality/valueThese results are intended to assist both sides of what is ideally a long-term relationship in better understanding the factors that may either contribute to or inhibit longer-term partnerships.

How loan interest rate liberalization affects firms’ loan maturity structure

2014 ◽  
Vol 4 (2) ◽  
pp. 153-167 ◽  
Author(s):  
Jianfang Zhou ◽  
Jingjing Wang ◽  
Jianping Ding
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Manufacturing Companies ◽  
Short Term ◽  
Data Set ◽  
Content Type ◽  
Interest Rate Liberalization ◽  
Upper Limit ◽  
Maturity Structure

Purpose – After loan interest rate upper limit deregulation in October 2004, the financing environment in China changed dramatically, and the banks were eligible for risk compensation. The purpose of this paper is to focus on the influence of the loan interest rate liberalization on firms’ loan maturity structure. Design/methodology/approach – Based on Rajan's (1992) model, the authors constructed a trade-off model of how the banks choose long-term and short-term loans scales, and further analyzed banks’ loan term decisions under the loan interest rate upper limit deregulation or collateral cases. Then the authors used an unbalanced panel data set of 586 Chinese listed manufacturing companies and 9,376 observations during the period 1996-2011 to testify the theoretical conclusion. Furthermore, the authors studied the effect on firms with different characteristics of ownership or scale. Findings – The results show that the loan interest rate liberalization significantly decreases the private companies’ reliance on short-term loans and increases sensitivity to interest rates of state-owned companies’ long-term loans. But the results also show that the companies’ ownership still plays a key role on the long-term loans availability. When monetary policy tightened, small companies still have to borrow short-term loans for long-term purposes. As the bank industry is still dominated by state-owned banks and the deposit interest rate has upper limits, the effect of the loan interest rate liberalization on easing long-term credit constraints is limited. Originality/value – From a new perspective, the content and findings of this paper contribute to the study of the effect of the interest rate liberalization on China economy.

scholarly journals The duration of global agri-food export competitiveness

2017 ◽  
Vol 119 (6) ◽  
pp. 1378-1393 ◽  
Author(s):  
Štefan Bojnec ◽  
Imre Fertő
Keyword(s):  
Comparative Advantage ◽  
Agricultural Land ◽  
Survival Rates ◽  
Revealed Comparative Advantage ◽  
Data Set ◽  
Term Survival ◽  
Content Type ◽  
Country Level ◽  
Export Competitiveness

Purpose The purpose of this paper is to examine the pattern, duration and country-level determinants of global agri-food export competitiveness of 23 major global agri-food trading countries. Design/methodology/approach A large panel data set is compiled to facilitate assessment of the pattern, duration and country-level determinants of global agri-food export competitiveness using a revealed comparative advantage index. Findings The results suggest that the duration of revealed comparative advantage is heterogeneous at the agri-food product level. Long-term survival rates as revealed by the comparative advantage indices are among the highest for the Netherlands, France, Belgium, the USA, Argentina and New Zealand. The level of economic development, the share of agricultural employment, subsidies to agriculture and differentiated consumer agri-food products increase the likelihood of failure in the duration of comparative advantage, while the abundance of agricultural land and export diversification reduce that likelihood. Originality/value The framework is conceptually innovative in how it models the likelihood of failure in the duration of comparative advantage and assesses implications. Export competitiveness is a crucial factor in long-term global farm business survival as it fosters opportunities for business prosperity on global markets.

The colonial exports pattern, institutions and current economic performance

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tania El Kallab ◽  
Cristina Terra
Keyword(s):  
Human Capital ◽  
Economic Development ◽  
Resource Curse ◽  
Data Set ◽  
Content Type ◽  
Long Run ◽  
French Colonies ◽  
Colonial Institutions ◽  
The Impact

