Stock liquidity risk and the cross-sectional earnings-returns relationship

We argue that a higher sensitivity to aggregate market-wide liquidity shocks (i.e., a higher liquidity risk) implies a tendency for a stock's price to converge to fundamentals. We test this intuition within the framework of the earnings-returns relationship. We find a positive liquidity risk effect on the relationship between return and expected change in earnings. This effect on the earnings-returns relationship is distinct from the negative effect observed for stock illiquidity level. Notably, the liquidity risk effect is evident (absent) during periods of neutral/low (high) aggregate market liquidity. We also show that the liquidity risk effect is dominant in firms that: (a) are of intermediate size; (b) are of intermediate book-to-market; and (c) are profit making

Does the uncertainty of firm-level fundamentals help explain cross-sectional differences in liquidity commonality?

Our goal is to better understand the economic sources of commonality in liquidity. To this end, we argue that a firm with low (high) volatility in its “fundamental” profitability will have a higher (lower) liquidity commonality because it is more (less) likely to serve as reference stock in the setting of cross-asset learning about fundamentals. As predicted, we find that commonality in liquidity is negatively related to profitability volatility. This negative relation holds after controlling for correlated trading, size, book-to-market effects, idiosyncratic volatility, stock returns, and managerial income smoothing

Financial Analysis of Oil and Gas Firms

In this chapter, we show how to interpret the financial statements of firms in the oil and gas industry. We first provide a tour of the fundamental building blocks of financial statements noting items that are peculiar to the oil and gas industry. We present an analysis of typical oil and gas firm financial statements considering profitability, efficiency, liquidity, and leverage. We use ratios and present two approaches to analysis – trend analysis and common size analysis. We end the chapter with a note on non-financial information and how that complements the analysis of financial data. Financial ratios are only useful for financial information analysis, but other non-financial information should be considered when conducting analysis of performance to get a full picture

Corporate governance, disclosure and foreign share ownership on the Ghana Stock Exchange

Purpose – The purpose of this paper is to examine the interaction between corporate disclosure and foreign share ownership on the Ghana Stock Exchange (GSE). Design/methodology/approach – The paper follows the trinary procedure of Aksu and Kosedag and uses the Standard & Poor's transparency and disclosure items in the construction of the disclosure index. Therefore, the paper adopts a panel data analysis covering a period from 2002 to 2007 using the seemingly unrelated regression approach. Findings – The results indicate a statistically significant interaction between corporate disclosures and foreign share ownership among the sample firms. The market value of equity and market-to-book value ratio is documented; free cash flow and financial leverage have statistically significant relationships with foreign share ownership. Originality/value – This is the first of its kind in the country that considers the impact of corporate governance and disclosure on foreign share ownership despite the numerous studies carried out on the GSE.Corporate governance, Disclosure, Ghana, Shareholders, Stock exchanges

Ownership structure, corporate governance and corporate liquidity policy: Evidence from the Ghana Stock Exchange

Purpose – The purpose of this paper is to examine the impact of ownership structure and corporate governance on corporate liquidity policy from a developing country perspective, Ghana Stock Exchange (GSE). Design/methodology/approach – The authors adopt multiple regression analysis in estimating the relationship between ownership structure, corporate governance and corporate liquidity policy as well as the impact of corporate governance on insider ownership. Findings – The authors find that foreign share ownership significantly predicts corporate cash holding on the GSE. The empirical result also portrays positive and statistically significant relationship between board size, financial leverage, firm size, profitability and corporate liquidity holding, and a negative and statistically significant relationship between board composition and corporate liquidity holding. The authors also document positive and statistically significant relationship between the various industry classifications namely manufacturing, distribution and the pharmaceutical industry and corporate cash holdings on the GSE but did not however find significant relationship between corporate governance and insider ownership on the GSE. The authors found positive relationship between Tobin's Q and inside ownership. Originality/value – The main value of this paper is to analyze the relationship between ownership structure, corporate governance and corporate liquid policy from a developing country perspective.Cash holdings, Corporate governance, Ghana, Ownership structure