http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2562274&download=yes

Bait and Switch: How Do Chinese Firms Use Proceeds from Seasoned Equity Offerings

Hong Bo University of London – School of Oriental and African Studies (SOAS)

Zhongnan Huang University of London – School of Oriental and African Studies (SOAS)

Elmer Sterken University of Groningen – Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)
January 31, 2015
CESifo Working Paper Series No. 5198

Abstract: 
We reveal motivations of Chinese firms for issuing Seasoned Equity Offerings (SEO) by examining why firms change the use of SEO proceeds and how they use unspecified SEO proceeds. Using 533 SEOs issued by Chinese firms during 1999-2006, we find that firms do not use unspecified SEO proceeds on capital investment regardless of the nature of controlling shareholders. We find that if the controlling shareholder is the state, then the firm uses unspecified proceeds to stockpile cash; if the controlling shareholder is a parent state-owned enterprise, then the firm uses unspecified proceeds on retiring debt and on related party transactions.

http://ijbssnet.com/journals/Vol_4_No_13_October_2013/20.pdf​

Posted by Jeremy TAN Leming, Year 4 undergrad at the School of Accountancy, Singapore Management University

International Journal of Business and Social Science Vol. 4 No. 13; October 2013 179

Cooking the Books: The Case of Malaysian Listed Companies

Abstract

Cooking the books refers to fraudulent accounting activities undertaken by a business to falsify its financial statements. Thus, the objectives of this study are to investigate what the cooking-the-books activities carried out by businesses consist of, how they conduct them, and what the impact is on the business and its shareholders. The case study sample companies are two Malaysian companies that had received various awards from reputable third-party organizations. On the other hand, the activities undertaken in both companies have caused them to be labelled as Malaysian mini Enrons. We employ a qualitative research methodology as most prior research employs a quantitative methodology to investigate the determinant factors in businesses’ cooking-the-book activities. The result of the study shows that the managers have used their positions, prior experience, and regulatory loopholes in their activities. Furthermore, the financial report restatement and higher reported earnings are the early warning signals of their activities. As a result of this, the Malaysian Securities Commission has revised the corporate governance code, and among others incorporated the Audit Oversight Board, known in the US as the Public Company Accounting Oversight Board.

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=f56a8be1-342e-4b26-b525-eaa5e0cdd7a3%40sessionmgr4003&vid=1&hid=4202

Posted by M Laavanya, Year 3 undergrad at the School of Accountancy, Singapore Management University

Voluntary Disclosure, Manipulation, and Real Effects.

BEYER, ANNE GUTTMAN, ILAN

Journal of Accounting Research. Dec2012, Vol. 50 Issue 5, p1141-1177. 37p. 1 Diagram, 5 Graphs.

Abstract:

We study a model in which managers’ disclosure and investment decisions are both endogenous and managers can manipulate their voluntary reports through (suboptimal) investment, financing, or operating decisions. Managers are privately informed about the value of their firm and have incentives to voluntarily disclose information and manipulate their reports in order to obtain more favorable terms when issuing equity to finance a new profitable investment opportunity. The model shows that treating managers’ disclosure and investment decisions both as endogenous and allowing managers to manipulate their voluntary reports yields qualitatively different predictions from when the disclosure and investment decisions are considered separately and managers cannot engage in manipulation. The model predicts that managers’ disclosure strategy is sometimes characterized by two distinct nondisclosure intervals (contrary to traditional threshold equilibria of voluntary disclosure models) and that managers with intermediate news sometimes forego the new profitable investment opportunity. As such, the paper highlights the importance of considering the interdependencies between firms’ disclosure and investment decisions and provides new empirical predictions.

http://eds.b.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=b1d3c2ce-e7f6-41e6-9f94-fe1807dd3fc7%40sessionmgr113&vid=1&hid=108

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=975e07b2-b36c-472c-97a3-7c6e3b909489%40sessionmgr4001&vid=1&hid=4110

Posted by M Laavanya, Year 3 undergrad at the School of Accountancy, Singapore Management University

Stock Market Manipulation on the Hong Kong Stock Exchange.

