Volume 2, No. 2, December 2006

Research Note

 

 

Are All Individual Investors Created Equal? Evidence from Individual Investor Trading around Securities Litigation Events
Paul A. Griffin and Ning Zhu

Abstract

This study examines the trading behavior of individual (retail) investors around securities litigation disclosure events. We hypothesize and find that less informed investors (low-income investors and investors in non-professional occupations) purchase earlier in the class period relative to more informed investors who tend to sell later in the class period. We also find that more informed investors achieve higher returns, or at least incur fewer losses, than less informed investors during the class period. Less informed investors are, therefore, more likely to suffer greater class action damages than more informed investors from their presumed reliance on allegedly false information.

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Does Similarity of Local GAAP to US GAAP Explain Analysts・ Forecast Accuracy?
Yuyan Guan, Ole-Kristian Hope and Tony Kang

Abstract

This paper examines the relation between analysts・ earnings forecast accuracy and the closeness of local GAAP to US GAAP. We adopt the convergence scores developed in Bradshaw et al. (2004) to measure the closeness between local GAAP and US GAAP. Controlling for other factors that may affect forecast accuracy, we find strong evidence that analysts・ forecasts are more accurate for firms domiciled in a jurisdiction for which the local GAAP is more similar to US GAAP. Moreover, we find that the relation between analysts・ forecast accuracy and proximity of local GAAP to US GAAP varies predictably with both home country disclosure levels and the number of analysts following the firm. Overall, our results indicate that convergence to a high quality international standard (such as US GAAP) can have important economic benefits, but that the importance of the GAAP system is contextual and varies with both institutional and firm-specific factors.

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Does Cross-Listing Signal Quality?
Robert B. Durand, Felix Gunawan and Ann Tarca

Abstract

The literature on cross-listing generally conveys the impression that cross-listing is good news about a firm. This paper focuses on returns following cross-listing where evidence of positive results from cross-listing is mixed. Considering 81 Australian firms, we find that cross-listed firms are less profitable with higher debt levels prior to cross-listing and that they achieve significant negative abnormal returns in the three years following cross-listing. This result holds even for firms seeking the benefits of :bonding; to US disclosure requirements by cross-listing in the more regulated US markets. Our study suggests cross-listing is not an unambiguous positive signal about a firm.

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Research Note
The Association between Analysts・ Earnings Forecast Dispersion and the Magnitude of Earnings Response Coefficient: :Noise; or :Uncertainty;?
Jong-Hag Choi, Tony Kang and Yong Keun Yoo

Abstract

The nature of analysts・ earnings forecast dispersion and what drives a negative association between the dispersion and the magnitude of the earnings response coefficient have been subjects of active debate among accounting researchers. In an attempt to shed some light on this debate, we test a private information search hypothesis which posits that investors・ private information search activity will reduce uncertainty about future firm performance, but that the search is less likely to influence the level of noise in earnings. Our result suggests that the previously documented negative association between the two variables is driven more by earnings noise, rather than by fundamental uncertainty about future firm performance.

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Pecuniary and Non-Pecuniary Compensation and Firm Performance: Some Evidence from Chinese State Dominated and Non-State Dominated Enterprises
Zoltan Matolcsy, Peter Wells and Gerald Lee

Abstract

The objective of this paper is to provide evidence on executive compensation for state dominated enterprises (SDEs) and non-state dominated enterprises (NSDEs) in China and on the compensation-performance relation for these two groups of companies. China provides a unique setting to evaluate the compensation-performance relation as executives of SDEs receive both pecuniary and non-pecuniary compensation, while executives of NSDEs receive relatively less non-pecuniary but greater pecuniary compensation. We predict that (i) the pecuniary compensation of executives of SDEs is lower than that of NSDE executives, and (ii) due to the non-scaleable nature of nonpecuniary compensation, there is no difference in the compensation-performance relation across SDEs and NSDEs. Our results confirm our predictions and are robust with respect to a number of sensitivity tests. This suggests that efficient governance choices may include both pecuniary and non-pecuniary compensation, with this being particularly important for firms in emerging capital markets.

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