How Does Firm‐Specific Investor Sentiment Affect the Value of Corporate Cash Holdings?

Guo, Haifeng; Yin, Chao; Zeng, Yeqin

doi:10.1111/1467-8551.12602

Cited by 18 publications

(7 citation statements)

References 97 publications

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“…Similarly, Li and Li (2021) deepen the understanding of how firm-specific investor sentiment behaves in the Chinese stock market, using overnight and over-weekend stock returns as proxies. Similar studies were conducted in Korean market (Seok et al, 2019;Kim et al, 2021), and even in US stock market (Guo et al, 2023).…”

Section: Investor Sentiment and Earnings Managementsupporting

confidence: 71%

Firm-specific investor sentiment and earnings management: evidence from Brazil

Esteves,

Piccoli

2024

ARLA

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PurposeThe purpose of this study is to investigate the influence of firm-specific investor sentiment on Brazilian companies’ accrual-based earnings management between 2010 and 2018. The paper aims to bring deeper insight into the relationship between the investor expectations and managers’ decision-making in an emerging market.Design/methodology/approachThe authors use the quantitative approach and apply a multiple linear regression model to test the relationship among the abnormal accruals, the firm-specific investor sentiment index and the control variables. The final sample includes data from 175 companies, between 2010 and 2018.FindingsThese results reveal a negative association between firm-specific investor sentiment and accrual-based earnings management, which could mean that the risk propensity of managers to manipulate earnings increases when they face known losses in the capital market.Research limitations/implicationsThe research findings provide a valuable understanding of how emerging capital market expectations can influence managerial decisions, such as accrual-based earnings management. The geographical area of study was limited to only Brazil.Originality/valuePrevious studies on developed markets show that market-wide investor sentiment positively influences accrual-based earnings management. However, the present study shows that the firm-specific investor sentiment index has a significant and negative relationship with Brazilian companies’ earnings manipulation, whereas market sentiment indicates contradictory relationship in previous studies in the country.

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Section: Investor Sentiment and Earnings Managementsupporting

confidence: 71%

Firm-specific investor sentiment and earnings management: evidence from Brazil

Esteves,

Piccoli

2024

ARLA

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“…In a related study, Ward et al (2018) found that monitoring by economically motivated institutional investors enhances the value of cash holdings. Additionally, Guo et al (2023) show that firm-specific investors’ sentiments have a strong relationship with the value of cash holdings. Moreover, effective oversight of managerial self-serving behaviors may positively affect investors’ sentiments about the value of excess cash holdings (Ilyas et al , 2022), which suggests that minority investors anticipate cash holdings at a premium if corporate governance is stronger.…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 97%

Foreign institutional investors and the value of excess cash holdings: international evidence

Ilyas,

Mian,

Mian

2023

IJAIM

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Purpose Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by constraining the potential self-appropriating managerial propensity related to its inefficient utilization. Design/methodology/approach This study uses a large panel data set of firms from 32 non-US countries from 2007 to 2018. Using data from COMPUSTAT Global and S&P Capital IQ, this study uses ordinary least squares regression with year- and firm-fixed effects for the baseline analysis. In addition, two-stage least squares with instrumental variable regression and propensity score matching approaches were used to address the potential endogeneity. Findings This study shows that FIIs significantly increase the value of excess cash holdings. The authors also found that the positive impact of FIIs is more significant when investors come from common-law countries with better governance and investor protection. Furthermore, in countries and firms with weaker governance controls, the relationship between FIIs and the value of excess cash is stronger, consistent with the institutional monitoring hypothesis. Collectively, the findings imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources. Practical implications Collectively, the findings of this study imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources. Originality/value This study offers new evidence on how FIIs impact the value of excess cash in an international setting. In addition, it highlights the significance of the legal origin of institutional investors’ home country and the governance quality of host countries and investee firms in influencing the effect of foreign institutional monitoring on the value of excess cash.

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“…We contribute to this discussion by examining the influence of irrational investor behaviour in financial markets; this issue is of importance to management scholars and corporate managers, as the functioning of these markets is known to have real efficiency consequences via corporate behaviour and managerial decision-making (Bond et al, 2012;Dow et al, 2017;Xiao, 2020). How markets function impacts managerial decisions, including initial purchase orders (IPOs; Latham and Braun, 2010), mergers and acquisitions (Bozos et al, 2014), payout policies (Polk and Sapienza, 2009), share repurchases (Babenko et al, 2012;D'Mello and Shroff, 2000;Dittmar and Field, 2015), equity issuance (Baker and Wurgler, 2002) and cash holdings (Guo et al, 2022). Hence, an understanding of stock market irrationality can lead to an understanding of corporate structures and behaviours.…”

Section: Introductionmentioning

confidence: 99%

“…How markets function impacts managerial decisions, including initial purchase orders (IPOs; Latham and Braun, 2010), mergers and acquisitions (Bozos et al. , 2014), payout policies (Polk and Sapienza, 2009), share repurchases (Babenko et al , 2012; D'Mello and Shroff, 2000; Dittmar and Field, 2015), equity issuance (Baker and Wurgler, 2002) and cash holdings (Guo et al , 2022). Hence, an understanding of stock market irrationality can lead to an understanding of corporate structures and behaviours.…”

Section: Introductionmentioning

confidence: 99%

A Behavioural Appraisal of Regulatory Financial Reforms and Implications for Corporate Management

Hajjar

Gębka

Duxbury

et al. 2023

British J of Management

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Financial markets play a vital role in shaping corporate behaviour, impacting corporate financial decisions ranging from investment and mergers/acquisitions to payout policies and management renumeration. Financial markets, however, are prone to irrational sentiments to trade, driving prices away from fundamental values, with the potential to distort corporate decisions and, hence, corporate efficiency. It is important, therefore, to examine the extent to which regulatory reforms help mitigate the influence of irrationality in financial markets. To this end, we examine the consequences of the mandatory adoption of International Financial Reporting Standards (IFRS) in Europe through the behavioural lens of investor sentiment. In country‐level analyses, we find the impact of irrational sentiment on stock markets to have significantly diminished post‐IFRS. In global pooled analyses, we compare the change in the sentiment–return relationship in countries adopting IFRS with the change in a set of non‐adopting countries to account for stock market trends: weakening of the impact of irrational sentiment on stock prices is greater in IFRS‐adopting countries. Results are robust to a battery of alternative tests and explanations. We provide strong support, therefore, for the success of IFRS in its aim of improving market efficiency, with important implications for corporate management.

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How Does Firm‐Specific Investor Sentiment Affect the Value of Corporate Cash Holdings?

Cited by 18 publications

References 97 publications

Firm-specific investor sentiment and earnings management: evidence from Brazil

Firm-specific investor sentiment and earnings management: evidence from Brazil

Foreign institutional investors and the value of excess cash holdings: international evidence

A Behavioural Appraisal of Regulatory Financial Reforms and Implications for Corporate Management

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