Limits to information consumption in corporate finance and investment management

Li, Jiaoshan (2022) Limits to information consumption in corporate finance and investment management. Doctoral thesis, University of East Anglia.

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This thesis aims to deepen our understanding of the role of information in finance by addressing several key research questions and providing novel insights and empirical evidence. The thesis comprises three main chapters, each focusing on distinct dimensions of information consumption and its implications for various financial phenomena.

Chapter 1 investigates the impact of time zone differences on M&A performance in financial markets. Drawing from a comprehensive dataset of 3,854 M&A transactions initiated by Chinese firms across 88 countries, the study examines the relationship between time zone differences and deal completion time. The findings reveal a significant association, indicating that larger time zone differences result in longer completion times. Specifically, a one-hour increase in time zone difference leads to an average delay of 5.7 days in completing the deal. The impact could be even more pronounced when dealing with larger time zone differences. Given that firms are more likely to use cash to settle the acquisition because managers may have better information about the deal (e.g., Louis, 2004), we find evidence that acquirers tend to use cash in M&As when the time zone difference is smaller. This evidence suggests that the time difference between acquirers and targets create information asymmetry, resulting in uncertainties for managers to use cash to complete the deal. Additionally, the study explores the relationship between time zone differences and cumulative abnormal returns around the takeover announcement date. The results demonstrate a negative association, highlighting the role of information asymmetry arising from time differences in influencing market reactions to M&A announcements. Overall, these findings contribute to our understanding of the challenges faced by firms engaged in cross-border M&A transactions.

Chapter 2 makes a valuable contribution to the field by examining how the incorporation of investor attention variables can enhance stock covariance forecasting. Investor attention serves as a vital proxy for information processing and dissemination within financial markets. By investigating the impact of investor attention on the forecasting ability of the covariance matrix, the chapter provides valuable insights into the role of information in guiding portfolio management decisions. Using the Google search volume index (GSVI) as a proxy for investor attention, the study investigates the impact of investor attention on the predictability of stock covariance. By applying multivariate models, including random walk estimation and the heterogeneous autoregressive model, the study demonstrates that the inclusion of investor attention variables significantly improves the accuracy of covariance forecasting. The results consistently support the hypothesis that investor attention plays a valuable role in enhancing stock covariance forecasting. These findings contribute to the existing literature by highlighting the importance of considering investor attention as an influential factor in financial forecasting models.

Chapter 3 delves into the dynamics of household stock market participation and its implications for wealth distribution. Using comprehensive data from the Wealth and Assets Survey (WAS) in the UK, the study explores factors influencing household participation in the stock market, both directly and indirectly. The analysis uncovers that gender and income play significant roles in determining the probability of stock market participation. Furthermore, the study investigates the behavior of the wealth distribution and its components, shedding light on the effects of stock market participation on wealth disparities. Notably, the findings highlight that total participation has a larger effect on the overall wealth distribution. Moreover, indirect stock market participation exerts a slightly higher impact compared to direct participation across all five waves analyzed. These insights deepen our understanding of the complexities of household investment decisions and their implications for wealth inequality.

These chapters collectively contribute to our knowledge of how information influences decision-making in finance. The findings highlight the impact of time zone differences on M&A performance, the significance of investor attention in stock covariance forecasting, and the effects of stock market participation on wealth distribution dynamics. These contributions enhance our understanding of the intricate relationship between information, decision-making, and financial outcomes.

Item Type: Thesis (Doctoral)
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Depositing User: Chris White
Date Deposited: 02 Nov 2023 11:12
Last Modified: 02 Nov 2023 11:12


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