Review of Pacific Basin Financial Markets and Policies

Unconditional and conditional correlations have played a central role in portfolio analysis, optimization, and performance measurement. However, recent studies show these two correlation measures are inappropriate for measuring both financial integration and, therefore, diversification benefits. We use an alternative correlation measure that we refer to by factor model-implied correlation estimated from the systematic (predictable) portion of returns of a multi-factor model with several global risk factors. Estimated implied correlations, covariances, variances, and in-sample (predicted) mean returns are used to calculate optimal US and Asian equities’ asset allocation weights in alternative Global equity portfolios varying by Asian equity market combined with US equities, as well as by whether: (i) implied or unconditional statistics are used; and (ii) portfolios are optimized by Sharpe’s ratio-maximization or variance-minimization. Risk-adjusted returns of alternative actively-managed Global equity portfolios are compared to US equities’ risk-adjusted returns. We find Global equity portfolios with asset allocation weights calculated using factor model-implied statistics uniformly yield higher risk-adjusted returns than US equities and Global equity portfolios with asset allocation weights calculated using unconditional portfolio statistics. In actively-managed Global equity portfolios with asset allocation weights calculated using implied statistics, India and Taiwan consistently rank as top contributors, while South Korea, Singapore, and Hong Kong consistently rank as bottom contributors to enhancing US equities’ risk-adjusted returns. While our analyses are dynamic, they use implied portfolio statistics estimated from historical returns’ distributions. Future studies can extend this research using conditional(out-of-sample) ex-ante estimates of systematic returns, covariances, variances, and correlations in examining emerging markets’ contributions to developed markets’ equities.

This study aims to find fresh evidences of the effects of horizontal spillover, trade orientation, and firm characteristics on real wages moderated by five categories of ownership. Based on an exploration of 2007–2015 Vietnamese firm-level data collected by the General Statistics Office of Vietnam, the findings reveal significantly positive effects of horizontal spillover and export orientation on average wages. In contrast, import orientation negatively affects wages. The results are supported by the literature of labor market competition and productivity improvement. Importantly, the effect of horizontal spillovers from FDI and trade on average wage varies significantly across ownership types. Although horizontal spillover and the gender ratio have no overall influence on average wages, they do have negative effects on wages in Vietnamese domestic private. Besides, the firm characteristics such as firms’ real output, capital intensity, market share, and net income are also important predictors for the rise of the firm-level average wage in Vietnam.

The timeliness of financial reporting has been considered as an important factor that contributes to the well-functioning of an economy. This study extends the contemporary research stream by examining determinants of the timeliness of financial reporting process. Specifically, we investigate whether report lag is influenced by (1) the level of executive compensation; (2) the level of stock-based compensation compared to cash-based compensation, and (3) the level of executive compensation above the expected compensation level. We find that firms have shorter report lag when their level of executive compensation is higher. We also document that firms with more stock-based compensation have shorter financial reporting delays. Finally, firms with executive compensation level above the expected executive compensation are more likely to have shorter report lags. Our study underscores the importance of the type and the level of compensation as determinants of firms’ earnings reporting delays.

The paper examines the relationship between ownership concentrations and tax avoidance for small–medium enterprises (SMEs) in India. With a panel dataset built from small- and medium-sized enterprise surveys over the period between 2013 and 2014, we find that SMEs with concentrated ownership have a negative association with tax avoidance. The result is more pronounced for SMEs headquartered in states/provinces with stronger economic and institutional environment. The results also indicate that for any two SMEs with similar levels of ownership concentration, the SME with higher capital needs is more likely to avoid taxes.

This is the first study, to the best of our knowledge, to use value- and equal-weighted portfolios of U.S. retail firms to examine the stock market reaction to strategic and nonliquidating store closure announcements. Using event study methodology for a sample of 174 hand-collected store closure announcements during the period 1980–2017, we find a negative and significant stock price reaction on the announcement date. Given the highly competitive nature of the retail industry, we further investigate the market reaction for the closest competitors using a matched sample of 157 competing firms. We report a positive, albeit less significant stock price reaction for competing retail firms on the announcement date. Finally, a cross-sectional analysis shows that the stock price reaction to store closure announcements is positively associated with firm size.

Beta is considered an important measure of systematic risk which is arguably present in an emerging market. Daily data for 2200 Australian listed firms is collected for the January 2007–December 2016 period. Various portfolios are considered. Days with announcements (the a-day) related to crucial macroeconomic news are allocated into the group which is separated from the n-day (nonannouncement days) group. Findings indicate that beta is negatively related to daily expected excess returns in the announcement days in comparison with the nonannouncement days. It is the claim of this paper that portfolio formations do matter when empirical studies on asset pricing are conducted.

This paper examines the effects of the global financial crisis of 2008 on real and accrual-based earnings management activities of foreign companies listed in the United States as American Depositary Receipts (ADRs). The ADR firms are classified according to whether they report under U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Accrual-based earnings management is measured using the absolute value of performance-matched discretionary accruals. We also use the positive and negative values of performance-matched discretionary accruals to examine income-increasing and income-decreasing earnings management, respectively. Real earnings management proxies are measured using performance-matched measures of the abnormal levels of cash flow from operations, production costs, and discretionary expenses. In summary, our findings indicate no difference in accrual-based earnings management for ADRs reporting under IFRS and U.S. GAAP but suggest that ADRs reporting under IFRS are more likely to manage earnings using income-decreasing discretionary accruals and aggregate real earnings management than ADRs reporting under U.S. GAAP during the financial crisis.

China has been touted as a unique success story in development economics. The world financial crisis of 2007–2010 impacted China severely. Its GDP growth slowed, corporate debts piled up, equity markets became volatile, the renminbi weakened, and its forex reserves shrank in the face of capital flight. This paper analyzes the policymakers’ approaches in coping with the recent external shocks to the economy noted for having rigid economic structures (such as the trilemma problem and privatization issues). It discusses the tough balancing act facing the policymakers and the various reform options, including capital flow liberalization and structural reform. Finally, the paper discusses the US–China trade war.

This paper investigates the implications of government borrowing for corporate financing and capital structure of the firms. In doing so, we explore the effects of government debt, macroeconomic and firm-specific factors on firm’s choice of financing and capital structure. We draw on the 10-year data (2007–2017) of 225 non-financial firms listed on the Ho Chi Minh Stock Exchange (HoSE) and employ the system Generalized Method of Moments (system-GMM) for estimation. Our key findings suggest that the government borrowing and debt financing for the Vietnamese listed companies have a negative relationship. Specifically, the short-term corporate leverage structure is influenced more strongly than the long-term leverage structure. We also define the threshold for the association between government borrowing and corporate financing decisions by capturing a U-shaped relationship i.e., Crowding out Kuznets Curve (CKC). Furthermore, macroeconomic factors also show a statistically significant impact on corporate financing decisions. Our findings have profound implications for the fiscal and public policymakers, investors as well as corporate finance managers and firms.