We model how a rent-protection motive drives the choice of flotation method in new equity issuance between two polar cases: rights issues and cash offers. Unexpected new blockholders would emerge in control-diluting cash offers and share in jealously guarded control benefits. But rights issues help the incumbent controlling shareholders avoid control dilution and safeguard their private benefits. Under asymmetric information about private benefits, the choice of flotation method can convey information about hidden private benefits and hence firm value. Our model can explain even a negative announcement effect of rights issues, and it supports not just one but three important equilibriums.

This paper generalizes the Myers and Majluf (1984) model by introducing an agency cost structure based on private benefits of control. This new model predicts that many corporate finance variables each have opposing effects on under- and overinvestment. Private benefits exacerbate overinvestment but, interestingly, a small amount of private benefits can enhance firm value by alleviating underinvestment. Likewise, an increase in insider ownership alleviates overinvestment but aggravates underinvestment. When private benefits are small, the adverse effect of insider ownership on underinvestment tends to dominate. When there are considerable private benefits, the incentive-alignment effect of insider ownership is pronounced. Additionally, this model reconciles existing equity financing theories on announcement effects. It helps resolve the puzzle that small-growth firms do not seem to have an asymmetric information disadvantage when they issue new equity.

The literature has documented positive announcement effects for privately placed seasoned equity issues.This study shows positive announcement effects not only for private but also for public placements in Hong Kong. Our unique data offer new insights not obtainable from U.S. data as we examine the cross-sections of the announcement effects. Most importantly, we find that the announcement effect is more likely to be positive for smaller issuers, such as private placing firms and some public issuers where asymmetric information arises more from growth than from assets in place. This finding is consistent with the generalized Myers-Majluf model.

This study examines the association between chief executive officer ( CEO ) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value ( NPV ) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a large sample of firms for the period 1993–2010, we find that firms with overconfident CEO s have higher stock price crash risk than firms with nonoverconfident CEO s. The impact of managerial overconfidence on crash risk is more pronounced when the CEO is more dominant in the top management team and when there are greater differences of opinion among investors. Finally, it appears that the effect of CEO overconfidence on crash risk is less pronounced for firms with more conservative accounting policies.

This study examines the effect of downstream firms’ (i.e., customers’) risk factor disclosures contained in annual reports on the investment efficiency of upstream firms (i.e., suppliers). We find that more informative disclosures of customers’ risk factors are associated with less under‐ or overinvestment by suppliers. In addition, this inverse association is stronger when the suppliers are at a bargaining disadvantage, when they operate in the durable goods industries, and when they are more concerned about the volatility of future demand. Overall, our results suggest that risk factor disclosures provided by firms in their annual reports contain useful information that could potentially help their suppliers achieve better investment efficiency. Divulgation d'information sur les facteurs de risque des clients et efficience de l'investissement des fournisseurs

We document that firms prefer counties with higher ethnic diversity in locating their interstate investments, especially for those pursuing innovation, seeking to establish service centers, or managing a diverse workforce. We also find some evidence that interstate investment in high ethnic diversity locations results in increased patent applications, sales growth, positive media coverage, and overall operating performance. Taken together, we show that firms prefer to invest in ethnically diverse locations as they recognize the potential benefits of leveraging a diverse labor supply, such as enhancing problem-solving, innovation, and performance. We must recognize that difference is a reason for celebration and growth, rather than a reason for destruction. (Audre Lorde)

Using China's four trillion yuan stimulus package of 2008 (4 Trillion Plan) as an exogenous shock, we find that monetary stimulation could benefit the real economy to some extent. Specifically, compared with propensity-score-matched control firms, firms more likely affected by the stimulus plan (e.g., bank-connected firms) are granted with 18% to 24% more patents afterwards. Further evidence shows that the effect of monetary stimulation is more pronounced in firms with financial constraints, in firms located in regions with lower house price growth, and in firms with better corporate governance. Finally, monetary stimulation also increases R&D expenditure, leaving innovation efficiency unaffected.

Speakers of weak future‐time reference (FTR) languages perceive the future as closer and more imminent. In this study, we examine the important question of whether the FTR properties of languages spoken by investors affect their demand for forward‐looking information, thereby influencing corporate management forecast practices in different countries. We predict that investors who speak weak‐FTR languages are more concerned about the future prospects of their investments and the ability of company management to respond to future changes, leading to a greater demand for management forecasts from these companies. We find that firms in weak‐FTR language countries exhibit a greater propensity for and frequency of issuing management forecasts and that they also issue more long‐horizon forecasts, compared to those in strong‐FTR language countries. Our results hold after controlling for other country‐level cultural factors. Within the same countries, firms with more foreign institutional ownership from weak‐FTR countries issue more (long‐horizon) management forecasts than their counterparts. Finally, firms from strong‐FTR countries significantly increase their issuance of (long‐horizon) management forecasts, after cross‐listing their stocks in Germany, a weak‐FTR country. This is the first study to examine language FTR as an antecedent to voluntary disclosures. We document a linguistic trait as a novel investor environment factor that shapes corporate voluntary disclosures and explains the cross‐country variations in management forecast practices.

In this study, we show that a firm's use of special purpose entities (SPEs) is associated with unfavorable loan contract terms, including higher loan rates, collateral requirements, and restrictive covenants. Further analyses suggest that the association between the use of SPEs and unfavorable loan contract terms is primarily due to the increase in the information risk faced by lenders, as firm managers can easily use SPEs to manipulate earnings and hide losses. Specifically, we find that the use of SPEs has a more pronounced effect on increasing the cost of loans and causing more stringent non-price loan terms when managers have a stronger incentive to manipulate earnings and when banks have less knowledge about the SPE sponsor firms due to the lack of prior lending relationship. In addition, we find that the use of SPEs is associated with a greater likelihood of accounting restatements and greater information asymmetry between inside managers and outside capital suppliers.

We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital. JEL Classifications: G23; G34; M41; D80. Data Availability: Data are available from the public sources cited in the text.