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Volume 20, Issue No. 2, June 2013
- Henry He Huang*, Sakthi Mahenthiran & Xiaonong Zhang, Takeover possibility and market response to loss news under Chinese ST delisting regulation, 101-117
- Audrey Wen-hsin Hsu & Steve Lin, A test of the market’s pricing of nontransitory dirty surplus flows, 118-143
- Tae Hee Choi, Jinhan Pae*, Sunghwa Park & Younghyo Song, Asset revaluations: motives and choice of items to revalue, 144-171
- Shigemi Yabuuchi*, Tourism, the environment, and welfare in a dual economy, 172-182
- Munirul H. Nabin & Pasquale M. Sgro*, Illegal immigration, technology adoption and welfare, 183-198
- Sam Han, Tony Kang* & Lynn Rees, The association between institutional ownership and audit properties, 199-222
Takeover possibility and market response to loss news
under Chinese ST delisting regulation
Henry He Huang*, Prairie View A&M University, USA
Sakthi Mahenthiran, Butler University, USA
Xiaonong Zhang, Nankai University, China
Abstract
This study examines whether the market reaction to firms' second consecutive loss news is influenced by the firms' likelihood of being taken over. Firms with two consecutive losses in China are subject to the “special-treatment (ST)” delisting regulation. We have two important findings. First, ST firms with certain characteristics (i.e. smaller firms with lower beta, lower accounting performance, higher leverage, and larger ownership concentration) are more likely to be taken over. Second, the market returns for the second consecutive loss news are higher for firms with a higher likelihood of being taken over.
JEL Codes: G1, G3
Key words: special-treatment, delisting regulation, market response, loss news, takeover |
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A test of the market’s pricing of nontransitory dirty surplus flows
Audrey Wen-hsin Hsu, National Taiwan University, Taiwan
Steve Lin, Florida International University, USA
Abstract
This study examines whether the market correctly prices nontransitory dirty surplus flows. Unlike the US Generally Accepted Accounting Principle (GAAP) and International Accounting Standards, Taiwanese Company Law allows employees’ bonuses under the profit-sharing scheme to be directly taken to retained earnings, bypassing the income statement. We find that these compensation costs are positively associated with share price and return, indicating that the market values the incentive effect of the profit-sharing scheme. More importantly, we find that the market correctly prices the persistence of these compensation costs. Overall, this study indicates that investors are able to correctly price nontransitory dirty surplus flows.
JEL Codes: M41, M48, G14
Key words: dirty surplus flows, profit-sharing scheme, employee bonuses, market mispricing |
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Asset revaluations: motives and choice of items to revalue
Tae Hee Choi, KDI School of Public Policy and Management, Korea
Jinhan Pae*, Sunghwa Park & Younghyo Song, Korea University, Korea
Abstract
A recent revision of the local accounting standard for property, plant, and equipment (PP&E) has conferred Korean companies a revaluation option for PP&E without the early adoption of International Financial Reporting Standards, which will be mandatory in 2011. The stock market generally reacts favorably to the announcement of an asset revaluation. We examine the motives and characteristics of companies that revalue PP&E and their choice of assets for revaluation. First, we find that Korean companies are more likely to revalue PP&E to improve their financial position or reduce debt contracting costs rather than lessen political costs or signal better future prospects. Second, we report a pecking order in the choice of assets to revalue. Companies prefer land for revaluation to other depreciable assets. When companies select depreciable assets for revaluation, most of them revalue land at the same time suggesting that companies are likely to select depreciable assets for revaluation only after they select land. Third, we posit and find that revaluing companies are more likely to elect depreciable classes of PP&E when they are highly levered, experience equity depletion, and report losses. We also find that revaluing companies are more likely to recognize revaluation decrements in addition to increments when they are large and are revaluing depreciable classes of PP&E.
JEL Codes: M41
Key words: asset revaluations, revaluation surplus, PP&E, revaluation of depreciable assets, revaluation of land, revaluation increments, revaluation decrements |
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Patent Laws, TRIPS, and Economic Growth: Evidence from China
Shigemi Yabuuchi*, Aichi University, Japan
Abstract
Tourism promotion has greater significance for developing or emerging countries, which are experiencing extensive unemployment, than for developed countries. Therefore, the spread of tourism and the accompanying introduction of foreign tourists have been top priorities in some labor-surplus developing economies. On the other hand, the destruction of the environment due to tourism promotion has been a serious problem in those countries. Thus, this paper formulates a general equilibrium model with unemployment à la Harris–Todaro and a tourism sector that generates environmental pollution. The effects of tourism promotion and a pollution tax on pollution emission, unemployment, and welfare are examined.
JEL Codes: F16, O13, O18
Key words: tourism, environment, unemployment, welfare |
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Illegal immigration, technology adoption and welfare
Munirul H. Nabin & Pasquale M. Sgro*, Deakin University, Australia
Abstract
A debate in the illegal immigration and technology adoption literature suggests that hiring illegal immigrants may be hindering the adoption of new technology, which in turn harms a country’s productivity growth. This paper analyses an individual firm’s behaviour regarding new technology adoption in the presence of illegal immigrants. We assume a Ricardian economy and analyse immigration of illegal unskilled workers in a model of Cournot duopoly where firms are producing homogenous and non-traded goods, and hiring illegal immigrants. A two-stage simultaneous move game is set up: in Stage 1, given the opportunity of hiring illegal immigrants, an individual firm decides whether to adopt the new technology or not, where technology adoption is costly. In Stage 2, each firm will choose the Cournot output level. Solving this two-stage game, we conclude that (i) given the opportunity of hiring illegal immigrants, an individual firm may adopt the new technology and (ii) in the case of zero tolerance of illegal immigration, technology adoption may increase but such technology adoption is immiserizing as it reduces the total surplus.
JEL Codes: F220, L100, O390
Key words: illegal immigration, vigilance, technology adoption, Cournot competition and welfare |
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The association between institutional ownership and audit properties
Sam Han, Korea University, Korea
Tony Kang*, Oklahoma State University, USA
Lynn Rees, Texas A&M University, USA
Abstract
We are interested in channels through which institutional ownership affects corporate governance and in particular whether financial statement audit is one of them. We hypothesize that institutional investors can influence corporate policy to employ governance mechanisms that reduce their monitoring costs. Our evidence shows that firms are more likely to hire a Big 4 auditor (our proxy for audit quality) when long-term institutional ownership is high, suggesting that long-term institutional investors view high-quality audits as a viable means of improving corporate governance while reducing their direct monitoring costs. We find no association between auditor choice and short-term institutional ownership. Next, we find that auditors charge higher fees (our proxy for audit risk) when short-term institutional ownership is high, consistent with short-term investors creating greater incentives for managers to act myopically. We find no association between audit fees and long-term institutional ownership. Taken together, our evidence suggests that long-term institutional investors demand higher quality audits to enhance corporate monitoring, and that short-term institutional ownership is positively associated with higher audit risk.
JEL Codes: M42, G34, M40
Key words: audit quality, institutional ownership, monitoring, audit risk, corporate governance |
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