Thinly Traded Growth Stocks: A Joint Examination of Transparency in Communication and the Trading Platform

When thinly traded growth stocks (TTGS) listed on a secondary exchange experience difficulty in gaining investors' attention, one possible solution is to increase the intensity of disclosure. However, if the stock is traded on a quote-driven system, market makers can collude to maintain wide bid-ask spreads that discourage firms from disclosing. As a result, TTGS traded on a quote-driven system can face a liquidity trap that can prevent them from harvesting the benefits of increased disclosure activities. In this paper, we argue that the well-documented negative relation between disclosure and the bid-ask spread is likely to be moderated by the type of protocol chosen by exchanges to handle the trading of TTGS. To test our theory we use a unique setting created by the introduction of a hybrid order-driven protocol for TTGS in the UK. Following an increase in the disclosure activity by a TTGS, we find that the magnitudes of the predicted reductions in the bid-ask spreads are dependent on whether the TTGS switch their trading protocols. © 2013 © 2013 European Accounting Association

VAT Fraud in Serbia and Phenomenon of Shell Companies

Like any tax, the VAT is vulnerable to evasion and fraud. It should be said that its concept of credit - refund offers the unique possibility of abuse, which has for a long time the main concern in the European Union (EU), while in Serbia profiled specific form of VAT evasion, so called “ Business with phantom companies “. This paper describes the basic types of tax violations characteristic of VAT, considers how to solve them, based on the experiences of development countries, with a special focus on the specific concept to VAT in Serbia

The rise of covenant-lite bond contracting

We investigate the implications of the recent trend for bond contracts to have no accounting covenants – so called cov-lite. Using contractual and transaction data for US high yield bonds issued between 2005 and 2014 we find evidence that the liquidity (yield) is significantly greater (lower) for cov-lite than to cov-strong bonds irrespective of the degree of accounting conservatism exhibited by the bond issuers. Our evidence is consistent with the demand for cov-liteness being driven by investors’ preference for simpler contracts with less coordination costs. This reduction in coordination costsenhances liquidity. We find that these bond market effects do not appear to be associated with an issuers’ level of accounting conservatism. Thus we suggest accounting conservatism is not required by cov-lite investors since the enhanced liquidity effects dominate any potential conservatism benefits. Our research highlights that there are several possible equilibria in which to evaluate the contracting value of conservative accounting as investors can rationally trade-off between control rights and liquidity

Ownership, Investor Protection and Earnings Expectations

This study examines the interactive influence of corporate ownership, corporate governance and investor protection on the incorporation of current value shocks in the accounting earnings of European companies. This influence is investigated not only by means of the association between current news and current earnings but also with respect to the association of the same news with expected future earnings, and its persistence. Consistent with the contractual explanation of accounting conservatism, it is shown that the accounting behaviour examined is a function of the demand created by shareholders, and that the institutional arrangements in force are of lesser significance in the presence of widely held ownership. On the other hand, greater separation between supervision and management and stronger investor protection are seen to be influential under close ownership, as these are shown to curb aggressive accounting in the form of a persistently lower recognition of bad news in earnings. Evidence is also provided that stricter corporate governance practices in Europe can substitute for weaknesses in investor protection provisions in law. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Ownership, Investor Protection and Earnings Expectations

This study examines the interactive influence of ownership and institutional arrangements such as investor protection and corporate governance on the incorporation of value shocks in earnings expectations. In particular, the study provides estimates of the reversal of accounting conservatism in analysts' forecasts, and the empirical evidence that is reported in the paper shows how the institutional arrangements underpinning accounting affect the way in which earnings expectations reflect good and bad news, conditionally on ownership structure. The timely inclusion of bad news is systematically lower for firms with closely held shares in jurisdictions with weaker investor protection or without well defined governance mechanisms. Stronger investor protection and a greater separation between supervision and management each tends to mitigate the adverse effects of ownership concentration on accounting conservatism, and there is evidence that stricter corporate governance practices can substitute for weaknesses in investor protection provision through the law

The effects of board size and ‘busy’ directors on the market value of Italian companies

Accounting valuation, Corporate governance, Board-of-directors’ size, Number of directorships, ‘Busy’ directors,

US Institutional Investors Response to the News Flow of Intangibles Intensive European Stocks: A Study of European BioTech and Pharma Stocks

Earlier research on non-US companies has documented that listing an American Depositary Receipt results in an increase in US institutional investor holdings. It is suggested that this result arises because US cross listing, with the related US GAAP financial reporting reconciliation requirements, improves the monitoring of management in the principal agent relationship with US investors. However, for companies in some industries, greater attention to financial reporting is of limited value since market value is highly dependent upon intangibles. Non-financial performance indicators, not covered by US GAAP, are critical for valuation when intangibles make up a significant part of economic firm value. This research restricts attention to the BioTech-Pharma sector and tests to see whether US institutional investors accept enhanced disclosure of key non-financial performance indicators, as a partial substitute for non-adoption of US financial reporting standards. Specifically, tests are conducted to see whether US institutional investors are more or less sensitive to the non-financial disclosures of non-adopters. Results from the econometric analysis provide support for the hypothesis that US institutional investors respond more to the non-financial disclosures of non-adopters suggesting that US institutional investors do see enhanced disclosure of non-financial performance indicators in an intangibles intensive industry as a partial substitute for full compliance with US financial reporting standards.