NZFM 2022 On-Campus Programme

Day 1

ON CAMPUS SESSIONS A - B

Thursday
8th December 2022
  

CONFERENCE OPENING ADDRESS ONLINE

07H45 TO 08H00

   

REGISTRATION

Registration table will be in WG building on Level 8

09H15 TO 13H30

   

STREAM A - 09H30 TO 11H30

 
   

SESSION A1

Executive Characteristics

09H30 TO 11H30

CHAIRPERSON

Joye Khoo, Curtin University

 
   
PaperINTERNAL GOVERNANCE MECHANISMS AND CORPORATE MISCONDUCT 
Authors Nicolas Eugster, Oskar Kowalewski, Piotr Spiewanowski  
Abstract This study aims to provide new evidence linking internal corporate governance mechanisms and corporate misconduct, using a sample of 2,844 public US companies during the period 2007-2019. The results reveal that optimal size and diverse boards, including well-functioning audit committees, are negatively related to corporate violations. In contrast, we show that board members’ independence, activity, and ownership are positively related to a firm’s fraudulent activities. Therefore, not all internal governance mechanisms are related to lower corporate misconduct. Moreover, we show that some internal governance mechanisms, such as the share of female board members, mitigate only certain types of corporate misconduct. The results show that attempts to regulate corporate governance mechanisms should be considered with caution as they do not always provide the expected outcome.  
Presenter:  Nicolas Eugster, University of Queensland  
Discussant:  Joye Khoo, Curtin University  
   
PaperINTERNAL GOVERNANCE, SUBORDINATE EXECUTIVES' HORIZON AND CASH HOLDINGS 
Authors Joye Khoo, Adrian (Wai Kong) Cheung  
Abstract Inspired by the notion of internal governance, this study investigates whether key subordinate executives’ horizon affects corporate cash holdings.  We find cash holdings increases with subordinate executives’ horizon, supporting the precautionary motive for cash holdings.  Controlling for alternative explanations, the positive association between subordinate executives’ horizon and cash holdings is hardly affected by the agency motive, tournament incentives between CEO and subordinate executives or confidence level of executives.  Our findings are also robust to alternative measures of executives’ horizon and cash holdings, and are not driven by endogeneity issues.  The analysis of cash sources documents that firms with longer subordinate executives’ horizon save a higher proportion of cash proceed through reduced dividend payouts and equity issuance, rather than debt.  This study contributes to the literature by shedding light on how the diverse agents with different employment horizon in the top management team influences the liquidity policy of the firm.  
Presenter:  Joye Khoo, Curtin University  
Discussant:  Nicolas Eugster, University of Queensland  
   
PaperTHE IMPACT OF SUBORDINATE EXECUTIVES CONFIDENCE AND ABILITY ON CORPORATE RISK-TAKING 
Authors Md Raihan Uddin Chowdhury, Abdullah-Al Masum, Feixue Xie  
Abstract We document that subordinate executives’ confidence and ability (SubEx_ConAbl) to monitor CEOs’ actions increase corporate risk-taking. We further find that this positive impact channels through the firm’s investment and financing activities, such as investments in capital expenditures, R&D, intangible assets, and advertising expenses and financing via cash, equity, and leverage. These activities account for approximately 36% of return on assets volatility and 24% of cash flow volatility. Additionally, we show that the effect of SubEx_ConAbl is more pronounced in competitive and complex business environments. However, the presence of highly experienced but older executives and more powerful and overconfident CEOs undermines the effect. Our results are robust to endogeneity concerns.  
Presenter:  Feixue Xie, University of Texas at El Paso  
Discussant:  Xinwei Fang, Curtin University  
   
PaperTHE PAST IS NEVER DEAD: FAMINE-CEOS AND CORPORATE SOCIAL PERFORMANCE 
Authors Xinwei Fang, Joye Khoo, Tianpei Luo, Shams Pathan, Hongjian Wang  
Abstract Using CEOs’ exposure to the Great Chinese Famine (1959-1961) as a measure of early-life trauma in their life (termed, famine-CEOs), we find that firms led by famine-CEOs are associated with lower corporate social responsibility (CSR) performance. Our findings are consistent with the egoism proposition that early-life traumatic experience of human-induced suffering adversely impacts CEOs’ social initiatives and willingness to engage in social practices. We also note that the adverse impact of famine-CEOs on CSR is mitigated by CEOs’ hometown connection and government ownership while magnified by CEO power. Our results are robust to various econometric methods, alternative explanations, and approaches to address endogeneity concerns such as two-stage least squares, propensity score matching, and the Lewbel procedure. This study shows the importance of considering the influences of CEO early-life experience on non-financial decisions.  
Presenter:  Xinwei Fang, Curtin University  
Discussant:  Feixue Xie, University of Texas at El Paso  
   

SESSION A2

Information and Connectedness

09H30 TO 11H30

CHAIRPERSON

Chao Gao, Australian National University

 
   
