Abstracts of Volume 42, Number 1, February 2007
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Reconcilable Differences: Momentum Trading by
Institutions
Richard W. Sias
The U.S. Share of Trading Volume in Cross-Listings:
Evidence from Canadian Stocks
Sanjiv Sabherwal
Climate for Scandal: Corporate Environments that
Contribute to Accounting Fraud
Claire E. Crutchley, Marlin R.H.
Jensen, Beverly B. Marshall
Market Underreaction to Free Cash Flows from IPOs
Steven X. Zheng
CEO Cash and Stock-Based Compensation Changes, Layoff
Decisions, and Shareholder Value
Jeffrey T. Brookman, Saeyoung
Chang, Craig G. Rennie
Repricing and Executive Turnover
Narayanan Subramanian, Atreya
Chakraborty, Shahbaz Sheikh
Equity with Warrants in Private Placements
Dalia Marciukaityte, Anita K.
Pennathur
Reconcilable
Differences: Momentum Trading by Institutions
Richard W. Sias
A growing literature evaluates the
relation between lag returns and demand by institutional
investors. Given that lag returns and institutional
ownership are directly observable, it is surprising that
previous tests yield dramatically different conclusions.
This study examines differences across studies and finds
that four factors account for these discrepancies: 1)
value-weighting versus equal-weighting across stocks, 2)
averaging versus aggregating over managers, 3)
disagreement in the signs of measures of institutional
demand, and 4) correlation between current
capitalization and both lag returns and measures of
institutional demand. Controlling for these factors, the
results across different methods are remarkably uniform.
Keywords:
Institutional investors; institutional trading; momentum
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The U.S. Share of Trading Volume in Cross-Listings: Evidence
from Canadian Stocks
Sanjiv Sabherwal
I analyze the firm-specific
determinants of the U.S. share of trading volume for 126
U.S.-listed Canadian firms. I find that the U.S. share
of volume is directly related to the mass of informed
and liquidity traders in the U.S. relative to Canada, as
proxied by relative analyst following, relative duration
of listing, and the U.S. share of sales. Evidence also
supports the market liquidity argument that the market
with lower spreads and greater depths has greater
volume. Finally, the U.S. share is directly related to
the relative sensitivity of the stock’s value to
information in the U.S.
Keywords:
Cross-listed stocks, trading volume, analyst following,
decimalization
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Climate for Scandal: Corporate Environments that Contribute
to Accounting Fraud
Claire E. Crutchley,
Marlin R.H. Jensen, Beverly B. Marshall
We examine the governance
characteristics, earnings quality, growth rates,
dividend policy, and compensation structure of 97 firms
recently under investigation by the Securities and
Exchange Commission (SEC) for accounting fraud. Our
results show that the corporate environment most likely
to lead to an accounting scandal manifests significant
growth and accounting practices that are already pushing
the envelope of earnings smoothing. Firms operating in
this environment seem more likely to tip over the edge
into fraud if there are fewer outsiders on the audit
committee and outside directors appear overcommitted.
Keywords: Accounting
fraud, corporate governance, earnings management,
dividends, executive compensation
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Market Underreaction to Free Cash Flows from IPOs
Steven X. Zheng
I examine the relation between
initial public offering (IPO) long run stock performance
and the amount of cash raised by the firm in the
offering. I find that IPOs raising more cash have poorer
long run performance. The result is robust to different
measurement methods. The evidence suggests that the
market underreacts to free cash-flow related agency
problems in IPOs. Consistent with this interpretation, I
find that IPO long run performance is more sensitive to
the new cash raised in the offering if an IPO firm has
lower capital expenditure or higher opening bid-ask
spread.
Keywords:
Institutional investors; institutional trading; momentum
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CEO Cash and Stock-Based Compensation Changes, Layoff
Decisions, and Shareholder Value
Jeffrey T. Brookman,
Saeyoung Chang, Craig G. Rennie
The CEOs of firms announcing
layoffs receive 22.8% more total pay in the subsequent
year than other CEOs. The pay increases result almost
entirely from increases in stock-based compensation and
are found to persist. In addition, layoff announcements
are accompanied by shareholder value increases averaging
$40 million to $95 million. One-time labor cost savings
from layoffs average $65 million. We conclude CEOs
receive pay increases following layoffs as rewards for
past decisions and to motivate value-enhancing decisions
in the future.
Keywords: CEO pay,
corporate governance, corporate restructuring, executive
compensation, layoffs
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Repricing and Executive Turnover
Narayanan
Subramanian, Atreya Chakraborty, Shahbaz Sheikh
We examine whether the threat of
executive turnover faced by a firm affects its decision
to reprice stock options held by its executives. We
estimate a model of voluntary turnover among top
executives and show that the predicted turnover from
this model is positively related to the probability of
repricing. The relationship is robust to the inclusion
of several known determinants of repricing. Our results
are consistent with a model in which a tight labor
market makes executives hard to replace, forcing firms
to reprice stock options when they go underwater.
Keywords: Option
repricing, executive compensation, incentive
compensation, management turnover, CEO turnover.
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Equity with Warrants in Private Placements
Dalia Marciukaityte,
Anita K. Pennathur
We examine private equity with
warrant (unit) placements and compare them with private
equity placements. Firms making unit placements are
smaller, younger, riskier, and characterized by higher
information asymmetry than equity-placing firms.
Furthermore, unit-placing firms experience good
pre-placement stock performance; however, their
post-placement performance is poor and worse than that
of equity-placing firms. We also find that very few of
the placed warrants are in the money at expiration. Our
results are consistent with the window of opportunity
hypothesis and the theory of Miller (1977), suggesting
that warrants are especially desirable to a clientele of
overoptimistic investors.
Keywords: Unit
private placements, equity private placements, warrants,
window of opportunity, investor clientele
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