This research examines the earnings management practices of growth versus value firms. We predict that growth firms have more incentive to ‘manage their earnings’ and that they do so more aggressively as compared to value firms. The primary reason for this behaviour is that information asymmetries are more severe for growth firms. Using a sample of firms over the period from 1997 through 2001, this study finds that growth firms tend to manage their earnings upward and downward more aggressively than value firms. These results are robust to using different components of discretionary total accruals as a measure for earnings management and after controlling for other factors.

Finance theory suggests that the higher volatility typically associated with emerging stock market returns translates into higher expected returns in those markets. This study compares the risk and return profile of emerging and developed stock markets over the period from 1988 through April 2003. Specifically, this study investigates whether a difference in risk characteristics exists between the two markets and whether the realized rates of return in these two types of markets reflect these risk characteristics. The results show that the risk associated with emerging markets, as measured by the standard deviation of returns, is higher than the risk in developed markets in most periods. Also, the returns in emerging markets have been higher than those in developed markets for most of the time frames examined. The findings suggest that risk-averse investors seeking higher returns in emerging markets have been compensated for assuming the higher risk associated with these markets.

ABSTRACT The gradual lifting of restrictions on capital movements and the relaxation of exchange controls in recent years have led to a substantial increase in international stock market activities. Due to several recent developments, many experts suggest that stock markets have moved toward afar greater degree of global integration, which has led to a renewed interest in the efficiency of international financial markets. This paper examines the extent to which the linkages of the twelve largest European stock markets have changed over the last decade. The findings suggest the presence of distinct systematic relationships among these stock markets. Such relationships, typical of the existence of overall market efficiency, make it more difficult for investors to generate abnormal rates of return in these markets. INTRODUCTION Recent developments in financial market deregulation, the gradual lifting of restrictions on capital movements, the relaxation of exchange controls, major progress in computer technology and telecommunications, as well as a significant increase in the cross-listings of multinational company stocks have led to a substantial increase in international stock market activities. Also, more recent improvements in communication and computer technology not only have made the flow of international information cheaper and more reliable, but also have lowered the cost of international financial transactions. In addition, greater coordination in trade and capital flows policies among the industrialized nations may have contributed to more similar economic conditions and developments in these countries, which would be reflected in their respective stock markets. Largely as a result of these developments, many experts suggest that, especially in recent years, stock markets have moved toward a far greater degree of global integration which has led to a renewed interest in the efficiency of foreign financial markets. Since market efficiency requires stock prices to react quickly not only to information pertaining to the domestic economy, but also to international conditions as well, systematic relationships among stock markets in different countries should exist as long as financial markets respond efficiently to external forces. Most research on global market efficiency has dealt with the systematic movements of stock prices, the lead-lag relationship among market indices, and the benefits of diversification (for examples, see Chan et al, 1997; Yang et al.,.2003; Agmon, 1972; Grubel and Fadner, 1968; Haney and Lloyd, 1978; Maldonado and Saunders, 1981; Panton et al, 1976; Stehle, 1977; and Watson, 1978). Several studies (e.g., Bessler and Yang, 2003, Sakar and Li, 2002; Milliard, 1970; Panton et al. 1976; Ripley, 1973; and Robichek et al., 1972) examined the degree of association among global exchanges. Panton et al. (1976) conclude that there is some stability and structure in international markets, with some markets displaying a high degree of stability. Ripley (1973) on the other hand, reports that more than 50 percent of the movements in typical developed countriesu0027 indices is unique to the specific country. Also, Robichek et al. (1972) found a lack of a significant correlation between the stock returns of some countries. Examining inter-country correlation coefficients over one-year, two-year, and four-year subperiods, Watson (1980) observed that, in general, inter-country correlation coefficients do not change significantly from one period to the other. The results of the above mentioned studies suggest that, for many countries, stock price movements have some correlation, but that most of the movements appear to be unique to a country. Attempts by Agmon (1972) and Branch (1974) to detect lead-lag relationships among stock markets around the world led to the general conclusion that there is little or no interrelationship between different stock exchanges. Also, Schollhammer and Sand (1985) report that for the four largest stock markets in Europe (i. …

The distinction between tender offers and mergers has important shareholder wealth implications, as the takeover literature shows. However, the factors associated with tender offers and mergers are not fully understood. We examine how firms’ glamour versus value status and ownership structure influence tender offer versus merger form. Our results show that tender offers are not simply a function of method of payment. Tender offers are more likely for value firms and for targets with high institutional ownership. In cash offers, tender offers are less likely for glamour targets, and in stock offers, tender offers are less likely for glamour acquirers.

