Review of Pacific Basin Financial Markets and Policies

We compare the market quality of the newly established, second board of the China stock market, the Growth Enterprise Market (GEM) with the Main Board, and examine its impact on the Main Board from the market microstructure perspective. Using the newly available transaction level data, several findings emerge. First, trading activities of the Main Board stocks increase after the introduction of GEM Board, suggesting that the establishment of GEM is not at the expense of the Main Board but instead enhance the overall trading activities in China. Pricing error variances are not different in the two Boards, while GEM stocks have larger adverse selection cost component of bid-ask spread and higher probability of information-based trading which indicate a larger information asymmetry among traders, on average in GEM stocks than those in the Main Board. Interestingly, we find that the 15 min returns of Main Board stocks strongly lead that of GEM stocks but the GEM board only weakly leads Main Board, evidencing information transmission from the Main Board to the GEM. Overall, our findings suggest that the market quality of the GEM is sufficiently good to provide an important, alternative listing venue for high potential firms in China.

In this paper, we assess the equity value relevance of disclosure-derived financial statement adjustments. In price levels and returns tests, we find that reported financial numbers have relatively superior explanatory power over adjusted numbers. Only when adjustments are included along with reported numbers in pricing regressions do adjustments retain significant explanatory power. Our results suggest that for summary valuation inputs like operating profitability, assets, and liabilities, analysts should not substitute adjusted numbers for reported numbers; rather, the information in a subset of adjustments should be used along with reported numbers to produce more accurate valuations.

This study examines how the investment horizon of the institutional shareholders of a firm affects the stock performance of private equity placements. The results show that firms with long-term institutional investors receive significantly positive abnormal returns around the offering announcement. Post-issue stock price underperformance is especially pronounced in firms held by short-term institutional investors. These findings suggest that private placement firms with long-term institutional investors acquire certification and monitoring-related benefits and thus reduce the information asymmetry and entrenchment costs between managers and external investors.

This paper provides an analysis of the effectiveness of certain return predictors in Taiwan Stock Exchange (TWSE) from January 1990 to December 2011 by employing both portfolio method and cross-sectional regressions. While we found no statistically significant predictive power of beta, total volatility, and idiosyncratic volatility the two cheapness variables, book-to-market (BKMT) and cash-flow-to-price (FPR) ratios showed strong consistent economically and statistically significant predictive powers. In addition, our multiple regressions found predictive power in total volatility, short-term reversal (STREV), and market capitalization in the set of small stocks, while our all stock set showed predictive power only in total volatility and STREV.

This study aims to discuss the operating performance of a case telecom company in Taiwan by comparing the entire region, urban and rural operating areas. The data envelopment analysis (DEA) and Tobit model are employed and performed on 23 operating divisions from 2008 to 2010 to analyze the correlation between the accounts receivable collection and the overall operating performance. The results show that the average technical efficiency (TE) of all operating divisions is 84.2%. The urban operating divisions have a higher efficiency value than the rural ones. Evidence implies that the collection of accounts receivables and the operating performance are positively correlated.

The global financial crisis in 2008 increased the number of business failures in the U.S. as well as in China. The Chinese economy has also been affected by the recent global financial crisis given the fact that the Chinese economy depends heavily on international trade. Our study tries to find the determinants of bankruptcy in Chinese firms. Both logit and survival model analyses provide consistent results on the determinants in predicting distressed firms in China. Our results suggest that firms with liquidity problems and firms experiencing a decline in profits are more likely to file for bankruptcy. In addition, we find that, compared to state-owned enterprises (SOEs), collectively-owned enterprises, private-owned enterprises, and foreign-owned businesses are more likely to file for bankruptcy. This conclusion is robust after controlling for regional differences. The findings of this study show that the financial variables developed by Altman [Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23(3), 589–609] and Ohlson [Financial ratios and probabilistic prediction of bankruptcy. Journal of Accounting Research, 18(1), 109–131] perform reasonably well in determining business failures of Chinese firms even though SOEs and shadow financing exist in China.

Unlike previous studies that adopted price as the reference point in this paper we employ the adjusted order imbalance that relates to volume as a reference. We examine the relationship between a firm's characteristics and stock returns. Adjusted order imbalance, including trading direction of stock index and trading volume of individual stock and stock index, is freely and easily obtained by investors in Taiwan. Employing the panel regression model, this paper found prior adjusted order imbalance has a significantly positive relationship with individual stock returns. Additionally, empirical results show that adjusted order imbalance enhances the impacts of the value and size variables.