Gerace, Dionigi¹ Chew, Charles² Whittaker, Christopher³ Mazzola, Paul¹

Australasian Accounting Business & Finance Journal. 2014, Vol. 8 Issue 4, p105-140. 36p.

Abstract:

This study is the first to empirically examine stock market manipulation on the Hong Kong Stock Exchange. The dataset contains 40 cases of market manipulation from 1996 to 2009 that were successfully prosecuted by the Hong Kong Securities & Futures Commission. Manipulation is found to negatively impact market efficiency measures such as the bid-ask spread and volatility. Markets appear incapable of efficiently responding to the presence of manipulators and are characterised by information asymmetry. Manipulators were successfully able to raise prices and exit the market. This finding contradicts views that trade-based manipulation is entirely unprofitable and self-deterring. The victimisation of information-seeking investors and the market as a whole provides a strong rationale for all jurisdictions, including Australia, to have effective laws that prohibit manipulation and for robust enforcement of those laws to further deter market manipulation

The Manipulator’s Poker: Order-Based Manipulation in the Chinese Stock Market.

Kong, Dongmin¹ Wang, Maobin²

Emerging Markets Finance & Trade. Mar/Apr2014, Vol. 50 Issue 2, p73-98. 26p.

Abstract:

This paper investigates order-based manipulation and its effects on investor behavior and market efficiency. Using a unique data set from the Chinese stock market, we show that (1) order-based manipulation affects market liquidity and trading behavior, (2) the manipulator pretends to be informed or expects to be seen as informed by choosing a “right” time to implement the manipulation, and (3) the manipulation rapidly changes investor reaction to the market order/depth imbalance in the short run, and the effect gradually drops during the postmanipulation period. Our results are robust to alternative measures and offer clear implications for both theory and policy.

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=003c91f4-8faa-4b99-9414-55a1efda7c18%40sessionmgr4003&vid=1&hid=4110

Posted by M Laavanya, Year 3 undergrad at the School of Accountancy, Singapore Management University

The Impact of Fraudulent False Information on Equity Values.

Ullah, Saif¹ sulla@jmsb.concordia.ca Massoud, Nadia² nmassoud@schulich.yorku.ca Scholnick, Barry³ barry.scholnick@ualberta.ca

Journal of Business Ethics. Mar2014, Vol. 120 Issue 2, p219-235. 17p. 9 Charts, 4 Graphs.

Abstract:

There are two types of stock price manipulation examined in the theoretical literature: (1) insider trading, which involves private information that is true and (2) the public spreading of fraudulent false information. While there is a large empirical literature on insider trading, this is the first empirical article to examine the impact of false, fraudulent public information on stock prices and trading volume. We find that such false information, even after being denied by a credible source such as the SEC, generates both abnormal returns and abnormal trading volume. We also find that the effects of the false information on security returns and volume can be persistent for at least 2 weeks. In addition, we show that perpetrators of false news attacks can make potentially large profits from such market manipulations.

• Based on a sample of 111 SPACs we find that the return following a merger is significantly negative. Evidently, SPAC investors, while protecting themselves from downside risk, are also sacrificing the large potential merger returns that ordinary shells offer.
• The extent to which shell firms are an investable alternative asset largely depends upon the depth of this rather illiquid market. Most shell firms have fewer than three market makers and trading tends to be thin and concentrated among a relatively small shareholder base.

