Papers by Irene Karamanou
Unlike prior studies that examine the denominator effect, this study investigates the cash flow e... more Unlike prior studies that examine the denominator effect, this study investigates the cash flow effect of disclosure as captured by firms exhibiting increases in default risk (DR) around the 2005 mandatory International Financial Reporting Standards (IFRS) adoption in Europe. Using the Merton (1973, 1974) option-based probability of default measure (DR) on a data set of 415 winner firms (with decreases in DR) and 295 loser firms (with increases in DR), we show that loser firms exhibit the same or better financial characteristics in the pre-IFRS adoption period compared with the winner sample. However, after IFRS, loser firms exhibit deteriorating characteristics, with smaller increases in their Tobin’s q valuations, greater increases in leverage, and poorer return performance. Logistic analysis suggests that even though in the pre-IFRS period loser firms exhibit greater profitability and analyst following and lower leverage, in the post-IFRS period their profitability is less than that of winner firms while exhibiting similar leverage and analyst following characteristics. Through an examination of the determinants of the change in DR, the results suggest that loser firms incur a greater increase in DR the poorer their home country’s legal enforcement environment, the lower their analyst following, and the greater their propensity to manage earnings. In general, our results are consistent with the existence of a significant cash flow effect for the loser sample.
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Other Accounting Research eJournal, 2021
Does the stock price efficiency, i.e. the speed and the extent with which prices reflect public i... more Does the stock price efficiency, i.e. the speed and the extent with which prices reflect public information, affect corporate innovation? Using the intensity of algorithmic trading (AT) to capture price efficiency and the Tick Size Pilot experiment setting, we establish a causal positive relation between AT and innovation measured by patents. The relation is stronger for firms where managerial compensation is more closely linked to the share price performance and for more opaque firms where managerial effort is more difficult to observe from financial information. Our results generalize to other measures of innovation such as R&D spending and the number of citations.
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ERN: Initial Public Offerings (IPOs) (Topic), 2020
We use the estimate of an IPO’s intrinsic value derived from its initial price range and the degr... more We use the estimate of an IPO’s intrinsic value derived from its initial price range and the degree to which the overallotment option is exercised to decompose IPO underpricing into a Market Inefficiency and an Underwriter Bias component. The former reflects the difference between the closing price on the first day of trading and the intrinsic price and the latter the difference between the intrinsic price and the offer price. We show that although an investment strategy that goes long on undervalued and short on overvalued IPOs based on underpricing does not result in any significant return profitability, a similar strategy based on Underwriter Bias (Market Inefficiency) earns statistically and economically significant returns of 28% (15%) over the three-year period following the IPO. Multivariate results indicate that Underwriter Bias is strongly positively related to future returns but Market Inefficiency does not exhibit significant incremental information content. Our results a...
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Using a large sample of international firms from thirty-seven countries we find that firms that v... more Using a large sample of international firms from thirty-seven countries we find that firms that voluntarily adopt International Accounting Standards (IAS) and firms that cross-list on US exchanges have a significantly higher Tobin’s q than firms that do neither. Thus, we document a significant disclosure premium and reconfirm the cross-listing premium in Doidge et al. (2004). More importantly, we find that even though the cross-listing premium of US exchange listed foreign firms is higher than that of IAS firms the difference is not statistically significant. These results persist after we control for a number of country level variables and other firm-specific characteristics. We also find strong evidence suggesting that increased disclosure alone can provide a mechanism for controlling shareholders to commit to a lower consumption of private benefits of control. Overall our findings suggest that increased disclosure can act as a close substitute for US exchange cross-listings as th...
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Prior research suggests that due to the incentives they face, analysts are reluctant to voice the... more Prior research suggests that due to the incentives they face, analysts are reluctant to voice their negative views on the stocks they cover. The SEC concerned that analysts’ tendency not to disclose their decision to terminate coverage on a firm effectively allows them to similarly conceal their negative news, in its 2003 amendment to the SRO rulings, introduced a provision requiring analysts to announce the termination of coverage through the issuance of a final research report which should either disclose the analyst’s final rating or explain the reason for the termination. Using a unique hand collected dataset of termination announcements we examine the effectiveness of this rule by focusing our attention to a sample of termination announcements that provide a vague and seemingly information-free justification. By taking into consideration the ex post industry research activity of the investment bank we classify termination announcements under the generic term of “resource reallo...
