How do institutional investors respond to patent announcements?

2018 ◽  
Vol 44 (12) ◽  
pp. 1446-1465 ◽  
Author(s):  
Viktoriya Lantushenko ◽  
Edward F. Nelling
Keyword(s):  
Institutional Investors ◽  
Control Sample ◽  
Shareholder Wealth ◽  
Publication Date ◽  
Specific Information ◽  
Institutional Trading ◽  
Price Informativeness ◽  
Content Type ◽  
Institutional Demand

Purpose The purpose of this paper is to examine institutional investor demand for shares of firms that announce patents. Design/methodology/approach There are three important dates in the process of obtaining a patent. First, a patent filer requests the right for intellectual property on the application date. Next, the content of a patent becomes publicly available on the publication date, if authorized by the US Patent and Trademark Office. Third, once the patent is validated, it is issued on the grant date. The authors focus on the publication date, as it marks the time when the patent-specific information is disclosed to public. In a regression framework, the authors analyze how institutional investors respond to patent publications. Findings The authors document a significant increase in institutional demand for a firm’s shares around patent announcements. Institutional investors react more strongly to patent publications announced by firms that have published frequently in the past. The increase in demand is also greater when the firm’s shareholder base consists of a higher percentage of long-term institutions. Institutional trading around patent announcements is associated with higher levels of stock price informativeness. In addition, firms that announce patents exhibit long-term outperformance relative to a control sample. Overall, the results suggest that institutional trading conveys information about the value of patents. Originality/value This study is the first to explore changes in institutional demand around patent publications and to show that such events attract institutional investors and have an impact on shareholder wealth, price informativeness and liquidity.

Aggressive tax planning and stock price synchronicity: evidence from China

2019 ◽  
Vol 15 (5) ◽  
pp. 829-857 ◽  
Author(s):  
Hua Feng ◽  
Ahsan Habib ◽  
Gao liang Tian
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Tax Planning ◽  
Specific Information ◽  
Price Informativeness ◽  
Firm Level ◽  
Stock Price Synchronicity ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity. Design/methodology/approach Employing the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity. Findings The authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness. Practical implications This study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective. Originality/value First, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.

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.

How lifecycle influences capabilities and their development

2015 ◽  
Vol 8 (1) ◽  
pp. 133-153 ◽  
Author(s):  
Mait Rungi
Keyword(s):  
Design Methodology ◽  
Specific Information ◽  
Small Country ◽  
Capability Development ◽  
Content Type ◽  
Abstract Level ◽  
The Right ◽  
Practical Implications

Purpose – Capabilities are a widely researched subject, but capability development techniques have received considerably less attention. Capability development is a long-term activity, where both how to choose “the right capabilities” and how to develop “the capabilities right” are important. The purpose of this paper is to approach to pick up the most widespread capabilities and development techniques in project-companies, and observes their shift of focus when moving from one lifecycle stage to another. Design/methodology/approach – A long-scale survey was chosen and carried out in EU member state Estonia in 2011, resulting with close to a couple of 100 responses. Findings – The quality of most business capabilities decreases in reaching the decline stage of the lifecycle, but project-related capabilities are improving. The same cannot be concluded for project-led capability development techniques, as they decline, and the quality of traditional and business-led capability techniques are improving. The use of development techniques changes less throughout lifecycle stages than capabilities do – it is not so important how companies develop capabilities, capabilities themselves matter. Research limitations/implications – Survey was performed in a small country which limits the generalizability to larger countries. Practical implications – Capabilities and their development techniques are very much practice-oriented, especially development techniques. However, research indicates that it is more important to choose the right capabilities and worry less about their development-specific issues. Originality/value – Results provide lifecycle-specific information which capabilities and their development techniques prevail at what stage of companies’ lifecycle. Thus far, learning, as the most important technique, has received the most attention, other techniques less – this research gives further information about a wider array of the techniques. Furthermore, the prior research was concentrated on a few specific capabilities or capabilities at an abstract level, this research focuses on a comprehensive set of capabilities.

Profit warning and its association with stock price informativeness: experimental analysis

2020 ◽  
Vol 21 (4) ◽  
pp. 209-230
Author(s):  
Adel Almasarwah ◽  
Mohammad Almaharmeh ◽  
Ahmed M. Al Omush ◽  
Adel Sarea
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Robust Regression ◽  
Developing Economies ◽  
Specific Information ◽  
Price Informativeness ◽  
Stock Price Synchronicity ◽  
Content Type ◽  
Moderating Variables ◽  
Stock Price Informativeness

