Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk

Lee, Jong-Sub; Naranjo, Andy; Sirmans, Stace

doi:10.2139/ssrn.2492204

Cited by 17 publications

(20 citation statements)

References 84 publications

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“…While the National Bureau of Economic Research (NBER) defines the recessionary period as being from December 2007 to June 2009, the U.S. and global economies suffered from high unemployment rates, low consumer confidence, a weak housing market, low levels of bank lending, and escalating federal debts well into fiscal year 2010 (Geiger, Raghunandan, & Riccardi, ; Lee, Naranjo, & Sirmans, ; Wingfield, ). Thus, we define calendar years 2007–2010 as the “crisis” period and five years preceding the crisis period as pre‐crisis period (2002–2006).…”

Section: Methodsmentioning

confidence: 99%

Determinants and consequences of timely asset impairments during the financial crisis

Gunn

Khurana

Stein

2017

Business Fin & Account

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U.S. firms recorded an unprecedented number of asset impairments during the recent financial crisis. We investigate the timing of these losses in the context of two competing views on how firms use discretion over asset impairments. The first view posits that firms record impairments to convey private information as part of their commitment to a conditionally conservative reporting strategy. The second view argues that firms use their discretion to report opportunistically by delaying the recording of bad news. Consistent with the first view, we find that firms recorded timelier asset impairments during the financial crisis if they reported more conservatively in the five years preceding the crisis. Further tests show this relation is greater for firms with strong corporate governance, industryspecialist auditors, and high leverage, indicating the importance of monitoring mechanisms in determining how firms handle the discretion involved in impairment decisions. We also test for the consequences of timely asset impairments during the financial crisis and find that firms reporting conservatively both before and during the crisis were able to acquire more debt financing, and their publicly traded bonds suffered smaller increases in illiquidity. Collectively, our study highlights the role of asset impairments in firms' accounting choices over time.

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Section: Methodsmentioning

confidence: 99%

Determinants and consequences of timely asset impairments during the financial crisis

Gunn

Khurana

Stein

2017

Business Fin & Account

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“…Regarding the debate on optimal bundle of governance mechanisms in mitigating agency costs (Aslan & Kumar, 2014), our research suggests that a firm which chooses to respond to market-level openness by actively engaging with their own firm-level financial integration can signal their corporate governance quality to investors, enhancing the benefits associated with firm-level financial integration and reducing the agency costs associated with market-level financial openness. During the financial crisis period, such active engagement in firm-level financial integration is particularly important for investors to delink their firms' information environment from others', in line with Lee et al, (2016).…”

Section: Discussionmentioning

confidence: 99%

“…When market-level investment barriers are eliminated by policy makers, firm-level investment barriers can be maintained by controlling shareholders to protect their own private benefits, which further stimulates foreign investor's home bias problems 3 . In contrast, when market-level investment barriers are maintained by policy makers and regulators, firm-level investment barriers can be eliminated by controlling shareholders if they actively engage in global asset and information connections to delink their firms from their sovereign and country risks (Lee et al, 2016). Given these decisions are independent, a firm from an emerging market can therefore choose not to engage, to engage with either market-level or firm-level financial integration, or to engage with both.…”

Section: Introductionmentioning

confidence: 99%

Financial integration, investor protection and imbalanced optimistically biased information timeliness in emerging markets

Zhang

Chen

et al. 2019

International Review of Financial Analysis

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Principal-principal conflicts in many emerging markets can lead to an optimistically biased information environment. Using 24 emerging markets during the period 1996-2016, this paper examines how market-level, firm-level financial integration and investor protection quality jointly affect Imbalanced Optimistically Biased Information Timeliness (IOBIT). Results show that financial integration and investor protection quality affect good and bad information timeliness asymmetrically. Market-level financial integration augments IOBIT while firm-level financial integration and investor protection mitigate IOBIT. The effect of firm-level financial integration in mitigating IOBIT is reduced when market-level financial integration increases and/or investor protection becomes stronger. Our analysis enhances our understanding of the benefit-cost trade-off associated with financial integration in affecting information timeliness and the conditional factors in altering this benefit-cost trade-off in emerging markets.

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“…() argue that estimates of the global diversification discount are biased if the value of a US multinational firm is compared to a benchmark portfolio of US same industry standalone firms. However, as originally noted by Denis, Denis, and Yost () and more recently quantified by Lee, Naranjo, and Sirmans (), the problem with comparing a US multinational to foreign country counterparts is that differences in legal, regulatory, tax and political institutions influence the comparison and thereby bias the estimate of the value of global diversification.…”

mentioning

confidence: 99%

The hedging benefits of industrial and global diversification: Evidence from economic downturns

Liu

Mauer

Zhang

2018

Business Fin & Account

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In a large panel of US firms, we find that discounts for industrial and global diversification significantly decrease in economic downturns, suggesting a valuable hedging benefit of diversification. This finding is robust to a wide variety of business cycle and economic uncertainty variables and persists when we account for endogeneity of industrial and global diversification. We further analyze the channels through which diversification is more valuable in economic downturns. We find that the value improvement is largely explained by increases in investment and product market performance relative to focused firms. There is no evidence that improved internal capital market efficiency or access to external finance contribute to the hedging value of diversification.

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Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk

Cited by 17 publications

References 84 publications

Determinants and consequences of timely asset impairments during the financial crisis

Determinants and consequences of timely asset impairments during the financial crisis

Financial integration, investor protection and imbalanced optimistically biased information timeliness in emerging markets

The hedging benefits of industrial and global diversification: Evidence from economic downturns

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