INTRODUCTION This paper begins by quantifying the effect of debt downgrades by credit rating agencies both on the re-rated firm's equity and that of its industry rivals. An earlier paper has considered a similar question, though it did not distinguish between industrial and non-industrial firms (Akhigbe et al., 1997). The present study adds to the existing body of knowledge by explaining the cross-sectional variation in abnormal returns across the industries within which the re-rating event occurs. The focus of the study remains on non-banking industries. In a broader context, by considering the industry-level characteristics that condition the impact of debt downgrades on incumbent firms, the study sheds light on the process of price formation in capital markets. PREVIOUS STUDIES Numerous studies over the last two decades have examined the security price effects of debt rating changes (see, for example, Katz, 1974; Weinstein, 1977; Pinches & Singleton, 1978; Holthausen & Leftwich, 1986; Zaima & McCarthy, 1988; Hand et al., 1992; Hsueh & Liu, 1992; and Schweitzer et al., 1992). Of these studies, the more recent ones lend strong support to the hypothesis that bond rating downgrades bring new information relevant to the pricing of the re-rated firm's equity. The present work contends that such re-ratings convey information not only about the re-rated firm, but also about other firms in the same industry. In the process, it attempts to shed new light on the manner in which rating agencies contribute to the imposition of capital market discipline. An earlier study conducted an investigation of the industry-wide information effects of bond rating changes in the banking industry (Schweitzer et al., 1994). In contrast, the current study focuses on several non-banking industries. An examination of industrials, rather than just banks, provides a richer context in which to study the impact of rating changes, in part because it allows an analysis of how and to what extent industry-related factors condition the revaluation of equity caused by bond rating changes in an environment free of the regulatory conditions unique to banks. A more recent study (Akhigbe, Madura & Whyte, 1997) has analyzed the industry-wide effects of bond rating changes for a sample of firms that includes non-financial industries. The present work, in addition to documenting the robustness of that study's results, contributes to the existing body of knowledge by analyzing how several industry-specific factors condition the cross-sectional variation in average abnormal returns across industries in which the re-rating event occurs. METHODOLOGY AND DATA This study employs standard event study methodology described in earlier studies of intra-industry effects of firm-specific events (see, for example, Mikkelson & Partch, 1985; Linn and McConnell, 1983; Slovin et al., 1995; and Zantout & Tsetsekos, 1994). The event day (Day 0) is defined as the day the announcement of a bond downgrade appeared in the Wall Street Journal. The market model parameters are estimated over the period -111 to -11 days relative to the event day and the CRSP Equally-Weighted Index is used as a proxy for the market return over day t. The present analysis uses discrete returns. The study considers debt downgrade announcements by Moody's Investor Services in the six-year period 1990 to 1995, and considers bond downgrades announced by the two major rating agencies, Moody's Investor Services and Standard and Poor's Corporation. In order to be included in the study, these announcements had to have appeared in the Wall Street Journal (WSJ). The event day (Day 0) is defined as the date on which the story of the downgrade appeared in this newspaper. Multiple downgrades within a six-month period for the same company are eliminated. Also, only those downgrades are considered that are not accompanied by other relevant news about the firm within a three-day window surrounding the event. …

The well-documented day-of-the-week effect has shown that stock returns on some days of the week are often significantly higher than on other days. To investigate whether improvements in market efficiency may have caused this anomaly to disappear over time, this study examines the day-of-the-week effect in the world's largest developed equity markets over the last 22 years. The results indicate that, during the 1980s, this anomaly was clearly evident in the vast majority of developed markets, but it appears to have faded away in the 1990s. The implications of these findings are that long-run improvements in market efficiency may have diminished the effects of certain anomalies in recent periods.

The uncertain nature of technological innovation and a potential misunderstanding of the complexities of high tech operations can lead to much speculation about the true worth of high tech firms. This valuation uncertainty is expected to heighten the information sensitivity of investors in high tech industries. To examine this prediction, this article investigates factors that influence the impact of high tech merger announcements on intra-industry firm valuations. The results show that investors in industry-related firms are highly sensitive to merger announcements involving high tech targets and that the industry responses are even stronger in takeovers with high information impact factors.