PaperNEAR IS DEAR: REMOTENESS, SOFT INFORMATION, AND STOCK RETURNS 
Authors Chao Gao  
Abstract Geographic proximity plays an important role in dissemination of soft information. We document a causal link between geographic remoteness and lack of soft news in the market. Releases of public soft news surprise the market more and induce larger market reactions for remote firms. Consistent with incomplete information theories, we find that remotely headquartered stocks outperform proximate stocks by 8.59% annually on a risk-adjusted basis. The post-earnings announcement drift and return predictability of aggregate mutual fund trading are only observed among remote firms, highlighting the role of soft information in price discovery. Geographic dispersion of operations alleviates the information frictions associated with headquarter remoteness.  
Presenter:  Chao Gao, Australian National University  
Discussant:  Ni Yang, Auckland University of Technology  
   
PaperSPILLOVER BETWEEN INVESTOR SENTIMENT AND VOLATILITY THE ROLE OF SOCIAL MEDIA 
Authors Ni Yang, Adrian Fernandez-Perez, Ivan Indriawan  
Abstract This study examines the connectedness across different asset volatilities and asset’s social media sentiments. Specifically, we uncover the spillover effects between investor sentiments and market implied volatilities among stock, bond, foreign exchange and commodity markets. We find that sentiments and volatilities are weakly connected. There is a stronger spillover from the market-specific volatility to the sentiment of the same market, but a marginal effect the other way round. Second, the informational spillover is mainly from market volatilities to market sentiments, and the most significant net transmitter is the equity market volatility, VIX. Third, the connectedness of market sentiment and volatility increases in turbulent economic periods. Lastly, the role of sentiments can switch from net receiver to net transmitter at turmoil times.  
Presenter:  Ni Yang, Auckland University of Technology  
Discussant:  Chao Gao, Australian National University  
   
PaperBROKER AND WHOLESALE INVESTOR SHORT SELLING 
Authors Ben R. Marshall, Nhut H. Nguyen, Nuttawat Visaltanachoti, Jennifer Zhu  
Abstract Brokers have access to order-flow data, allowing them to earn larger returns than other investors from their short selling. However, our results indicate that they do not exploit this informational advantage. Returns following broker short selling are not more negative than they are following institutional investor (mutual and sovereign wealth fund) short selling. Rather, brokers appear to try and stabilize the market. Unlike institutional investors they short-sell more when the buy-sell order imbalance or stock-specific news is positive. Price efficiency improves following short-sales, but by more for broker short-selling. Liquidity also improves following broker short sales.   
Presenter:  Ben Marshall, Massey University   
Discussant:  Dewan Rahman, University of Queensland  
   
PaperCOOPETITION AND INSIDER TRADING PROFITABILITY 
Authors Dewan Rahman, Zhengjin Jiao, Muhammad Kabir, & Shehub Bin Hasan 
Abstract This study examines the association between coopetition and insider trading profitability. We find that insiders in coopetition firms generate less trading profit. To address endogeneity issues, our identification strategies include difference-in-differences analysis in a quasi-experiment design, falsification tests, an instrumental variable approach, and the Heckman two-stage model. Our results are robust to alternative proxies and the inclusion of additional control variables. Further, we perform heterogeneity tests across information asymmetry and show that the influence of coopetition on insider trading is more pronounced when the level of information asymmetry is low. Overall, our findings suggest that coopetition reduces information asymmetry, leading to decreased insider trading profitability.  
Presenter:  Dewan Rahman, University of Queensland  
Discussant:  Ben Marshall, Massey University  
   

SESSION A3

Asset Pricing and Corporate Decisions

09H30 TO 11H30

CHAIRPERSON

Tim Liu, University of Utah

 
   
PaperCONFIDENT RISK PREMIUMS AND INVESTMENTS USING MACHINE LEARNING UNCERTAINTIES 
Authors Rohit Allena  
Abstract This Paper derives ex-ante (co)variances of stock-level and portfolio-level risk premium predictions from neural networks (NNs). Based on the precision of risk premium forecasts, I provide improved investment strategies. The confident high-low strategies that take long-short positions exclusively on stocks with precise risk premiums deliver superior out-of-sample returns and Sharpe ratios than traditional high-low strategies because precise measurements have low squared forecast errors. Mean-variance strategies incorporating covariances of return predictions outperform existing strategies too. Risk premium variances reflect time-varying market uncertainty and spike after financial shocks. Cross-sectionally, the level and precision of risk premiums are correlated, thus NN-based investments deliver more gains in the long positions.  
Presenter:  Rohit Allena, University of Houston  
Discussant:  Helen Lu, University of Auckland 
   
PaperFALLING THROUGH THE GLASS CEILING: THE GENDER GAP IN DIRECTORS' CAREER PATHS AFTER FINANCIAL RESTATEMENTS
Authors Tim Liu, Sara Malik, Jordan Schoenfeld  
Abstract This study provides some of the first evidence on gender-based differences in director retention at US public firms. While men hold the bulk of directorships, female directors are less likely than male directors to depart a board in a given year. However, when boards face adversity by way of financial restatements, the likelihood that female directors depart the board significantly increases compared to male directors at the same firm, especially when a man chairs the board. The departing female directors receive fewer future directorships at other firms and are more likely to be replaced by males compared to their male counterparts who depart.  
Presenter:  Tim Liu, University of Utah  
Discussant:  Alexander Vadilyev, Australian National University  
   