Purpose This study investigates the nature of the association between profit warnings and stock price informativeness in the context of Jordan as an emerging country. Design/methodology/approach The authors used a large panel data set that related to stock price synchronicity and profit warnings percentages on the Amman Stock Exchange for the period spanning 2007–2018. Robust regression was used as a parametric test. This enabled us to obtain stronger results that fall in line with our prediction that a profit warning encourages firm investors to collect and process more firm-specific information than common market information. Findings Our findings show a significant positive effect of profit warnings on the amount of firm-specific information incorporated into stock price, which means that the greater the percentage of profit warnings the more likely that more firm-specific information will be incorporated in stock price synchronicity. In addition, corporate governance characteristics (moderating variables) significantly increase the level of the relationship between profit warnings and stock price synchronicity. Practical implications Our study results could be useful to investors, senior managers, and regulators in Jordanian firms, particularly in relation to decisions about enhancing the quality of financial statements. In addition, our results provide new evidence about the consequences of earnings announcements for information content and the informativeness of stock prices. Our methodology and evaluation of profit warnings may also demonstrate useful evidence for future researchers on profit warnings and stock price informativeness in developing economies, especially given that such evidence is scarce in developing economies. Originality/value This research is the first study of its kind on emerging markets, particularly in the Middle East. Moreover, entering the corporate governance variables as moderating variables to the robust regression was found to be more powerful than other regressions.

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).

What do foreign flows tell us about stock market movements in the presence of permanent and transitory shocks?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hardik Marfatia
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Institutional Investors ◽  
Market Returns ◽  
Stock Market Returns ◽  
Content Type ◽  
Transitory Shocks ◽  
The Common ◽  
Foreign Institutional Investors

Purpose There is no research on understanding the difference in the nature of volatility and what it entails for the underlying relationship between foreign institutional investors (FII) flows and stock market movements. The purpose of this paper is to explore how permanent and transitory shocks dominate the common movement between FII flows and the stock market returns. As emerging markets are a major destination of international portfolio investments, the author uses India as a perfect case study to this end. Design/methodology/approach The paper uses the permanent-transitory as well as a trend-cycle decomposition approach to gain further insights into the common movement between foreign institutional investors (FII) flows and the stock market. Findings When the author identifies innovations based on their degree of persistence, transitory shocks dominate stock returns, whereas permanent shocks explain movements in foreign institutional investors (FII) flows. Also, stock returns have a larger cyclical component compared to cycles in foreign flows. The authors find the sharp downward (upward) movement in the stock market (FII flows) cycle in the initial period of the COIVD-19 pandemic was quickly reversed and currently, the stock market (FII flows) is historically above (below) the long-term trend, hinting at a correction in months ahead. The authors find strikingly similar stock market cycles during the global financial crisis and COVID-19 period. Research limitations/implications Evidence suggests the presence of long stock market cycles – substantial and persistent deviations of actual price from its fundamental (trend) value determined by the shared relationship with foreign flows. This refutes the efficient market hypothesis and makes a case favoring diversification gains from investing in India. Further, transitory shocks dominate the forecast error of stock market movements. Thus, the Indian market provides profit opportunities to foreign investors who use a momentum-based strategy. The author also finds support for the positive feedback trading strategy used by foreign investors. Practical implications There is a need for policymakers to account for the foreign undercurrents while formulating economic policies, given the findings that it is the permanent shocks that mostly explain movements in foreign institutional flows. Further, the author finds only stock markets error-correct in response to any short-term shocks to the shared long-term relationship, highlighting the disruptive (though transitory) role of FII flows. Originality/value Unlike existing studies, the author models the relationship between stock market returns and foreign institutional investors (FII) flows by distinguishing between the permanent and transitory movements in these two variables. Ignoring this distinction, as done in existing literature, can affect the soundness of the estimated parameter that captures the nexus between these two variables. In addition, while it may be common to find that stock market returns and FII flows move together, the paper further contributes by decomposing each variable into a trend and a cycle using this shared relationship. The paper also contributes to understanding the impact of COVID-19 on this relationship.

Do equity incentives for the managements have impact on stock-pricing efficiency? Evidence from China

2020 ◽  
Vol 28 (4) ◽  
pp. 703-715
Author(s):  
Yue-e Long ◽  
Xinyi Huang
Keyword(s):  
Multiple Regression ◽  
Institutional Investors ◽  
Stock Price ◽  
Multiple Regression Model ◽  
Specific Information ◽  
Content Type ◽  
Equity Incentives ◽  
Pricing Efficiency ◽  
Before And After ◽  
Equity Incentive

Purpose The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and its role in stock pricing efficiency. Design/methodology/approach Using a sample of 1,842 companies that announce implementing equity incentive schemes during the period 2009-2018, the authors compare the pricing efficiency between the firms with equity incentive and those without equity incentive, and companies that implement equity incentive before and after the implementation of equity incentive by using multiple regression and propensity score matching -DID (difference in difference) method. In addition, the multiple regression model is built to test the response of institutional investors to equity incentive and its role in the efficiency of stock pricing. Findings The empirical results indicate that a company’s stock price is influenced more by firm-specific information than systematic factors after it announces a stock-based compensation scheme. Institutional investors respond positively to companies that implement equity incentives. Among the companies that have implement equity incentive, the higher the shareholding ratio of institutional investors, the higher the efficiency of stock pricing. Originality/value The authors innovatively establish a connection between the implementation of equity incentive and the operation of stock market. The results imply that besides alleviating the agency problem, equity incentives can also improve the efficiency of stock pricing, which provide empirical evidence to support the positive effect of equity incentive.

