Multiple Large Shareholders and Earnings Informativeness

Purpose - The purpose of this paper is to add to our understanding of the monitoring role of multiple large shareholders by examining their impact on the informativeness of firms' earnings. Design/methodology/approach - We use regression models that relate earnings to stock returns for a sample of 402 French publicly traded firms covered during 2003-2007. Findings - We show that earnings informativeness is significantly positively related to the owner's ultimate cash flow rights. Consistent with the alignment effect, stock ownership aligns management and shareholders interests which reduces managers' incentives to manipulate accounting information. We also find that earnings informativeness is significantly negatively related to the excess control of the ultimate controlling shareholder. This result supports the entrenchment effect and suggests that controlling shareholders have greater incentives to obscure accounting figures when expropriation is likely. Finally, control contestability of the largest controlling shareholder mitigates information asymmetry problems thereby enhancing earnings informativeness. Limitations/implications - Our findings stress the importance of MLS in enhancing internal monitoring and mitigating agency costs. Because France is characterized by a weak legal system, highly concentrated ownership structures and excess control, our results provide valuable insights to mitigate extreme agency problems. Originality/value - The paper adds to the literature on corporate governance and the quality of accounting information by investigating strategic interactions between various blockholders and their impact on earnings informativeness. The study complements prior studies on the monitoring role of MLS by demonstrating that both their presence and control size translate into significantly greater earnings informativeness.Earnings, Earnings informativeness, Excess control, France, Multiple large shareholders, Stock returns

Brand capital and debt choice

This paper investigates the effect of brand capital on firms' choices of debt structure. Using a sample of publicly listed U.S. firms between 2001 and 2019, we find that firms with higher levels of brand capital rely less on bank debt financing. This finding is robust to the use of alternative regression models and alternate measures of brand capital and bank debt financing. Employing an industry-level positive shock to brand capital as a quasi-natural experiment, we demonstrate that such a shock negatively affects firms' reliance on bank debt. Our cross-sectional analyses reveal that the effect of brand capital on bank debt is more pronounced for firms with high information asymmetry, weak corporate governance mechanisms, and poor financial conditions. We also find that brand capital-intensive firms raise funds from the public debt market and issue more (or less) unsecured (or secured) debt. Taken together, we show that brand capital has an important bearing on corporate financing decisions

Le recours aux leviers de contrôle:le cas des sociétés cotées françaises

(VF)En France, les actions à droit de vote double, les actions sans droit de vote et les participations indirectes, croisées ou pyramidales, permettent de contrôler une société avec un apport minimal en capital. Cet article analyse l’utilisation et l’effet de levier de ces mécanismes sur un échantillon de 560 sociétés cotées françaises en 2000. Les résultats révèlent le recours peu fréquent aux actions sans droit de vote et aux participations croisées. À l’inverse, les trois quarts des sociétés présentent des actions à droit de vote double et un tiers sont contrôlées via une pyramide. Mais au-delà d’un succès commun, actions à droit de vote double et pyramides ne se confondent pas:les actionnaires publics et financiers paraissent préférer les pyramides ; les actionnaires familiaux, les actions à droit de vote double. Les pyramides dissocient les droits aux cash-flows du contrôle de 43% en moyenne et les actions à droit de vote double, de 12%. Les pyramides apparaissent donc comme le levier de con-trôle le plus puissant.(VA)French law authorizes listed companies to use several devices to achieve control with a relatively small fraction of ownership. Double voting shares, non-voting shares, cross holdings, and pyramids are among these devices. We collected data for a sample of 560 French listed firms for the year 2000. This data reveals the rare use of non-voting shares and crossholdings and the widespread use of both double voting shares and pyramids. The latter two devices seem to be substitutes for each other. The extent of their use seems to depend upon the controlling shareholder’s identity. Pyramids are more frequent among stated-owned firms and firms controlled by a widely held financial institution. Double voting shares are more used by family firms. Pyramiding seems to be a device that ensures a large discrepancy between ownership and con-trol, accounting on average for 43% of the excess control, whereas double voting shares account for a difference of merely 12%.propriété;contrôle;levier;France;ownership;control;leverage device.

