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Volume 10, Issue No. 2, December 2003
Table of Contents
Main Articles
Research Note
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Ronald Zhao
, Corporate governance and firm performance: Some evidence from Chinese listed companies
Analyst following and the influence of disclosure components, IPOs and ownership concentration
Ole-Kristian Hope
University of Toronto
Abstract
Financial analysts serve an important role as intermediaries between firms and investors. In this paper, I investigate factors associated with variations in analyst following using an international sample. Prior research has found that analyst coverage is positively associated with overall firm disclosure. I hypothesize and find out that not all forms of disclosure are equally important to analysts. Specifically, controlling for firm- and country- level factors, I document that analyst following is more strongly associated with the extent of note disclosure than the comprehensiveness of the basic financial statements. I further find that analyst following is greater in environments with active IPO markets, suggesting that analysts value the potential for future revenues. Finally, I show that analyst following is negatively related to firm ownership concentration. This is consistent with concentrated ownership changing the nature of the agency problem and reducing the value of analyst-provided services. © City University of Hong Kong.
JEL classifications: M41, N20 and G32
Keywords : analyst following; disclosures; IPO; ownership structure; international
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Disclosure of innovation activities by high-technology firms
Feng Gu a and John Q. Li b
a Boston University
b Suffolk University
Abstract
This study investigates management incentive to disclose non-GAAP indicators concerning innovation in high-technology industries and the usefulness of the disclosure. As predicted, we find that firms increase disclosures of innovation when current earnings are less informative, or when future earnings are more uncertain. This finding is consistent with firms increasing disclosure in response to investor information demands when accounting data are less useful in assessing firm value. We also find that disclosures of innovation contain price-sensitive news. In addition, we find that disclosures of innovation are positively associated with the firm's future sales growth, profitability, and stock returns, after controlling for current performance and other factors known to influence future performance. This evidence is consistent with management disclosure conveying value-relevant information that is not reflected in current performance, but is predictive of future performance. © City University of Hong Kong.
JEL classifications: M41 and O31
Keywords : disclosure; innovation; value-relevance; high-technology
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On the value of deferred taxes
Amihud Dotan
Tel Aviv University
Abstract
T he value of the deferred tax liability or asset (DTL or DTA) has been questioned ever since inter-period tax allocation became generally accepted accounting principles ("GAAP"). Opponents of inter-period tax allocation argue that in a growing firm most components of the DTL, most notably depreciation, will never reverse or will reverse only in the far future, which reduces their present value to zero or very close to zero. In recent papers, Sansing (1998) and Guenther and Sansing (2000) claim that DTL and DTA have value, though the value does not depend on whether or when it reverses. In this study, I demonstrate that while certain components of the DTL (DTA) have value, the depreciation-related and similar components of the DTL (DTA) have no value whatsoever, irrespective of the reversal period of these temporary differences. I reconcile my results with those of Sansing (1998) and show that once the asset is properly valued at its value to the firm, the DTL becomes redundant. Finally, I show that for those deferred taxes that have value, it is the timing of tax cash flows rather than the timing of their reversal that affects their value. © City University of Hong Kong.
JEL classifications: G12 and M41
Keywords : accelerated depreciation; deferred taxes; economic depreciation; reversals; valuation
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Corporate governance and firm performance: Some evidence from Chinese listed companies
Ronald Zhao
Monmouth University
Abstract
T his study explores the linkage between the unique aspects of corporate governance system of Chinese listed companies and firm performance. Test results provide evidence that blockholding effect differs not only between state versus legal person ownership, but also between ownership by financial versus non-financial institutions. Majority ownership by state (legal person)-dominated financial institutions is found to have a negative (positive) impact on firm performance. Outside directorship and CEO independence are found to have a positive effect on firm performance, and the effect is stronger for state-dominated than legal person-dominated firms. The size of supervisory committee (part of the two-tier board structure) has a positive effect on the performance of both state and legal person-dominated firms. These findings provide interesting insights on the development of corporate governance of listed companies in a transition economy. © City University of Hong Kong.
JEL classifications: G28 and G32
Keywords : China; ownership structure; blockholding; control; performance
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