Earlier Post: Special Purpose Acquisition Company in Malaysia – Caveat Emptor by LIN Liye

http://ac.els-cdn.com/S0929119911000198/1-s2.0-S0929119911000198-main.pdf?_tid=030228fc-b1fc-11e4-8cf6-00000aacb35e&acdnat=1423665846_0f55cf5757370a7b4540795f7ce538b0

Journal of Corporate Finance

Volume 17, Issue 4, September 2011, Pages 850–867

Shell games: On the value of shell companies ^☆

Ioannis V. Floros^a, 1, , Travis R.A. Sapp^b, , 

Abstract

A reverse merger allows a private company to assume the current reporting status of another company that is public. This can be done quickly, without fundraising, road show, underwriter, substantial ownership dilution, or great expense. Private firms that go public via reverse merger are often motivated by the need to quickly secure financing through privately placed stock (PIPEs) and the desire to make acquisitions using stock as payment. In each of the last eight years reverse mergers have outnumbered traditional IPOs as a mechanism for going public, and reporting shell companies are providing fuel for much of this growth. We study 585 trading shell companies over the period 2006–2008. The purpose of most of these shell firms is to find a suitor for a reverse merger agreement. These companies have no systematic risk, operations, or assets, and their share price tends to decline over time. Yet, these firms have investors. When a takeover agreement is consummated, shell company three-month abnormal returns are 48.1%. We argue that this exceptional return is compensation to investors for shell stock illiquidity and the uncertainty of finding a reverse merger suitor. We show that shell company returns are much greater at the consummation of a merger than those of a similar entity that in dollar terms is more popular among investors — Special Purpose Acquisition Companies (SPACs).

https://papers.ssrn.com/sol3/Data_Integrity_Notice.cfm?abid=2558481

Information in Financial Statement Misstatements at the Engagement Partner Level: A Case for Engagement Partner Name Disclosure?

Wuchun Chi National Chengchi University (NCCU) – Department of Accounting

Ling Lei Lisic George Mason University

Linda A. Myers University of Arkansas
Mikhail Pevzner University of Baltimore – Merrick School of Business
January 2015

Abstract: 
Using data from Taiwan where engagement partner names are disclosed and misstatements of clients’ annual financial statements to proxy for audit quality, we examine whether audit quality at the engagement partner level persists, and whether an engagement partner’s reputation for prior audit quality is informative about current audit quality. We find that at the engagement partner level, year t-1 misstatements made by other audit clients predict year t misstatements for clients without a history of misstatements in the preceding three years, but this effect is mitigated by engagement partner experience. In addition, we find a positive association between the incidence of restatements made by an engagement partner’s clients in the previous two or three years and the likelihood that a different client misstates in the current year, suggesting that partner-level restatements provide information about future audit quality. Finally, we find that an engagement partner’s reputation for past client misstatements (as disclosed in restatements) is associated with a higher likelihood of that partner losing existing clients and a lower likelihood of that partner attracting new audit clients. Collectively, our results suggest that engagement partner identification can reveal information that is informative about audit quality and affects stakeholder perceptions of audit quality, providing some support for the Public Company Accounting Oversight Board’s proposal to disclose the names of engagement partners in the U.S.

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=55bb4c98-3bd6-412a-a1b5-2dd6ef74c69e%40sessionmgr4004&vid=3&hid=4103

Posted by Joel CHUA Yong Sheng , Year 3 undergrad at the School of Business, Singapore Management University

Expected dividend and earnings management: Evidence from Taiwan

Szu-Hsien Lin, Li-Hua Lin, Huei-Hwa Lai, Chien-Chung Tu

Abstract

The earnings of a firm are not only relevant to its survival, but also affect managers’ performance and stakeholder’s decision. The accrual basis of accounting provides managers the discretion of financial statements. Since the funding of dividends often comes from and is often limited to earnings or equity increased, the accounting earnings are one of the important factors that determine the level of dividend payouts. In other words, when accounting earnings are lower than expected dividend levels, managers will have the incentive for an upward earnings management to prevent decreases in dividends. Daniel, et al. (2008) found that managers treat the expected dividend as an important earnings threshold. This paper followed Daniel, et al. (2008), and adopted the 6145 companies that listed in Taiwan Stock Exchange and OTC market, from 2005 to 2010, to examine the association between dividend threshold and earnings management. The empirical results support our hypothesis that the dividend threshold is an important incentive for managers to engage in earnings management. This is worth the attention of stakeholders and researchers.