Director networks and informed traders

We provide evidence that sophisticated investors like short sellers, option traders, and financial institutions are more informed when trading stocks of companies with more connected board members. For firms with large director networks, the annualized return difference between the highest and lowest quintile of informed trading ranges from 4% to 7.2% compared to the same return difference in firms with less connected directors. Sophisticated investors better predict outcomes of upcoming earnings surprises and firm-specific news sentiment for companies with more connected directors. Changes in board connectedness are positively associated with changes in measures of adverse selection

Implications of Data Screens on Merger and Acquisition Analysis: A Large Sample Study of Mergers and Acquisitions from 1992 to 2009

We analyze a comprehensive set of mergers and acquisitions from SDC data from 1992 through 2009. We do not impose common restrictions such as excluding private bidders, small targets, or deals without a deal value. We show a broader scope of mergers and acquisitions activity than that implied in the literature, which generally oversamples larger deals involving public firms. Further, some of our results differ from the extant literature. For example, the finding that mergers occur in waves is attenuated with a greater presence of smaller and/or non-public firms. Also, acquirers gain in most takeovers despite a threefold decline over the sample period in acquirer returns. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

When does the Adoption and Use of IFRS increase Foreign Investment?

Extant research suggests that the use of IFRS provides firms an opportunity to reduce information asymmetry and make themselves more attractive to foreign investors. However, Daske et al., (2013) suggest that any benefits of IFRS adoption will accrue only to firms with incentives to provide transparent financial reporting. We thus predict that foreign ownership will be higher in IFRS firms with strong reporting incentives than in IFRS firms with weaker reporting incentives. Using a sample of over 54,000 firm-years from 72 countries during the period 2001 to 2011, we find evidence supporting this hypothesis. Further, a one quartile increase in transparency is associated with a 0.74 % higher level of foreign ownership, which is economically meaningful compared to a mean level of foreign ownership of 8.14 % across our sample. Additional tests show that our results are driven by countries with weak investor protection and by investments made by institutional investors

Endogeneity and the Dynamics of Internal Corporate Governance

We use a well-developed dynamic panel GMM estimator to alleviate endogeneity concerns in two aspects of corporate governance research: the effect of board structure on firm performance and the determinants of board structure. The estimator incorporates the dynamic nature of internal governance choices to provide valid and powerful instruments that address unobserved heterogeneity and simultaneity. We re-examine the relation between board structure and performance using the GMM estimator in a panel of 6,000 firms over a period from 1991-2003, and find no causal relation between board structure and current firm performance. We illustrate why other commonly used estimators that ignore the dynamic relationship between current governance and past firm performance may be biased. We discuss where it may be appropriate to consider the dynamic panel GMM estimator in corporate governance research, as well as caveats to its use