European Financial Management

- Publisher:
- Wiley
- Publication date:
- 2021-02-01
- ISBN:
- 1354-7798
Issue Number
- Nbr. 25-4, September 2019
- Nbr. 25-3, June 2019
- Nbr. 25-2, March 2019
- Nbr. 25-1, January 2019
- Nbr. 24-5, November 2018
- Nbr. 24-4, September 2018
- Nbr. 24-3, June 2018
- Nbr. 24-2, March 2018
- Nbr. 24-1, January 2018
- Nbr. 23-5, October 2017
- Nbr. 23-4, September 2017
- Nbr. 23-3, June 2017
- Nbr. 23-2, March 2017
- Nbr. 23-1, January 2017
- Nbr. 22-5, November 2016
- Nbr. 22-4, September 2016
- Nbr. 22-3, June 2016
- Nbr. 22-2, March 2016
- Nbr. 22-1, January 2016
- Nbr. 21-5, November 2015
Latest documents
- Is finance a veil? Lead‐and‐lag relationship between financial and business cycles: The case of China
This study examines the lead‐and‐lag relationship between financial cycles (FCs) and business cycles (BCs) by using Chinese provincial data. We construct FCs of the financial sector on the basis of three financial variables: credit‐to‐GDP (gross domestic product) ratios, house prices, and equity prices. We use the panel dynamic logit model to investigate the lead‐and‐lag effect between two sectors. Results show that each province has its own unique FCs and BCs. Hence, financial policies should be different in dissimilar provinces. Next, we find that FCs lead BCs and not vice versa. Furthermore, the leading effect is stronger in rich provinces than in poor areas.
- Does MAX matter for mutual funds?
Extreme returns (MAX) have been shown to impact future expected stock returns. We examine whether this relationship is present in mutual fund returns. We find that high MAX funds, as measured by past extreme daily returns, underperform both in portfolio sorts and cross‐sectional tests. We further test possible explanations for why MAX funds underperform. First, we measure mutual fund flows to determine investor response to MAX. Second, we examine the underlying holdings of MAX funds to measure their concentration in MAX stocks. We find evidence that both fund flows and holdings contribute to the MAX effect on mutual fund returns.
- Median momentum
The median is a better measure of a sample's central tendency in the presence of extreme observations. We propose an alternative momentum strategy formed by buying (shorting) stocks with high (low) average median returns over a formation period of 3–12 months. The median momentum strategy outperforms the traditional price momentum strategy for all holding periods from 1 month to 5 years, with no long‐term reversal. This same return pattern is observed for all G7 countries. Further analysis indicates that median momentum profitability is an underreaction‐only phenomenon and shows behavioral patterns related to short‐sale restrictions and investor sentiment.
- Local official turnover, ownership, and firm cash holdings: Insights from an emerging market
Using a hand‐collected dataset of city‐level local official turnover in China, I find that average cash holdings of listed firms decrease significantly upon turnover of city heads, and this effect concentrates in privately owned enterprises. Such effects are more pronounced in firms located in cities with lower government quality. I also find that local official turnover leads to decreases in equity issuance for privately owned enterprises but not for state‐owned enterprises, which largely explains our primary findings. Overall, this paper reveals that the cash policy of privately owned enterprises is sensitive to local official turnover in an emerging market.
- Issue Information: European Financial Management 4/2019
- Overreaction to growth opportunities: An explanation of the asset growth anomaly
The negative relation between asset growth and subsequent stock returns is known as the asset growth anomaly. We propose that overreaction to growth opportunities is the source of the asset growth anomaly. This suggests that growth firms as opposed to mature firms, and firms with longer series of asset growth should experience a stronger asset growth anomaly. Our evidence supports these predictions.
- Employee treatment and its implications for bondholders
We examine the various channels through which the quality of a firm's employee relations can affect the welfare of bondholders. Our evidence suggests that better employee treatment benefits bondholders and leads to a lower bond spread by enhancing a firm's productivity, and by reducing the likelihood of product failures, labor strife, and employee turnover. However, a higher level of satisfaction is costlier for bondholders in firms facing more severe financial constraints or agency problems.
