Qing (Sophie) Wang, Hamish D. Anderson and Jing Chi
The purpose of this paper is to investigate how venture capital (VC) backing influences the board size and independence and how VC backing and board structure impact firm…
Abstract
Purpose
The purpose of this paper is to investigate how venture capital (VC) backing influences the board size and independence and how VC backing and board structure impact firm performance in China.
Design/methodology/approach
Using hand-collected data from 924 initial public offering (IPO) prospectuses covering the period from January 2004 to December 2012, the authors investigate the impact of VC backing on board size, board independence and firm market performance through regression analysis. A two-stage approach is also used to address the endogeneity issue.
Findings
The authors find robust evidence that VC-backed IPOs have more independent boards, after controlling for CEO and firm characteristics, and the potential endogeneity concerns. Furthermore, firms backed by VCs with management political ties (PTs) have more independent directors with industry relevant expertise than other firms. While no significant relationship is found between board independence and firm performance, the authors present some evidence that IPOs which have a larger percentage of independent directors with industry relevant expertise exhibit higher long-term stock returns, and VCs with management PTs also improve IPO long-run stock performance.
Research limitations/implications
Although VC is new in China and the Chinese capital market has relative poor corporate governance and weak minority shareholder protection, the authors find support in this paper that VC backing is valuable to IPO firms in China not only through providing funding but also by providing political ties and industry experience. However, Chinese regulatory and institutional settings have strong impact on test results and they change rapidly, so the results may not apply to other period in Chinese markets.
Originality/value
This paper sheds lights on the influences of VC backing on corporate governance and firm performance in a transitional and emerging economy. It discovers the value of VC investors in a transitional economy as of providing political ties and industry experience. The new definition of independent directors suggested by Suchard (2009) is first used by our paper in the Chinese context.
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Hamish D. Anderson, Jing Liao, Jingjing Yang and Martin Young
The authors examine the influence of powerful political corporate appointments on the usage of firm bribery channels. Party Secretaries within Chinese state-owned enterprises…
Abstract
Purpose
The authors examine the influence of powerful political corporate appointments on the usage of firm bribery channels. Party Secretaries within Chinese state-owned enterprises (SOEs) may simultaneously hold top management positions, thereby endowing powerful firm-level decision rights on those appointees, hereafter referred to as powerful dual role Party Secretaries.
Design/methodology/approach
This study employs panel data analysis with industry and year fixed effects. The authors use a sample of 1,143 Chinese SOEs listed on the Shanghai and Shenzhen Stock Exchanges from 2004 to 2015.
Findings
The authors find that powerful dual role Party Secretaries are associated with greater bribery channel usage. Following the ongoing anticorruption campaign, SOEs with the powerful appointments significantly reduce their usage of both transparent (entertainment and travel costs) and opaque bribery (abnormal management expenses) channels. However, in general, Chinese SOEs respond to the anticorruption shock by switching from the more transparent to the opaquer bribery channel.
Originality/value
The authors contribute to the ongoing debate of politicians on corporate boards by examining the relatively unexplored area of government appointed top management and their influence on bribery at the firm level.
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Hamish D. Anderson, Jing Liao and Shuai Yue
Employing the anti-corruption campaign as an exogenous political shock, this paper examines how political intervention shapes the impact of financial expert CEOs on firm…
Abstract
Purpose
Employing the anti-corruption campaign as an exogenous political shock, this paper examines how political intervention shapes the impact of financial expert CEOs on firm investment decisions.
Design/methodology/approach
This paper uses a sample of 2,808 Chinese firms listed in the Shanghai and Shenzhen Stock Exchanges from 2003 to 2016. Panel data is used for conducting the analysis controlling for firm, industry, and year fixed effects.
Findings
The authors found that CEOs with financial expertise are sensitive to political intervention when making investment decisions. First, financial expert CEOs spend more on R&D expenditure in private-owned companies and they are associated with less R&D expenditure in state-owned enterprises (SOEs). Second, financial expert CEOs are associated with higher investment expenditure in general, but they become less likely to invest more in the post-anti-corruption period. The reduction in investment expenditure due to the anti-corruption campaign is more pronounced in SOEs than in private-owned companies. Third, the anti-corruption campaign promotes R&D investment in general, but in SOEs, expert CEOs tend to be less likely to invest more on R&D after the anti-corruption shock.
Originality/value
This paper enriches the growing literature on the impact of political intervention and the role of the anti-corruption campaign on corporate behaviour.
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Feng Xie, Hamish D. Anderson, Jing Chi and Jing Liao
This paper examines the impact of state control on stock price crash risk given whether and how ownership structure affects stock price crash risk is relatively underexplored.
Abstract
Purpose
This paper examines the impact of state control on stock price crash risk given whether and how ownership structure affects stock price crash risk is relatively underexplored.
Design/methodology/approach
The sample includes 2,285 Chinese firms listed in the Shanghai and Shenzhen Stock Exchanges. Panel data is used for conducting the analysis and endogeneity is addressed with instrumental variable estimation and by testing how stock price crash risk is affected when the ultimate controller changes from a private-owned company to a state-owned enterprise.
Findings
The authors find that state control is negatively associated with future stock price crash risk. The mechanism analysis shows that state control reduces stock price crash risk through the implementation of conservative corporate policies. Furthermore, the impact of state control is more pronounced with more intensive state involvement, e.g. in strategic industries and when a company's ultimate controller is a non-corporate government agency or the central government.
Originality/value
This paper enriches the literature on the controversy of the role of state control and the results of this study highlight the importance of the conservatism of state control on reducing stock return tail risk. The authors also add to the literature on the importance of the policy-risk sharing effect of state ownership.
