Recent Submissions

  • Park, Seongkyu Gilbert; Suen, Wing; Wan, Kam-Ming (2022-03-01)
    The Hong Kong Stock Exchange adopted a standard closing call auction mechanism in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange revamped the mechanism with manipulation-deterrence enhancements and relaunched it in 2016. We exploit this unique setting to examine the effect of call auction design on closing price manipulation. Our results indicate that the standard call auction mechanism is vulnerable to closing price manipulation. Under this mechanism, overnight price reversal is more pronounced on days when derivatives expire and on days when large orders were submitted just before the market close.
  • Maury, Benjamin (2021-09-27)
    This paper investigates the relations between CSR, business strategies, and future firm performance. The focus is on how strategies such as growth, prospector, and defender strategies affect the CSR-performance relation. Prospector strategies are associated with high R&D and advertising expenses but low capital intensity, while a general growth strategy is measured by revenue growth. Using a sample of listed companies from 23 developed countries by MSCI, CSR improvements are shown to be positively related to future profitability in prospector and growth firms. Both growth and prospector strategies improve the performance of CSR activities.
  • Ihamuotila, Maria; Liljeblom, Eva; Maury, Benjamin (2021-11-30)
    We study whether experience matters for acquirers in non-tech sectors when conducting acquisitions of high-tech targets. The topic is motivated by the rapid development of advanced and digital technologies that has fuelled tech-related M&A volumes, where companies seek high-tech targets to substitute or complement their own R&D and to stay competitive. Studying 1146 tech-oriented deals announced by European acquirers during the period of 2006-2019, we find the acquirer investors to be clearly optimistic about such takeovers, with positive and significant two-day cumulative abnormal returns of 0,82%. We also find that industrial acquirers seem to gain substantially. Lastly, one-time buyers were found to experience significantly higher cumulative abnormal returns than frequent buyers, and frequent buyers to exhibit a weak declining return pattern in subsequent deals. This implies that companies get rewarded for acquiring digital technology, and especially so in their first initiative to digitalize their business.
  • Andreou, Panayiotis; Kagkadis, Anastasios; Fraga Martins Maio, Paulo; Philip, Dennis (2021-04-01)
    We create a market-wide measure of dispersion in options investors’ expectations by aggregating across all stocks the dispersion in trading volume across moneynesses (DISP). DISP exhibits strong negative predictive power for future market returns and its information content is not subsumed by several alternative equity premium predictors. Consistent with the implications of theoretical models that link dispersion to overpricing, the predictive power of DISP is particularly pronounced in relatively optimistic periods. Although an aggregate analysts’ forecasts dispersion (AFD) measure also performs well in optimistic periods, it delivers insignificant overall predictability. This is because in the aftermath of the 2008 financial crisis, AFD was heavily driven by pessimistic forecasts and hence its increase did not reflect a true overpricing. As a result, AFD does not appear to be a robust equity premium predictor in recent years.
  • Afzali, Mansoor; Colak, Gonul; Fu, Mengchuan (2021-12-01)
    We study the influence of policy uncertainty on the moral behavior of firms. When facing uncertainty, managers perceive various socioeconomic obstacles as more severe and disruptive to their business. Using data from policy uncertainty spouts in 93 countries, we document that some firms engage in norm-deviant behavior by cheating on taxes and paying more bribes. While private firms prefer to cheat on taxes, public firms choose bribery as a favorite tool to “grease the wheels” during periods of uncertainty. Strong social capital (local trust and religiosity) breaks this link between uncertainty and corruption.
  • Mollah, Sabur; Skully, Michael; Liljeblom, Eva (2021-04-29)
    This paper examines whether variations in strong boards explain the differences between risk-taking in Islamic and conventional banks. From an analysis of a pooled sample of Islamic and conventional banks, we find that strong boards in general serve their shareholders through engaging in higher risk-taking activities across both types of banks. In Islamic banks, however, the Shari’ah supervisory board (SSB) is found to mitigate risk-taking when integrated with a strong board, as religiosity restrains risk-taking. We recommend that Islamic bank regulators improve the SSB’s monitoring abilities, and thus facilitate its interaction with the board of directors.
  • Colak, Gonul; Korkeamäki, Timo (2021-07-08)
    Career concerns can limit a manager's willingness to take risks, which can lead to excessive policy conservatism. An increase in a CEO's ability and willingness to change jobs (CEO mobility) can diversify her human capital and reduce her conservatism. We derive several CEO mobility measures and relate them to a policy riskiness index that captures the overall risk embedded in a firm's corporate policies. We find a strong positive relation between CEO mobility and the riskiness of corporate policies. We also link external regulatory shocks that constrain labor mobility to significant drops in corporate risk-taking.
  • Butt, Hilal Anwar; Högholm, Kenneth; Sadaqat, Mohsin (2021-03)
    In this study, we document, for a number of emerging markets, that positive returns can be obtained using a short-term reversal strategy. These returns are higher for small and illiquid firms, and highest for more volatile firms. Overall, the reversal strategy-based alphas are significant when accessed through different asset pricing models. Our results provide, however, an important unexplored explanation; the reversal return is higher, irrespective of firm characteristics, when market volatility is high, and pronounced for the stocks that witness higher active investor exits. These findings reconcile with the notion that the reversal returns proxy the expected returns from liquidity provision in adverse times.
