Research articles for the 2020-11-26
A New Look at Expected Stock Returns and Volatility
SSRN
We replicate French, Schwert, et al. (1987) (FSS) with up-to-date data and new tools from the modern toolbox of econometric methods. As we proceed, we highlight the main technical details and econometric methods from the original study and, when necessary, update them. While our main goal is to replicate FSS as carefully as possible, we also aim to help new researchers quickly gain an in-depth understanding of the major features of the original study, and to demonstrate why FSS is fundamental to the asset pricing literature. We finish by text mining the titles and abstracts of over one thousand citing studies for information on why other studies cite FSS and which parts of FSS receive the most attention. After careful replication, we confirm that the main results in French, Schwert, et al. (1987) hold and continue to hold through 2019.
SSRN
We replicate French, Schwert, et al. (1987) (FSS) with up-to-date data and new tools from the modern toolbox of econometric methods. As we proceed, we highlight the main technical details and econometric methods from the original study and, when necessary, update them. While our main goal is to replicate FSS as carefully as possible, we also aim to help new researchers quickly gain an in-depth understanding of the major features of the original study, and to demonstrate why FSS is fundamental to the asset pricing literature. We finish by text mining the titles and abstracts of over one thousand citing studies for information on why other studies cite FSS and which parts of FSS receive the most attention. After careful replication, we confirm that the main results in French, Schwert, et al. (1987) hold and continue to hold through 2019.
Cybersecurity, FinTech Adoption and Associated Socio-Economic Environment in Select Middle and High-Income Countries
SSRN
Present article examines the cybersecurity preparedness in G20 countries along with the adoption of FinTech and the status of socio-economic factors such as financial literacy, education, rule of law, regulatory quality, financial sector development etc. Based on analysis, it is observed that the middle-income countries are particularly more spirited in adoption of FinTech. Though the trend is in line with the larger technology driven financial inclusion goals of these countries, the lack of fitting socio-economic environment, lower cybersecurity engagements and a charged cyber offensive environment prevalent in these countries present a complex scenario. It is assessed that addressing the wide cybersecurity gaps through policies for prevention, investigation, arbitration, adjudication and compensation would be a challenging task for the middle-income countries with low cybersecurity engagements. Though FinTech certainly adds on efficiency part, considering the complex scenario, increasing depth and access of financial services through FinTech needs to be a measured process in these countries. The article contributes in terms of combining the three-diverse set of indicators pertaining to cybersecurity, FinTech and Socio-economic environment and initiating a discussion on how the most vulnerable set of countries may mitigate the risks and capitalize FinTech for sustainable development of the financial sector.
SSRN
Present article examines the cybersecurity preparedness in G20 countries along with the adoption of FinTech and the status of socio-economic factors such as financial literacy, education, rule of law, regulatory quality, financial sector development etc. Based on analysis, it is observed that the middle-income countries are particularly more spirited in adoption of FinTech. Though the trend is in line with the larger technology driven financial inclusion goals of these countries, the lack of fitting socio-economic environment, lower cybersecurity engagements and a charged cyber offensive environment prevalent in these countries present a complex scenario. It is assessed that addressing the wide cybersecurity gaps through policies for prevention, investigation, arbitration, adjudication and compensation would be a challenging task for the middle-income countries with low cybersecurity engagements. Though FinTech certainly adds on efficiency part, considering the complex scenario, increasing depth and access of financial services through FinTech needs to be a measured process in these countries. The article contributes in terms of combining the three-diverse set of indicators pertaining to cybersecurity, FinTech and Socio-economic environment and initiating a discussion on how the most vulnerable set of countries may mitigate the risks and capitalize FinTech for sustainable development of the financial sector.
