This paper is a follow up of a work published in 2015 which looked at the real exchange rate of euro on Greek economic growth from 1961 to 2014. In this study, I provide an update of some of the results obtained in the previous study by using the new data that came out thereafter. In addition, I look with more details into the various phases of the euro-dollar exchange rate from the 1999 to 2022 analyzing daily data. I discern four phases. However, the most important indicator is the real exchange rate which is also examined and related to economic growth of Greece during the euro years.
Gerhard Speckbacher, Professor, Vienna University of Economics and Business, Austria. Title: How Financial Forecasts Impact Creativity Assessments for New Product Ideas.
In a comprehensive study, Ecer, Magro, and Sarpca (2017) find that the portion of revenues of a nonprofit organization (NPO) that are earned from program services, as distinct from governmental grants and charitable donations, is significantly negatively related to organizational inefficiency. The higher the portion of an NPO’s total revenues earned from program service revenue, the more efficient is the NPO. They also find numerous control variables such as amount of donations, whether the NPO received government support, amount of investment income, etc. also to be significantly related to organizational efficiency. The scientific method requires independent testing of the robustness of scientific results. Since we are aware of no additional studies that examine this issue, we test the robustness of EMS’s results to more recent data using a similar model. We also test the interaction effect of size on the relation between portion of total revenues that is program service revenues, and inefficiency. We find that for the overall sample, portion of revenue earned from program services is not significant and only two of the many control variables are significant. However, when we add an interaction term to test the effect that size has on the relation, we find that the initial variable becomes significantly negative as expected and the interaction term become significantly positive, suggesting that the effect is decreasing with size. In other words, the larger the NPO is the lower is the effect of revenue composition on inefficiency. This result is also consistent across nearly all industry subsamples we test. However, we find few of the control variables EMS found significant to be significant in our study.
Piotr Fiszeder, Professor, Nicolaus Copernicus University in Torun, Poland. Title: Improving Volatility Forecasts: Evidence from Range- Based Models.
Volatility models based on daily high-low range have become increasingly popular because high and low prices are easily available, yet range contains very useful information about volatility. It has been established in the literature that range-based volatility models outperform standard volatility models based on closing prices. However, little is known about which range-based model performs the best. We therefore evaluate two range-based volatility models i.e. CARR and Range-GARCH with the standard GARCH model based on Monte Carlo experiments and wide sample of currencies and stock indices. For simulated series the range-based models outperform the standard GARCH model, and the performance of the Range-GARCH model and the CARR model is similar. However, for real financial time series (six currency pairs and nine stock indices) the Range-GARCH model outperforms both the standard GARCH and CARR models, while ranking of the standard GARCH and CARR models is ambiguous. We therefore consider Range-GARCH as the best from these three models.
Irina Chiriac, Senior Researcher, Alexandru Ioan Cuza University of Iași, Romania. Title: Should the Due Diligence Audit Report Prior to a Merger or Acquisition Contain Information about ESG Factors?
Venture capital (VC) funds backed by large multi-fund families tend to perform substantially better due to cross-fund cash flows (CFCFs), liquidity support provided by matching distributions and capital calls within a VC fund’s family. The dynamics of this liquidity support coincide with the sensitivity of different stage projects owing to liquidity conditions. We find that the early-stage funds demand relatively more intra-family CFCFs than projects in other stages during liquidity stress periods. We show that the liquidity improvement based on the timing of CFCF allocation reflects how fund families arrange internal liquidity provision and explains a large part of the outperformance.
14:30-15:00 Vladimir Levin, PhD Candidate, University of Luxembourg, Luxembourg. Title: Dark Trading and Financial Markets Stability.
