The purpose of this study is to explain the poor informativeness of earnings in dual-class firms by examining the quality of earnings and the information environment. The earnings informativeness, earnings quality and information environment of dual-class firms are compared with a matched sample of single-class firms. The authors have performed the returns-earnings association tests, examine the quality of earnings by using proxies for discretionary accruals, and examine the information environment by employing four empirical constructs: the analyst forecast dispersion, absolute forecast errors, Amihud’s (2002) illiquidity measure, and the bid-ask spread. The results show that the quality of earnings is better while the quality of the information environment is worse in dual-class firms compared to single-class firms. Overall, the results suggest that an inferior information environment is a plausible explanation for the low informativeness of dual-class firms’ earnings. The results provide empirical support for Dechow et al. (2010) that the use of the earnings-returns association measure to draw conclusions about the quality of earnings is not appropriate in the presence of a poor information environment. This is the first study to empirically show that low earnings informativeness in dual-class firms can be explained by the inferior quality of the information environment.

This paper examines the differences between leveraged and unleveraged Exchange Traded Funds (ETFs), particularly for liquidity and volatility characteristics. The impact of leverage on intraday liquidity (spread and depth) is analysed in two periods – one of normal volatility and the other of abnormal/high volatility. There is a significant difference in spread and depth of leveraged and unleveraged ETFs in periods of both normal volatility and high volatility; however, this difference is more pronounced in higher volatility periods. In high volatility periods, liquidity typically diminishes in all ETFs, and this is even more so for the leveraged ETFs. When leveraged ETFs are segregated into multiples based on their power to replicate the underlying benchmark (i.e. multiples of −3, −2, −1, 2, 3), the difference in spreads between normal and high volatility periods is typically larger. The double-leveraged ETF has the most significant difference between the positive and negative counter parts. However, the relationship in the progression of the multiples does not change linearly to correspond with the level of volatility. This may be due to the nonlinear relation between volume and volatility. We shed light on the magnification effect of financial leverage on microstructure of the ETFs.

Using high-frequency datasets, we examine price discovery and its determinants for equivalent instruments across futures markets, electronically traded exchange-traded funds (ETFs), and spot markets. We compare futures to ETFs—leveraged and unleveraged—for stock indexes, using both a normal period and the 2008 financial crisis. Yan and Zivot’s information leadership procedure is employed to determine which instrument dominates price discovery. We then examine the determinants and characteristics of the price discovery process using Hasbrouck’s sequential trading model for the price impact of large trades. We find that most price discovery occurs in the more liquid and highly leveraged futures market. Although liquidity declined in all markets during the financial crisis, the relative contribution of ETFs to price discovery increased. We also find that the information leadership shares of futures and ETFs depend on the ratio of the quoted percentage spread between futures and ETFs and the aggregate volatil...

Purpose: There is some evidence that firms appoint internal candidates to exploit their unique firm specific knowledge and that the type of appointments may have signaling value to the market. However, these studies are limited to chief executive officer appointments whereas other top executives could also play an important role in corporate decision making. The purpose of this paper is to focus on the chief financial officer (CFO) appointments and firm’s debt-equity choice.Design/methodology/approach: The authors employ a multiple regression framework. To control for potential endogeneity, the authors use an instrumental variable approach with both two-stage least squares and generalized method of moments estimators.Findings: The authors find that firms with internal CFO hires issue more equity than firms that hire from the external labor market. The authors also find that internal CFOs significantly reduce information asymmetry (IA), which may lower market risk and the cost of financing through equity issues. Furthermore, consistent with the value maximizing role of reduced IA the authors find that this effect is concentrated in value firms. In firms with higher IA this preference for equity by the internal CFO may be weaker as even internal CFOs will prefer debt financing for its disciplining role and to reduce IA. A subsample analysis with growth firms shows this diminishing impact on the financing choice of an internal CFO.Originality/value: This study provides important information about the influence the CFO has on a firm’s capital structure decisions.