Investigating Financial Statement Fraud in Ghana Using Beneish M-Score: A Case of Listed Companies on the Ghana Stock Exchange
SSRN
This quantitative research was conducted to detect the possibility of earnings manipulation by listed companies on the Ghana Stock Exchange, determine the relationship between company size and earnings manipulation and find out the existence of a correlation between share price and earnings manipulation. Using 22 companies out of a total of 41 listed companies, financial data gathered from published financial statements on the companies’ websites, Ghana Stock Exchange website and Annual Report Ghana website were examined from 2011 to 2016. Applying Beneish M-score model for the period 2011âˆ'2016, it was found that 26.2% of the sample size on the average were involved in creative accounting. The study also found that 28.4% of the small companies on the average were involved in earnings manipulation during the period 2011âˆ'2016 as compared to 25.4% of the big companies. However, the Mann-Whitney U test conducted revealed that there is no statistically significant difference between the level of earnings manipulation and company size. Spearman’s correlation analysis was conducted, firstly, on the entire sample and separately on the small and big companies. The results of the analysis showed that earnings manipulation and share price, statistically, were not significantly correlated. The quantitative research provides an insight into the level of earnings management amongst listed companies in Ghana and the appropriateness of the M-score model in detecting earnings manipulation. The evidence of incidence of creative accounting amongst the sampled companies is an indication of the need for more stringent measures to curb such practice to ensure the stability of the Ghanaian stock market and protect investor interest.
SSRN
This quantitative research was conducted to detect the possibility of earnings manipulation by listed companies on the Ghana Stock Exchange, determine the relationship between company size and earnings manipulation and find out the existence of a correlation between share price and earnings manipulation. Using 22 companies out of a total of 41 listed companies, financial data gathered from published financial statements on the companies’ websites, Ghana Stock Exchange website and Annual Report Ghana website were examined from 2011 to 2016. Applying Beneish M-score model for the period 2011âˆ'2016, it was found that 26.2% of the sample size on the average were involved in creative accounting. The study also found that 28.4% of the small companies on the average were involved in earnings manipulation during the period 2011âˆ'2016 as compared to 25.4% of the big companies. However, the Mann-Whitney U test conducted revealed that there is no statistically significant difference between the level of earnings manipulation and company size. Spearman’s correlation analysis was conducted, firstly, on the entire sample and separately on the small and big companies. The results of the analysis showed that earnings manipulation and share price, statistically, were not significantly correlated. The quantitative research provides an insight into the level of earnings management amongst listed companies in Ghana and the appropriateness of the M-score model in detecting earnings manipulation. The evidence of incidence of creative accounting amongst the sampled companies is an indication of the need for more stringent measures to curb such practice to ensure the stability of the Ghanaian stock market and protect investor interest.
Risk-Adjustment of Buyout Funds Performance: A Bayesian Estimation Procedure
SSRN
I examine the performance of 936 buyout (BO) funds incepted during 1980âˆ'2015 using Generalized Public Market Equivalent (GPME) proposed in Korteweg and Nagel (2016). The statistical inference implemented within the GMM framework suffers from the problem of poor identification. To solve this I introduce a Bayesian estimation step to calculate GPME. Even though, the uncertainty regarding how to choose the public market index for comparison remains. To address the benchmarking challenge I use a pricing kernel tailored specifically to the geographical and industrial characteristics of the fund. On average, BO funds do not show the outperformance after using this newly proposed approach.
SSRN
I examine the performance of 936 buyout (BO) funds incepted during 1980âˆ'2015 using Generalized Public Market Equivalent (GPME) proposed in Korteweg and Nagel (2016). The statistical inference implemented within the GMM framework suffers from the problem of poor identification. To solve this I introduce a Bayesian estimation step to calculate GPME. Even though, the uncertainty regarding how to choose the public market index for comparison remains. To address the benchmarking challenge I use a pricing kernel tailored specifically to the geographical and industrial characteristics of the fund. On average, BO funds do not show the outperformance after using this newly proposed approach.
