Research Paper Series

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Year RPS # Title Author/s
2005 2005-30 (FA) INITIAL PUBLIC OFFERINGS OF STATE-OWNED ENTERPRISES: AN INTERNATIONAL STUDY OF POLICY RISK Swee-Sum Lam, Ruth Tan Seow-Kuan & Glenn Wee Tsao-Min

Policy risk, and not information asymmetry, explains the cross-sectional underpricing of privatized initial public offerings.  The issuer governments of high policy-risk issues tend to retain a large equity stake and underprice more, with underpricing increasing in retained equity.  While the issuer government’s retained equity is an observable signal for policy risk, we find that the quality of a country’s bureaucratic machinery is a more intuitive and practical measure of policy risk.  Policy risk also explains the absence of a systematic relation between the initial returns on privatized and private initial public offerings.
 
JEL Classification:  G12; G18; G24; G28; G32; G38
 
Keywords:  privatization, initial public offerings, underpricing, policy risk, endogeneity.

2005 2005-29 (FA) GLOBALIZATION AND STOCK MARKET RETURNS Swee-Sum Lam & William Wee-Lian Ang

With increasing globalization, to what extent do stock market returns reflect global or domestic risk factors?  We find a significant relationship between stock market returns and the global market risk factor and macroeconomic factors respectively.  In particular, global factors offer four times more explanatory power than domestic factors for developed market stock returns.  Yet domestic factors are as important as global ones in emerging economies.  Our method allows for the proxies of the state variables to be endogenously determined.  The relationship between macroeconomy and stock market returns is robust after accounting for the market factor, firm size and book-to-market characteristics.
 
JEL Classification: E44, G12

Keywords: Globalization, macroeconomic risk factors, global risk factors, domestic risk factors

2005 2005-28 (FA) AGENCY COSTS AND MANAGEMENT CONTRACTING: GRANTING EXECUTIVE STOCK OPTIONS AS A STRATEGIC COMPENSATION PRACTICE? Swee-Sum Lam & Yew-Kee Ho

This is an exploratory study on the characteristics and performance of firms that choose to grant executive stock options as a strategic compensation practice.  According to the push theory of employee ownership, stock options are granted to push employees to create superior financial performance.  We find that firms that grant executive stock options offer persistent abnormal firm performance.  Firms that grant stock options in lieu of cash compensation do not perform differently in the long run from those that grant stock options as incentives.  This finding is consistent with the proposition that the motivation for the use of executive stock options is endogenously determined for any firm given its investment opportunities and technology, risk characteristics and growth options.  
 
JEL Classification:  M52, J33, J38
 
Keywords: agency costs, management contracting, executive stock options, firm characteristics, cash compensation, incentives

2005 2005-27 (FA) DO EXECUTIVE STOCK OPTION GRANTS HAVE VALUE IMPLICATIONS FOR FIRM PERFORMANCE? Swee-Sum Lam & Bey-Fen Chng

Consistent with predictions of agency theory, we find direct evidence that executive stock option grants have value implications for firm performance.  This inference is drawn from evaluation of various motivations for the use of such grants in executive compensation: value enhancement, risk taking, tax benefit, signaling and cash conservation.  We find consistent evidence for the value enhancement motivation to reduce agency costs.  As well, they signal for positive price sensitive information.  Our results reject the tax benefit and cash conservation motivations.  This finding is robust after controlling for the endogenous character of executive stock option grants and other equity-based grants.  
 
JEL Classification:  G32, J33, M52

Keywords:  executive stock option grants, compensation, agency theory, firm performance, endogeneity

2005 2005-26 (FA) WHO FOLLOWS THE PROPHETS? ANALYSTS' STOCK RECOMMENDATIONS AND THE TRADING RESPONSE OF LARGE AND SMALL INVESTORS Srinivasan Sankaraguruswamy, Wen He & G. Mujtaba Mian

We document that large and small investors, classified by the size of their trades, respond differently to changes in analysts’ stock recommendations. Large investors follow the advice of only star analysts, and buy (sell) the stocks that such analysts upgrade (downgrade). In contrast, small investors not only are less discriminating between star and non-star analysts, but also buy both the upgraded and the downgraded stocks. The buying activity of small investors on downgrades suggests that they disregard the negative information content of analyst downgrades. We find this to be true even when the downgrade is to a “hold” or a “sell” rating suggesting that this behavior is not driven by the level of the recommendation. Further analyses point towards the bullish market sentiment of the Internet period and short-sale constraints as important determinants of the puzzling response of small investors to downgrades.
 
