Investor protection, corporate governance and private information-based trading

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chun-Teck Lye ◽  
Chee-Wooi Hooy
Keyword(s):  
Corporate Governance ◽  
Emerging Markets ◽  
Private Information ◽  
Market Competition ◽  
Investor Protection ◽  
Civil Law ◽  
Securities Market ◽  
Market Manipulation ◽  
Content Type ◽  
Securities Laws

Purpose This study aims to examine the effects of investor protection (PROT), internal and external corporate governance (CG) on private information-based trading (PIBT). Design/methodology/approach This study uses a sample of 3,438 firms from 42 countries for the period 2002–2015 to examine the effects of the broad and specific measures of PROT, internal CG and external CG (product market competition and block ownership [BOWN]) on a more accurate measure of PIBT using regression analysis. Findings The results show that PROT and BOWN are effective in reducing PIBT. However, the specific measure of PROT (strength of PROT) is not significant in emerging markets and civil law countries. The internal CG is also significant but has a positive effect on PIBT. Research limitations/implications The results suggest that PROT law matters in the efforts to prevent PIBT. Policymakers and securities market regulators, particularly in emerging markets and civil law countries, should focus more on refining existing securities laws and enacting detailed securities rules that explicitly prevent specific market manipulation and PIBT. Originality/value This study provides evidence for the importance of specific and detailed securities rules in different market and legal environments. Furthermore, this study uses the segregated private information-based speculative trading component to accurately measure the PIBT.

Investor protection and market liquidity revisited

2015 ◽  
Vol 15 (4) ◽  
pp. 517-529 ◽  
Author(s):  
Xiaofeng Shi ◽  
Michael Dempsey ◽  
Huu Nhan Duong ◽  
Petko S. Kalev
Keyword(s):  
Corporate Governance ◽  
Hong Kong ◽  
Stock Market ◽  
Common Law ◽  
Investor Protection ◽  
Civil Law ◽  
Market Liquidity ◽  
Stock Liquidity ◽  
Content Type ◽  
Practical Implications

Purpose – This paper aims to establish the relation between corporate governance – as represented by investor protection at both the legal and firm levels – and stock market liquidity. Design/methodology/approach – This paper avails of the unique features of Hong Kong- and China-based stocks that are traded on the Hong Kong Stock Exchange so as to test whether differences between “common law” and “civil law” legal environments contribute to differences in stock liquidity. In addition, by constructing an internal corporate governance index score for each firm based on board size, board independence and information on the audit and remuneration committee, we document whether firms with better corporate governance scores have narrower spreads, greater depth and higher trading volumes. Findings – Overall, results provide support for a linkage between corporate governance issues – as investor rights protection at both the environment and firm protection levels – and stock market liquidity. Research limitations/implications – This paper recognizes that investor protection constitutes a single component of the desirability of investing in a firm’s stock. Nevertheless, it does appear to constitute an important component of a stock’s attractiveness. Practical implications – The practical implications are clear, namely, that good corporate governance of firms leads to their attractiveness as investment vehicles (for both the shorter and the longer terms). Social implications – The paper has clear social implications. In particular, the paper serves to highlight that prospects for enduring wealth creation are contingent on the safeguards accorded to the equity ownership of a firm’s stock. Originality/value – The originality lies in taking advantage of the unique features of the Chinese and Hong Kong firms on the Hong Kong Exchange, so as to examine the contrasting influences of common law and civil law on stock liquidity. Thus, the authors allow for the effects of corporate governance across the two legal environments (China and Hong Kong) to be compared and contrasted while maintaining other influences unchanged across Chinese and Hong Kong shares.

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

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yosra Ghabri
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Legal System ◽  
Institutional Environment ◽  
Common Law ◽  
Investor Protection ◽  
Civil Law ◽  
Legal Protection ◽  
Content Type ◽  
Valuation Effect

Purpose This 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/approach The 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. Findings The 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/value The 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.

Corporate governance, product market competition and firm performance: evidence from Iran

Humanomics ◽  
2017 ◽  
Vol 33 (1) ◽  
pp. 38-55 ◽  
Author(s):  
Mahdi Moradi ◽  
Mohammad Ali Bagherpour Velashani ◽  
Mahdi Omidfar
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Market Competition ◽  
Product Market ◽  
Research Literature ◽  
Product Market Competition ◽  
Governance Mechanisms ◽  
Management Performance ◽  
Content Type ◽  
The Board Of Directors

Purpose The purpose of this study is to investigate the effect of product market competition and corporate governance on firm’s management performance in the Tehran Stock Exchange market. According to the research literature, the governance mechanisms used in this study consist of ownership structure, structure of the board of directors and capital structure. In addition, Herfindahl–Hirschman Index and market size were used to measure the product market competition. Design/methodology/approach This study used one selected sample among the firms in the capital market of Iran from 2004 to 2012. Findings The results of this study indicated that there is a significant relation among the major governance mechanisms (including ownership concentration, independence of the board of directors and debt ratio) and product market competition and management performance. The findings of this study also showed that product market competition is effective on the relation between corporate governance and the performance, and this is what has been ignored in most of the conducted studies. Originality/value In general, the results of this study supported the idea that product market competition is effective on implementation and efficiency of governance mechanisms.