PaperINTANGIBLE CAPITAL, NEGATIVE CASH FLOW AND CORPORATE POLICY: INTERNATIONAL EVIDENCE 
Authors

Alexander Vadilyev

 
Abstract This study explores how intangible investments with negative operating cash flows (OCFs) affect corporate policies in a large sample of firms from 60 economies. First, while intangible investments have caused negative OCFs to increase in developed economies, both have remained unchanged in developing economies. Second, while intangible-intensive firms with negative OCFs account for the secular rise in cash holdings in developed economies, no significant rise has occurred in developing economies. Third, intangible-intensive firms with negative OCFs have become the majority of equity issuers. In sum, negative OCFs induced by intangible investments have altered corporate policies but solely in advanced economies.  
Presenter:  Alexander Vadilyev, Australian National University  
Discussant:  Tim Liu, University of Utah  
   

LUNCH

Hot lunch - WG407 Atrium

11H30 TO 12H30

   

KEYNOTE 1

Prof. Nicholas Barberis, Yale School of Management

12H30 TO 13H30

 

Prospect Theory and Stock Market Anomalies

Abstract
One important strand of research in behavioural finance tries to make sense of financial data using models that make psychologically realistic assumptions about investor risk attitudes. In this talk, we show that this approach can shed new light on stock market anomalies. Specifically, we build a model of asset prices that incorporates the elements of prospect theory, the most influential psychological model of risk attitudes. We explain how the model can be used to make quantitative predictions about the average return on any risky asset. Finally, we show that the model can help explain a majority of 23 prominent stock market anomalies.

ZOOM LINK

ONLINE FROM ROOM WG404

   

STREAM B - 13H45 TO 16H15

 
   

SESSION B1

Sentiment and Consumer Behavior

13H45 TO 16H15

CHAIRPERSON

Aaron Gilbert, Auckland University of Technology

 
   
PaperLOST IN TRANSLATION. WHEN SENTIMENT METRICS FOR ONE MARKET ARE DERIVED FROM TWO DIFFERENT LANGUAGES
Authors Robert B. Durand, Joyce Khuu, Lee A. Smales  
Abstract We compare two text-based proxies for the sentiment of investors in the Japanese market. Both proxies are constructed by Thomson Reuters using the same algorithm, and the only difference between them is that the first proxy is derived using only Japanese language items; the second is derived from English language items. The correlation between the proxies is low and this suggests that they measure different aggregate affective states. The English-language sentiment proxy is found to have a positive and statistically significant association with Japanese returns before the announcement of Abenomics. After the Abenomics announcement, the Japanese-language proxy has a positive and statistically significant association with the market. Studies of sentiment are predominantly based on proxies derived from English language sources; the results of this study suggest that local language proxies should be ignored at researchers’ peril.  
Presenter:  Robert Durand, Curtin University  
Discussant:  Tinghua Duan, IESEG School of Management  
   
PaperCONSUMER REACTIONS TO CORPORATE ESG PERFORMANCE: EVIDENCE FROM STORE VISITS 
Authors Tinghua Duan, Frank Weikai Li, Roni Michaely  
Abstract We investigate end consumers’ reaction to corporate ESG performance. Using granular GPS data, we find that foot-traffic to firms’ stores significantly decreases in the month following negative ESG incidents. Foot-traffic decreases more for stores located in democratic counties and counties with a larger fraction of highly educated and younger residents, consistent with ESG reputation influencing the demand of consumers with preference for corporate sustainability. We do not find much support for the alternative information-based channel that a firm’s ESG performance signals to consumers about the quality of its products or longevity. Overall, our findings contribute to the “doing well by doing good” debate and suggest that a firm’s ESG polices can affect its financial performance and shareholder value through the consumer preference channel.   
Presenter:  Tinghua Duan, IESEG School of Management  
Discussant:  Robert Durand, Curtin University  
   
PaperPROBLEM DEBT, OVER-INDEBTEDNESS, AND BUY NOW PAY LATER: THE CASE OF YOUNG ADULTS IN NEW ZEALAND
Authors Aaron Gilbert, Ayesha Scott  
Abstract Consumer finance laws seek to protect borrowers from unaffordable credit by placing the onus on lenders to ensure affordability criteria are met at initial approval. Therefore, people who become over-indebted have typically experienced a change in financial circumstances, such as unemployment or similar income shock. Buy Now Pay Later (BNPL) schemes, which continue to grow in popularity, are not captured by consumer finance law allowing providers to lend to applicants with few external restrictions. The lack of affordability criteria raises the possibility that unwise BNPL use could allow users to borrow their way into over-indebtedness. For young adults, who are already at greater risk of problem debt due to low and volatile incomes, this is particularly problematic. We add to the very limited literature on the impact BNPL has on financial wellbeing by investigating the relationship between BNPL use and over-indebtedness in a sample of 705 New Zealand young adults, aged 18-34. We find strong evidence that indicators of over-indebtedness are more prevalent in those who use BNPL, and especially those who use it poorly, i.e., incurring fees frequently and needing to borrow to repay their BNPL balance. The results suggest there  
Presenter:  Aaron Gilbert, Auckland University of Technology   
Discussant:  Mikael Paaso, Erasmus University Rotterdam  
   