JEL Classification: D14, D21, G24
 
Keywords: Stock Recommendations, Trading, Large investors, Small investors

2005 2005-25 (MO) THREE SIDES TO A PINK TRIANGLE: THE APPLICANT, THE JOB AND THE INTERVIEWER IN THE HIRING OF OPEN HOMOSEXUALS Maw Der Foo, Angeline Lim & Young Rok Choi

Drawing from Heilman’s lack of fit model and Stone and Colella’s model of factors affecting the treatment of disabled individuals in organizations, we develop a theoretical model to explain discrimination against open homosexuals in the interview process, and proceed to examine the effects of applicant, job and interviewer characteristics on the interviewer’s decision to hire these applicants. Two focus groups and a survey of hiring personnel were conducted. Survey results using ratings of the likelihood to hire the open homosexual applicant provided some support for the model we developed. Implications for future research in homosexual discrimination, methodology to study sensitive issues such as homosexual discrimination and workplace implications are discussed.

2005 2005-24 (MO) HIGH PERFORMANCE WORK SYSTEMS AND FIRM PERFORMANCE: A CROSS-CULTURAL COMPARISON IN THREE COUNTRIES Pei-Chuan Wu

This study examines the relationships between high performance work systems (HPWS) and firm performance using the universal and contingency perspectives. Specifically, it focuses on the moderating effects of HRM values, innovation strategy, and cultural distance on HPWS and firm performance. The findings from a sample of 552 firms from three regions (Hong Kong, Singapore, and Taiwan) indicate partial support for both the universal and contingency approaches. All three moderators have a significant impact on the link between HPWS and perceived performance. On the other hand, country of origin is an important moderator for turnover rate and mobility rate.

2005 RPS #2005-23 (MO) JUSTICE PERCEPTIONS AND ORGANIZATIONAL ATTRACTIVENESS AS A POTENTIAL EMPLOYER Ho-Beng Chia, Yue-Wah Chay & Adrian Ng Chuin-Li

We examined whether perceptions of distributive and procedural justice mediate the relationship between recruitment-selection information and participants’ attraction to an organization as a prospective employer. We randomly assigned 280 participants to one of four treatment conditions. The treatment factors were validity of the selection tests and selectiveness of the hiring policy, each with 2 levels. We found that both perceived validity and perceived selectivity were positively related to organizational attractiveness, and that perceived distributive and procedural justice mediated recruitment-selection information and the organizational attractiveness relationship.

2005 2005-22 (MO) THE EFFECTS OF VALIDITY AND DIFFICULTY INFORMATION ON THE PERCEPTIONS OF PROCEDURAL JUSTICE AND THE ATTRACTIVENESS OF AN ORGANIZATION AS A POTENTIAL EMPLOYER Ho-Beng Chia, Yue-Wah Chay & Lai Yen Yen

We examined the impact of recruitment-selection information on job applicant’s perception of the attractiveness of the organization as a prospective employer. We randomly assigned 272 participants to one of four treatment conditions. The treatment factors were validity and difficulty of the selection test, each with 2 levels. We found that both perceived validity and perceived difficulty were positively related to organizational attractiveness. Perceived procedural and perceived distributive justice partially mediated the relationship between perceived validity and organizational attractiveness. We specifically used an experimental design to delineate the causal relationships among the variables.

2005 2005-21 (MO) WORKPLACE AS COMMUNITIES: THE ROLE OF SOCIAL NETWORKS ON WHO SEEKS, GIVES AND ACCEPTS INFORMATION ON JUSTICE ISSUES Ho-Beng Chia, Maw-Der Foo & Ruolian Fang

This study examines individuals in a community as defined by their membership in an organization. In such a setting, individuals often make use of their social contacts to make sense of events in the organization. Yet, the organizational justice literature is mostly silent on how these contacts shape information seeking, volunteering, and acceptance. Using a social network perspective, we found that expressive ties were positively related to information seeking, volunteering, and acceptance for both procedural and interactional justice issues. Instrumental ties were related to all dependent variables for procedural justice issues but only related to information seeking for interactional justice issues. The role of ties and networks in information flow is discussed.
 
Keywords: social networks, procedural and interactional justice, information seeking, volunteering and acceptance

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