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Chris B Malone, Hamish Anderson and Peng Cheng
The purpose of this paper is to use firm-level data to examine whether the political cycle differentially relates to small vs large firms in New Zealand; a country that operates a…
Abstract
Purpose
The purpose of this paper is to use firm-level data to examine whether the political cycle differentially relates to small vs large firms in New Zealand; a country that operates a unicameral political system has a short three-year political term and a right-of-centre stock market premium exists.
Design/methodology/approach
Using firm-level data from 1972 to 2010, the authors examine monthly returns during right-of-centre National governments and left-of-centre Labour governments. The authors apply Santa Clara and Valkanov (2003) regression analysis approach to examine the political cycle impact on firm returns.
Findings
Like in the USA, New Zealand’s political cycle premium is driven by small firms; however, the results are opposite. In New Zealand, periods governed by the right of the political spectrum produce significantly higher stock returns than those from the left and this finding is primarily driven by small firms who perform particularly poorly under left-of-centre governments.
Research limitations/implications
Small firms were relatively heavily affected by the move to an open, deregulated economy; they were also less able to cope with tight monetary conditions, and periods of sharply falling inflation. New Zealand’s three-year political term may encourage newly formed governments to implement relatively fast moving shifts in policy where a more reasoned and steady approach would be warranted.
Originality/value
This is the first paper to use firm-level data outside of the USA to examine the political cycle impact.
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Hamish Anderson, Ben Marshall and Xiao Wang
This paper aims to examine whether the cross-sectional return patterns in New Zealand’s main stock market (NZSX) are also present in the alternative (NZAX) and over-the-counter…
Abstract
Purpose
This paper aims to examine whether the cross-sectional return patterns in New Zealand’s main stock market (NZSX) are also present in the alternative (NZAX) and over-the-counter (Unlisted) markets.
Design/methodology/approach
Cross-sectional regressions of monthly stock returns on well-known pricing factors including firm size, book-to-market (B/M) ratio, liquidity and past returns were run. The NZSX sample commenced in 1988 and continued through to 2011, while data are available for the Unlisted and NZAX markets from 2004 to 2011.
Findings
The pricing factors that are important in explaining returns in major international markets also influence returns on the NZSX. However, only B/M is consistently priced across all New Zealand stock exchanges, including the alternative NZAX and Unlisted markets. There is evidence of reversal in NZAX stocks, but liquidity effects are not consistent or pervasive in either market.
Practical implications
With B/M being the only consistently priced variable across all markets, investors in the NZAX and in particular Unlisted may be concerned with other risk factors. For example, the risks associated with differing levels of investor protection, corporate governance and disclosure may be of more concern to investors than pricing factors such as size, liquidity and past returns in these alternative trading platforms.
Originality/value
The paper examines cross-sectional return patterns of the NZAX and Unlisted stocks and is the first paper to jointly test the explanatory power of size, B/M, past returns and liquidity factors for NZSX stocks.
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Hamish D. Anderson and Yuan Peng
The purpose of this paper is to examine the impact on stock liquidity following the reduction of minimum tick size from $0.01 to $0.005 for a selection of dual-listed and property…
Abstract
Purpose
The purpose of this paper is to examine the impact on stock liquidity following the reduction of minimum tick size from $0.01 to $0.005 for a selection of dual-listed and property stocks on the New Zealand Exchange (NZX) during 2011.
Design/methodology/approach
Various liquidity measures were examined six months either side of the change in minimum tick size for the eligible stocks and these were compared to a sample of stocks matched on similar liquidity characteristics. Liquidity measures examined in the paper include quoted and effective spread, volume, depth and binding-constraint probability.
Findings
After controlling for firms matched on similar pre-period liquidity characteristics both spread and depth decline significantly. Evidence that small firms experience significant declines in trading activity was also found, and while firms with higher binding-constraints probability have greater declines in spread, their decline in depth is greater still.
Research limitations/implications
The small sample of 17 stocks eligible for the $0.005 minimum tick size potentially impacts on the strength of the statistical analysis. As such, it is harder to detect statistically significant changes in liquidity.
Practical implications
These findings have important implications for policymakers as the hoped for benefits of smaller tick increments may only be fully realized by larger more active stocks.
Originality/value
The paper examines the impact of a change in minimum tick size on eligible New Zealand Exchange (NZX) stocks to determine whether it meet the stated NZX goal of boosting liquidity.
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Rui Ma, Hamish D. Anderson and Ben R. Marshall
The purpose of this paper is to review the literature on liquidity in international stock markets, highlights differences and similarities in empirical results across existing…
Abstract
Purpose
The purpose of this paper is to review the literature on liquidity in international stock markets, highlights differences and similarities in empirical results across existing studies, and identifies areas requiring further research.
Design/methodology/approach
International cross-country studies on stock market liquidity are categorized and reviewed. Important relevant single-country studies are also discussed.
Findings
Market liquidity is influenced by exchange characteristics (e.g. the presence of market makers) and regulations (e.g. short-sales constraints). The literature has identified the most appropriate liquidity measures for global research, and for emerging and frontier markets, respectively. Major empirical facts are as follows. Liquidity co-varies within and across countries. Both the liquidity level and liquidity uncertainty are priced internationally. Liquidity is positively associated with firm transparency and share issuance, and negatively related to dividends paid out. The impact of internationalization on liquidity is not universal across firms and countries. Some suggested areas for future studies include: dark pools, high-frequency trading, commonality in liquidity premium, funding liquidity, liquidity and capital structure, and liquidity and transparency.
Research limitations/implications
The paper focusses on international stock markets and does not consider liquidity in international bond or foreign exchange markets.
Originality/value
This paper provides a comprehensive survey of empirical studies on liquidity in international developed and emerging stock markets.