PaperTRUST IN FINANCE AND CONSUMER FINTECH ADOPTION 
Authors Deniz Okat, Mikael Paaso, Vesa Pursiainen  
Abstract We study the impact of trust in traditional finance on the consumer adoption of various fintech products, including cryptocurrencies, peer-to-peer lending, other crowd- funding, roboadvisors, and alternative payment solutions. Using a representative sur- vey of Dutch households, an online lab experiment and an experiment on an investment website, we find no consistent evidence that trust in finance affects fintech adoption in any product category. Our results suggest that consumers consider fintech products to be distinct from traditional financial products.  
Presenter:  Mikael Paaso, Erasmus University Rotterdam  
Discussant:  Aaron Gilbert, Auckland University of Technology   
   
PaperTHE IMPLICATIONS AND DETERMINANTS OF INVESTORS' INITIAL CHOICE WITHIN RETIREMENT SAVINGS SCHEMES 
AuthorsChristopher Bebbington, Robert B. Durand, Joye Khoo, Joyce Khuu 
AbstractWe study the implications and determinants of investors’ initial choice upon joining a retirement savings scheme. That is, the first investment option investors allocate their retirement wealth towards. Using a unique dataset of over 14,000 members, we find that, on average, members are receiving sub-optimal performance (in the form of returns) due to inadequate maximisation of risk and return. When we consider the determinants of the initial choice, we observe five distinct subpopulations, which display varying responses to the same stimuli. We document investors displaying a “fight or flight” response to rising market volatility, choosing either higher risk or lower risk option as a result. Furthermore, we see contrarian behaviour, anchoring, and investor behaviour that is not consistent with typical notions of risk aversion. Our results demonstrate that behavioural biases can detrimentally affect the retirement balances of investors upon retirement. 
Presenter:Christopher Bebbington, Curtin University 
Discussant:Ayesha Scott, Auckland University of Technology 
   

SESSION B2

Retail Investor and Asset Pricing

13H45 TO 16H15

CHAIRPERSON

Gertjan Verdickt, KU Leuven

 
   
PaperPUNISHMENT ON THE RATING AGENCIES 
Authors Clara Zhou  
Abstract We study the causal impact of regulatory punishment on the credit rating market. We base our analyses on a unique feature of the Chinese crediting rating market, where a government-backed rating agency (China Bond Rating Co. Ltd, CBR) provides independent ratings. Utilizing a policy shock of Dagong Global Credit Rating Co Ltd (Dagong)’s license suspension, we compare rating quality changes of the issuer-paid credit rating agency (CRA) around the “exit” and “re-entry” of Dagong. We show that the punishment only has a short-term deterring effect on Dagong and other major CRAs during the suspension but worsens their rating quality after the suspension. Our further analyses reveal that capital markets anticipate the impact of the punishment. These demonstrate that market competition in an oligopolistic rating market undermines regulatory punishment's effectiveness.  
Presenter:  Qing (Clara) Zhou, Macquarie Business School  
Discussant:  Baizhou (Kevin) Lu, Massey University  
   
PaperTHE VALUE IMPACT OF CHINESE LISTED FIRMS OUTWARD FOREIGN DIRECT INVESTMENT ON FIRM PERFORMANCE
Authors Baizhou Lu, Udomsak Wongchoti, Jing Liao, Wei Hao  
Abstract This study investigates the impact of greenfield outward foreign direct investment (OFDI) on firm performance in Chinese listed firms. We find a significantly positive relation between firm-level greenfield OFDI and firm performance measured by Tobin’s Q. Our channel test provides direct evidence that Chinese firms’ OFDI increases Tobin’s Q through lowered effective tax rate, increased analyst coverage and upgraded analyst recommendations. Further tests show that the positive OFDI effect is more pronounced in privately owned enterprises, and state-owned enterprises (SOEs) tend to invest more in developing and Belt-Road countries due to political incentives, which can be recognized by the markets. Overall, our study contributes to the literature on the impact of OFDI on firms’ market-based performance and how political interference reshapes the OFDI effect. Our results remain significant after employing the difference-in-differences (DiDs) and instrumental variable two-stage least squares (2SLS) analyses to mitigate potential endogeneity problems.  
Presenter:  Baizhou (Kevin) Lu, Massey University  
Discussant:  Qing (Clara) Zhou, Macquarie Business School  
   