Long horizon institutional investors and the relation between missing quarterly analyst forecasts and CEO turnover

2019 ◽  
Vol 27 (2) ◽  
pp. 190-223
Author(s):  
Juan Wang
Keyword(s):  
Institutional Investors ◽  
Institutional Ownership ◽  
Ceo Turnover ◽  
Career Concerns ◽  
Analyst Forecast ◽  
Positive Relation ◽  
Short Term ◽  
Content Type ◽  
Short Termism

Purpose The purpose of this paper is to investigate the effect of long horizon institutional ownership on CEO career concerns to meet the short-term earnings benchmark. Design/methodology/approach Using a sample of 10,565 firm-year observations in the USA, the paper examines the extent to which long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast. Findings After controlling for the general performance-turnover relation, this paper finds that long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast. This finding is stronger when CEOs focus on long-term value creation and do not sacrifice long-term value to boost current earnings and is stronger when the monitoring intensity by long horizon institutional investors is greater. Research limitations/implications The results suggest that long horizon institutional investors serve a monitoring role in alleviating CEO career concerns to meet the short-term earnings benchmark. Originality/value This paper contributes to the literature on the relation between long horizon institutional ownership and attenuated managerial short-termism. The literature is silent about why long horizon institutional investors alleviate managerial short-termism. This paper fills this void in the literature by documenting that long horizon institutional investors mitigate CEO career concerns for managerial short-termism. Moreover, this paper contributes to the literature on the monitoring role of institutional investors by documenting the incremental effect of institutional ownership on CEO career concerns to meet the short-term earnings benchmark.

Do institutional investors have homogeneous influence on corporate social responsibility? Evidence from investor investment horizon

2019 ◽  
Vol 46 (3) ◽  
pp. 301-322 ◽  
Author(s):  
Yun Meng ◽  
Xiaoqiong Wang
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Institutional Investors ◽  
Empirical Support ◽  
Investment Horizon ◽  
Short Term ◽  
Content Type ◽  
Corporate Social ◽  
Institutional Shareholders

Purpose The purpose of this paper is to investigate the relation between the investment horizon of institutional investors and corporate social responsibility (CSR). Design/methodology/approach Utilizing unique datasets on CSR and the investor horizon measures (Gaspar et al., 2005), the authors categorize institutional investors into long-term and short-term investors. This method captures the heterogeneity of investors. Findings The authors show that long-term institutional investors promote CSR engagement, while short-term investors discourage it. The authors further document that shareholders’ ownership horizon has implications on corporate decisions in the CSR framework. The presence of long (short)-term institutional investors is positively (negatively) associated with dividend payout, discourages (encourages) managerial misbehaviors and enhances (reduces) firm valuation, only for firms with high CSR performance. Research limitations/implications Different from previous studies that treat institutional investors homogeneously, this paper provides empirical support that investors are indeed different in influencing CSR. Originality/value Few prior studies address the question of whether active engagement by institutional shareholders on CSR issues differs by the types of institutional ownership. The study attempts to fill this gap by examining the effects of institutions’ investment horizon, one of the major ways to classify institutional shareholders, on the CSR performance of firms.

scholarly journals The long-term effect of economic value added adoption on the firm’s business decision

2019 ◽  
Vol 32 (3) ◽  
pp. 496-513
Author(s):  
Cherif Guermat ◽  
Ismail U. Misirlioglu ◽  
Ahmed M. Al-Omush
Keyword(s):  
Economic Value ◽  
Value Added ◽  
Shareholder Wealth ◽  
Corporate Management ◽  
Economic Value Added ◽  
Long Term Effects ◽  
Business Decision ◽  
Content Type ◽  
Study Results

Purpose This study aims to examine the long-term effects of adopting economic value added (EVA) as a compensation tool on managers’ behaviour. Design/methodology/approach The authors extend the sample used in prior studies both in the time and the cross-section dimensions. Findings The study conclusions are distinct from those offered by existing studies. The authors show that EVA adopters, relative to non-EVA adopters, increase the working capital cycle, use their assets less intensively and decrease their payouts to shareholders via a decrease in dividends and share repurchases. In investing decisions, the authors find a decrease in new investments, but no change in asset dispositions after the adoption of EVA compensation plans. Originality/value The study results highlight that the EVA adoption provides more incentives to reduce the total cost for capital rather than increasing operations and maximising shareholder wealth. The results also have implication for corporate management, particularly in the area of management compensation scheme design.

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