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The objective of this thesis is to investigate the role of home country legal institutions and the Sarbanes-Oxley Act (SOX) on the reporting quality, pricing and performance of foreign initial public offerings (IPOs) in US capital markets. The specific characteristics of foreign IPOs as have been recognized within the recently expanding literature on cross-listed firms make the focus of this research highly interesting and relevant given the growing number of firm that chose to make their initial public offering in foreign markets, typically the US markets. Using a unique dataset of foreign issuers in the US, this thesis addresses some of the unresolved issues of the impact of institutional differences on information asymmetry in foreign IPOs. To do this, I look at different agency problems over the life cycle of new issuers. Specifically, the first empirical study of this thesis explores the earnings quality in foreign IPOs in the US and the relation to home country institutions. The second empirical study of this thesis investigates the effects of the home country institutions on the level of underpricing of foreign IPOs in the US, and whether underpricing is significantly different after the enactment of SOX. The third empirical study investigates the effects of the home country institutions on the long-run stock performance of foreign IPOs in the US, and whether performance is significantly different post the enactment of SOX. The main findings of this thesis suggest that home country legal institutions matter to the reporting characteristics, to the costs of capital at the initial listing date and to the aftermarket stock performance of foreign IPOs in the US. Furthermore, there is mixed evidence regarding the effects of SOX on the reporting characteristics, to the cost of capital at the initial listing date and to the aftermarket stock performance. In contrast with some previous research on cross-listed firms, the results of this study suggest that although foreign IPOs may abandon their home capital markets by listing in the US, their reporting characteristics and costs of capital are nonetheless influenced by home country institutions.

This thesis examines if leverage can explain stock returns. Due to the overwhelming influence of Modigliani and Miller (1958)'s seminal work on capital structure where they argue that firm value is independent of financing decisions, limited work has been undertaken on leverage as an independent variable or a risk factor in explaining stock returns. On the other hand, theoretical finance has always regarded debt as one of the principle sources of financial risk. An immediate implication of the Modigliani and Miller (1958)'s propositions on equity returns is that they should increase in leverage. This thesis sets out to test the relation between equity returns and stock returns by undertaking a firm level and portfolio level analysis. This thesis comprises four empirical chapters. The first empirical chapter undertakes a firm level analysis. f estimate abnormal returns on leverage portfolios in the time-series for different sectors. I find for most sectors, abnormal returns decline in firm leverage. However, abnormal returns increase as average leverage in a risk class increases. The separation of the average level of external financing in an industry and of that in a particular firm is important. Utilities for which Modigliani and Miller (1958) report their empirical results (i. e. that returns increase in firm leverage) are in fact sectors with high concentrations and firm leverage ratios very close both to one another and to the industry average. In the Utilities risk class, abnormal returns increase in firm leverage. For other sectors, this is not the case and abnormal returns decline in firm leverage and increase in industry leverage. Results are robust with regard to other risk factors. 'This second empirical chapter investigates the effect of a firm's leverage on stock returns based on the explicit valuation model of Modigliani and Miller (1958) testedin the utilities, oil and gas industries. I test the relationship between leverage and stock returns in all risk classes. For utilities, returns increase in leverage. This is consistent with the findings of Modigliani and Miller (1958). For the other risk classes, returns fall in leverage. Results are robust to other risk factors. The third empirical chapter is an empirical study that tests the relationship between leverage and stock returns at the portfolio level. I investigate this relationship by undertaking a portfolio level analysis of leverage and expected returns using the Fama-Macbeth (1973) methodology with modifications. I find that returns increase in leverage which is consistent with the findings of Miller-Modigliani (1958). I also undertake linearity tests. Results are robust to other risk factors. Leverage is an important risk factor which has been ignored in the asset pricing literature. The fourth empirical chapter attempts to broaden the focus of the current asset pricing literature by forming portfolios mimicking the leverage factor. Returns are ranked according to leverage and grouped into two groups of high and low to demonstrate the risk factor of leverage in stocks. I argue that leverage is an important stock-market factor that explains stock returns. I also undertake robustness checks with the Fama-French (1993) factors of size, market-to-book and excess returns on market. My results show that our leverage mimicking portfolio capture the variations in stock returns better relative to the other asset pricing models.

This work attempts to make a breakthrough in the empirical research of market inefficiency by introducing a new approach, the value frontier method, to estimate the magnitude of stock bubbles, which has been an interesting topic that has attracted a lot of research attention in the past. The theoretical framework stems from the basic argument of Blanchard & Watson’s (1982) rational expectation of asset value that should be equal to the fundamental value of the stock, and the argument of Scheinkman & Xiong (2003) and Hong, Scheinkman & Xiong (2006) that bubbles are formed by heterogeneous beliefs which can be refined as the optimism effect and the resale option effect. The applications of the value frontier methodology are demonstrated in this work at the market level and the firm level respectively. The estimated bubbles at the market level enable us to analyse bubble changes over time among 37 countries across the world, which helps further examine the relationship between economic factors (e.g. inflation) and bubbles. Firm-level bubbles are estimated in two developed markets, the US and the UK, as well as one emerging market, China. We found that the market-average bubble is less volatile than industry-level bubbles. This finding provides a compelling explanation to the failure of many existing studies in testing the existence of bubbles at the whole market level. In addition, the significant decreasing trend of Chinese bubbles and their co-moving tendency with the UK and the US markets offer us evidence in support of our argument that even in an immature market, investors can improve their investment perceptions towards rationality by learning not only from previous experience but also from other opened markets. Furthermore, following the arguments of “sustainable bubbles” from Binswanger (1999) and Scheinkman & Xiong (2003), we reinforce their claims at the end that a market with bubbles can also be labelled efficient; in particular, it has three forms of efficiency. First, a market without bubbles is completely efficient from the perspective of investors’ responsiveness to given information; secondly, a market with “sustainable bubbles” (bubbles that co-move with the economy), which results from rational responses to economic conditions, is in the strong form of information-responsive efficiency; thirdly, a market with “non-sustainable bubbles”, i.e. the bubble changes are not linked closely with economic foundations, is in the weak form of information-responsive efficiency.