PaperMODEL-FREE IMPLIED DEPENDENCE AND THE CROSS-SECTION OF RETURNS 
Authors Koen Inghelbrecht, Daniel Linders, Gertjan Verdickt, Yong Xie  
Abstract We document the asset-pricing implications of the model-free option-implied dependence (MFID); a measure that exhibits information on linear and non-linear dependence between random variables. We show that stocks with high exposure to MFID generate significantly higher risk-adjusted returns in bad times. This is consistent with time-varying preferences, implying an increase in the demand for stocks that provide a hedge against an increase in dependence in bad times. The MFID premium cannot be explained by common risk factors – implying that a risk-based theory is not likely an explanation of the result – and is robust when we condition on implied correlation.  
Presenter:  Gertjan Verdickt, KU Leuven  
Discussant:  Pakorn Aschakulporn, University of Otago  
   
PaperTHE IMPLIED VOLATILITY SMIRK OF PHARMACEUTICAL OPTIONS DURING THE COVID-19 PANDEMIC 
Authors Jasper Struwig, Pakorn Aschakulporn, Jin E. Zhang  
Abstract This study is the first to document the impact of COVID-19-induced uncertainty in major pharmaceutical options in the United States of America. We focus on Johnson & Johnson, Pfizer and Moderna, three pharmaceutical companies that have developed an effective COVID-19 vaccine. Using the methodology of Zhang and Xiang, we examine the dynamics of the level, slope and curvature of implied volatility (IV) curves of these options during the COVID-19 pandemic. We show that, on average, the level and curvature are mostly positive, while the slope is mostly negative. As time to maturity increases, the IV curves flatten out and become less convex. In addition, these curves become significantly steeper and more convex, with increased trading volume, when the pandemic is first announced. We present evidence of a significant positive relationship between the IV slope and the daily number of new COVID-19 cases and deaths for SPX, Johnson & Johnson and Pfizer options, with a negative relationship reported for Moderna options. Finally, we show that options’ traders induce a bullish reaction in these IV curves when the pandemic is announced by the World Health Organisation in March 2020 but disregard the approval of the Pfizer vaccine towards the end of the year.  
Presenter:  Pakorn Aschakulporn, University of Otago  
Discussant:  Gertjan Verdickt, KU Leuven  
   
PaperA CATERING THEORY OF EARNINGS GUIDANCE: EMPIRICAL EVIDENCE AND STOCK MARKET IMPLICATIONS 
AuthorsNils Lohmeier, Hannes Mohrschladt 
AbstractWe proposes and test a catering theory of earnings guidance. Managers cater to reference point dependent investor preferences by issuing excessively optimistic earnings forecasts if investors' stock returns are comparably low and vice versa. As predicted by our model, earnings guidance is most biased when managers strongly discount future outcomes, when the stock's payoff uncertainty is high, and when managers face low costs for issuing inaccurate forecasts. Additional analyses based on CEO turnover support intentional managerial catering as underlying mechanism. Catering via earnings guidance shapes stock market prices such that the convergence of stock prices towards fundamental values is delayed until the final earnings announcement. 
Presenter:Nils Lohmeier, University of M√ľnster 
Discussant:Byong (John) Lee, University of Auckland 
   

DINNER

Sky Cafe Networking Conference Dinner, at the Auckland Sky Tower

18h30 to 21h00

   

Day 2

ON CAMPUS SESSIONS C - D

Thursday
9th December 2022
   

REGISTRATION

Registration table will be in WG building on Level 8

09H15 TO 13H00

   

STREAM C - 09H30 TO 11H30

 
   

SESSION C1

Derivatives

09H30 TO 11H00

CHAIRPERSON

John Cotter, University College Dublin

 
   
PaperCOMMODITY FUTURES RETURN PREDICTABILITY AND INTERTEMPORAL ASSET PRICING 
Authors John Cotter, Emmanuel Eyiah-Donkor, Valerio Pot  
Abstract We find out-of-sample predictability of commodity futures excess returns using combination forecasts of 28 potential predictors. Such gains in forecast accuracy translate into economically significant improvements in certainty equivalent returns and Sharpe ratios for a mean-variance investor. Commodity return forecasts are closely linked to the real economy. Return predictability is countercyclical, and the combination forecasts of commodity returns have significant predictive power for future economic activity. Two-factor models featuring the market factor and the innovations in each of the combination forecasts explain a substantial proportion of the cross-sectional variation of both commodity and equity returns. The associated positive risk premia are consistent with the intertemporal capital asset pricing model (ICAPM), given how the combination forecasts predict an increase in future economic activity and a decline in stock market volatility in the time-series. Overall, combination forecasts act as state variables within the ICAPM, thus resurrecting a central role for macroeconomic risk in determining expected returns on commodities.  
Presenter:  John Cotter, University College Dublin  
Discussant:  Patrick Wong, University of New South Wales  
   