COVID-19 media coverage and ESG leader indices

This study examines the dynamic connectedness between COVID–19 media coverage index (MCI) and ESG leader indices. Our findings provide evidence that MCI plays a role in facilitating the transmission of contagion to advanced and emerging equity markets during the pandemic. The connectedness between MCI and ESG leader indices is more pronounced around March and April 2020 at the peak of the pandemic. The US is a net receiver of shocks reaffirming that it was the most affected country during the pandemic. Our results provide implications for investors, portfolio managers, and policymakers in mitigating financial risks during the pandemic

Management earnings forecast and IPO performance: Evidence of a regime change

Companies making initial public offerings (IPOs) in Greece were obliged to include next-year profit forecast in their prospectuses until the regulation changed in 2001 to voluntary disclosure. This research takes advantage of these two regulatory regimes to study the long-term performance of 303 IPOs issued during January 1993– December 2014over 36 months of secondary-market performance. Findings indicate behavioral change, as positive long term (three-year) return during the mandatory era turned negative in the voluntary period. Comparison of these two regimes may suggest that a mandatory regulatory environment in which firms are forced to provide earnings forecasts delivers better investor returns. On the contrary, the results reveal that a regulation that penalizesing IPO firms for providing what are necessarily highly inaccurate earnings forecasts affects long-term returns because it creates an insecure investment environment. Additional analysis shows that Opportunities for good long-term performance is higher mprove for IPOs under a mandatory earnings regime during a “cold” period with low given ownership and high oversubscription. It is noteworthy that lack of experience and high associated costs prevent a number of IPO firms from providing earnings forecasts under the voluntary regime

Assessing the effects of unconventional monetary policy and low interest rates on pension fund risk incentives

In this article the role of unconventional monetary policy and low interest rates are amplified as one of a series of components of possible explanations on US pension funds risk taking and asset allocation behavior. We quantify the effects of persistently low interest rates near to the zero lower bound, and the unconventional monetary policy adopted by the Federal Reserve by using counterfactual scenarios and two structural Vector AutoRegressive (VAR) models. We provide the first comprehensive evidence showing that monetary policy shocks, identified as changes in interest rates that lead to larger or smaller changes in Treasury yields, are followed by a substantial increase in equity assets. The shift from Treasury bonds to equity securities is greater during the unconventional monetary policy period. We document a positive correlation between pension fund risk taking, low interest rates and the decline in Treasury yields across well-funded and underfunded pension plans, which is consistent with a structural risk shifting incentive

Does green improve portfolio optimisation?

Our study uses the GARCH-EVT-copula model to develop out-of-sample forecasts for diverse asset classes, including a green asset. To construct optimal portfolios, we apply four different portfolio allocation techniques: equal weighting, minimum variance, global minimum variance (GMV), and certainty equivalence tangency (CET) criteria. The results demonstrate that the GMV portfolio outperforms other portfolios in risk measures. Further, backtesting evidence shows that the portfolio containing a green asset performs better than the benchmark for short horizons. The results have implications for fund managers and policymakers since green asset provides valuable diversification benefits and further the cause of sustainable development

Returns and volatility connectedness among the EurozoDne equity markets

The rising degree of integration among different countries around the world calls for the examination of cross-country connectedness across equity markets. Moreover, the interconnection among some countries – bound by their common economic policies, treaties and agreements, such as Eurozone countries – is stronger than among others. Strong inter-country ties may cause an intense connectedness among their financial systems. This study examines the returns and volatility connectedness among the equity markets of the Eurozone countries. Using the TVP-VAR model, we document strong connectedness among their stock markets. The net transmitters of shocks are the most developed Eurozone stock markets, while Lithuania, Slovenia and Slovakia are among the most vulnerable to risks from the more developed Eurozone economies. Thus, for any event that triggers risk transmission across the Eurozone equity markets, equity investors in less developed countries will be more vulnerable to risks from the nine more developed economies

Large shareholders and firm risk-taking behavior

We investigate whether multiple large shareholders (MLS) affect corporate risk-taking. Using hand-collected data on French publicly-listed companies over the period 2003-2007, we show that the presence, number and voting power of MLS, other than the largest controlling shareholder (LCS), are associated with greater variability in operating performance (ROA), market value (Tobin’s Q) and stock returns. In contrast, the presence of a single LCS is associated with less variability in firm performance, especially when the divergence between the LCS’s control and cash flow rights is large. This result suggests that MLS are able to prevent the LCS from dictating her preference for low-risk projects in order to protect her future consumption of private benefits. As a consequence, firms undertake better investments regardless of their intrinsic risks, and this eventually leads them to achieve higher performance. MLS are thus confirmed to play a critical role in corporate governance

Fiscal Policy Interventions at the Zero Lower Bound

We build on a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to explore the macroeconomic consequences of fiscal expansionary shocks during the economic crisis of 2008 in the eurozone. In this setting, we find that the big four eurozone economies (France, Germany, Italy, and Spain) can effectively escape from their liquidity trap through fiscal policy interventions caused by government purchases. We estimate the government spending multiplier to be above 1.8 when this policy is associated with a long-term commitment to keeping the nominal interest rate at the zero lower bound, as suggested by Krugman (1998). Notably, the short-term deficit effect on the budget balance can be offset five years after the implementation of a large spending program. We also show that alternative policies with tax cuts that expand the supply do not appear to have the same power in the short run. Moreover, we provide novel empirical evidence that a large government debt renders a government spending policy ineffective