Template-Type: ReDIF-Article 1.0 Author-Name: Chun-An Li Author-Name: Tse-Mao Lin Author-Name: Yu-Wen Huang Title: MANAGERIAL OVERCONFIDENCE, COMPENSATION INDUCED RISK TAKING, AND EARNINGS MANAGEMENT Abstract: This study examined Taiwanese listed company and OTC (Over-the-Counter) firms to explore empirically managerial overconfidence and compensation incentives induced risk-taking, and the impact on accrualbased earnings management (AEM) and real earnings management (REM). The study results show that overconfident managers are more likely to adopt REM than AEM. Compensation induced Delta risk-taking is irrelevant to AEM but could lower the propensity for REM, and compensation induced Vega risk-taking could increase the magnitude of AEM but lower the magnitude of REM. These results remain robust after including interaction dummy between overconfidence and Delta risk-taking, and interaction dummy between overconfidence and Vega risk-taking for further analysis and Logistic Regression. In addition, this study also finds that overconfidence could mitigate the positive relationship between Vega risk-taking and AEM Classification-JEL: G34, G41 Keywords: Risk-Taking, Earnings Management, Overconfidence, Compensation Incentive Journal: The International Journal of Business and Finance Research Pages: 1-26 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:1-26 Template-Type: ReDIF-Article 1.0 Author-Name: Lan Liu Title: SEASONAL VARIATIONS IN TWO-YEAR TREASURY NOTE YIELDS Abstract: We study seasonality in the two-year Treasury Note yields. We find that most anecdotally observed seasonal variations of yields do not pass the more rigorous statistical significance test. In addition, the seasonality findings depend on how me measure yields and what kind of seasonal patterns we test. No statistical significance is found with tests using nominal yields, most likely due to the fact that yields have been dropping substantially since the 1980s which distorted the mean values of yields. When we instead use the rank of monthly yields in a year to test the seasonality, however, we find strong statistical significance to support the variation of high yields from March to August and low yields from September to February Classification-JEL: G10, G12, G14 Keywords: Seasonality, Treasury Yields, Asset Pricing Journal: The International Journal of Business and Finance Research Pages: 27-37 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:27-37 Template-Type: ReDIF-Article 1.0 Author-Name: Jin-Gil Jeong Author-Name: Sandip Mukherji Title: FLEXIBLE OPTIMAL MODELS FOR PREDICTING STOCK MARKET RETURNS Abstract: This study assesses the usefulness of flexible optimal models of business cycle variables for predicting stock market returns. We find that variable estimation periods identify structural breaks in months with large absolute returns and the optimal models recognize regime switches. Flexible optimal models have much greater predictive power for stock market returns than fixed univariate or multivariate models. The dividend yield has consistent predictive power for stock market returns, but different variables make significant contributions to predicting stock market returns in different periods. These findings highlight the importance of employing flexible optimal models to consistently predict stock market returns Classification-JEL: G11, G12 Keywords: Predicting Stock Returns, Optimal Models, Business Cycles, Dividend Yield Journal: The International Journal of Business and Finance Research Pages: 39-48 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:39-48 Template-Type: ReDIF-Article 1.0 Author-Name: Mingyuan Sun Title: BANKING CRISIS AND CYCLIC SHOCKS: A PERSPECTIVE ON VOLATILITY CLUSTERING Abstract: Typical systemic risk measurement barely captures the dynamic risk characteristics of the entire banking system. Experience from past financial crises shows, major indicators in financial markets have clustered volatility during periods of economic downturns. This study focuses on the overall profile of the commercial banking sector. The Ratio of Adjusted Weighted Estimated Loss is introduced as an indicator of banking crisis to analyze volatility clustering in a system-wide perspective. The results show that crises indicator volatility tends to cluster together when distress signals begin to appear in the market. A leverage effect is also presented in the results when applying the EGARCH model. Analysis of the effect of cyclic shocks discusses the process of risk transfer from exogenous shocks to endogenous contagion. The results have implications for a better understanding of the relationship between business cycle and banking crises Classification-JEL: C32, E32, G01, G21 Keywords: EGARCH, Volatility Clustering, Cyclic Shocks, Leverage Effect Journal: The International Journal of Business and Finance Research Pages: 49-61 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:49-61 Template-Type: ReDIF-Article 1.0 Author-Name: Zugang Liu Author-Name: Jia Wang Title: DO STYLE MOMENTUM STRATEGIES PRODUCE ABNORMAL RETURNS: EVIDENCE FROM INDEX INVESTING Abstract: In this study, we investigate the return enhancement ability of style momentum strategy: a strategy that switches between value and growth styles based on previous performance. We explore the variation in abnormal returns of long-only and long-short momentum strategies using various style based indexes (Russell value/growth indexes, Fama-French value/growth indexes, and MSCI value/growth indexes) where value and growth stocks are classified