PaperPREDICTING INTRADAY CRUDE OIL RETURNS WITH HIGHER ORDER RISK-NEUTRAL MOMENTS 
Authors Patrick Wong  
Abstract High frequency crude oil option data is used to extract the higher order risk-neutral moments from the crude oil market. These risk-neutral moments include the variance, third central moment and the recently developed tail risk variation measures. We find it is beneficial to disaggregate these risk-neutral moments into their semi-moments, and to work with their returns instead of the level. The returns of the second and third semi-moments, and to a lesser extent, the returns of the tail risk measures, are found to explain and predict returns in the crude oil and S&P 500 futures at high frequency.  
Presenter:  Patrick Wong, University of New South Wales  
Discussant:  John Cotter, University College Dublin  
   
PaperRISK IMPLICATIONS OF DEPENDENCE BETWEEN OIL AND COMMODITIES: A COPULA BASED ANALYSIS  
Authors Debasish Maitra, Prachi Jain  
Abstract The study aims at quantifying the risk between oil and a broad sample of commodities by using copulae tools to model the dependence structures. Using daily returns of commodity futures from October 3, 2005 to January 21, 2022, we find that the oil has a symmetric dependence structure with most of the commodities. The conditional correlation between oil and commodities was found to strengthen during periods of crisis compared with periods of stability. Finally, in contrast with conventional wisdom, we find that a C-Vine outperforms D- and R-Vine in modelling the multivariate dependence structure between oil and commodities. We thereon compare the efficiency of copula-based models against traditional models in forecasting the portfolio and systemic risk between oil and commodities. The findings suggest that copula-based models are more effective than traditional models in forecasting portfolio and systemic risk.  
Presenter:  Prachi Jain, Indian Institute of Management Indore  
Discussant:  Adrian Fernandez-Perez, Auckland University of Technology 
   

SESSION C2

M&A and Tax

09H30 TO 11H30

CHAIRPERSON

Yi-Hsin Lo, Singapore Management University

 
   
PaperM&A COMMITTEES AND M&A PERFORMANCE 
Authors Yingshuang Ma, Lingwei Li  
Abstract This study examines whether acquirers’ voluntary use of M&A committees on boards of directors affects their M&A performance. We find that acquirers with M&A committees experience higher deal announcement returns and better post-merger performance. The results are consistent after adopting the entropy balancing approach to alleviate the endogeneity concern. In addition, the positive association between M&A committee use and M&A performance is more pronounced for M&A committees that are smaller, meet more frequently, have a higher proportion of directors with financial expertise, and are not fully composed of independent directors. Overall, our findings suggest that M&A committees play an essential role in advising and monitoring firms’ M&A activities.  
Presenter:  Lingwei Li, Australian National University  
Discussant:  Yi-Hsin Lo, Singapore Management University  
   
PaperHOW DO FIRMS RESPOND TO REDUCED PRIVATE EQUITY BUYOUT ACTIVITY? 
Authors Yi-Hsin Lo  
Abstract Exploiting the state-by-state adoption of laws that increase the cost of undertaking private equity (PE) buyouts, I use a difference-in-differences approach to study how firms respond to reduced PE buyout activity. I find that the firms raise less capital, reduce payouts and investments, and cherry-pick positive NPV projects with low risk, indicative of managers enjoying the quiet life. Yet, despite investing less, the firms hire more employees, consistent with managers forming alliances with employees. Further analyses show that the firms also become less likely to default on their debt or go bankrupt, consistent with lower risk-taking by quiet-life managers.  
Presenter:  Yi-Hsin Lo, Singapore Management University  
Discussant:  Lingwei Li, Australian National University  
   
PaperENVIRONMENTAL TAX INCENTIVES AND CORPORATE ENVIRONMENTAL BEHAVIOUR:  AN UNINTENDED CONSEQUENCE FROM A NATURAL EXPERIMENT IN CHINA 
Authors Sabri Boubaker, Feiyang Cheng, Jing Liao, Shuai Yue  
Abstract Leveraging from the Environmental Protection Tax (EPT) Law in China as a natural experiment, we explore the impact of environmental tax incentives on corporate environmental engagement. Evidence shows that, after the implementation of the EPT law, there exists significant improvement in environmental performance of firms located in regions with higher EPT rates. However, our results reveal an unintended consequence that the impact of environmental tax incentives on corporate environmental performance is more salient for non-heavily polluting companies rather than for heavy polluters that are more targeted by the EPT law. Our results still hold after a series of robustness checks such as the parallel trend analysis, controlling for multiple fixed effects, and addressing pre-policy macro-level differences across provinces. Overall, our study has important implications for understanding how tax-based regulatory policies promote corporate environmental performance concerning that corporations with severe surviving difficulties are less likely to react to environmental tax incentives.  
Presenter:  Jing Liao, Massey University  
Discussant:  Chao Zhou, University of Tasmania  
   