ABSTRACT The day-of-the-week effect, one of the most widely documented anomalies, has revealed that security returns tend to be significantly higher on some days of the week relative to other days. If the efficiency of markets improves over time, then the day-of-the-week effect may have faded away in recent time periods. This paper investigates the existence of this anomaly in the world's 23 developed equity markets over the last 22 years. The findings show that the day-of-the-week effect clearly was evident in the vast majority of developed markets during the 1980s, but it appears to have faded away in the 1990s. These results imply that increases in market efficiency over long time periods may have dissipated the effects of certain anomalies in more recent years. INTRODUCTION A substantial volume of research on security price behavior has identified a number of persistent seasonal patterns commonly known as calendar anomalies. According to these seasonal anomalies, the tendency exists for securities to display systematic patterns at certain times like days, weeks or months. One of the most widely documented anomalies is the day-of-the-week effect, according to which the security returns are significantly higher on some days of the week relative to other days (see e.g., Aggarwal & Tandon, 1994; Barone, 1990; Cross, 1973; Lakonishok & Smidt, 1988). Some studies showed that the average return for Monday is significantly negative for countries like the United States, the United Kingdom, and Canada (see e.g., Aggarwal & Schatzberg, 1997; Balaban et al., 2001; Flannery & Protopapadakis, 1988; French, 1980; Gibbons & Hess, 1981; Keim & Stambauch, 1984; Kohers & Kohers, 1995; Pena, 1995; Pettengill, 1985; Rogalski, 1984; Schwert, 1983; Smirlock & Starks, 1986; Solnik & Bousquet,1990). In contrast, for several Pacific Rim countries, the lowest rate of return tends to occur on Tuesdays (see Brooks & Persand, 2001; Davidson & Faff, 1999; Dubois & Louvet, 1996; Jaffe & Westerfield, 1985). The literature offers a number of possible explanations for the existence of the day-of-the-week effect, (see e.g., Keim & Stambauch, 1984; Miller, 1988; Wilson & Jones, 1993). However, most of the evidence centers around negative news releases over the weekend (e.g., Berument & Kiymaz, 2001; Penman, 1988). While most research supports the existence of a day-of-the-week effect, some offer contradictory evidence. For example, Connolly (1989) and Chang et. al. (1992) submitted evidence to suggest that sample size and/or error term adjustments render U.S. day-of-the-week effects statistically insignificant. These day-of-the-week findings appear to conflict with the Efficient Market Hypothesis since they imply that investors could develop a trading strategy that takes advantage of these seasonal regularities. However, once transaction costs and time-varying stock market risk premiums are taken into account, it is not clear that the predictability of stock returns translate into market inefficiencies. Focusing on the returns in Korea and the United Kingdom, two recent studies have suggested that starting in the 1990s, the day-of-the-week effect has disappeared in these countries (e.g., see Kamath & Chusanachoti, 2002; Steeley, 2001). If markets have become more efficient over time, seasonal anomalies such as the day-of-the-week effect may have gradually faded away in more recent periods. Given the possible evolution of this seasonal over time, renewed attention to this topic seems warranted. Thus, the purpose of this paper is to test for the existence of this anomaly in the world's developed equity markets over the last two decades. Specifically, the daily returns for the indices of the 23 MSCI-designated developed markets for the period from January 1980 through June 2002 are examined for the continuous presence of this regularity. …

The purpose of this investigation is to extend earlier research on the relationship between corporate social and financial performance. The unique contribution of the study is the empirical analysis of a sample of companies from the banking industry and the use of Community Reinvestment Act ratings as a social performance measure. The empirical analysis solidly supports the hypothesis that the link between social and financial performance is positive.

The distinctive high-growth, high-risk nature of technology-based industries raises important questions about the creation of wealth in takeovers of technology firms. Although acquiring firm shareholders respond favorably to high-tech takeover announcements, these acquirers generally underperform industry-matched benchmarks and size- and book-to-market matched control portfolios in the long run. A key factor related to poor post-merger performance is a low bidder book-to-market ratio, especially when combined with a bidder ownership structure with high potential for agency problems. These findings suggest that the market tends to exhibit excess enthusiasm about the expected benefits of certain high-tech acquisitions.

The distinctive high-growth, high-risk nature of technology-based industries raises important questions about the creation of wealth in high-tech takeovers. Do investors perceive acquisitions of high-tech targets to have strong potential for value creation? Or, given the large degree of uncertainty associated with many high-tech companies, is the market skeptical of the potential benefits of high-tech acquisitions? Our results show that acquirers of high-tech targets experience significantly positive abnormal returns, regardless of whether the merger is financed with cash or stock. Factors influencing bidder returns are the time period in which the merger occurs, the ownership structure of the acquirer, the high-tech affiliation of acquirers, and the ownership status of the target.