Investor protection: effects of takeover convergence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jyoti Dixit ◽  
Poonam Singh ◽  
Arunima Haldar
Keyword(s):  
Corporate Governance ◽  
Common Law ◽  
Investor Protection ◽  
Critical Role ◽  
Emerging Economy ◽  
International Standards ◽  
Governance Mechanism ◽  
Content Type ◽  
Global Standards ◽  
Corporate Governance Mechanism

Purpose Takeovers play a critical role as an external corporate governance mechanism to ensure investor protection. There is a long-standing debate on whether the convergence of corporate governance to global standards can enable emerging economies to ensure investor protection. This paper aims to analyse the evolution of the takeover code, namely, Securities Exchange Board of India’s Substantial Acquisition of Shares and Takeovers (2011) in India from the lens of investor protection. It then compares the takeover provisions in India, the USA, the UK, Singapore and Australia to examine the extent of convergence and its implications for investor protection. Design/methodology/approach Using a cross-national comparative analysis of takeover mechanisms in common law countries, the study analyses the extent and relevance of convergence in form. The focus of the comparison is on regulations governing offer size, offer price, creeping acquisition and initial trigger limit for the mandatory open offer. Findings The findings suggest that certain provisions such as the initial trigger threshold for the mandatory offer and the offer prices of the Indian takeover code are converging with the standards in common law countries. However, the offer price determination based on market prices may not reflect true market value in an inefficient market like India. Other provisions such as creeping acquisition and offer size are not only diverging from the international standards but are also inconsistent with the key objective of investor protections of the Indian regulator. Research limitations/implications Indian takeover regulation needs to converge to higher global standards to ensure adherence to improved investor protection. This needs to be done for the initial trigger limit for mandatory bid and offer prices, after accounting for the differences in institutional structure. The Indian regulators need to revisit provisions on the initial trigger, creeping acquisition to converge to the broader principle of investor protection. Originality/value This technical paper provides a comprehensive depiction of takeover mechanisms in an emerging economy context as a means of investor protection. Further using a comparative lens, it analyses the relevance of convergence of takeover laws. Thus, advances the theoretical knowledge of limited extant work on external corporate governance mechanism in an emerging economy context.

Product market competition, state-ownership, corporate governance and firm performance

2018 ◽  
Vol 26 (1) ◽  
pp. 62-83 ◽  
Author(s):  
Li Liu ◽  
Wen Qu ◽  
Janto Haman
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Board Of Directors ◽  
Market Competition ◽  
State Ownership ◽  
Product Market Competition ◽  
Content Type ◽  
Good Corporate Governance ◽  
Governance Practices ◽  
Negative Effect

Purpose The purpose of this paper is to examine the association between firm performance and product market competition (PMC), and then examine the mitigation effect of corporate governance and/or state-ownership (SOEs) in the association between PMC and firm performance using Chinese listed firms. Design/methodology/approach The authors consider three determinants of the PMC that affect the nature of competition, and use market concentration, product substitutability and market size as proxies for PMC. The authors construct a corporate governance index which measures the extent of board independence, monitoring strength of supervisory board over board of directors, and monitoring strength of board of directors over CEO. The authors use Tobin’s Q as a proxy for firm performance. The authors use a sample of 20,706 firm-year observations listed on the Chinese stock market between 2001 and 2016 to empirically investigate the research questions proposed in the paper. Findings The authors find that higher PMC is associated with lower firm performance. The authors find that good corporate governance practices moderate the negative effect of higher PMC on firm performance. The association between higher PMC and lower performance is weaker for firms controlled by SOEs compared to non-SOEs. Further, the moderation effect of SOEs on the association between higher PMC and lower performance is more pronounced for firms with good corporate governance practices compared to firms with weak corporate governance practices. Originality/value Extant studies investigating the relationship between PMC and corporate governance suggest an either complementary or substitution relationship in developed economies. Our study highlights the interactive role played by SOEs and good corporate governance practices in firm performance in highly competitive product markets in an emerging economy. The findings provide insightful information to regulators of other emerging countries that SOEs with good corporate governance practices can play an important role in the economy by mitigating the negative effect of higher PMC on firm performance.

