Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter?*
Steven Ongena(Department of Finance, Center ? Tilburg University and CEPR)
Viorel Roscovan(Department of Finance, RSM ? Erasmus University)

Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks’ selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firms’ credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to US firms over the period of 1980–2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm’s headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal.

*We are grateful to an anonymous associate editor, Sudipto Dasgupta (editor), Abe de Jong, Don Fraser, Philipp Hartman, Marie Hoerova, James Kolari, Fabiana Penas, José-Luis Peydró, Sorin Sorescu, Bas Werker, Lucy White, and participants at the CAREFIN Conference 2009 (Milano) for helpful comments and suggestions. The article was partly completed while Roscovan was visiting the Department of Finance at the Mays Business School of Texas A&M University, whose hospitality is gratefully acknowledged. This article has been prepared by the authors under the Lamfalussy Fellowship Program sponsored by the European Central Bank. Any views expressed are only those of the authors and do not necessarily represent the views of the European Central Bank or the Eurosystem.

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The Calendar Structure of the Japanese Stock Market: The ‘Sell in May Effect’ versus the ‘Dekansho-bushi Effect’*
Shigeki Sakakibara(School of Commerce, Kwansei Gakuin University)
Takashi Yamasaki(Graduate School of Business Administration, Kobe University)
Katsuhiko Okada(Institute of Business and Accounting, Kwansei Gakuin University)

We report on a seasonal pattern that has persisted in the Japanese stock market for more than half a century: Mean stock returns are significantly positive for months during the first half of the calendar year and significantly negative for months during the second half. Dubbed the Dekansho-bushi effect, this seasonality is independent of other known calendar anomalies, such as the so-called January effect. The Dekansho-bushi effect should be distinguished from the ‘sell in May effect,’ because Japanese stocks perform well in June and poorly in November and December. The Dekansho-bushi effect varies in magnitude among firms and is particularly significant among small firms with high book-to-market ratios. Nonetheless, the effect exists, regardless of a company’s size or book-to-market ratio.

*The authors thank the following people for their helpful comments: Kenya Fujiwara, Nobuyuki Isagawa, Yasuo Kakuta, Hideaki Kato, Hideo Kozumi, Yusaku Sakaguchi, Kengo Shiroshita, Hitoshi Takehara, Roger Van Noorden, Katsunari Yamaguchi, and an editor-in-chief, anonymous associate editor, referee, and seminar participants at the Asian Finance Association International Conference in Hong Kong, along with colleagues at Kwansei Gakuin University and Kobe University. The Grants-in-Aid for Scientific Research by Japan Society for the Promotion of Science provided financial support. Any errors are our own.

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Outsider Board Activity, Ownership Structure and Firm Value: Evidence from Korea*
Byung-Seong Min(Griffith Business School, Griffith University, Brisbane)
Peter Verhoeven(School of Economics and Finance, Queensland University of Technology, Brisbane)

Using a sample of publicly listed firm in Korea from 2002 to 2006, this article examines the impact of board monitoring on firm value and productivity. We use outsider’s attendance of board meetings as a proxy for board monitoring. Consistent with the commitment hypothesis, we find that outsider’s attendance rate increases firm value, suggesting that attending board meeting itself is a strong signal that reflects outsider’s intention to monitor insiders. While ownership of controlling shareholders negatively affects firm value, this relationship is not moderated by increased monitoring by outsiders. Our findings provide further evidence that the outside director system is less effective in chaebol-affiliated firms. Results also indicate that the effect of outsider’s board monitoring activity on investor’s valuation of the firm is greater than on productivity improvement of the firm. Our conclusions are robust for possible endogeneity in the relationship between firm value and board attendance by outside directors.

*We thank Jerry Bowman, Adrian Cheung, Yul Kwon, Janice How, an anonymous referee and seminar participants at the Queensland University of Technology for their helpful comments and suggestions. We also thank the Korean Corporate Governance Service (KCGS) for providing us with detailed corporate governance data on Korean firms and the Griffith University for financial support provided.

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The Intraday Pattern of Information Asymmetry, Spread, and Depth: Evidence from the NYSE*
George Tannous(Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan)
Juan Wang(Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan)
Craig Wilson(Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan)

Studies suggest that investment flows, liquidity imbalances, and institutional trading may create intraday trading patterns and opportunities for investors to time their trades to reduce transaction costs. Motivated by these studies, we divide each trading day into 13 half-hour trading intervals and measure information asymmetry from price changes, trade sizes, and trade directions. We find that information asymmetry starts high in the morning, drops continuously until it reaches a midday low during Interval 7, rises to a midday high during Interval 10, and drops continuously after. In contrast, neither the spread nor the depth exhibit similar midday extreme values. Essentially, we identify a 90-min window in the afternoon when net valuable information arrives to the market in high frequency while liquidity is stable, and that may be an opportunity for some investors to time their trades. In addition, we show that market makers employ dynamic strategies that change the spread, the depth, or both to manage information asymmetry. This is particularly evident during the last three trading intervals, where the significant drop in information asymmetry is countered primarily by a significant increase in the depth while the spread is almost constant.

*The authors wish to thank an anonymous referee for insightful comments that improved the paper significantly. Wilson acknowledges financial support from the University of Saskatchewan President’s Social Sciences and Humanities Research Council. Wilson and Tannous appreciate receiving travel grants in support of this study from the research fund at the Edwards School of Business, University of Saskatchewan. The authors are indebted to Gordon Sick, Marie Racine, Hung-Ling Chen, and Hilal Yilmaz for their valuable suggestions. We thank participants at the 2010 Eastern Finance Association (EFA) Conference, the 2010 Western Economic Association International Annual Meeting, and the Edwards School of Business Finance Seminar for their helpful comments. We appreciate the staff of the Technology Support Center at the Edwards School of Business for their help with the data and analysis. Any remaining errors are our own responsibility.

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How much does an Illegal Insider Trade?*
Alex Frino(Discipline of Finance, Business School, The University of Sydney)
Stephen Satchell(Faculty of Economics, Cambridge University)
Brad Wong(Discipline of Finance, Business School, The University of Sydney)
Hui Zheng(Discipline of Finance, Business School, The University of Sydney)

This paper examines the choice of trade size by an illegal insider. Previous literature (i.e. Meulbroek 1992) tends to focus on the price impact of such a trader. Using a unique data set hand-collected from the litigation reports of the Securities and Exchange Commission and court cases, we provide evidence, which suggests that the size of an illegal insider’s trade is a function of the value of his private information, the probability of detection and the expected penalty if detected. Our results have important implication for security market regulators.

*The authors would like to thank Tom McInish, Giovanni Petrella, Bonnie F. Van Ness and seminar participants at the Securities and Exchange Commission, European Financial Management Association Meeting 2009, Financial Management Association International (FMA) Meeting 2010 and the Capital Markets Cooperative Research Centre for their insightful comments.

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