  • Liljeblom, Eva; Maury, Benjamin (2004)
  • Liljeblom, Eva; Vaihekoski, Mika (2004)
    Financial literature advocates the use of the Net Present Value method for the evaluation of investments. Its key parameter is the required rate of return on equity, which is to be calculated using the Capital Asset Pricing Model or a similar model especially if the company is publicly listed. However,there is ample evidence on companies not necessarily utilizing the NPV method or the CAPM in their capital budgeting and investment evaluation processes. This paper presents results of a survey conducted among the companies listed on the Helsinki Stock Exchange. The results show that the Finnish companies still lag behind US and Swedish companies in their use of the NPV, and the IRR method,even though it has become more commonly used during the last ten years. CAPM is used in surprisingly few companies, and 27 percent of the companies have not even defined their required rate of return on equity.
  • Högholm, Kenneth; Liljeblom, Eva (1997)
    This paper surveys empirical research in Finland on central topics within the area of corporate finance, that is, topics related to corporate financing (including issues of equity and debt), dividend policy, and mergers and acquisitions. For each of these three core topics, a brief overview of the papers surveyed and their connections to each other is provided. Some central results are described in more detail. Finally, these results are summarised in order to provide a picture of level of current knowledge of the empirical regularities observed on the Finnish market, and the theories gaining support in explaining these. The paper ends with suggestions for future research.
  • Korkeamäki, Timo; Liljeblom, Eva; Pasternack, Daniel (2017-04-12)
    We study the effect of managerial power on CEOs’ tendency to imprint their personal leverage preferences upon the firms they manage. Using a unique data source that allows us to measure personal wealth and indebtness in great detail, we find a connection between CEOs’ personal leverage and that of their firms. The connection is driven by the CEOs with a longer tenure and the CEOs who serve in a dual role. The connection is significantly weaker for those CEOs who have a proportion of their personal wealth tied to the firm. Presence of block holders also weakens the connection.
  • Korkeamäki, Timo; Liljeblom, Eva; Pasternack, Daniel (2017-06-27)
    We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.
  • Blomkvist, Magnus; Korkeamäki, Timo; Pettersson, John Erik (2017-10)
    We study the risk and return characteristics of IPOs for up to 60 months. After controlling for Asness et al. (2014) quality minus junk factor, IPOs outperform the benchmark portfolios. The previously-documented negative abnormal IPO returns may derive from inaccurate benchmarks.
  • Blomkvist, Magnus; Korkeamäki, Timo (2017-10)
    Even failed takeovers can identify undervalued target firms. We find that compared to financial bidders, strategic buyers have a greater lasting valuation effect on the targets. Strategic bidders thus appear to be superior in identifying undervalued targets.
  • Haga, Jesper Per Alexander; Ittonen, Kim; Tronnes, Per Christen; Wong, Leon (2018)
    We argue that managers’ choice to manage earnings depends on the trade-off in the present value of expected future net benefits associated with that choice. Specifically, we examine if discount rates are associated with the likelihood that managers engage in earnings management to meet or beat various earnings targets. We find that discount rates are positively associated with income-increasing earnings management. This means that managers increase both accrual-based and real earnings management when discount rates are higher. However, the economic magnitude of this association is relatively moderate.
  • Colak, Gonul; Gungoraydinoglu, Ali; Öztekin, Özde (2018-02-05)
    Using a broad range of uncertainty measures, we show that uncertainty dramatically slows down firms’ adjustments toward their optimal capital structure. At the upper bound, the estimated speed of leverage adjustments almost halves when uncertainty is high. High quality institutions (common law legal origin, more disclosure to congress and/or to the public, and higher public sector ethics) and presidential political systems offset some of the adverse effects of uncertainty on leverage adjustments. The financial crisis has altered the relationships among uncertainty, adjustment speeds, and a country's institutions; more so for countries with weak institutions and parliamentary systems.
  • Maury, Benjamin (2018-03)
    This paper explores how variables measuring firms' sustainable competitive advantages influence profitability persistence. Using a large sample of firms from MSCI 23 developed countries during 1985-2013, I find that an index of economic rents (such as size and market share) significantly reduce profit mean reversion, whereas traditional barriers-to-entry measures do not lower mean reversion. Higher previous long-term performance and sustained market share are associated with lower future mean reversion in profitability. Outcomes dominated sources of advantages, although both were useful in predicting future profitability persistence.
  • Blomkvist, Magnus; Friman, Teemu; Korkeamäki, Timo (2018-03-20)
    We investigate whether access to bond markets affects acquisition activity of the European firms between 1999 and 2014. Our study provides insight into the effect that the growing European bond market has on corporate investment activity. We find that access to the bond markets, measured by the existence of a credit rating, has a significant effect on the tendency of firms to make acquisitions. The effect is strongest in Continental Europe and during times of high acquisition activity. We further find that consistent with prior U.S. evidence, bond market access has an inverse effect on abnormal returns generated by the acquisitions. That finding suggests that firms with superior access to financing pursue targets of lesser quality.
  • Dutta, Anupam; Knif, Johan; Kolari, James; Pynnönen, Seppo (2018-06)
    This paper proposes a novel standardized test for abnormal returns in long-horizon event studies that takes into account cross-sectional correlation, autocorrelation, and heteroskedasticity of stock returns. Extensive simulation analyses demonstrate improved size and power of testing relative to existing long-run test methodologies. Application to initial public offerings and seasoned equity offerings further demonstrates robustness to extreme return outliers inherent in these long-run studies.

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