The Growth and Changing Role of Passive Investments: A Critical Perspective on Index Mutual Funds and Exchange Traded Funds

2016 ◽  
Vol 28 (6) ◽  
Author(s):  
Wolfgang Bessler ◽  
Heinz J. Hockmann
Keyword(s):  
Corporate Governance ◽  
Mutual Funds ◽  
Systemic Risk ◽  
Market Competition ◽  
Product Market ◽  
Product Market Competition ◽  
Securities Market ◽  
Market Quality ◽  
Exchange Traded Funds ◽  
Negative Effects

AbstractIndex Mutual Funds (IMF) and Exchange Traded Funds (ETF) have developed into widely-accepted and fast growing passive investment instruments, offering investors a low-cost investment alternative in well diversified portfolios. Allocating more into IMFs and ETFs is the investors’ natural response to the experience with and the disillusion about actively managed investment performance. Despite these positive effects, this shift in fund allocation raises substantial concerns about possible negative effects on securities market trading and market quality, on corporate governance and product market competition as well as on systemic risk. Most research so far does not provide significant evidence of negative effects on market quality, on securities market trading, and on systemic risk. Whether the shareholdings of IMF and ETF providers reduces product market competition and whether the concentration of voting rights negatively effects corporate governance requires further analysis. Some problems may occur if ETF and IMF providers team-up with active investors. Overall, the introduction of IMFs and ETFs on broad market indices should be viewed as a financial innovation that broadens the investment spectrum providing many benefits to investors especially when viewed relative to the meager performance and performance persistence of actively managed mutual funds.

scholarly journals The impact of income smoothing on earnings quality in emerging markets

2015 ◽  
Vol 5 (3) ◽  
pp. 299-324 ◽  
Author(s):  
Moade Fawzi Shubita
Keyword(s):  
Corporate Governance ◽  
Middle East ◽  
Emerging Markets ◽  
Audit Quality ◽  
Earnings Quality ◽  
Industrial Sector ◽  
Income Smoothing ◽  
Variation Method ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to assess the practice of income smoothing in the Gulf Cooperation Council (GCC) emerging markets; Saudi Arabia, Kuwait, United Arab Emirates, Oman and Qatar. Then, to examine the impact of income smoothing on the earnings quality to decide whether income smoothing can serve as either a tool to enhance earnings quality or a tool for opportunistic behavior. Audit quality and corporate governance as additional factors are considered in this study. Design/methodology/approach – The study methodology measures income smoothing behavior based on the coefficient of variation method. Earnings quality is measured as an outcome of the explained variations in stock returns by earnings based on the efficient market hypothesis. Audit quality is measured based on brand as higher quality assigned to auditor from any of the Big 4, while the corporate governance is addressed based on the extent of governmental ownership. The initial study sample comprises 55 companies over a ten year period, from 1999 to 2008; the final sample represents approximately 64 percent of the industrial sector that have public data during the study. Findings – The results suggest that income smoothing behavior in the GCC markets has many variations in practice. Income smoothing, on average, improves earnings quality in three countries out of four, but not significantly for the whole sample based on earnings level. The earnings changes model demonstrated a positive and significant impact of income smoothing on earnings quality. Audit quality and earnings quality have a positive relationship within the region, and companies dominated by the government perform well in accordance with the earnings-return model. Research limitations/implications – The study is limited to the industrial sector of the GCC. Practical implications – The study opens the door to future applications to other sectors within the GCC, same sectors and other sectors for Middle East countries and other emerging markets. Social implications – The study may foster a better understanding of accounting practices in the GCC and Middle East. The study reveals variations in different aspects among GCC countries, this matter should be considered in separate studies across different areas. Originality/value – The study makes an original contribution to being the first to explore this topic in the GCC. Additionally, this study shows that the GCC markets have different characteristics in the practice and impact of income smoothing on earnings’ quality. Further, audit quality and corporate governance was investigated for each country and for the region, in addition to the interaction between these factors with the income smoothing and earnings quality.

The future of SEC enforcement under the Biden administration

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
John J. Carney ◽  
Jonathan R. Barr ◽  
Teresa Goody Guillén ◽  
Jimmy Fokas ◽  
Kevin R. Edgar ◽  
...  
Keyword(s):  
Climate Change ◽  
Design Methodology ◽  
Investor Protection ◽  
Content Type ◽  
Blockchain Technology ◽  
Compliance Programs ◽  
Practical Guidance ◽  
Securities Laws ◽  
Practical Implications ◽  
Current Emphasis

Purpose To examine what to expect from Chair Gary Gensler’s SEC and the new Biden presidential administration following Chair Gensler’s U.S. Senate confirmation on April 14, 2021. Design/methodology/approach Reviews past SEC Chair Jay Clayton’s legacy and Chair Gensler’s prior regulatory actions and focus, and outlines Chair Gensler’s expected initiatives, including a heightened focus on cryptocurrency regulation, investigation of COVID-19-related fraud, and ESG and climate change disclosure. Findings This change will bring forth a Democratic majority at the SEC which, in turn, suggests that the Commission will change its current emphasis on capital formation to focus more on investor protection, rules required by the Dodd-Frank Act, inspections, examinations, and enforcement Practical implications Firms should examine their compliance programs in anticipation of heightened advocacy for investor protection; an increased focus on cryptocurrency and blockchain technology, as well as ESG disclosures with an emphasis on climate change; and an increase in inspections and examinations which will drive more enforcement in the fund industry, as well as increases in initiatives regarding transparency, additional disclosures, and investor protection. Organizations will also benefit by reexamining their existing compliance programs with the advice of counsel as a mechanism to mitigate the risk of potential securities laws violations. Originality/value Practical guidance from experienced securities enforcement and litigation lawyers.

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