Using the Stochastic Frontier Approach (SFA) and Data Envelope Analysis (DEA), this study examines the influence of bank efficiencies on the market assessment of bank holding company (BHC) mergers. The following two questions are addressed: (1) Is the target BHC's frontier efficiency reflected in the bidder BHC's abnormal returns? and (2) Does the difference in frontier efficiency between the bidder and/or target banks relative to their peer institutions influence the acquirer's abnormal returns? In support of the Inefficient Management Hypothesis, the findings indicate that bidder wealth effects do incorporate the target's X-efficiency as well as the difference in bidder/target efficiencies relative to their peer institutions.

ABSTRACT Is the economy an evolutionary process? Recently, scientists have begun to think that the economic dynamics of free-market societies can be explained by evolutionary dynamics. If so, on the aggregate level then, foreign exchange markets may be driven by a collective of the future that societies are driven by. When economies are viewed as evolutionary processes, it is just possible that on the aggregate, but a subconscious level, competitive forces in foreign exchange markets become endogenous in a system that drives exchange rates towards a collective futuristic image. Moreover, such a system could be deterministic. This paper investigates such possibility in the daily dollar price movements of five major trading currencies and three less actively traded currencies over a 25-year time span beginning with the inception of the floating exchange rate system in 1973. The results of this study suggest that none of the examined currencies are influenced by low-dimensional chaotic determinism. Although three of the examined exchange rates do exhibit signs of being driven by higher-dimensional chaos, this finding does not significantly favor the possibility of predicting these currency movements. As such, very little evidence of a deterministic driving force behind foreign exchange rates is uncovered in this study. INTRODUCTION Of late, there has been some deliberation about viewing economies as evolutionary processes. In such a case, it is just possible that on the aggregate, but a subconscious level, competitive forces in foreign exchange markets become endogenous in a system that drives exchange rates towards a collective of the Grabbe [1996] presents the possibility of self-organization of human societies, and thus by implication of the economy, with a shared image or a vision of the future. At the singular level, this vision might be subconscious or nonexistent, but at the aggregate level such a vision might be discernible. In the foreign exchange markets, most of the trading occurs while traders are marketmakers or speculators. They may not afford the luxury of acting late on any relevant news. Very often, the trader must anticipate other traders' moves and try to preempt such moves. As such, each trader must not just act on his or her expectations but rather act on anticipation of other traders moves who themselves are trying to anticipate the first's and everyone else's moves and so on. Evolutionary dynamics provide a solution in the form of spontaneous order involving dynamic feedback at a higher, or aggregate, level. In the foreign exchange markets context, what appears to be competition amongst traders and central banks at the lower level, where expectations are generated, functions as co-ordination at the higher (global) level (Grabbe [1996]). Recent research in behavioral economics has also yielded explanations of chaotic influences in economic and financial data series based on equilibrium solutions under conditions of imperfect foresight (Sorger [1996]). If such is the case, foreign exchange rates may be driven by nonlinear deterministic systems. Recent advances in the study of nonlinear dynamics and chaotic processes have yielded tools that can distinguish stochastic variables from seemingly random data that are, in fact, generated by lowcomplexity nonlinear deterministic processes. Tests for informational efficiency in foreign exchange markets can now be strengthened by employing these tests for chaotic dynamics among time series of security returns. Since some forms of chaotic determinism can generate seemingly random variates, it is imperative that tests for nonlinear dependencies become an integral part of market efficiency tests. In examining the pricing efficiency of foreign exchange markets, the vast majority of research has relied on linear modeling techniques, which have serious limitations in detecting multidimensional patterns. This study intends to broaden the scope of previous research on the subject. …