Internal control deficiencies (ICDs) over financial reporting are always a key concern in internal auditing. ICDs increase the likelihood of misstatements in financial reports, underline the reliability of financial reporting and increase investor uncertainty about firm value. Accordingly, it is necessary for firms to remediate ICDs to restore the quality of financial reporting and resolve investor uncertainty. Before the Sarbanes-Oxley Act (SOX), auditors and investors knew little about ICDs and ICD remediation due to the lack of corporate disclosures on internal controls. SOX was passed in 2002 as a response to a series of accounting scandals at notable firms such as Enron, WorldCom and Typo. Specifically, sections 302 and 404 of SOX mandate firms to publicly disclose their ICDs to investors. In addition to information on ICDs, firms also disclose their efforts to remediate any identified ICD in 10-K reports. This study focuses on firms’ remediation of these ICDs and examines cross-sectional differences in stock price reactions to ICD remediation disclosures under SOX. Using a sample of 6,232 distinct firms that filed their 10-K reports from 2004 to 2018, I first conduct preliminary analysis and document a negative association between the change in investor uncertainty and stock price reactions to 10-K reports. This is a necessary condition to examine stock price reactions to ICD remediation disclosures conditional on changes in investor uncertainty. I then examine how stock price reacts to ICD remediation disclosures conditional on the reduction of investor uncertainty and find a positive stock price reaction to the ICD remediation disclosure when there is a reduction in investor uncertainty. Further, I provide a series of sensitivity analyses to ensure the robustness of the inferences: (1) the propensity score matching (PSM); (2) the tobit regression; and (3) comparing ICD remediation firms with non-remediation firms only. Overall, the evidence from those sensitivity analyses provides support for a positive stock price reaction to the ICD remediation disclosure conditional on a reduction in investor uncertainty. The paper extends the literature on ICD remediation disclosures through the following contributions. First, unlike prior research, the paper documents a positive stock price reaction to ICD remediation disclosure that is contingent on a reduction in investor uncertainty. In addition, the positive stock price reaction remains after classifying firms by their market capitalization and profitability (except for firms that make a loss). Second, adding to prior research, the paper is able to control for the inherent differences between ICD remediation firms and non-ICD firms. The findings indicate that ICD remediation firms have a more positive stock price reaction to their 10-K reports than that of non-ICD firms. Practically, the paper has implications for regulators by highlighting that SOX benefits investors by providing information on ICD remediation to investors. It also encourages managers when facing ICDs to invest in ICD remediation and disclose their ICD remediation plan as this can lead to a positive stock price reaction.
Lidia Loban, PhD Student, University of Zaragoza, Spain. Title: Determinants of Non-Compliant Equity Funds with EU Portfolio Concentrations Limits.
This study is the first to investigate and identify the determinants of domestic equity funds that fail to comply with the portfolio concentration limits of the EU Directive 2009/65/EC (UCITS IV). This study also determines the characteristics of the stocks subject to these non-compliant portfolios. The empirical application to a comprehensive sample of domestic equity funds registered in the Eurozone provides significant information that can help to improve market supervision in terms of investors’ protection. Our findings have important implications for policymakers in monitoring defaults by domestic equity funds in the Eurozone mutual fund industry. Using a large sample of open-end domestic equity funds in 10 Eurozone countries over the 2002–2016 period, we find that both the level of domestic benchmark concentration and the level of the concentration of the domestic fund industry significantly increase the likelihood of non-compliance with the EU portfolio concentration limits. That is, the higher the level of concentration of the benchmark is, the greater the likelihood of finding non-compliant domestic equity funds. Thus, market supervisors should especially monitor domestic equity funds domiciled in countries with highly concentrated domestic benchmarks. The level of concentration of the domestic fund industry also has positive and significant effects on the likelihood in the same line. This evidence is consistent with previous findings in the literature that link competition with active management strategies such as concentrated portfolios. Therefore, policymakers should consider this finding and promote competition to reduce the likelihood of default on EU portfolio concentration limits. Market supervisors should especially monitor domestic equity funds registered in highly concentrated industries in which the market share of few large funds is significantly higher than the market share of the remaining small competitors. Consequently, there is evidence of a positive and robust relationship between the level of concentration of the benchmark, the level of the concentration of the industry and the likelihood of portfolio weights over the EU concentration limits. In line with fund characteristics, we show that fund age has a positive and significant effect on portfolio concentration defaults. Additionally, our findings are consistent with the influence of management structures on portfolio concentration strategies. Focusing on some stock-specific characteristics that influence the likelihood of stocks being subject to noncompliance with the EU legal restrictions, we find that 1) the weight of the stocks in their benchmarks has a positive and significant effect on the EU portfolio concentration defaults, and 2) the stocks that present low volatility have a greater likelihood of being subject to noncompliance with the EU portfolio concentration limits. Furthermore, market supervisors should pay more attention to information asymmetry problems due to their frequency in cases of portfolio concentration over the EU limits. Finally, to identify stocks subject to default on EU portfolio concentration limits, the previous results should encourage market supervisors to pay more attention to liquid and large-cap stocks with low volatility records. Furthermore, market supervisors should advocate reducing information asymmetry problems to prevent portfolio concentration in the Eurozone industries.
