Day: February 1, 2015

[Flashback] Tunneling Dividends

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Click to access LeeXiao.pdf

Posted by John SOH Yong Ye, Year 4 undergrad at the School of Economics, Singapore Management University

Chi-Wen Jevons Lee, Xing Xiao (November 2004)

Abstract：
Numerous findings in the literature suggest that paying cash dividend mitigates agency problem
between majority shareholders and minority shareholders. Many common law countries require
mandatory cash dividend policy to protect minority shareholder’s interest. This paper provides
opposite evidence. We find that state dominant firms in China have high propensity to pay cash
dividend but low propensity to subscribe rights offering. Furthermore, state dominant firms often
increase cash dividend payment soon after rights offerings. Continue reading →

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Tunneling Dividends

bambooinnovator Leave a comment

Click to access LeeXiao.pdf

Posted by John SOH, Year 4 undergrad at the School of Economics, Singapore Management University

Tunneling Dividends

Chi-Wen Jevons Lee, Xing Xiao

November 2004

Abstract

Numerous findings in the literature suggest that paying cash dividend mitigates agency problem between majority shareholders and minority shareholders. Many common law countries require mandatory cash dividend policy to protect minority shareholder’s interest. This paper provides opposite evidence. We find that state dominant firms in China have high propensity to pay cash dividend but low propensity to subscribe rights offering. Furthermore, state dominant firms often increase cash dividend payment soon after rights offerings. As state-held shares in China are non-tradable, giving up subscription rights and using receipts from rights offering to pay cash dividend are equivalent to selling a portion of the non-tradable shares by the majority shareholders to the minority shareholders. The computed selling price is about three times higher than that of officially approved private placement. Market reacts negatively to the cash dividend announcement of state dominant firms, but positively to others. Our findings suggest that instead of alleviating agency problem, cash dividend might be used as a vehicle for tunneling in state dominant firms.

Bursa Malaysia proposal on related-party transactions (RPT) advice is dropped without explanation; OECD once called abusive RPTs as “one of the biggest corporate governance challenges facing the Asian business landscape”

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http://www.thestar.com.my/Business/Business-News/2015/01/31/Public-consultation-should-be-more-transparent/?style=biz

Bursa Malaysia proposal on RPT advice is dropped without explanation

Saturday, 31 January 2015

BY: ERROL OH

SHOULDN’T we at least feel a bit nervous when there’s a loosening of the rules on related-party transactions (RPTs) involving listed companies? Can we afford to be more relaxed about the possibility of those controlling a company coming up with deals that hurt the interests of other shareholders?

The Organisation for Economic Co-operation and Development (OECD) once called abusive RPTs as “one of the biggest corporate governance challenges facing the Asian business landscape”. That was in a September 2009 report. Could it be that things are different now? Continue reading →

Warnings from the Enron Message Board

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=918519

Warnings from the Enron Message Board

James Felton Central Michigan University – Department of Finance and Law

Jongchai Kim affiliation not provided to SSRN

Abstract:

As Enron collapsed in the Summer and Fall of 2001, most Wall Street analysts maintained either buy or strong buy recommendations for Enron common stock. The largest bankruptcy in U.S. history was often described as coming without warning, as $60 billion in market capitalization vanished. We searched postings on the Yahoo! Inc. (NASDAQ:YHOO) ! Enron Message Board between 1997 and 2001 for warnings of a crash to come. We found a compelling four-year history of Enron as told by apparent insiders through anonymous posts. Excerpts of 129 posts from Enron’s Yahoo! message board, describing a disturbing corporate culture at Enron, include repeated warnings to investors to get out while they can. Continue reading →

[Flashback] Got ’em, Gotham

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http://www.economist.com/news/business/21606838-company-accounts-detectives-collar-another-suspect-got-em-gotham

Posted by KOH Ngiap Hao , Year 4 undergrad at the School of Accountancy, Singapore Management University

The company-accounts detectives collar another suspect

JENARO GARCÍA was an eloquent cheerleader for Gowex, helping to propel the Spanish Wi-Fi firm to European startup stardom. When investors asked detailed financial questions of its founder and boss, however, he would clam up. Short-sellers, who bet against companies by selling borrowed shares, in the hope of buying them back more cheaply later, began to act on this reticence early this year. But the killer blow was a report by an opaque outfit called Gotham City Research, alleging that Gowex had far fewer wireless hotspots than it claimed and that 90% of its sales were bogus. On July 6th, five days after the report’s publication, the firm said it would file for bankruptcy and that Mr García (pictured) had resigned after admitting to fiddling the accounts for at least four years. Continue reading →