PaperFIRM INFLEXIBILITY AND CORPORATE TAX AVOIDANCE 
Authors Xiaohu Deng, Fariz Huseynov, Sabuhi Sardarli, Chao Zhou  
Abstract Operationally inflexible firms will seek for ways to increase their financial flexibility. Avoiding taxes is one of the ways firms achieve financial flexibility through internal resources. We examine whether a firm’s inflexibility influences its corporate tax avoidance behavior. We find that inflexibility is positively associated with corporate tax avoidance. We control for endogeneity concerns and show that the positive association between firm inflexibility and tax avoidance is greater for firms with volatile cash flows, greater financial constraints, more competitive product markets, and for firms that are in contraction.   
Presenter:  Chao Zhou, University of Tasmania  
Discussant:  Jing Liao, Massey University  
   

LUNCH

Hot lunch - WG407 Atrium

11H30 TO 12H30

   

KEYNOTE 2

Prof. Jonathan Brogaard, University of Utah

12H30 TO 13H30

 

Modern Market Structure

Abstract
While the fundamental variables of financial markets – information, price discovery, price efficiency, liquidity, adverse selection – remain the same, the trading landscape has evolved rapidly in recent years.  This keynote address provides an overview of how recent trading advancements have influenced financial markets, and discusses what important questions have yet to be examined.

ZOOM LINK

ONLINE FROM ROOM WG404

   

STREAM D - 13H45 TO 15H45

 
   

SESSION D1

ESG and CSR

13H45 TO 15H45

CHAIRPERSON

Sebastian Gehricke, University of Otago

 
   
PaperTRUST ME, I AM GOING GREEN: GREENWASHING THROUGH MERGERS AND ACQUISITIONS 
Authors Duy Nguyen, Gerhard Van de Venter, Dave Michayluk, Scott Walker  
Abstract Greenwashing is the practice of presenting a misleading impression of a firm as environmentally friendly. While this practice can take on many forms, we measure greenwashing as the extent of firms’ failure to act on ESG commitments. When firms that engage in greenwashing acquire targets with higher relative ESG ratings, this practice can be interpreted by the market as either a legitimate desire for green transformation, or evidence of even further greenwashing. Our study of the M&A market reveals that acquirers with higher levels of greenwashing tend to acquire targets with higher relative ESG ratings. In addition, we find that higher levels of pre-merger greenwashing of acquirers lower their deal announcement returns. This finding indicates that the market perceives such M&A deals as evidence of further greenwashing rather than a legitimate green transformation. However, further analysis shows that in fact acquirers' levels of greenwashing reduce post-merger after acquiring targets with higher relative ESG ratings. This implies that, despite the market’s initial scepticism, acquirers do genuinely engage in green transformation over the long term through M&As.   
Presenter:  Thanh Duy Nguyen, University of Technology Sydney   
Discussant:  Junshi Chen, Massey University  
   
PaperEMPLOYEE MEDICAL WELFARE AND FIRM PRODUCTIVITY: EVIDENCE FROM CHINA 
Authors Junshi Chen, Jing Chi, David Smith, Mui Kuen Yuen  
Abstract The unexpected outbreak of COVID-19 has raised concerns about human health and medical care. Employee medical insurance is an important part of the current employee welfare system in China. This Paper investigates the impact of employee medical welfare on firm productivity. We present strong evidence that employee medical welfare significantly increases firm productivity. This effect is more pronounced for non-state-owned firms, and firms with more low-skilled employees and low R&D intensity. Further analyses reveal that employee psychological security can serve as an underlying channel that fosters firm productivity by enhancing employees’ security feeling and stimulating their work engagement and efficiency. We also show that local medical facilities have a moderating effect through which employee medical welfare affects productivity. In addition, we find that firms with higher employee medical welfare have better stock performance and firm growth opportunities when COVID-19 virus suddenly spreads.  
Presenter:  Junshi Chen, Massey University  
Discussant:  Thanh Duy Nguyen, University of Technology Sydney   
   
PaperIN HOLDINGS WE TRUST: UNCOVERING THE ESG FUND LEMONS 
Authors Lachie McLean, Ivan Diaz-Rainey, Sebastian A. Gehricke, Renzhu Zhang  
Abstract Using a novel survey of retail global equity funds offered in Australasia, we provide new insights into the evolving landscape of responsible investing (RI) and potential greenwashing. Our analysis has three components. First, we surveyed asset managers to elicit an understanding of how and why they integrate ESG information into investment decisions. We found that RI was primarily driven by performance and fund flow focused value, rather than ethical values. Further, we found that climate change themes were prioritised within the investment process, relative to other ESG sub-themes. Second, we compared survey responses to portfolio holdings data to evaluate whether fund managers were as environmentally responsible as they claimed to be. Surprisingly, we found that portfolio carbon intensity was significantly higher for respondents that were members of a climate initiative, and not significantly different for those that prioritised climate change themes or engaged in a decarbonisation strategy. The divergence between words and actions appears to be consistent with greenwashing funds (‘lemons’) seeking responsible investment flows without ‘walking the talk’. Third, we evaluated the determinants of carbon and ESG performance across our entire sample of survey respondents and non-respondents. We found that the ESG named funds had similar emissions intensities and inconsistent ESG performance, across three major external rating providers, relative to non ESG named funds.  
Presenter:  Sebastian Gehricke, University of Otago  
Discussant:  Xutang Liu, Massey University  
   