Christoph Reschenhofer, PhD Student, Vienna University of Economics and Business, Austria. Title: Combining Factors.
Tracey Niemotko, Professor, Mount Saint Mary College, USA. Moira Tolan, Professor, Mount Saint Mary College, USA. Richard Kravitz, Professor, The New York State Society of Certified Public Accountants, USA. Title: Sustainability Accounting and Reporting: The Accountant’s Role Moving Forward.
Today like never before, external stakeholders – investors and creditors – support companies that take an active role in pursuing sustainability goals and social responsibility. Their voice has become a market force that presses businesses to remain competitive by making sustainability accounting and reporting a priority. Companies have thus rerouted their management objectives to incorporate sustainability outcomes. These outcomes have become a basis for internal assessment and the external financial valuation of a company. The authors will explore how sustainability has impacted American businesses and the future of the accounting profession. After an overview of sustainability definitions, implications, and components, the authors will discuss a brief history of sustainability concepts and practices, including the holistic emphasis on what Elkington (1999) has referred to as the 3P’s – the planet, people, and profits. We will also discuss how financial statements may no longer be the critical basis for an effective assessment of American businesses in our global economy. Sustainability Accounting and Reporting Sustainability accounting and reporting is the collective term that encompasses how a company measures, manages, and expresses its commitment to its sustainability goals and activities. According to the Sustainability Accounting Standards Board (SASB), a not-for-profit entity that develops sustainability accounting standards and assists businesses with sustainability reporting, sustainability activities can be categorized into five components: environment, human capital, social capital, business model and innovation, and leadership and governance. According to the Sustainability Accounting Standards Board (SASB), sustainability refers to the corporate activities that maintain or enhance a company’s ability to create long-term shareholder value. Incorporating sustainability activities places a company on solid footing with shareholders, communities, and in some instances, with the global society. Ethical Business Practices Ethical Business Practices In recent years In recent years “”corporatecorporate sustainabilitysustainability” is often presented as an inno” is often presented as an innovative idea unknown to the business leadersvative idea unknown to the business leaders of the pastof the past.. HoweverHowever, when one reflects on the , when one reflects on the definitidefinitioon of sustainabilityn of sustainability, it becomes evident that , it becomes evident that manymany wellwell–functioning businesses have functioning businesses have respected this conceptrespected this concept since the earliest days of industrial development.since the earliest days of industrial development. EEthical thical proponents of proponents of capitalism proposed by Adam Smith in capitalism proposed by Adam Smith in 1776 have always believed i1776 have always believed in n a businessa business”s abilitys ability to to generate wealth for a firmgenerate wealth for a firm”s owners while improving the s owners while improving the wider society’s standingwider society’s standing. . The Guinness The Guinness BreweryBrewery is an is an example of one of the earliestexample of one of the earliest businesbusinessesess that demonstrated social that demonstrated social responsibilityresponsibility,, rerecognizing its importancognizing its importancece toto itits s longlong–term succesterm successs.. The New Para The New Paradigmdigm In protecting the public, theIn protecting the public, the accountantaccountant”s role is to identify institutions that are too good to fail and too strong to s role is to identify institutions that are too good to fail and too strong to fail. But it also demands new tools and techniques to identify grefail. But it also demands new tools and techniques to identify great institutions and how we at institutions and how we value value a a business in business in ouourr postmoderpostmodern economy. n economy. The considerat The consideration of balance sion of balance sheheets, inets, income statcome stateementsments,, and and cash flow statementscash flow statements in isolation in isolation isis perhapsperhaps a legacya legacy of the past. These financial statementof the past. These financial statements must be consis must be considered with sustainability factors if they are to measure dered with sustainability factors if they are to measure corporacorporatte value value. This was clearlye. This was clearly demonstrated by Baruch Lev in his seminal work,demonstrated by Baruch Lev in his seminal work, The End The End of Accountingof Accounting. Lev . Lev reported that reported that “”financial inffinancial information contributes only 4%ormation contributes only 4%–5% of the decision5% of the decision–relevant information for investors.relevant information for investors.””