Should I Stay or Should I Go? Bank CEOs and the choice to opt-out of the Temporary Liquidity Guarantee Program
SSRN
Extant finance research shows that personal and professional characteristics of CEOs influence decision-making, though banks are commonly excluded. We address this gap and investigate bank CEOs’ decisions on the Transaction Account Guarantee (TAG) Program and the Debt Guarantee Program (DGP), two government stimulus programs from the Great Recession. Adding tension to current CEO literature, bank CEOs behave differently and thus, policymakers do not have to contest with CEO characteristics concerning participation in stimulus. Additionally, the relationships between banks and bank holding companies (BHCs) is remarkably underexplored. We contribute to this area with a novel finding that individual banks held by BHCs tend to make uniform decisions across the BHC.
SSRN
Extant finance research shows that personal and professional characteristics of CEOs influence decision-making, though banks are commonly excluded. We address this gap and investigate bank CEOs’ decisions on the Transaction Account Guarantee (TAG) Program and the Debt Guarantee Program (DGP), two government stimulus programs from the Great Recession. Adding tension to current CEO literature, bank CEOs behave differently and thus, policymakers do not have to contest with CEO characteristics concerning participation in stimulus. Additionally, the relationships between banks and bank holding companies (BHCs) is remarkably underexplored. We contribute to this area with a novel finding that individual banks held by BHCs tend to make uniform decisions across the BHC.
The US-China Audit Oversight Dispute: Causes, Solutions, and Implications for Hong Kong
SSRN
The U.S. audit regulator, PCAOB, has extraterritorial oversight power over all accounting firms that audit U.S.-listed companies, including that of foreign accounting firms. This put it in conflict with foreign audit regulators due to sovereignty and conflict of law issues. Today China remains to prevent its accounting firms to be inspected by the PCAOB, although most other jurisdictions have resolved their differences with the U.S. regulator. This dispute between the U.S. and China had led to lawsuits, warnings, and potential bill to de-list all Chinese companies. This article examines the U.S. audit oversight regime and its inspection practices, the law of China that prevent foreign access to audit documents, as well as the court cases that arose out of the dispute. The reasons for the reluctance of the Chinese side to cooperate are found to be multi-folded, from legal restriction, administrative hurdle, regulatory standard differences, enforcement resources constraints, to a political preference for sovereign rights and national control. As another major listing destination for Chinese companies, Hong Kong has also encountered difficulties with access to Chinese audit documents but has taken a different approach to solving them. This article proposes various policy options to cope with the dispute over cross-border audit oversight, including sidestepping the legal issue over approval of state secrets by first asking the audit firm to prove the factual existence of state secrets, categorizing the Chinese companies into different groups with different treatments, exploring other forms of cooperative arrangements based on the Hong Kong experience or even using Hong Kong as a proxy for oversight.
SSRN
The U.S. audit regulator, PCAOB, has extraterritorial oversight power over all accounting firms that audit U.S.-listed companies, including that of foreign accounting firms. This put it in conflict with foreign audit regulators due to sovereignty and conflict of law issues. Today China remains to prevent its accounting firms to be inspected by the PCAOB, although most other jurisdictions have resolved their differences with the U.S. regulator. This dispute between the U.S. and China had led to lawsuits, warnings, and potential bill to de-list all Chinese companies. This article examines the U.S. audit oversight regime and its inspection practices, the law of China that prevent foreign access to audit documents, as well as the court cases that arose out of the dispute. The reasons for the reluctance of the Chinese side to cooperate are found to be multi-folded, from legal restriction, administrative hurdle, regulatory standard differences, enforcement resources constraints, to a political preference for sovereign rights and national control. As another major listing destination for Chinese companies, Hong Kong has also encountered difficulties with access to Chinese audit documents but has taken a different approach to solving them. This article proposes various policy options to cope with the dispute over cross-border audit oversight, including sidestepping the legal issue over approval of state secrets by first asking the audit firm to prove the factual existence of state secrets, categorizing the Chinese companies into different groups with different treatments, exploring other forms of cooperative arrangements based on the Hong Kong experience or even using Hong Kong as a proxy for oversight.
