We show that after controlling for the effects of bid‐ask spreads and trading volume the conditional future volatility of equity returns is negatively related to the level of stock price. This “leverage effect” is stronger for small, as compared to large, firms. We also document that while the essential characteristics of the relations between stock price dynamics and firm size are stable, the strengths of the relationships appear to change over time.

We propose a simple metric to measure two aspects of market integration, namely, economic integration (defined as a common cash-flow dynamic) and financial integration (defined as a common risk-pricing dynamic) and then examine their evolution through time while controlling for volatility. We find that developed (DEV) countries exhibit greater degrees of financial and economic integration than emerging (EMG) markets. Although the financial integration gap between these markets remains large throughout the sample period, the EMG economies are catching up with their DEV counterparts in recent years; their level of economic integration has reached that of DEV countries.

This study examines the empirical controversy over the pricing effect of the Easley, Hvidkjaer, and O׳Hara (2002) probability of information-based trading, PIN, on a sample of 30,095 firms from 47 countries worldwide. Contrary to the empirical evidence of Easley, Hvidkjaer, and O׳Hara, but consistent with that of Duarte and Young (2009), we do not find that PIN exhibits a positive effect on a cross section of expected stock returns in international markets. Alternative information-based trading measures also display no effect on expected stock returns, corroborating our finding that information risk proxied by PIN, in general, has no pricing effect in world markets.

This paper studies the impact of the 2003 SEC Regulation requiring shareholder approval of all equity-based executive compensation plans on executive compensation policies and practices at S&P 500 firms. Following the 2003 Regulation, firms with shareholder approved equity plans in place or those with strong performance, while not those with non-approved plans or weak performance, increase their equity compensation proposal submission activity. The quality of equity compensation proposals improves in the after-regulation period, and shareholders exhibit greater scrutiny and monitoring of executive compensation through increased voting rights. We find a decline in the equity pay component while an increase in the cash component of total executive compensation after the 2003 Regulation and also provide evidence that the 2003 Regulation contributes to this change in compensation structure.

This article examines whether foreign investor heterogeneity plays a role in stock liquidity in a sample of 27,828 firms from thirty-nine countries worldwide. Foreign direct ownership is negatively associated with stock liquidity, while foreign portfolio ownership is positively associated with stock liquidity. Consistent with theoretical predictions, foreign ownership explains stock liquidity through both trading activity and information channels. The value-enhancing benefits of foreign direct investors’ monitoring efforts outweigh their liquidity costs and high adverse selection premium. However, the positive impact of foreign portfolio ownership on firm performance becomes negative and is not robustly significant after controlling for liquidity.

This study evaluates the interactions between, and informativeness of, insider trading and analyst recommendations. We find that analyst recommendations significantly affect subsequent insider trading, but not vice versa. Surprisingly, in aggregate, insiders buy more shares following analyst downgrades and sell more shares following upgrades. This pattern persists even after controlling for analysts’ momentum and insiders’ contrarian trading preferences. Analysts, in contrast, do not systematically take into account insider trading when revising their recommendations. More importantly, we show that these two information signals complement each other although insider buying could be a singularly strong signal that substitutes the informativeness of analyst recommendations under certain circumstances. Overall, our findings highlight the important dynamics and financial market consequences between the two crucial groups of information providers.

We employ a new comprehensive proxy voting records database to investigate whether mutual funds consider prior firm performance when they vote on a diverse range of management- and shareholder-sponsored proposals relating to governance, compensation, and director election. We argue that prior firm performance plays a role in the monitoring effort of mutual funds as they fulfill their fiduciary duties. Results show that voting is related to prior firm performance for selected management and shareholder proposals and that it is consistent with Institutional Shareholder Services’ recommendations. Mutual funds support management (shareholder) proposals less (more) when prior firm performance has been weak. Furthermore, even when mutual funds deviate from their fund family’s voting policies, they attach importance to prior firm performance, and their voting is, to a certain degree, affected by business ties.

Analyzing the complex financial landscape of multi-segment conglomerates requires a more nuanced approach than that required for single-segment firms. This paper reveals that conglomerates strategically enhance their transparency by voluntarily disclosing more information to compensate for their business complexity. This finding is particularly pronounced when there is an increased demand for information from stakeholders and analysts or when the executive pay-performance sensitivity is higher. By strategically embracing transparency, conglomerates transform the complexities inherent in their financial reporting into a catalyst for higher valuation and lower capital costs. Overall, our study demonstrates that multi-segment firms tactically deploy voluntary disclosure to navigate their intricate business environment effectively.

This paper examines whether dividend policy is associated with earnings management and whether the relationship varies across countries with wide-ranging degrees of institutional strength and transparency. Based on a sample of 23,429 corporations from 29 countries, we show that dividend payers manage earnings less than dividend non-payers, and that this evidence is stronger in countries with weak investor protection and high opacity. Further, we find that dividend payers manage earnings less when they issue equity following dividend payments, and that this result is more pronounced in countries with weak institutions and low transparency. Overall, our evidence suggests that firms may employ dividend policies associated with less earnings manipulation to mitigate agency concerns and to establish credible reputation, thereby facilitating access to external funds.

In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time‐varying covariances between stock returns and marketwide factors and time‐varying reward‐to‐covariabilities. The model is then applied to examine the effects of firm size and book‐to‐market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book‐to‐market equity ratios. The results indicate that allowing time‐varying covariances and time‐varying reward‐to‐covariabilities does little to salvage the traditional asset pricing models.