Catherine C. Eckel, Haley Harwell and José Gabriel Castillo G.
This paper replicates four highly cited, classic lab experimental studies in the provision of public goods. The studies consider the impact of marginal per capita return and group…
Abstract
This paper replicates four highly cited, classic lab experimental studies in the provision of public goods. The studies consider the impact of marginal per capita return and group size; framing (as donating to or taking from the public good); the role of confusion in the public goods game; and the effectiveness of peer punishment. Considerable attention has focused recently on the problem of publication bias, selective reporting, and the importance of research transparency in social sciences. Replication is at the core of any scientific process and replication studies offer an opportunity to reevaluate, confirm or falsify previous findings. This paper illustrates the value of replication in experimental economics. The experiments were conducted as class projects for a PhD course in experimental economics, and follow exact instructions from the original studies and current standard protocols for lab experiments in economics. Most results show the same pattern as the original studies, but in all cases with smaller treatment effects and lower statistical significance, sometimes falling below accepted levels of significance. In addition, we document a “Texas effect,” with subjects consistently exhibiting higher levels of contributions and lower free-riding than in the original studies. This research offers new evidence on the attenuation effect in replications, well documented in other disciplines and from which experimental economics is not immune. It also opens the discussion over the influence of unobserved heterogeneity in institutional environments and subject pools that can affect lab results.
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Frederick Davis, Behzad Taghipour and Thomas J. Walker
The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action…
Abstract
Purpose
The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action lawsuits and related legal settlements.
Design/methodology/approach
The authors use market model event study methodology to examine the impact of class action litigation and settlement announcements on the stock prices of sued firms. The authors then determine the extent of abnormal insider trading surrounding such announcements by comparing insider trading activity (volume and transaction counts) to prior insider trading in the same firm, and to a matched sample of firms not experiencing such litigation announcements. A multivariate framework is utilized to provide further insight into the determinants of such abnormal insider trading.
Findings
The authors establish that class action litigation and settlement announcements have a significant impact on the stock prices of sued firms, and that foreknowledge of these events appears to be used by insiders to earn abnormal profits. Moreover, results indicate that managing insiders exhibit higher opportunistic abnormal trading activity than non-managing insiders. Multivariate analysis shows that size, prior firm returns, and the implementation of the Sarbanes-Oxley Act are important determinants of such insider trading.
Originality/value
This appears to be the first paper to analyze insider trading surrounding class action settlement announcements, and raises concerns about the ethical conduct of certain insider groups while highlighting the importance of access to private information, even amongst insiders themselves.
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Sergey S. Barabanov, Anup Basnet, Thomas J. Walker, Wangchao Yuan and Stefan Wendt
This study aims to examine the determinants of corporate green investments (GI) by using a series of both firm- and country-level factors.
Abstract
Purpose
This study aims to examine the determinants of corporate green investments (GI) by using a series of both firm- and country-level factors.
Design/methodology/approach
The authors collect information on environmental expenditures of 763 firms from 40 countries and use random effects regressions to identify the determinants of GI.
Findings
The authors find that larger firms tend to invest more in green projects, whereas firms that are highly valued or more profitable are less likely to go green. In terms of country-level determinants, we find that the gross domestic product (GDP) per capita and population are positively related with GI, while GDP growth and surface area are negatively associated with GI. Additionally, firms in common-law countries and English-speaking countries make fewer GI than firms in other countries.
Social implications
The findings of this research not only contribute to the academic literature in these areas, but also have important implications for both regulators and policymakers in countries that exhibit sub-par GI or who otherwise aim to increase GI by firms operating in their country.
Originality/value
The authors identify and explore the key determinants of GI from both a firm- and country-level perspective.
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Kuntara Pukthuanthong, Saif Ullah, Thomas J. Walker and Jing Zhang
The purpose of this paper is to examine operational and stock performance changes around forced CEO turnovers caused by conflicts between corporate boards and CEOs over the…
Abstract
Purpose
The purpose of this paper is to examine operational and stock performance changes around forced CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firm. In addition, the authors investigate whether changes in performance can be explained by board, CEO, or firm characteristics.
Design/methodology/approach
The authors apply propensity score matching to choose matching firms that do not forced CEO turnover but have similar characteristics with the sample firms. The authors compare their operating and stock performances. The authors apply both univariate analysis and multivariate regression analyses.
Findings
The authors find that the CEO turnovers caused by conflicts between corporate boards and CEOs over the strategic direction of the firms tend to be preceded by significant declines in a firm’s operating and stock performance and that corporate performance improves after turnovers. In addition, the authors find that an increase in long-term incentives and firm size and a decrease in turnover improve firm performance.
Originality/value
While the existing corporate governance literature emphasizes oversight as the main role of the board of directors and identifies the CEO as the leader who sets the strategic direction of the firm, in cases of conflict-induced forced CEO turnover, it is the board that sets the strategic direction. This paper is the first to provide evidence regarding the implications of conflict-induced forced CEO turnovers.
