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Volume 20, Issue No. 4, December 2013
- Anup Srivastava, Do CEOs possess any extraordinary ability? Can those abilities justify large CEO pay?, 349-384
- Kuo-Jung Lin, Sheng-Ming Hsu, Ching-Cheng Chang & Shih-Hsun Hsu, The China syndrome? The impact of China’s growth on wage inequality in East Asian economies, 385-404
- Hsihui Chang, Ruey-Dang Chang & Chun-Ju Fang, The effects of information transparency on analysts& forecasts: evidence from the information disclosure and transparency ratings system in Taiwan, 405-428
- Vincent Y.S. Chen, Shou-Min Tsao & Guang-Zheng Chen, Founding family ownership and innovation, Asia-Pacific Journal of Accounting & Economics, 429-456
- Ta-Cheng Chang, Yun-Chia Yan & Li-Chuan Chou, Is default probability associated with corporate social responsibility?, 457-472
Do CEOs possess any extraordinary ability?
Can those abilities justify large CEO pay?
Anup Srivastava*, Northwestern University, USA
Abstract
Do CEOs possess any extraordinary ability critical to organizational success? Do CEOs receive large pay because of their unique abilities? We examine those questions using one such ability – the ability to forecast future firm risks – because over the last 40 years, firms’ survival and success has become highly dependent on firms’ preparedness to face uncertain future business environments. We measure CEOs’ risk-forecasting ability by the information contained in their personal equity trades. We find that CEOs’ earlier-than-normal stock-option exercises often represent modifications of their personal portfolios in anticipation of future risks unknown to the market today. These results suggest that on average, CEOs can forecast at least some future firm risks better than the market can, and they use that information to modify their personal portfolios. Additional tests show that firms design incentive-compatible compensation contracts by tying high-powered components of CEO compensation to their risk-forecasting abilities, arguably, to competitively sort and attract CEOs with better risk-forecasting abilities and/or to motivate them to expend greater efforts on forecasting risks. We conclude that increases in CEO pay over the last 40 years can be explained, at least partly, by the increasing importance of risk-forecasting skills, especially because firms have become smaller and are more susceptible to failure due to sudden changes in the business environment, but are also more likely to benefit from opportunities created by those changes.
Keywords: firm risks; CEO compensation; stock options; forecasting; CEO talent; long-range planning
JEL Classifications: M12, M41, M52 |
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The China syndrome?
The impact of China’s growth on wage inequality in East Asian economies
Kuo-Jung Lin, Chihlee Institute of Technology, Taiwan
Sheng-Ming Hsu, National Taiwan University
Ching-Cheng Chang, Academia Sinica
Shih-Hsun Hsu*, National Taiwan University, Taiwan
Abstract
In this paper, the opening and rapid growth of China is examined for its effects on output, employment, GDP, social welfare, and wage inequality within major East Asian economies like Japan, South Korea, Singapore, Taiwan, and Hong Kong. Simulation results show a tendency toward rising relative real wages between skilled and unskilled workers. However, GDP and social welfare in major East Asian economies have tended to rise with China’s openness and growth. Outputs of almost all non-agricultural industries but the moderately human capital (unskilled labor)-intensive manufacturing groups have declined. It seems that income effects from China’s growth overpower factor substitution effects, so that a larger China has made all the other economies, and the agents within them, better off. On an elemental level, this stands to reason since China’s expansion confers on the rest of the world a large term of trade gain.
Keywords: economic expansion; trade openness; wage inequality; computable general equilibrium; China
JEL Code: D33, D58, E24, F16 |
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The effects of information transparency on analysts& forecasts:
evidence from the information disclosure and transparency ratings system in Taiwan
Hsihui Chang, Drexel University, USA
Ruey-Dang Chang, National Chung Hsing University, Taiwan
Chun-Ju Fang*, National Changhua University of Education, Taiwan
Abstract
In an attempt to reduce the information asymmetry between corporate insiders and outsiders, the Taiwan Stock Exchange Corporation (TSEC) and the Gre Tai Securities Market (GTSM) requested the Securities and Futures Institute to implement an information disclosure and transparency ratings system (IDTRS) for all publicly traded companies listed on the TSEC and the GTSM. This study investigates the effects of the IDTRS on the properties of analysts’ forecasts. The results indicate that analysts’ earnings forecasts are more accurate and the earnings forecast dispersion among analysts decreases after the implementation of the IDTRS. Additionally, the results estimated from the post IDTRS period show that the analysts’ earnings forecast errors and dispersion of the “more transparent” companies are smaller than those of the “less transparent” companies.
Keywords: IDTRS; analysts’ earnings forecast errors; analysts’ earnings forecast
dispersion
JEL Codes: M41, M48 |
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Founding family ownership and innovation
Vincent Y.S. Chen*, National University of Singapore
Shou-Min Tsao, National Central University, Taiwan
Guang-Zheng Chen, Chung Yuan Christian University, Taiwan
Abstract
This study empirically examines the extent to which family ownership affects innovation. Using a sample of Taiwanese listed firms, we find that family firms invest more in innovation than nonfamily firms, suggesting that family firms’ incentives to encourage innovation investment (e.g. long-run presence concern) outweigh families’ risk diversification concern in making innovation decisions. Our results are more pronounced in families that have voting–cash flow rights divergence and that operate in high-tech industries. Our study suggests that the family ownership structure is not necessarily detrimental to shareholder interests, although prior research indicates that the agency cost of large and small shareholders is high in East Asian countries where family ownership can exacerbate this type of agency conflict.
Keywords: family firms; innovation; risk diversification; voting–cash flow right divergence
JEL codes: G32, G34 |
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Is default probability associated with corporate social responsibility?
Ta-Cheng Chang*, Soochow University, Taiwan
Yun-Chia Yan, University of Texas, USA
Li-Chuan Chou, National Taipei College of Business, Taiwan
Abstract
The paper applies a compound option-based structural credit risk model to estimate the short-run and forward default probability for a sample of listing companies from Taiwan. We contribute to the literature by linking the relationship between the corporate social responsibility (CSR) rating and the firm’s default risk. Our empirical results show that good CSR companies have very low short-term default probability and forward default probability. In terms of regression analyses, we find that there is a negative and significant association between CSR score and forward default probability.
Keywords: corporate social responsibility; short-run probability of default; forward probability of default; compound option
JEL Classification codes: G33, G34 |
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