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SSRN Electronic Journal
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SSRN Electronic Journal
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The International Journal of Accounting
In this study, we examine whether an IPO’s voluntary disclosure on the intention to engage in fut... more In this study, we examine whether an IPO’s voluntary disclosure on the intention to engage in future M&A activity affects the market reaction to a subsequent acquisition and whether it is related to the acquisition’s long-run performance. Using a dataset of European IPOs during the period 2001–2017, we first document that disclosers are more likely to engage in future M&A activity than non-disclosers, thus supporting that such costless disclosures are credible. Secondly, we document a less positive market reaction around the announcement of an acquisition for disclosers than for non-disclosers, consistent with the anticipation hypothesis. Additional analyses suggest, however, that the market reaction is stronger and positive for target firms in countries with weak shareholder protection and legal environment and lower information quality. This suggests that when the acquisition is deemed more uncertain, the market perceives the disclosure of the intention to acquire as capturing a m...
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Journal of Business Finance & Accounting
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Journal of Corporate Finance
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SSRN Electronic Journal
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The International Journal of Accounting
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Accounting in Europe, 2017
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Accounting Horizons, Mar 1, 2003
This paper presents preliminary evidence of the effect of Regulation Fair Disclosure (FD) on the ... more This paper presents preliminary evidence of the effect of Regulation Fair Disclosure (FD) on the quantity and quality of firm-specific information released to the market by comparing analyst forecast data from pre-FD to post-FD time periods. By prohibiting selective disclosure of material information to privileged individuals, the Securities and Exchange Commission intends to provide a level playing field to all investors. However, opponents argue that FD has a negative impact by decreasing the quantity and quality of publicly available information. Consistent with this argument, we document a decrease in analyst following and an increase in forecast dispersion following the passage of FD.
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Using a large sample of international firms we investigate the corporate decisions to voluntarily... more Using a large sample of international firms we investigate the corporate decisions to voluntarily adopt International Accounting Standards (IAS/IFRS), and to cross-list in the US. We jointly examine these globalization decisions by employing a multinomial logistic model, and use this framework to correct for selection bias in our valuation analysis. We find no significant differences between our documented valuation premia of IFRS and US exchange listed firms. This indicates that cross-listing valuation benefits stem mainly from disclosure enhancement than from the stricter US legal system and that voluntary disclosure can be beneficial even in the absence of a strong legal environment. Furthermore, we find strong evidence that firms from countries with weak investor protection and firms less integrated with the world market benefit more from IFRS adoption. In contrast, we find no evidence that cross-listing on a US exchange is valued more for firms with weaker home country investor...
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Using a large sample of international firms we find that firms that voluntarily adopt Internation... more Using a large sample of international firms we find that firms that voluntarily adopt International Accounting Standards (IAS) and firms that cross-list on US exchanges have a significantly higher Tobin's q than firms that do neither. Thus, we document a significant disclosure premium and reconfirm the cross-listing premium in Doidge et al. (2004). More importantly, we find that US exchange cross-listed firms do not exhibit a significant valuation premium relative to IAS firms. These results persist after we control for a number of country level variables and other firm-specific characteristics. We also find strong evidence suggesting that increased disclosure alone can provide a mechanism for controlling shareholders to commit to a lower consumption of private benefits of control. Overall our findings suggest that increased disclosure can act as a close substitute for US exchange cross-listings. Even though US exchange cross-listing provides a superior bonding mechanism relativ...
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The International Journal of Accounting, 2005
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Journal of Accounting, Auditing & Finance, 2014
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SSRN Electronic Journal, 2000
ABSTRACT Thesis (Ph. D.)--Pennsylvania State University, 2000. Microfilm (positive).
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Papers by Irene Karamanou