The determinants of foreign trading volume of stocks listed in multiple markets

We examine the determinants of the foreign trading volume of European stocks listed in multiple markets. The results suggest that stocks that cross-list in foreign markets that are larger and more liquid than their home markets, and stocks for which foreign investors acquire information at a lower cost, experience higher volumes of trade in foreign markets. Stocks that are cross-listed in the US are more attractive to foreign traders than those cross-listed in European markets. Differences in motives to trade in American vs. European markets are also uncovered. Among the fundamental motives to trade, diversification benefit and stock risk are more important for investors trading in American markets while the difference in trading costs is more vital for investors in European markets. Among the informational motives to trade, the firm’s presence in foreign product markets and the foreign information factor are significant determinants of trading in American markets but not in European markets

The relation between changes in the information content of earnings and expected stock returns: empirical evidence for Japan

This paper examines the relationship between changes in the information content of earnings with expected stock returns for the Japanese market during the period of 1991-2001. Results show that a mimicking portfolio return that relates to changes in the information content of earnings, explains a portion of the cross sectional variation in expected returns. Particularly, investors lower (appreciate) firms' stock price whenever firms experience decreases (increases) in the information content of earnings, to enable them to earn higher (lower) expected returns. This relation remains robust to the inclusion of market, size, and book-to-market factors. In addition, this article investigates the extent to which changes in the information content of earnings relate systematically with size and book-to-market factors. Neither the size effect nor the book-to-market effects are found within the changes in the information content of earnings effect. Overall, the findings suggest that changes in the information content of earnings, is a unique effect not captured by the Fama and French (1992) three-factor model. © Andreas Charitou, Eleni Constantinidis, Christodoulos Louca, 2012

Why Do Canadian Firms Cross-list? The Flip Side of the Issue

We investigate the relation between managerial incentives and the decision to cross-list by comparing Canadian firms cross-listed on US stock exchanges to industry- and size-matched control firms. After controlling for firm and ownership structure characteristics, we find a positive association between substantial holdings of vested options held by CEOs prior to cross-listing and the decision to cross-list. Further, firms managed by CEOs with substantial holdings of vested options exhibit positive announcement returns and negative post-announcement long-run returns. CEOs of cross-listed firms seem to take advantage of the aforementioned market behaviour, because they abnormally exercise vested options and sell the proceeds during the year of listing only when their firms underperform during the subsequent year. In addition, there is a positive relation between substantial holdings of vested options and discretionary accruals during the year of listing, consistent with the view that CEOs manage earnings to keep stock prices at high levels. Overall, these results have significant implications for the cross-listing literature, suggesting an association between cross-listing and CEO incentives to maximize CEO private benefits

The impact of vertical integration on inventory turnover and operating performance

This paper investigates how vertical integration may influence inventory turnover and firm operating performance. A causal model is developed to investigate the effects of vertical integration on three types of inventory, namely raw materials inventory (RMI), work in progress inventory (WIPI) and finished goods inventory (FGI). The model tests the interactions between inventory types and the consequences of inventory turnover performance on various aspects of firm performance including costs and profitability. In particular, path analysis supports systematic differences with respect to how vertical integration affects RMI, WIPI and FGI. Vertical integration has a positive effect on RMI and FGI turnover but no significant effect on WIPI turnover. FGI contributes to a reduction in supporting processes costs which causes an improvement in return on sales (ROSs). Vertical integration impacts ROS directly

Valuation effects of mergers and acquisitions in freight transportation

This study investigates valuation effects of mergers and acquisitions in the freight transportation industry. It is found that mergers and acquisitions create synergistic gains, especially tender offers, consistent with the view that freight transportation mergers and acquisitions occur for synergistic reasons rather than management's desire for empire building or perk consumption. Both target's and bidder's shareholders are better-off, but most of the synergistic gains accrue to the target's shareholders. Targets' valuation effects are greater for vertical rather than horizontal mergers, indicating a positive valuation for firms that control and manage a more extensive supply chain. The bidders' wealth effects are greater for friendly mergers. Overall, the findings have important implications for professional practice and the development of the theoretical literatur

CEO overconfidence and the value of corporate cash holdings

Cash holding is on average more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board is associated with an increase of $0.28 in the value of$1.00 cash holding. The positive effect of CEO overconfidence on the value of cash concentrates among firms that are more likely to suffer from the underinvestment problem (i.e., financially constrained firms which exhibit high growth opportunities). In addition, CEO overconfidence affects negatively the value of cash in firms that are financially unconstrained, a finding which is consistent with the overinvestment hypothesis. The results are robust to various tests and alternative explanations