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Thomas J. Walker, Dolruedee Thiengtham, Onem Ozocak and Sergey S. Barabanov
The study aims to examine the stock price performance of publicly owned railroad companies following severe railroad accidents that resulted in the loss of human lives and/or…
Abstract
Purpose
The study aims to examine the stock price performance of publicly owned railroad companies following severe railroad accidents that resulted in the loss of human lives and/or hazardous material spills. The focus is on legal liability considerations as one of the primary factors that drives a firm's abnormal performance following a given accident.
Design/methodology/approach
This paper employs a sample of 97 railroad accidents that occurred between January 1967 and December 2006 and involved equipment (tracks and/or locomotives) owned by publicly traded US and Canadian railroad companies. The stock price reaction of the affected firms is examined following these disasters and a series of univariate and multivariate tests is used to investigate whether differences in abnormal returns following a given accident can be related to various factors that characterize the affected firm or the accident it was involved in.
Findings
The results suggest that legal liability considerations are one of the primary factors that determine a company's stock price reaction following a railroad disaster. Specifically, it is observed that firms that are likely to be sued in connection with an accident tend to incur larger stock price losses. On the other hand, it is found that firms that are protected through indemnification agreements suffer only insignificant price declines, even if initial accident reports hold them responsible for causing the accident.
Originality/value
The paper extends the prior literature on the stock market's reaction to firm‐specific catastrophic events. While there are a number of studies that examine the financial consequences of aviation disasters, there is to the authors' knowledge only one prior study that performs a similar analysis for railroad accidents.
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Arash Amoozegar, Kuntara Pukthuanthong and Thomas J. Walker
In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the…
Abstract
Purpose
In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues.
Design/methodology/approach
The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk.
Findings
Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions.
Research limitations/implications
The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance.
Practical implications
The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function.
Originality/value
This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.
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Andreas Oehler, Thomas J. Walker and Stefan Wendt
The authors aim to analyze whether the results of the 1980 to 2008 US presidential elections influence the stock market performance of eight industries and they seek to examine…
Abstract
Purpose
The authors aim to analyze whether the results of the 1980 to 2008 US presidential elections influence the stock market performance of eight industries and they seek to examine factors that are expected to affect firms' stock returns around these elections. Their empirical analysis reflects firms' exposure to government policies in two ways.
Design/methodology/approach
First, to determine whether investors presume any Democratic or Republican favoritism towards or biases against certain industries, the authors perform an event study for each of the eight industries around the eight elections. Second, the authors include the firms' marginal tax rate as proxy for the firms' exposure to uncertainty about fiscal policy in a regression analysis.
Findings
The authors do not find a consistent pattern in industry returns when comparing the effect of Democratic vs Republican victories. However, the extent of the reaction differs among industries. The victory of a Democratic candidate rather negatively influences overall stock returns, while the results are rather mixed for Republican victories. A change in presidency from either a Democratic to a Republican candidate or vice versa causes stronger stock market effects than re‐election or the election of a president from the same party. The authors also find that the firms' marginal tax rate is positively correlated with abnormal stock price returns around the election day.
Originality/value
The results are relevant for academics, investors and policy makers alike because they provide insight on the question whether stock market participants respond to expected changes in policy making as a result of presidential elections.
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Kuntara Pukthuanthong, Thomas J. Walker, Dolruedee Nuttanontra Thiengtham and Heng Du
– The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.
Abstract
Purpose
The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.
Design/methodology/approach
The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.
Findings
It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.
Research limitations/implications
The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.
Practical implications
The results suggest investors should invest in family ownership firms.
Originality/value
The paper shows whether firm ownership increases firm value and the determinant of family firm value.
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Thomas J. Walker and Michael Y. Lin
The puzzle of hot and cold issue markets has attracted substantial interest in the academic community. The behavior of IPO volume and initial returns over time is well documented…
Abstract
Purpose
The puzzle of hot and cold issue markets has attracted substantial interest in the academic community. The behavior of IPO volume and initial returns over time is well documented. Few studies, however, investigate the dynamic interrelationship between these two variables. This paper aims to fill this gap. In addition, the technological innovations hypothesis of hot issue markets is tested. Welch and Hoffmann‐Burchardi suggest that the clustering of new issues is caused by IPO volume spikes in industries that have recently experienced technological innovations or favorable productivity shocks.
Design/methodology/approach
This paper employs a sample of 8,160 initial public offerings filed in the USA between January 1972 and December 2001. A simultaneous equation approach is used to examine the endogenous relationship between IPO volume and initial returns. In addition, the paper analyzes the industry correlation matrix of new issue activity and estimates a fixed‐effects model based on industry‐level data to examine the impact of technological innovations on new issue activity.
Findings
It is found that higher IPO volume causes higher initial returns, but not vice versa. In addition, evidence is found against the technological innovations hypothesis. The findings suggest that economy‐wide rather than industry‐specific factors are responsible for the observed variations in IPO volume.
Research limitations/implications
As with any empirical study, the results may be sample‐specific.
Originality/value
The paper extends the prior literature on the relationship between IPO volume and initial returns by applying two‐stage and three‐stage least squares models that go beyond prior methodological approaches used in the extant literature. In addition, the paper provides some of the first empirical evidence on the effect of technological innovations and productivity shocks on IPO activity.