PaperCOMMON INSTITUTIONAL OWNERSHIP AND CORPORATE ENVIRONMENTAL PERFORMANCE 
Authors Xutang Liu, Sabri Boubaker, Jing Liao, Shouyu Yao  
Abstract We investigate the influence of common institutional ownership on corporate environmental performance. Using a large sample of Chinese listed firms, we find that firms having an institutional cross-owner are associated with significantly higher corporate green performance compared with those who do not have such a cross-owner. Further analysis indicates that institutional cross-owners enhance corporate green innovation and increase firm productivity, which explains the positive effect of common ownership on corporate green performance. Moreover, institutional cross-owners facilitate industry coordination and increase the industry’s green total factor productivity. This result supports the coordination effects of institutional cross-owners. We also explore the role of state-owned institutional cross-owners on corporate environmental engagement and find that state-owned institutional cross-owners improve environmental performance in general. However, the effect is only significant in privately-owned firms but not in state-owned enterprises (SOEs), which have strong social objectives naturally.   
Presenter:  Xutang Liu, Massey University  
Discussant:  Sebastian Gehricke, University of Otago  
   

SESSION D2

Sentiment and Retail Investor

13H45 TO 15H45

CHAIRPERSON

Tony Berrada, University of Geneva

 
   
PaperASSET PRICING UNDER KEEPING UP WITH THE JONESES AND TIME-VARYING SENTIMENT 
Authors Xue-Zhong He, Lei Shi, Min Zheng  
Abstract This Paper studies the joint effect of "Keeping up with the Joneses" (KUJ) preferences, time-varying sentiment, and average pessimism in a two-agent equilibrium asset pricing model.  We find that although the irrational agent does not survive in the long run, due to KUJ, sentiment continues to have a significant effect on market equilibrium.  In particular, the model generates a procyclical price-dividend ratio, excess countercyclical stock volatility, and a large countercyclical equity premium, which are consistent with empirical observations.  Moreover, the term-structure of real interest rates is upward (resp. downward) sloping when the short rate is relatively low (resp. high).  
Presenter:  Lei Shi, Macquarie University  
Discussant:  Tony Berrada, University of Geneva  
   
PaperTHE ECONOMICS OF SUSTAINABILITY-LINKED BONDS 
Authors Tony Berrada, Leonie Engelhardt, Rajna Gibson, Philipp Krueger  
Abstract We develop a framework to understand the incentive structure and pricing of sustainability-linked bonds (SLBs). It provides conditions under which SLBs are incentive compatible for firms. We propose a novel mispricing measure for SLBs. Using the model and mispricing measure, we derive and test several empirical predictions. We show that overpriced SLBs experience negative returns in the secondary market after issuance. When firms issue overpriced SLBs, the stock price reaction at issuance is significantly positive, consistent with a wealth trans- fer from bond- to shareholders. Finally, we document a significant nonlinear rela- tionship between the mispricing measure and firms’ ESG ratings.  
Presenter:  Tony Berrada, University of Geneva  
Discussant:  Lei Shi, Macquarie University  
   
PaperRETAIL INVESTORS' ACTIVITY AND CLIMATE DISASTERS 
Authors Marinela Adriana Finta  
Abstract We analyze the effects of climate disasters on retail investors’ trading activity. Results show that retail investors trade significantly less during and around climate disasters, and retail buyers exhibit higher returns than sellers. Climate disasters weaken the positive return predictability of the past month’s order imbalances while strengthening it for the past six month’s order imbalances. In the short run, firms within climate disaster counties with retail net buying underperform those with negative imbalances. Instead, in the long run, firms within and outside climate disaster counties with positive order flows outperform those with negative order flows. Finally, the estimates on the return and order imbalance comovement around climate disasters are consistent with the main findings.  
Presenter:  Marinela Finta, Singapore Management University (SKBI)  
Discussant:  Vinh Hua, Deakin University  
   
PaperTHE PUBLIC AVAILABILITY OF ROBINHOOD HOLDINGS DATA AND MARKET QUALITY 
Authors Vinh Hua  
Abstract This Paper examines the effect of the public availability of information on the number of Robinhood users holding individual stocks on market quality. We use the shutdown of public access to the Robinhood users’ holdings data as a quasi-natural experiment. The shutdown improves stock liquidity and reduces intraday volatility on the one hand but diminishes informational efficiency on the other hand. These effects are more pronounced for stocks of higher popularity among Robinhood investors. Moreover, these seemingly contrasting effects can be well explained by algorithmic trading activities of institutional investors who are unable to access to the data after the shutdown.  
Presenter:  Vinh Hua, Deakin University  
Discussant:  Marinela Finta, Singapore Management University (SKBI) 
   
 

CLOSING ADDRESS ONLINE

Paper AWARDS AND FINAL REMARKS

18H00 TO 18H45