PurposeThis paper explores the role of colonial heritage on long-term economic development from a resource-curse perspective. The authors investigate the impact of colonial exports on long-term economic development through two channels: (1) a direct impact of the economic dependency on natural resources and (2) an indirect impact via its effect on colonial institutions, which persisted over time and influenced current economic development.Design/methodology/approachTo address this issue, the authors use an original data set on French bilateral trade from 1880 to 1912. The authors use partial least square structural equation modeling (PLS-SEM) in the empirical analysis, so that the authors are able to construct latent variables (LVs) for variables that are not directly observable, such as the quality of institutions.FindingsThe authors find that exports of primary goods to France had a negative impact on colonial institutions and that for French colonies, this impact was driven by minerals exports. Despite its impact on colonial institutions, exports of French colonies had no significant indirect impact on their current institutions. The authors find no significant direct impact of colonial trade on current development for French colonies. Finally, colonial exports of manufactured products had no significant impact on colonial institutions among French colonies and a positive impact among non-French ones.Research limitations/implicationsResearch implications regarding the findings of this paper are, namely, that the relative poor performance within French colonies today cannot be attributed to the extraction of raw materials a century ago. However, human capital and institutional development, instead of exports, are more relatively important for long-term growth. Some limitations in trying to determine the simultaneous relationship among colonial trade, institutions and economic performance are the relation between colonial trade and the extent of extraction from the colonizer, which is hard to quantify, as well as its precise mechanism.Practical implicationsSince the initial institutions set in those former colonies presented a strong persistence in the long run, their governments should focus now on building sound and inclusive political and economic institutions, as well as on investing in human capital in order to foster long-term growth. Once a comprehensive set of institutional and human resources are put in place, the quality and quantity of exports might create a positive spillover on the short-run growth.Social implicationsOne social implication that can be retrieved from this study is the ever-lasting effect of both human capital investment and introduction of inclusive political and economic institutions on the long-run impact of growth.Originality/valueThe paper uses an original primary data set from archival sources to explore the role of colonial heritage on long-term economic development from a resource-curse perspective. It applies a relatively new model partial least squares path modeling (PLS-PM) that allows the construction of LVs for variables that are not directly observable, as well as channeling the impact on growth through both direct and indirect channels. Finally, it allows for the simultaneous multigroup analysis across different colonial groups.

Sovereign wealth fund investments and policy implications: a survey

2015 ◽  
Vol 23 (3) ◽  
pp. 210-229 ◽  
Author(s):  
Chen Meng
Keyword(s):  
Asset Allocation ◽  
Institutional Investors ◽  
Multinational Enterprises ◽  
Data Access ◽  
Policy Implications ◽  
Investment Strategies ◽  
Content Type ◽  
Comprehensive Survey ◽  
Definition Of

Purpose – The purpose of this paper is to address a research gap by providing a comprehensive survey of sovereign wealth funds (SWFs) as international institutional investors and clarifying the definition of SWFs. By doing so, this paper aims to provide a balanced set of policy prescriptions towards SWFs. Design/methodology/approach – This paper conducted a comprehensive survey of world major 24 SWFs with assets under management of 500 million USD between 2008 and 2012. Key dimensions include objectives, funding and governance, asset allocation and investment activities. Findings – SWFs are planning institutions with management direction. They present great variety in terms of funding mechanism, governance, asset allocation and investment strategies, but they in essence pursue financial returns. It is not evident that SWFs are primarily motivated by political objectives and distinctively different from other international institutional investors. Difficulty in interpreting SWFs should not lead to the imposition of constraints on SWFs. Research limitations/implications – More in-depth and dynamic analysis of SWFs requires better data access. For such a purpose, case studies and longitudinal studies should be adopted, with particular emphasis on comparing SWFs with different types of financial institutional investors as well as typical state-owned enterprises (SOEs) and multinational enterprises. Practical implications – This study is trying to demystify SWFs based on a comprehensive survey. As a result, this paper may assist investors, policy-makers and regulators to gain a better understanding of SWFs, their investment behaviours and rationales behind. Social implications – SWFs like other long-term capital is important for economic and job growth. To attract long-term investments, creating an open, unbiased and welcoming investment environment is the key. Originality/value – The contribution of this paper is that we provide a deeper understanding of the strategy and empirics of SWF operations. First, after a clearer definition of the phenomenon of SWFs, we can explain their investment strategies and behaviour as firms. Second, we can derive rational policy prescriptions, and third, we can propose a research agenda that will further deepen our understanding of SWFs and the appropriate policy prescriptions.

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