Orientador : Prof. Dr. Jorge Eduardo Scarpin / Dissertação (mestrado) - Universidade Federal do Paraná, Setor de Ciências Sociais Aplicadas, Programa de Pós-Graduação em Contabilidade. Defesa: Curitiba, 2015 / Inclui referências : fls. 125-137 / Área de concentração : Contabilidade e finanças / Resumo: Este estudo tem por objetivo testar empiricamente, nas companhias listadas na BM&FBOVESPA, a validade do modelo de avaliação conhecido como EBO desenvolvido por Edwards e Bell (1961) e aprimorado por Ohlson (1995). Dessa forma a pesquisa analisa a validade do modelo EBO para identificar ações subavaliadas e sobreavaliadas que poderiam gerar oportunidades de investimento com rentabilidade anormal para investidores. A metodologia usada considera: (i) revisão bibliográfica que providencia o embasamento teórico no campo de Valuation, (ii) pesquisa quantitativa-empírica quanto à abordagem do problema. O levantamento teórico abrangeu as abordagens mais destacadas de avaliação de empresas (Fluxos de Caixa Descontados, Modelos baseados na Contabilidade, Avaliação Relativa e Modelo de Precificação de Opções) para finalmente aprofundar na teoria subjacente do Modelo de Lucros Residuais proposto por Edwards e Bell (1961) e Ohlson (1995). Para avaliar a performance do modelo EBO, três (3) hipotéticos portfólios foram criados. Inicialmente as ações foram avaliadas pelo modelo EBO, que forneceu uma decisão de investimento após comparar os valores resultantes do modelo EBO com os preços das ações. Em seguida, por meio de testes t de diferenças de médias, foram avaliados os desempenhos dos portfólios sub- e sobreavaliados. Os resultados empíricos confirmam, com base nos 10 anos da amostra usada, que o modelo de Edwards-Bell (1961) e Ohlson (1995), consegue consistentemente classificar corretamente as ações sub e sobreavaliadas. Portanto, o modelo EBO é um instrumento útil para avaliar decisões de investimento no mercado acionário brasileiro. O estudo conclui que modelo EBO fornece um critério de avaliação teoricamente sólido e empiricamente válido para companhias brasileiras. Palavras-chave: Precificação de Ativos, Mercados de Capitais, Modelo de Retornos Anormais, Gestão de Portfólios, Modelo de Edwards-Bell e Ohlson. / Abstract: This dissertation empirically tests the validity of the Edwards-Bell (1961) and Ohlson (1995) Valuation Model (EBO) by applying this model to Brazilian companies listed on the BM&FBOVESPA. The research examines the utilization of the EBO model in identifying under- and overvalued corporations which can provide abnormal returns to an investor. The methodology includes (i) literature review of valuation theory, and (ii) a quantitative assessment of the EBO model's valuation results. The initial phase of the research is to substantiate the EBO model by employing leading research approaches to valuation. The used approaches are Discounted Cash Flows, Accounting Based Models, Relative Valuation and Black-Scholes Option Pricing Models. Finally, a deeper review of Residual Income Models (EDWARDS-BELL 1961, OHLSON 1995) is conducted. To assess the performance of the EBO Model three (3) hypothetical equity-investment portfolios were created. Firstly individual assets were valued by the EBO model, which provided an investment decision by comparing the EBO model's outcomes to the assets' prices. Then through t-tests of difference between two means, under- and overvalued portfolios' performances were assessed. According to results, based on 10 years' sample data, the Edwards-Bell (1961) and Ohlson (1995) Model consistently succeeds in determining which equities are over- or undervalued. Therefore, the EBO model is a beneficial instrument in evaluating equity investment decisions in the Brazilian marketplace. Thus, the study concludes that EBO Model provides a valuation criteria that is both theoretical sound and empirically valid for Brazilian companies. Keywords: Asset Valuation, Asset Pricing, Capital Markets, Residual Income Valuation, Intrinsic Value, Portfolio Management, Edwards-Bell and Ohlson Model.

This thesis examines the impact of company announcements on the daily stock returns of lowly capitalised companies. A total of 105 companies comprise the sample and 1464 events are examined over the period 21110/97 to 03/0412000. The methodology employed is primarily, empirical in nature. Event studies are conducted to gauge the impact of company announcements on stock returns using the single index market model (SIMM) as the chosen equilibrium market model for modelling abnormal returns. The study professes three mam contributions to knowledge. The empirical evidence suggests that financial announcement have a more timely impact on stock returns than non-financial announcements. Secondly, there appears to be significant over-reaction and mean-reversion exhibited by lowly capitalised firms. Thirdly, the speed of adjustment of stock prices to new information is increased in cases where shareholder concentration is high while over-reactions appear inversely proportionate to shareholder concentration. This may be a consequence of smaller firms experiencing leakage of boardroom level information prior to public announcement days.