Review of Pacific Basin Financial Markets and Policies

This paper proposes a new method of fund rating based on the cross-sectional distribution of fund performance measured by alpha. This distribution-based fund rating model is more flexible and provides more interesting results than current commercial fund rating method used by Morningstar. Unlike Morningstar's rating, this method does not use preset percentiles to rate funds. It is the distribution of alpha that dictates the number of performance groups in a given fund category and time period. The framework is based on the crucial assumption that the expected fund performance may be different, and the difference of the expected fund performance arises from the segmented market information and/or the differentiated ability of mangers to acquire and analyze information. The multimodal shape and formal normality tests prompt us to model the distribution of alpha by finite normal mixture model. We introduce the parametric bootstrap procedure to determine the number of performance groups in the model. We then employ expectation and maximization (EM) algorithm to estimate the model. Based on the estimated posterior probabilities of the fund, we assign the rating to funds. Our empirical results show that the number of performance groups is not fixed and varies across time and fund categories. We observe a clear tendency of the merging of information sets, which implies that the fund market has become gradually more efficient over time as information was well transmitted and analyzed.

The main purpose of this paper is to examine two commonly used alternatives to traditional repricing (TR) of executive stock options (ESOs) in a dynamic agency model. TR practices have become obsolete since new accounting rules took effect in July 2000. To avoid associated variable accounting charges that cause uncertainty in future reported earnings, companies have tried several TR alternatives as solutions to rescuing underwater options. We justify the occurrence of TR alternatives and quantify the impact of the marking-to-market feature imbedded in the new accounting rules. We also propose an incentive measure which is comparable to the subjective value of ESOs claimed by Ingersoll, J (2006) to rank TR alternatives in terms of agent's incentive.

The purpose of this paper is to look at the duration of the four-month period before the window dressing of Power Quotient International Co., LTD. (PQI) annual report between 2004 and 2005 was disclosed. The vultures sold 6,373,000 shares of PQI's stock based on the illegally obtained insider information. The empirical results indicate that the vultures' selling did not make PQI's stock price go down during insider period, but PQI's stock price did appear to rise and significantly exceeded the non-insider period. However, the proportion of vultures' selling is negatively correlated with the changes in PQI's stock price. The effect of vultures' selling is indifferent from the effect of non-vultures' selling during insider period. Market liquidity is also affected unfavorably in the presence of vultures' trading. Additionally, the newspaper's reports on PQI's positive or negative news significantly influence the investment decision of investors in Taiwan, and significantly influence the PQI's price changes and market liquidity.

The main purpose of this paper is to investigate the relation between oil price movements and stock returns in US transportation companies. We estimate oil price risk exposures of the US oil transport sector at the firm level as well as at the industry level over November 1999 to February 2008 period using the Fama–French–Carhart's (1997) four-factor asset pricing model augmented with oil price and interest rate factors. Overall, the results of our study suggest that oil price exposures of firms in the US transportation sector vary across firms and over time. The varying effects of oil shocks on stock returns may be attributed to several factors such as differences among firms' cost structure, financial policies, diversification activities, and hedging strategies.

The main purpose of this paper is to explore the issue of enterprise's transfer pricing which has been noticed by tax administrations of many nations in recent years. The academia has also striven to develop models for interpreting transfer pricing and assessing transfer pricing profit of enterprises. A precise model is applied in this study to interpret enterprise's transfer pricing in practice. Furthermore, this model is also used to assess the transfer pricing profit of listing/OTC electronics companies in Taiwan and study the factors affecting transfer pricing profit. The empirical results show that material expense ratio significantly impacts transfer pricing profit. Corporate income tax expenses are positively and significantly correlated with net incomes of corporate transfer pricing transactions.

This study also finds that regardless of whether the net income of corporate transfer pricing transactions is high, medium, or low, the proportion of material costs is positively and significantly correlated with the net income of corporate transfer pricing transactions in all scenarios. Higher profit will be affected by exchange rate. This suggests that companies involved in wafer fabrication, IC packaging and testing, and DRAM packaging and testing (subcontractors with relatively low material costs) are less likely to be involved in transfer pricing decisions.

The main purpose of this paper is to investigate the impact of the 2007 financial tsunami on the Taiwanese financial market. We find that, although significant for banks, security firms, and insurance companies, the effect was relatively lower if compared with that in Europe and the United States. In addition, we present fiscal and monetary policies issued by the Taiwanese government in reaction to the global financial crisis. These policy measures focused on stabilizing the financial market, reducing the level of unemployment, and creating more lending opportunities in support of Taiwanese companies. We also discuss the policy measures of the US government and other Asian countries in relation to the global financial crisis. Finally, we provide some suggestions to improve financial supervision and enhance financial reforms in Taiwan.

Based upon the resource-based view and national culture perspectives, this paper investigates the two-way relationship between R&D investment and company performance. We propose that company performance and R&D investment have mutual effects, and the magnitude of these mutual effects varies with different national cultures, different company rewarding systems, and different decision-making patterns of management teams. Related hypotheses are developed and tested on the data of the US and Taiwanese technology-intensive companies during 1998–2003, and are generally supported by the statistical results.