Review of Pacific Basin Financial Markets and Policies

This study examines the Russian stock market efficiency from two perspectives. First, we document that for the sample of Russian firms cross-listed on the Main Market of the London Stock Exchange (LSE) as Global Depositary Receipts (GDRs), the return series obtained from both the local market and the LSE are time-invariant and hence, predictable. This suggests that the market is inefficient with respect to pricing Russian GDRs and that investors are likely to make systematic nonzero profits. Second, we document profitable arbitrage opportunity surrounding the announcement to adopt IFRS, which is an additional evidence of market inefficiency. The significant pricing spread observed on this key date was due to the differential market reaction to IFRS adoption — neutral on the local MICEX exchange dominated by individual traders and significantly negative on the LSE dominated by institutional investors. This finding can be explained by (i) informational advantages of the local investors due to geographic proximity, (ii) differential expectations with respect to governance norms and listing requirements, and (iii) difference in portfolio composition of the two investor groups.

Departing from the traditional cash flow rights-dividend policy framework, this study investigates whether the level of control rights and the types of ultimate controlling shareholders (UCSs) of listed firms in China influence their cash dividend payout. We find that the level of control rights is positively associated with both the probability to pay and the level of cash dividend payout, which indicates that UCSs use cash dividends to reduce the agency cost of free cash flow and redirect listed firms’ cash balance. Furthermore, different types of UCSs influence dissimilarly on the controlled firms’ cash dividends, which can be attributed to the backgrounds of these UCSs originating from China’s unique partial share issuance privatization process.

In this paper, we investigate how insiders’ personal incentives and the timeliness of information revelation are related to the timing of their sales. We use a unique data set of 7,678 insider sales of listed firms in Taiwan, where insider sales exceeding 10,000 shares must be reported to the regulatory entity on an ex-ante basis so that the price pattern before announcement remains independent from insider sales and therefore closely captures insiders’ timing. We find evidence from insiders’ timing that the cumulative abnormal returns monotonically increase up to the announcement of insider sales, and decrease thereafter. Moreover, insiders’ timing and profitability are closely related to their personal incentives, as manifested in lower cash flow rights, a higher pledge ratio of holding shares for bank loans, higher control-cash flow deviation, and the condition that insiders simultaneously serve in managerial posts. Furthermore, the timeliness of information revelation affects insiders’ timing in the sense that optimistic news is revealed before the announcement whereas a decrease in earnings is revealed after the execution of insider sales. Finally, the interactions between the personal incentives of insiders and the timeliness of information revelation also have an effect on their timing and profitability.

A presidential election cycle (PEC) in stock returns has been well-documented in the academic literature. Prior studies have pointed to economic policy as a cause of the phenomenon apparently overlooking the role of firm value. This study examines changes in firm valuation as the cause. Using firm-level data, this study finds a convincing cycle in firms’ book-to-market (BE/ME) ratios, earnings yield and most notable, in log-changes in annual revenue. In particular, log-changes in revenue during the election year appear to be instrumental in the previously document PEC in stock returns.

Using data from 118 firms listed on the Ho Chi Minh and Hanoi Stock Exchanges from January 1, 2006 to June 30, 2010, we find that Vietnamese IPOs, which face high government regulation, are on average 1.92% underpriced during the initial 30-day trading period. Among these firms, the initial excess returns are 3.49%, 2.68%, and 2.27% for the manufacturing, information, and service industries, respectively, possibly due to favorable government policy toward industrialization. Moreover, the government’s policies regarding trade liberalization, state-owned enterprise privatization, and export-led industrialization are positively associated with IPO underpricing during the initial trading period. Consequently, IPO initial excess return is more pronounced in 2007, when Vietnam joined the World Trade Organization.

In this paper, we propose a quantitative approach to measure the extent of corporate culture disclosure. Using this new measure, we document that corporate culture disclosure and performance is positively correlated in terms of stock return, return on assets, cash flow, earnings growth, sales growth, return on sales, and turnover; corporate culture disclosure also helps to lower the negative impact of missing earnings benchmarks using a sample of Chinese firms. In addition, we find that the extent of corporate culture disclosure is negatively correlated with earnings management and operational risk exposure. Essentially, our comprehensive analysis provides a good illustration of using the method to measure corporate culture disclosure.

This study investigates whether the governance structure of a diversified firm affects its internal capital market and the associated investment efficiencies. We propose that managers of well-governed diversified firms are more subject to the disciplinary power of shareholders and thus are less likely to undertake the inefficient capital investment between divisions. We find that the small segment investment of well-governed diversified firms has less sensitivity with regard to cash flows, but is more sensitive to growth opportunities. Our empirical results suggest that governance mechanisms play an important role in capital allocation among divisions of diversified firms.