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This study investigates the determinants of initial public offering (IPO) underpricing by focusing on variables relating to information asymmetry, investor sentiment and corporate governance and examines whether the determinants of IPO underpricing in high-technology and non-high-technology IPOs differ. With data from Taiwan for 2009–2011, this study finds that overallotment is negatively related to underpricing, whereas market momentum, first-day trading volume and managers’ ownership retention rates are positively related to underpricing, particularly for high-technology IPOs. Our results support the signalling hypothesis in high-technology IPOs. JEL Classification: G12, G14, G24, G32

News reports have become an imperative conduit of public information. Several recent studies have used news data from public media to investigate the impact of news on stock market returns. This study analyses the usefulness of news for predicting stock returns in the Taiwan stock market. We employ text mining of economic news, transform documents using a keyword matrix, and then convert the results into news variables. Subsequently, together with other quantitative variables, we construct a fixed effect model to investigate the behaviours of stock market returns in 20 subsectors from January 2008 to December 2014. Empirical analysis reveals that the news variables provide useful information for predicting Taiwan stock market returns, although the out-sample performance is only marginally improved. We also discover an asymmetric effect of economic news for predicting stock market returns. The prediction accuracy is higher when the stock market is booming than when it is glooming.

Using data from Taiwanese manufacturing firms for the 2000–2015 period, the results of the system-generalised method of moments revealed the direction of causality from a firm's innovative activities to firm profitability. This study also revealed that the profitability of innovative firms surpassed that of noninnovative firms by employing propensity score matching. We further observed a short-term profit-enhancing effect of a firm obtaining a patent after controlling for firm heterogeneity and the endogeneity problem. Our results indicate that firms that invested in research and development successfully obtained patents, and the protection granted by government-issued patents improved their profitability. These findings have strong policy-related implications; innovation policymakers in the government should ensure a favourable industrial environment that focuses on giving firms incentives to improve performance.

This study examines the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) in Taiwan. Using CSR awards as a social responsibility indicator, this study finds that socially responsible firms can achieve financial results superior to those of firms which do not pursue CSR initiatives. The relationship remains after endogeneity is treated. The Google Search Volume Index (SVI) is used as a specific proxy for firm visibility, observing that it has a positive influence on the CSR–CFP relationship. On further separation of the sample into electronics and non‐electronics industries, the results demonstrate that SVI has a positive influence on the CSR–CFP relationship in the electronics industry. For the non‐electronics industries, the results reveal that board ownership has a significant positive influence on the CSR–CFP relationship, and a negative relationship if it is a family business.

This study investigates the impact of economic freedom (EcF) on analysts’ earnings forecast (AEF) accuracy. EcF is measured from five aspects: Government, Protection, Money, Trade, and Regulation. With the sample of 7,014 firms from 12 economies in the Asia-Pacific region over the 18-year period, this study finds an optimistic bias in AEFs. The optimistic bias is stronger for large firms, value firms, stock with high analyst coverage, and low dispersion in AEFs. Also, the optimistic bias is stronger from analysts in economies with less EcF than in more freedom ones. Analysts are making more accurate earnings forecasts for firms in economies with more EcF. In addition, the study finds the optimism bias reduced the earnings forecast accuracy. These findings may suggest that an increase of EcF would lead to more transparent financial statements, which further reduces the analysts’ forecast bias.

Purpose The purpose of this paper is to investigate the role of earnings forecast revisions by equity analysts in predicting Canadian stock returns Design/methodology/approach The sample covers 420 Canadian firms over the period 1998-2009. It analyses investors’ reactions to 27,271 upward revisions and 32,005 downward revisions of analysts’ forecasts for Canadian quoted companies. To test whether analysts’ earnings forecast revisions affect stock return continuation, forecast revision portfolios similar to Jegadeesh and Titman (2001) are constructed. The paper analyses the returns gained from a trading strategy based on buying the strong upward revisions portfolio and short selling the strong downward revisions portfolio. It also separates the sample into upward and downward revisions. Findings The authors find that new information in the form of analyst forecast revisions is not impounded efficiently into stock prices. Significant returns persist for a trading strategy that buys stocks with recent upward revisions and short sells stocks with recent downward revisions. Good news is impounded into stock prices more slowly than bad news. Post-earnings forecast revisions drift is negatively related to analyst coverage. The effect is strongest for stocks with greatest number of upward revisions. The introduction of the better disclosure standards has made the Canadian stock market more efficient. Originality/value The paper adds to the limited evidence on the effect of analyst forecast revisions on the returns of Canadian stocks. It sheds light on the importance of analysts’ earnings forecast information and offers support for the investor conservatism and information diffusion hypotheses. It also shows how policy can improve market efficiency.

This study examines the relationship among analysts’ earnings forecast revisions, information uncertainty, and stock returns and provides new evidence that stock price drift occurs after analysts’ earnings forecast revisions. Using data from the Australian stock market over the period of 1992 to 2009, we find that the stocks with upward earnings revisions experience positive returns, while stocks with downward revisions have negative returns. The effect is more prominent in stocks with high information uncertainty. The results are robust after controlling for market conditions, seasonality, and risks. Our evidence supports the conservatism bias model that investors tend to underweight the public information, such as analysts’ earnings forecast revisions. Importantly, our evidence provides possible explanations about the violation of the efficient market hypothesis. Our results suggest that the conservative bias causes investors not to sufficiently update their beliefs and eventually results in subsequent return continuation as investors’ underreaction to analysts’ earnings forecast revision is stronger with higher information uncertainty.