- Hedge fund leverage: 2002–2017
Using a large panel data set, we investigate the dynamics of hedge fund leverage from 2002 to 2017 and find considerable variations in both time series and cross section. More than 70% of hedge funds use leverage and almost half of the leveraged funds are levered through margin borrowing. On average, hedge funds decreased leverage prior to the beginning of the financial crisis, with leverage remaining below the pre‐crisis levels. We find that the level of leverage and its changes are related to fund characteristics such as age, governance, performance, risk, fees, liquidity, survival, and the birth of a new fund.
- Board structure and role of outside directors in private firms
We examine the board composition and the role of outside directors in US private firms. We find that compared with public firms, private firms have a higher proportion of outside directors on the boards and select their outside directors in a more responsive way to their advisory and monitoring needs. We also find that private firms’ CEO turnover–performance sensitivity, earnings quality, going‐public likelihood, and IPO value increase with the proportion of outside directors. These results are consistent with the view that lack of external governance in private firms leads to a greater demand for board monitoring for private firms.
- The catalytic effect of internationalization on innovation
This paper examines how internationalization spurs corporate innovation. Internationalization heightens the competitive environment of firms, while increasing financial flexibility. The increased competition reduces agency problems and motivates innovation projects which are supported by improved financial flexibility. We obtain robust evidence with the difference‐in‐differences and instrumental variable approaches. The passage of antitakeover laws and the 1989 Loma Prieta earthquake are treated as exogenous variations to corporate governance; shocks on firm capital supply measured by mutual fund redemptions are also considered. A less positive finding is that internationalization motivates firms to focus on the appropriability of innovation rather than on basic research.
Featured documents
- Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts
This paper analyses whether secondary buyouts have a value creation profile and offer equity returns different from those of primary buyouts. Using a sample of 2,456 buyout transactions (including 448 secondary buyouts), we find no evidence that secondary buyouts generate lower equity returns or...
- Multiple Large Shareholders and Corporate Risk‐taking: Evidence from French Family Firms
We investigate the role of multiple large shareholders (MLS) in corporate risk‐taking. Using a sample of publicly listed French family firms over the period 2003−2012, we show that the presence, number and voting power of MLS are associated with higher risk‐taking. Our results suggest that MLS help ...
- Conservative Accounting, IFRS Convergence and Cash Dividend Payments: Evidence from China
We investigate the governance role of conservative accounting in mitigating the creditor–stockholder conflict by affecting firms’ dividend policies, and how the convergence to International Financial Reporting Standards (IFRS) affects the governance role of conservative accounting as it relates to...
- Employee treatment and its implications for bondholders
We examine the various channels through which the quality of a firm's employee relations can affect the welfare of bondholders. Our evidence suggests that better employee treatment benefits bondholders and leads to a lower bond spread by enhancing a firm's productivity, and by reducing the...
- Board structure and role of outside directors in private firms
We examine the board composition and the role of outside directors in US private firms. We find that compared with public firms, private firms have a higher proportion of outside directors on the boards and select their outside directors in a more responsive way to their advisory and monitoring...
- Corporate Governance and the Value of Excess Cash Holdings of Large European Firms
We examine the relation between the quality of corporate governance and the value of excess cash for large publicly listed European firms from common‐law and civil‐law countries. Besides different law origins, we distinguish different dimensions of corporate governance by using ratings for the...
- Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions
Using a sample of 1,369 cross‐border acquisitions announced by Standard & Poor's 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than non‐users, which translates into a US$ 193.7 million shareholder gain for an average‐sized...
- More than Just Contrarians: Insider Trading in Glamour and Value Firms
This study examines the patterns of, and long‐run returns to, directors’ (insiders’) trades along the value‐glamour continuum in all stocks listed on the main London Stock Exchange and analyses what these directors’ trades add to a naïve value‐glamour strategy. We consider alternative definitions...
- Envy‐Motivated Merger Waves
This study examines whether top managerial executive envy plays an important role in merger waves. Since managerial benefits, especially compensation, always increase with firm size, the envy hypothesis conjectures that top executive officers rush into acquisitions due to their envious psychology...
- The Revealed Preference of Sophisticated Investors
Berk and van Binsbergen (2016) have shown that the Capital Asset Pricing Model (CAPM) best represents the revealed preferences of any investor who can invest in mutual funds (i.e., all investors). This claim seems overly broad, as it applies to all asset classes. However, we show that hedge fund...