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Volume 20, Issue No. 3, September 2013
- Jae Wook Jeong & Gil Bae, Do acquiring firms knowingly pay too much for target firms? Evidence from earnings management in member-firm mergers in Korean business groups, 223-251
- Abdorreza Soleymani & Soo Y. Chua, S-curve at the industry level: evidence from Malaysia’s bilateral trade with its major trading partners in East Asia, 252-269
- Ray-Yun Chang & Cheng-Hau Peng, Cost asymmetry and vertical product licensing, 270-280
- Yun-Sheng Hsu, Cathy Zishang Liu, Yan-Jie Yang & Yan-Yu Chou, Implications of the British petroleum oil spill disaster for its industry peers – evidence from the market reaction and earnings quality, 281-296
- Chen-Lung Chin, Yu-Ju Chen & Jia-Wen Liang, International diversification and conference calls, 297-314
- Chien-Ju Lu, Chen-Lung Chin & Yuanchen Chang, Weather effects on earnings response coefficients: international evidence, 315-333
- Nan Hu, Baolei Qi, Gaoliang Tian, Lee Yao & Zhen Zeng, The impact of ineffective internal control on the value relevance of accounting information, 334-347
Do acquiring firms knowingly pay too much for target firms? Evidence from earnings management in member-firm mergers in Korean business groups
Jae Wook Jeong, Daejeon University, Republic of Korea
Gil Bae*, Korea University, Republic of Korea
Abstract
In a typical stock-for-stock merger between the firms belonging to the same business group (member-firm mergers), the controlling shareholder’s holdings in the target firm are more than twice those in the acquiring firm. This difference in the controlling owner’s holdings in the acquiring firm and the target firm creates a strong incentive for the controlling owner to knowingly pay more for the target firm than the target firm is actually worth. We find that acquiring firms deflate earnings in order to increase the numbers of shares to be issued to the target firm’s shareholders. Furthermore, the level of earnings deflation is systematically related with the controlling owner’s expected benefits measured in several different ways. We also find that the stock price reaction to member-firm merger announcements is negatively correlated with the pre-issue-period earnings deflation. In addition, the results show that post-merger performance in member-firm mergers is lower than that in independent firm mergers.
JEL Codes: G14, G34
Keywords: overpayment, member-firm mergers, controlling shareholder, earnings management |
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S-curve at the industry level: evidence from Malaysia’s bilateral trade with its major trading partners in East Asia
Abdorreza Soleymani* and Soo Y. Chu, Universiti Sains Malaysia, Malaysia
Abstract
This study investigates the relationship between the terms of trade and trade balance for Malaysia with its three major trading partners namely China, Japan and Singapore using the S-curve. The lead and lag cross-correlations between the terms of trade and the trade balance resemble a horizontal S-curve. We evaluate the S-curve in 70 industries over the period 1974–2009. Initial results with aggregated bilateral trade data did not show any S-curve pattern. However, by using the industry level data, we found the existence of the S-curve pattern in some of these industries. Most of these are small and intermediate goods industries. Finally, our findings support that durables are more sensitive to real exchange rate changes than non-durables only in the case of China.
JEL Codes: F14, F31, F32
Keywords: S-curve, trade balance, exchange rate, Malaysia |
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Cost asymmetry and vertical product licensing
Ray-Yun Chang, Chinese Culture University, Taiwan
Cheng-Hau Peng*, Fu Jen Catholic University, Taiwan
Abstract
This paper investigates the optimal licensing contract for a product innovation in a vertically differentiated duopoly. The two firms have different marginal costs and the high-quality firm can license its technology on product quality to the low-quality firm. It is found that the optimal form of licensing contract depends on the relative marginal costs of the two firms. If the marginal cost of the high-quality firm is relatively high (low), fixed-fee licensing is superior (inferior) to royalty licensing from the viewpoint of the licensor. Surprisingly, consumers are worse off if the quality difference between the two firms is small. This result is in contrast to the received wisdom in the product licensing literature.
