Review of Pacific Basin Financial Markets and Policies

This paper empirically considers economies of scale that firms must reach to be considered viable ongoing entities. These are estimated from the selling prices of actual firms in two broad industries — service and manufacturing. For service firms, the minimum size is $10 million in annual revenues and for manufacturing firms, it is smaller at $6 million in sales to reach economies of scale.

Traditional economic theory considers firms becoming more efficient with increasing size until they reach an optimal economy of scale. Until they reach that size, we show that they cannot be considered truly ongoing firms and cannot be valued directly as the present value of future earnings. When firms are also independent of their owner/manager, we consider that a viable ongoing entity exists.

This paper examines stock repurchases from an agency perspective by identifying agency costs across three dimensions — interest conflicts and information asymmetry, managerial discretion, and the use of alternative mechanisms to mitigate agency conflicts. We use ownership structure as a proxy for interest conflicts and information asymmetry, employ cash balance and free cash flow as two measures of managerial discretion, and consider cash dividends and interest-bearing liabilities as alternative vehicles for distributing cash. We find that a monitoring structure motivates managers to mitigate agency costs through stock repurchases. Particularly, monitored firms with higher levels of cash balance prefer cash dividends to stock repurchases, whereas monitored firms with more cash dividends repurchase more shares because of their stronger incentive to mitigate agency costs. However, when firms have a very high level of dividends, they substitute stock repurchases for dividends to avoid a dividend cut in the future.

According to the Global Competitiveness Report released by the WEF in 2007–2009, Taiwan has been ranked No. 1 in the assessment of industry cluster developments for three consecutive years. It is one of the success stories in the worldwide development of innovation and industry clusters furthermore the creation and driven Taiwan economics development of benchmark is special economic zones. This paper examines the special economic zones and performs an empirical study on industry clusters and company competitiveness. A questionnaire survey is conducted and the statistics are regressed and analyzed. The purpose is to explore the strategic resources of industry clusters in special economic zones, the relationship with company clusters and the effects on company performance. The study finds that the strategic resources of clusters in special economic zones are indeed a key factor that influences the relationship with industry clusters and also enhance enterprise competitive advantage. All the hypotheses are supported. The study also proves that the resources and relationships associated with industry clusters have impacts on company performance and can enhance company competitiveness.

Even though financial markets have become more integrated and international capital now moves more freely across borders, we argue that access to foreign equity investments still remains a political decision, and this policy decision is a function of the country's nationalistic and militaristic sentiments. We use military spending as a proxy for militarism and nationalism, and show that countries with high militaristic sentiments have lower foreign equity investments. We also look at bilateral equity flows and find that a pair of countries simultaneously having greater increases in militarism has lower bilateral equity investments.

Based on the work of earlier studies, the main objective of this study is to determine whether the properties of analyst earnings forecast are related to the interaction effects of external attributes and industry concentration that were not the focus of previous research. Specifically, this study examines the relations between external attributions and the properties of analyst earnings forecasts. Furthermore, we explore the moderating effect of industry concentration on the relations between external attributions and the properties of analyst earnings forecasts. Using data from Compustat and I/B/E/S, we provide evidence that analysts' earnings forecast accuracy is lower and the forecast dispersion is larger for firms with more earnings surprise. Firms with more analysts' forecasts covering are associated with higher forecast accuracy, but not necessarily higher forecast dispersion. The moderating effects of industry concentration on the relationships between earnings surprise, the number of estimates covering the company and forecast accuracy are particularly strong. In addition, the moderating effects of industry concentration on the relationship between earnings surprise, the number of estimates covering the company and the forecast dispersion are partially supported. Overall, the industrial concentration factor either magnifies or alleviates the effect of external attributions on analyst's forecast accuracy and forecast dispersion.

This paper examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. I show that income smoothing through both total accruals and discretionary accruals tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst earnings forecast dispersion, and analyst earnings forecast error. Further, I provide evidence that stocks of income smoothing firms are priced with a premium. Controlling for earnings shocks and other firm characteristics, income smoothing firms have significantly higher abnormal returns around earnings announcement. In addition, I show that income smoothing reduces firms' implied cost of equity or expected returns. The result is more robust over short horizons up to two years.

We create a novel measure of market-nurtured optimism in that managers become more optimistic if the market had responded more favorably, and to a larger extent to positive earnings surprises, than to negative earnings surprises. These market-nurtured managers are prone to engage in value-destructive mergers. The inclination is further reinforced by abundant internal cash. In contrast, a good governance structure mitigates the odds of engaging in mergers and the detrimental effect associated with mergers. The acquisitions launched by overconfident managers are associated with lower market value.