INTRODUCTION The informational efficiency of financial markets has been an age old, yet intriguing topic of debate among finance theorists and practitioners. Random-walk tests employed in the past have established the weak-form efficiency of financial markets in most major industrialized nations. However, recent advances in the study of nonlinear deterministic systems have uncovered chaotic processes that can generate data series that may appear random to linear science. These discoveries have sparked a renewed rigor in the examination of capital market efficiency. Moreover, recent deliberations about viewing economies as evolutionary dynamical processes lend credence to the hypothesis that aggregate stock market behavior may be driven by a of the future (Grabbe 1996) and hence may embody an underlying deterministic mechanism. In light of these recent developments, investigations of underlying chaotic deterministic mechanisms in stock market aggregates has taken on an increased significance. Grabbe (1996) presents the possibility of self-organization of human societies, and thus by implication of the economy, with a shared image or a vision of the future. At the singular level, this vision might be subconscious or nonexistent, but at the aggregate level such a vision might be discernible. In international stock markets, a large volume of the trading occurs while traders are speculating. They may not afford the luxury of acting late on any relevant news. Very often, the trader must anticipate other traders' moves and try to preempt such moves. As such, each trader must not just act on his or her expectations but rather act on anticipation of other traders' moves who themselves are trying to anticipate the first's and everyone else's moves and so on. Evolutionary dynamics provide a solution in the form of spontaneous order involving dynamic feedback at a higher, or aggregate, level. In the international stock markets context, what appears to be competition amongst traders and institutions at the lower level, where expectations are generated, functions as co-ordination at the higher (global) level. Hence it is likely that even in face of rational expectations, stock market aggregates, such as country market indexes used in this study, may be generated by some form of complex deterministic mechanism. As such market aggregates may not be priced efficiently in the traditional sense. The subject of informational efficiency of U.S. financial markets continues to receive much attention in the literature (for examples, see Atkins and Dyl (1990); Ball and Kothari (1989)). More recent studies have begun the task of employing chaos theory in testing the efficiency of financial markets (e.g., Brock et al. (1987, 1991); Scheinkman and LeBaron (1989); Hsieh (1989, 1991, 1993, 1995); Kohers et al. (1997); Pandey et al. (1998) and Willey (1992)). On the international level, several significant developments have created an increased interest in the efficiency of international markets. For example, relatively recent developments in financial market deregulation, the gradual lifting of restrictions on capital movements, the relaxation of exchange controls, major progress in computer technology and telecommunications, as well as a significant increase in the cross-listings of multinational company stocks have all led to a substantial rise in global stock market activities. Furthermore, the improvements in communication and computer technology not only have made the flow of international information cheaper and more reliable, but also have lowered the cost of international financial transactions. In addition, greater coordination in trade and capital flows policies among the industrialized nations may have contributed to more similar economic conditions and developments in these countries, which would be reflected in their respective stock markets. Largely as a result of these developments, many experts suggest that, especially in recent years, stock markets have moved toward a far greater degree of global integration, which has led to a renewed interest in the efficiency of foreign financial markets In examining the pricing efficiency of stock markets, the vast majority of research has relied on linear modeling techniques which have serious limitations in detecting multi-dimensional patterns. …

This paper documents a new 'time-of-the-month' pattern in the daily returns of the Standard & Poor's and the NASDAQ indices. Splitting a month into three time segments, the results show that the returns are highest during the 'first third', experience a drop during the 'second third', and are lowest, and in most cases negative, during the 'last third' of a month. This pattern remained remarkably consistent for the two indices examined. It also held up well over business cycles and many different subperiods tested. Thus, the results of this study provide convincing evidence of a new monthly anomaly which displays a remarkable degree of robustness.

AbstractBy using recently developed statistical tools designed to overcome some of the limitations often associated with financial data, this study attempts to detect low‐dimensional deterministic chaos in five major European stock markets and the United States. Country indexes exhibiting low‐dimensional deterministic chaos may contain some informational inefficiency; thus, it may be possible to use nonlinear dynamics to predict future stock returns. The results do not provide evidence of the existence of low‐dimensional chaotic systems in any of the examined indexes. As such, the notion of market efficiency in the examined indexes is not threatened by the findings of this study.

New investment opportunities provided by emerging markets have intrigued investors striving to obtain a better risk - return combination for their international portfolios. With this expanded opportunity set, however, come some important questions: to take full advantage of international diversification benefits in a growing global market arena, must investors design comprehensive portfolios involving numerous countries and complex weighting schemes or do smaller portfolios using simplified weighting strategies perform as well? Furthermore, are emerging markets really a valuable component of these internationally diversified portfolios, or is an investor better off avoiding these markets in favour of the more established developed markets? Using theoretical portfolios which incorporate emerging markets to different extents and which reflect varying degrees of portfolio breadth and different weighting schemes, this study finds that the incremental benefits of broad-scale diversification efforts using complex weighting strategies is small. Furthermore, in these relatively small, yet well-performing portfolios, emerging markets play a critical role. Overall, equally weighted portfolios which include some emerging markets that have positive economic forecasts and low correlations with the other countries in the portfolio can provide diversification benefits which are comparable to portfolios with more breadth and more complex weighting schemes.

This article examines various factors that may be involved in determining the method of payment in corporate acquisitions. Recently the topic of acquisitions has intensified has more and more companies seek to gain a competitive advantage through mergers with other firms. Numerous studies have been conducted that show that the method of payment has a significant effect on its stockholders. The objective of this study is to use neural networks in predicting the method of payment in corporate acquisitions and then to compare the results to a traditional legit model.