JEL Codes: D45, L13, L15, L24
Key words: technology licensing, cost asymmetry, vertical product differentiation |
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Implications of the British petroleum oil spill disaster for its industry peers – evidence from the market reaction and earnings quality
Yun-Sheng Hsu, National Chung Hsing University, Taiwan
Cathy Zishang Liu, University of Houston Downtown, USA
Yan-Jie Yang*, Yuan-Ze University, Taiwan
Yan-Yu Chou, National Cheng Kung University, Taiwan
Abstract
As one of the worst environmental catastrophes in US history, the British Petroleum (BP) Deepwater Horizon explosion and oil spill have profound implications for the oil and gas industry. This study examines the stock market reaction and earnings quality of BP’s peers in response to the imminence of regulatory threats. Our empirical evidence indicates that a significantly negative intra-industry reaction occurred. In addition, petroleum companies with more extensive pre-disaster environmental disclosures experienced a less negative reaction. Finally, our analysis finds that petroleum companies tended to depress earnings via discretionary accruals post the BP oil spill. Our study is motivated by mounting attention to the increase in environmental risks and the need for enhancement in environmental accounting reporting requirements (The Securities and Exchange Commission 2010).
JEL Codes: G14, M41
Key words: oil spill, environmental disclosures, market reaction, earnings management |
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International diversification and conference calls
Chen-Lung Chin*, National Chengchi University, Taiwan
Yu-Ju Chen, National Changhua University of Education, Taiwan
Jia-Wen Liang, National Chengchi University, Taiwan
Abstract
This paper explores the impact of international diversification on the decision to hold conference calls. In addition, we examine the mitigating roles of legal environment and agency problems in holding conference calls. Using a sample drawn from Taiwan, we find that greater corporate internationalization (INT) is associated with a higher likelihood of holding conference calls. We also find that firms are more likely to conduct conference calls when companies invest in a higher proportion of common law countries. We also find that the positive association between the likelihood of holding conference calls and corporate INT is less pronounced when the control divergence of controlling owners increases.
JEL Codes: F23, G14, G32
Keywords: internationalization, conference calls, legal system, control rights, voluntary disclosure |
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Weather effects on earnings response coefficients: international evidence
Chien-Ju Lu*, Yuan Ze University, Taiwan
Chen-Lung Chin, National Chengchi University, Taiwan
Yuanchen Chang, National Chengchi University, Taiwan
Abstract
We examine the relationship between weather effects and investor response to a firm's quarterly earnings announcements using data from 20 countries. Our results show that market cumulative abnormal returns are associated with unexpected earnings and with weather measures. Investors in some countries respond more negatively (less positively) to bad (good) earnings news when earnings are announced on cloudy days than on sunny days. We also find an asymmetric weather effect that is more significant for bad earnings announcements, on average. Moreover, the extent of this weather effect is less for countries with higher financial information transparency and those with common-law systems.
JEL Codes: G14, G15
Key words: earnings response coefficients, information transparency, investor mood, legal regime, weather |
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The impact of ineffective internal control on the value relevance of accounting information
Nan Hu*, University of Wisconsin-Eau Claire, USA
Baolei Qi, Xi’an Jiaotong University, China
Gaoliang Tian, Xi’an Jiaotong University, China
Lee Yao, Loyola University, USA
Zhen Zeng, Xi’an Jiaotong University, China
Abstract
This paper investigates the value relevance of accounting information in the presence of ineffective internal control (IIC). Based on Ohlson’s valuation model, this paper first documents that IIC can directly affect a firm’s market value after control cost of capital, corporate governance, and other, value-relevant variables. Second, this paper finds that the value relevance of earnings and book value in determining a firm’s market value are significantly reduced. Collectively, the results of this paper indicate that the effectiveness of internal controls can directly affect a firm’s market value and the value relevance of accounting information.
JEL Codes: M40, M41
Key words: ineffective internal control, book value, earnings, value relevance, market value |
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