Ethics and disclosure: a study of the financial performance of firms in the seasoned equity offerings market

In this article, we examine the association between ethics and disclosure and the impact of this association on the long-term, post-issue performance of seasoned equity offerings (SEOs). We argue that firms with extensive disclosure are less likely to face information problems, and more likely to lead to active shareholder monitoring, and therefore, engage in fewer unethical activities, such as aggressive earnings manipulation, and have better long-term, post-issue performance. Consistent with these predictions, this study presents evidence that disclosure is negatively related to unethical earnings manipulation and positively associated with long-term, post-issue performance. In particular, we find that long-term, post-issue SEO underperformance is significantly less for firms with extensive disclosure and conservative earnings management than firms with less disclosure and aggressive earnings management. We interpret this evidence to mean that over the long run, the capital market values ethical financial reporting and corporate efforts to incorporate social responsibility into their decision-making processes, for example, by enhancing information transparency through voluntary disclosure. JEL classification: G14; G24; G32; M14; M4

Disclosure frequency and earnings management

We examine the relation between disclosure frequency and earnings management,and the impact of this relation on post-issue performance, for a sample of seasoned equityofferings (SEOs). We contend that firms with extensive disclosure are less likely to faceinformation problems, leading to less earnings management and better post-issueperformance. Our results confirm that disclosure frequency is inversely related toearnings management and positively associated with post-issue performance. We alsofind that transparency-reducing disclosure is concentrated in firms that substantially, buttemporarily, increase disclosure prior to the offering. Such firms exhibit more earningsmanagement and poorer post-SEO stock performance, on average.JEL classification:G14; G24; G32; M4

Employee-Friendly Practices and Innovation

We examine the inter-relationships among employee-friendly policies (EFP), innovation through R&D investment, and firm value. We hypothesize that firms with higher levels of innovation and entrepreneurial spirit are more likely to utilize EFP. Furthermore, we speculate that the value-EFP association is more pronounced in firms with high R&D intensity. Consistent with these assertions, we find that EFP is significantly and positively related to R&D investment and the number of patents. EFP is also associated with increased firm value at high levels of R&D investment and high numbers of patents. Furthermore, we find that firms investing more in R&D are more likely to treat their workers favorably and that markets react positively when such firms are recognized for their favorable treatment of employees. Our analysis, based on a large sample of U.S.-based firms and two different measures of employee-friendly policies, supports the assertion that EFP based on sustainable innovation and entrepreneurial mindsets contributes to value creation

Underwriter choice and earnings management: evidence from seasoned equity offerings

Using a sample of seasoned equity offerings (SEOs), this paper examines the association between the choice of financial intermediary and earnings management. We contend that with more stringent standards for certification and intense monitoring, highly prestigious underwriters restrict firms\u27 incentives for earnings management to protect their reputation and to avoid potential litigation risks, while firms with greater incentives for earnings management avoid strict monitoring by choosing low-quality underwriters. Consistent with our predictions, we find an inverse association between underwriter quality and issuers\u27 earnings management. In addition, we find that underwriter quality is positively related to SEOs\u27 post-issue performance, even after controlling for the effect of earnings management. We also find that firms with low underwriter prestige and high levels of earnings management underperform the most. However, the effect of underwriter choice on post-issue performance does not last long

Maximizing Shareholder Value? Spotify Direct Public Offering

The typical method of going public has traditionally been an initial public offering (IPO), whereby a company works with an underwriter syndication to establish a price at which shares will be offered to the public before listing them. The purpose of this paper, however, is to evaluate whether IPOs are truly the best method for taking a company public. To answer this question, at least partially, we explore the upsides and downsides of a direct listing using the music streaming company Spotify (NYSE: SPOT) as a case study. Having officially registered to go public with the SEC and direct listed on April 3, 2018 with $149.01 closing price and a$26.5 billion market capitalization, Spotify becomes the first major private company to list its shares directly to the public on the NYSE without using an underwriter. Although direct listings come with their fair share of risk, this study suggests that a direct listing can benefit large private companies by eliminating the losses associated with underpricing, offering quick liquidity to the firm and its current shareholders, and decreasing per share dilution. As Spotify’s direct listing is successful, it could send ripples across Wall Street and the broader world of tech unicorns that alternative changes how large private companies choose the way of going public

Is Institutional Ownership Related to Corporate Social Responsibility? The Nonlinear Relation and Its Implication for Stock Return Volatility

This study examines the relation between corporate social responsibility (CSR) and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR. This evidence suggests that institutional investors do not see CSR as strictly value-enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods

Polishing diamonds in the rough: the sources of syndicated venture performance

Using an effort-sharing framework for VC syndicates, we assess how syndication impacts investment returns, chances of successful exit, and the time taken to exit. With data from 1980-2003, and applying apposite econometrics for endogeneity to these different performance measures, we are able to ascribe much of the better return to selection, with the value-addition by monitoring role significantly impacting the likelihood and time of exit. While the extant literature on Venture Capital (VC) syndication is divided about the relative importance of the selection and value-add hypotheses, we find that their roles are complementary

Business Groups and Corporate Social Responsibility

© 2018, Springer Science+Business Media B.V., part of Springer Nature. There is a growing literature on corporate social responsibility (CSR), but few have focused on the implications of business groups for CSR. We examine the antecedents and outcomes of CSR behaviors of group firms in Korea. We find that group affiliation is associated with higher CSR overall and for its major societal and environmental components. However, the ownership disparity between cash flow and control by controlling inside shareholders is associated with lower CSR, consistent with opportunistic rent expropriation theory. We further find that CSR initiatives can impact group firms positively in the event of bad events, consistent with insurance theory. This motive for CSR as a means of enhancing reputation capital to buffer the bad events is pronounced for group firms because of group-wide dissemination of negative reputational externality

GLOBAL MICROFINANCING INSTITUTES: HIGH INTEREST RATE OR LOW LOAN-LOSS RATES?

The microfinancing sector has experienced a rise in both loan interest rates and borrower loan loss rates recently. By employing a sample of microfinance institutions (MFIs) from the MixMarket database during 2004-2012 around the world, we find that the lag of borrower loan loss is positively related to loan interest rates while the lag of loan interest rates is also positively related to borrower loan loss. The impact of loan loss rate on loan interest rates, however, seems to be more substantial than the influence of loan interest rates on the loan loss rate. Furthermore, we find that the higher interest rates charged by MFIs are followed by higher operating performance of MFIs, indicating the possibility that MFIs are charging relatively high interest rates mainly for their own profitability rather than helping low income people