This article analyses the trading activity of Taiwanese open-end equity mutual fund herding behaviour over the period of 1996-2008. We found evidence of both directional and directionless herding. We also found that sell-side fund herding leads to price stabilization, whereas buy-side herding results in prices adjusting slowly. We found that the abolition of qualified foreign institutional investor (QFII) has reduced directionless and sell-side herding but has had no effect on buy-side herding.

This article investigates the effect of foreign direct investment (FDI) on the productivity of parent firms for multinational enterprises in Taiwan. The current research specifically examines the potential differences in productivity effect between FDI toward developing (vertical FDI) and developed countries (horizontal FDI) and between electronics and non-electronics firms. Using panel data on Taiwan firms from 2000 to 2005, results obtained using propensity score matching (PSM) show thatmultinational firms experience a higher productivity following their FDI in developing countries. A time lag exists in productivity gain of investment to developed countries, and is relevant only to electronics firms. Employing the generalized method of moment of the panel fixed model to control for problems of endogeneity and unobservable heterogeneity, the empirical finding suggests that productivity effect caused by investing in developing countries remains significantly positive. A lagged productivity-enhancing effec...

This paper investigates the effect of tax incentives on R&D activities in Taiwanese manufacturing firms. Specifically, we assess the potential R&D-enhancing effect on recipients of R&D tax credits compared with their non-recipient counterparts. Moreover, the potential difference in the R&D-enhancing effect between high-tech and non-high-tech firms is also examined. Utilizing a firm-level panel dataset during 2001 and 2005, empirical results obtained by propensity score matching show that recipients of R&D tax credits appear on average to have 93.53% higher R&D expenditures and a 14.47% higher growth rate for R&D expenditures than non-recipients with similar characteristics. The R&D-enhancing effect of R&D tax credits is not found to be particularly relevant to high-tech or non-high-tech firms. We further employ a generalized method of moment (GMM) of the panel fixed model to control for the endogeneity of R&D tax credits and firm heterogeneity in determining R&D expenditure. Various estimates based on the entire sample and high-tech-firms are quite similar and there is a significantly R&D-enhancing effect of R&D tax credits. This result suggests that the R&D preferential policy has induced more R&D expenditure by firms in Taiwan. While the existence of the R&D-enhancing effect brought on by tax incentives is intuitive, the estimates can provide insightful implications for the R&D tax policy.

Purpose – The purpose of this paper is to investigate whether mutual fund investors can make effective cash flow timing decisions and examine the sensitivity of these decisions to past fund performance using cash flow data at the individual fund level.Design/methodology/approach – This study examines performance persistence and investor timing ability of 200 domestic equity mutual funds in Taiwan between 1996 and 2009. In particular, a performance gap measuring the difference between dollar‐weighted average monthly returns and geometric average monthly returns is used to evaluate investors' timing ability.Findings – The empirical results show that funds that have performed well (poorly) in the previous year tend to continue performing well (poorly) in the following year, and investors' timing performance is negatively related to fund performance. The results also show that investors' timing performance is significantly and negatively related to fund size, length of fund history, and momentum‐style of fund...

This study examines the effects of size, analyst coverage, and book-to-market in explaining momentum profits in UK stocks. We document a pattern of momentum in UK stocks and find that momentum profits are negatively related to firm size, analyst coverage, and book-to-market. We find that book-to-market is more important than coverage and coverage is more important than size in explaining momentum profits. We examine the book-to-market effect closely and find that a value premium exists for past stock losers, but a growth discount exists for past stock winners. Finally, the results of this study provide mixed support for the information diffusion hypothesis of Hong and Stein (1999).

This paper studies the impact of economic freedom on analysts’ earnings forecast bias and accuracy by providing empirical evidence from 13 Asian-Pacific countries. Based on data from 2,759 firms over 10 years from January 2000 to December 2009, we find that overall economic freedom has positive impacts on analysts’ earnings forecast accuracy, implying that the higher (lower) the economic freedom, the lower (higher) the information asymmetry, the more accurate the analysts’ earnings forecasts. This study also finds analysts on average are over-optimistic, in particular for less economic freedom countries. We argue that the increase of economic freedom in a country should lessen the information asymmetric problems, and further reduce analysts’ earnings forecast bias.

This paper analyzes the trading activity of Taiwanese open-end equity mutual fund herding behaviour over the period of 1996 to 2008. We employ the herding measure suggested by Wermers (1999) and find strong evidence of both directional and directionless herding activities, and also of positive feedback trading by mutual fund managers in Taiwan. Our results show a stronger tendency to herd among growth stocks, along with a high level of sell-side herding in value stocks. Moreover, we also find the importance of turnover ratio and price-earnings ratio in determining the directional herding activities. Finally, consistent with previous studies, we find this herding behaviour neither destabilises nor stabilises to stock prices.

This study performs an out-of-sample test on momentum effects in nine Asian-Pacific stock markets from 1990 to 2002. We find little evidence on the existence of intermediate stocks return momentum. Specifically, the unrestricted momentum trading strategies appear profitable only in major developed countries but not in the emerging countries in our samples. We further investigate momentum effects through two behavioural theories: Hong and Stein’s (1999) gradual-information-diffusion model and Barberis et al.’s (1998) investor conservatism bias model. Our results support Barberis et al. (1998) model but reject the Hong and Stein’s information diffusion hypothesis. It shows the profitability of momentum strategies is positively related to analyst coverage but negatively related to analysts’ forecast dispersion. We argue that investors’ psychological conservatism biases reflect slow updating of their beliefs and underrate the importance of new information. Interestingly, we also find that book-to-market is more important than dispersion and dispersion is more important than size in explaining momentum returns.