The impact of stringent insider trading laws and institutional quality on cost of capital

This paper examines the effects of interaction between stringent insider trading laws, institutional quality and equity portfolio allocation on the cost of capital. Using a dataset drawn from 44 countries over the period from 2001 to 2015, we find that stringent insider trading laws interact with institutional quality and foreign equity portfolio allocation to reduce the country-level cost of capital. Further analysis from a quasi-natural experiment based on the 2008–2009 global financial crisis suggests that the findings are robust to endogeneity. Our results imply that the enactment of stringent insider trading laws and their interplay with the quality of institutions are not only important to portfolio investment allocation decisions but reduce the country-level cost of capital

High frequency trading, price discovery and market efficiency in the FTSE100

The file attached to this record is the author's final peer reviewed version.This study examines the role of high frequency trading in price discovery and efficiency in the FTSE100 index tick changes. Using a unique data set, we find that there is no random walk when investors extract information at a millisecond to a second. Further analysis provides evidence that the information cannot be extracted by investors at frequencies starting from 10 minutes. This is consistent with the view that the market already experiences a random walk, which contributes to the weak form of market efficiency

International equity portfolio allocations and stock market development

This paper examines whether the widely reported phenomena of home and foreign biases (i.e. sub-optimal international equity portfolio diversification) hold any ramifications for the development of stock markets. The results, analysed using macro- and micro-level data, support the view that stock markets that are characterised by a higher degree of home bias are associated with lower levels of development. On the other hand, markets where foreign investors show a higher degree of allocation preference, relative to the prescribed benchmark (foreign bias), are found to be more developed. The results, which are robust to the use of shock based identification strategy, indicate that policy measures that promote optimal international equity portfolio diversification could be crucial in developing the depth and breadth of domestic stock markets

Corporate carbon emissions and market valuation of organic and inorganic investments

We empirically examine the impact of a firm’s carbon emissions level on the market valuation of organic and inorganic investments. We document that the market reacts negatively to corporate investment announcements by companies with high carbon emissions levels. Further analysis indicates that the discount on market valuation is more pronounced for the set of organic investments, within which only asset acquisitions and product launches are negatively affected by the high carbon emissions level at the announcement

Why Do Female Lead Auditors Charge a Fee Premium? Evidence from the UK Audit Market

Existing research documents a fee premium for female partner led audits (Ittonen & Peni, 2012; Hardies et al., 2015; Burke et al., 2019; Lee et al., 2019; Hardies et al., 2021). We take this work forward by investigating a possible justification for the observed premium by examining how auditor gender is related to audit report lag and whether the female partner audit fee premium is driven by audit report lag. We find that firms audited by a female lead auditor have a significantly shorter audit report lag but pay a significantly higher audit fee. In further analysis, we find that the fee premium for a female partner led audits is higher for clients receiving a more timely audit opinion. Our findingsare consistent with female lead auditors delivering more timely audits and audit clients being prepared to pay a premium for such timeliness. Our study extends our understanding of the importance of gender in the auditing process and the value clients see in audits led by female auditors. Given the relatively low proportion of female lead auditors, our findings should also encourage audit firms to appreciate the economic value of female lead auditors and to actively facilitate their progression to senior roles

Biases in international portfolio allocation and investor protection standards

Economic reasoning suggests that financial globalization that encourages optimal international portfolio investments should improve investor protection standards (IPS) of a country. In practice, however, investors manifest varying degrees of suboptimal international portfolio allocations. Using a panel dataset covering 44 countries spanning over 15 years we examine whether suboptimal equity portfolio allocation in part is associated with the cross-country variations in IPS. Consistent with economic reasoning we find robust indications that international portfolio allocation may play an important role in the development of IPS. More specifically, the quality of IPS improves with higher degrees of optimal international equity portfolio allocation of domestic and foreign investors

Ownership Type, Home?Country Government?Directed Investment Policies and Firm Value in Strategic Sectors: Evidence from Chinese Acquiring Firms

Using data of Chinese acquirers in strategic sectors, we assess the role of home government and the effects of the interaction between ownership type and government-directed investment policies on acquiring firm value in cross-border acquisitions (CBAs). We find that CBA activities in strategic sectors encouraged by the home-country government through its investment policies experience significant increase in acquiring firm value. We also find that firms investing in government-designated strategic sectors generate wealth for acquirers, but contrary to efficiency logic rooted in agency theory, state-owned enterprises appear to outperform private-owned enterprises. Further analysis indicates that three financial incentives associated with government-directed policies – namely, interest-rate reduction, tax incentives and direct subsidies – constitute sources of firm value. Our results raise several policy implications, including the need for transparent and rule-based policies and governance systems to be developed and implemented by governments in the home and host countries to regulate state-supported firms investing in sensitive strategic sectors

Economic policy uncertainty and cost of capital: the mediating effects of foreign equity portfolio flow

We investigate whether economic policy uncertainty and the interaction of foreign equity portfolio flow and economic policy uncertainty impact the cost of capital. Using panel data of 20 countries from 2001 to 2018, we find economic policy uncertainty to exert a positive effect on the cost of capital. However, the interaction between foreign equity portfolio flow and economic policy uncertainty has a negative effect on the cost of capital, demonstrating that, the combined effect of foreign equity portfolio flow and economic policy uncertainty has the opposite effect (i.e., reduces the cost of capital). Our results are robust to alternative specifications and endogeneity

Board monitoring and capital structure dynamics: evidence from bank-based economies

We examine the impact of board characteristics on the speed of adjustment and the capital structure dynamics of firms in bank-based economies. Using 3927 firm-year observations over a 10-year (2009–2019), we find that board characteristic influences firms' speed of adjustment in a bank-based (stakeholder-oriented) system. We also find some evidence that board characteristics have varying impacts on the capital structure of Japanese, French and German firms. We conclude that firms' capital structure reflects the corporate governance environment they operate. Our results are robust to accounting for endogeneity and alternative leverage measure