using different criteria. Our results show that the performance of style momentum does vary across different index families. We first find that in general the long-only strategies create significant positive abnormal returns whereas the long-short strategies do not. Second, for a fixed formation period, abnormal returns of the strategies tend to decrease when the length of holding periods increase. Third, abnormal returns are stronger and more significant when rotating within large cap value and growth indexes while abnormal returns are weaker and inconsistent when rotating within small cap value and growth indexes. Fourth, strategies based on rotating across all market cap levels do not generate consistently significant positive abnormal returns for Russell indexes or Fama-French indexes but they do for MSCI indexes. Fifth, individual stock momentum only explains a very small portion of the returns of style moment strategies Classification-JEL: G11 Keywords: Style Momentum, Value, Growth, Large Cap, Small Cap Journal: The International Journal of Business and Finance Research Pages: 63-75 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:63-75 Template-Type: ReDIF-Article 1.0 Author-Name: Umapathy Ananthanarayanan Title: DO CORPORATE GOVERNANCE MEASURES IMPACT AUDIT PRICING OF SMALLER FIRMS? EVIDENCE FROM THE UNITED STATES AND NEW ZEALAND Abstract: Motivated primarily by the claims that audit committee independence and accounting expertise and CEO compensation influence audit fees, this study examines the effect of such factors, on audit fees in two different institutional settings in the post-Sarbanes Oxley Act (SOX) era. The institutional settings are those of the U.S. and New Zealand audit markets, where the U.S. market is more regulated and litigious than the New Zealand market. The study sample comprises firms of similar size from each country. Firms in the U.S. with higher audit committee accounting expertise charge higher audit fees than New Zealand firms. The results also suggest that short-term incentives and total compensation in both the countries are considered as audit risk and priced accordingly even though N.Z. firms operate in a different regulatory environment. Study findings suggest that firms with better corporate governance arrangements in the post-SOX era in the U.S. demand a better audit effort from audit firms and pay higher audit fees Classification-JEL: M42, M48, M49 Keywords: New Zealand, Audit Fees, SOX, IFRS Journal: The International Journal of Business and Finance Research Pages: 77-94 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:77-94 Template-Type: ReDIF-Article 1.0 Author-Name: Chun-An Li Author-Name: Min-Ching Lee Author-Name: Chin-Sheng Huang Title: TAIWAN AND U.S. EQUITY MARKET INTERDEPENDENCE AND CONTAGION: EVIDENCE FROM FOUR-FACTOR MODEL Abstract: A four-factor model is used to measure the interdependence’s co-movement and crisis’ contagion effect on portfolio returns of 23 Taiwanese industries during tranquil and the U.S. subprime mortgage crisis periods. By incorporating the control variables of economic and financial fundamentals, we deconstruct the relevance of returns on industrial assets’ channels. The empirical results show that the co-movement effect on Taiwan’s industrial portfolios returns are affected by global, regional, and domestic factors. Additionally, in the subprime mortgage crisis period, the contagion effect of Taiwan’s industrial portfolios returns was affected by the domestic and crisis factor. Based on our empirical study, the transmission of Taiwan’s industrial portfolio returns channel is significantly impacted by the instrument variables of interest rate, trade integration, political stability, and government budgets of the economy fundamentals Classification-JEL: G12, G15 Keywords: Co-Movement, Contagion, Financial Crisis, Factor Model Journal: The International Journal of Business and Finance Research Pages: 95-115 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:95-115 Template-Type: ReDIF-Article 1.0 Author-Name: Matthew Reidenbach Author-Name: Katrina Wu Title: AUDIT FIRM INDUSTRY SECTOR LEADER GEOGRAPHIC LOCATION AND ITS ASSOCIATION WITH AUDIT FEES Abstract: This study tests whether an association exists between the geographic location of industry sector leaders in an auditing firm and differences in audit pricing for that same auditing firm’s industry clients. Using organizational learning theory and human capital theory, we predict that the industry-specific human capital of the audit partner in charge of an industry practice serves as a silo for this knowledge and provides an opportunity to charge a fee premium to their local clients. Using a hand collected dataset of partners overseeing industry-specific audit practices on audit firm websites, we provide evidence that a positive association exists between industry sector leaders’ office locations and audit fees for same-industry clients in that city. Building on prior research on the effect of individual audit partners and general human capital on audit quality, this study provides additional insight into the human capital of audit firm industry sector leaders and the dynamics of audit market competition Classification-JEL: J24, M12, M42 Keywords: Audit Firm Structure; Audit Pricing; Human Capital Journal: The International Journal of Business and Finance Research Pages: 117-130 Volume: 12 Issue: 2 Year: 2018 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v12n2-2018/IJBFR-V12N 2-2018-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:117-130