15:00-15:30 Sylvie Berthelot, Professor, University of Sherbrooke, Canada. Title: The Example of the Hudson’s Bay Compagnie.
In 2017, the Hudson’s Bay Company (HBC) posted its lowest market capitalisation since it joined the Toronto Stock Exchange in 2012. It also reported a net loss of CAD$581 million. This was the second year in a row the Company reported negative results, having suffered a net loss of CAD$516 in 2016. Despite these substantial losses, one of the Company’s major shareholders, serving as governor and chairman of the board, received remuneration of over CAD$54 million. How can compensation of this size be explained in such a climate of financial insecurity? This objective of this study is to examine a concrete case of the expropriation of minority shareholders by a majority shareholder serving as chairman of the board. Based on an analysis of official documentation the HBC submitted to the Canadian Securities Administrators, the study’s aim is to highlight the shortcomings in the Company’s governance as concerns its decision to grant one of its major shareholders excessive compensation, despite the firm’s precarious financial situation. The case of the HBC can serve to illustrate the concepts of independence in appearance and independence of mind. The first represents the independence communicated by the firm and perceived by the interested parties. However, independence in appearance is not the concept of “independence” sought in the good governance practices enshrined in the codes of good practice and regulations adopted in many Western countries. For its part, the concept of independence of mind is based on an individual’s integrity, objectivity and professional scepticism, which is much more difficult, not to say impossible, to define, communicate and regulate. Van de Berghe and Baelden (2005) suggest identifying a priori the circumstantial issues that could impact directors’ independence of mind. From this perspective, the example of the HBC shows that the size of board members’ compensation and their selection and nomination practices are key factors that can influence their independence of mind. This study will help regulatory bodies identify regulatory shortcomings, particularly in relation to the definition of director independence, that could be detrimental to the protection of small investors and, in turn, to the proper operation of financial markets. VAN DEN BERGHE L.A.A. et BAELDEN T. (2005), “The complex relation between director independance and board effectiveness”, Corporate Governance, Vol. 5, no5, p. 58-83.
Michel Coulmont, Professor, University of Sherbrooke, Canada. Title: Proxy Voting Policy and Corporate Social Responsibility: The Example of the CDPQ.
La Caisse de dépôt et de placement du Québec (CDPQ) is an institutional investor that manages numerous pension plans and public and parapublic insurance plans across the Canadian province of Quebec. Its net assets total over CAN$333 billion. In addition to its Policy on Responsible Investment, the CDPQ has also adopted a Policy on the Principles Governing the Exercise of Voting Rights of Public Companies in which it invests, following the example of proxy advisory services like Glass Lewis and Institutional Shareholder Services (ISS). The latter policy highlights the CDPQ’s commitment to many corporate governance, environmental and social issues, more specifically those respecting workers’ rights and conditions, standards of ethical conduct, the outsourcing of activities, sustainable development, and political contributions. The aim of this study is to examine the extent to which CDPQ votes at annual general meetings of the firms in which it invests are consistent with its policy, particularly as concerns votes pertaining to corporate social responsibility issues, in order to determine the legitimacy tactics used by the CDPQ within the framework of this policy (Deegan, 2007). The analyses were based on all CDPQ votes at 1,075 annual general meetings held in 2018 and 2019. This information was obtained from the CDPQ website. At these meetings, 213 votes related to corporate social responsibility issues and of these, 79 went against the CDPQ’s policy, reflecting a non-compliance rate of 37%. The analyses also revealed that most departures from the proxy voting policy for the period under study occurred when voting on social issues. The CDPQ has provided explanations for most of the votes that ran counter to its policy. Although a proxy voting policy may be viewed as a legitimising tool, the study results indicate than in 63% of cases, the CDPQ votes serve as indications to the particular firm of the actions expected by a large investor. From the perspective of corporate social responsibility, this type of shareholder engagement can be seen as leverage for change. Deegan, C., (2007), Organizational legitimacy as a motive for sustainability reporting, Sustainability Accounting and Accountability, Edited by J. Unerman, J. Bebbington and B. O’Dwyer, Routledge Taylor & Francis Group, U.K.