Calls for papers
International Journal of Behavioural Accounting and Finance
Special Issue on: "The Behavioural Factors Affecting Firms' Life-Cycle Financing and Listing Decisions"
Dr. Wissam Abdallah, Lebanese American University, Lebanon
Dr. Abed AL-Nasser Abdallah, American University of Sharjah, UAE
A firm needs to make financing and listing decisions throughout its life-cycle, from its start-up stage (when it may take, for example, venture capital financing, angel financing, or bank finance), through its initial public offering (where the decision may be to list on its own stock market, to cross-list, or even to list on the alternative investment market: AIM). Finally, a firm may take a decision to de-list (and may turn to private equity finance). The focus of this special issue is on the behavioural factors surrounding a firm’s financing and listing decisions at all stages of its life-cycle. We welcome papers on behavioural factors relating to the following aspects: start-up financing (including the choice of venture capital, angel or bank finance), IPOs, the decision to cross-list, the decision to list on AIM, and the decision to go private (hence involving private equity financing).
Traditionally, the corporate finance literature has emphasised firms' characteristics, such as investment opportunities, size, leverage, as determinants of decision to go public and raise equity finance through public offer. This special issue intends to examine the effect of managerial and investor psychological biases on firms’ financing and listing decisions.
In their review paper, Baker et al. (2004) distinguish between two different approaches of the behavioural corporate finance. The irrational investors approach assuming managerial rationality and perceiving managerial decisions as rational response to securities market mispricing. The irrational managers approach assuming investor rationality.
If investors are irrational, the rational managers should issue more shares when stock price is too high, and repurchases shares when stock price is too low. This supports the notion that managers “time the market” and take advantage of “window of opportunity” as argued by Ritter (1991). Issuing more over-valuing shares will increase the proportion of equity in the firm’s capital structure. Therefore, irrational investor sentiment affects financing decision and firms’ capital structure.
In line with managerial biased approach, Malmendier, Tate and Yan (2007) explain the pecking order theory from managerial behavioural perspective. The authors argue that over-optimistic managers about the future prospects of their companies believe that their firm is undervalued therefore they perceive external finance as expensive i.e. overpriced. These managers may underutilise debt relative to tax benefits from interest deductibility. Moreover, as equity prices are more sensitive to the dispersion in beliefs about the future performance of the firm, these managers prefer to issue debt over equity. They see equity issuance is more expensive than issuing bonds and no cost of using internal funds; therefore these managers follow the pecking order theory of capital structure.
An under-researched area addresses the behavioural factors affecting start-up and private equity financing. Another relatively under-researched area addresses the firm’s incentives to cross-list and raise fund on foreign market as a reaction to investors’ behavioural biases. A possible mispricing across international capital markets encourages firms to raise funds internationally where securities prices are high relative to home market. The cross-listing literature provides anomalies that are of interest to researchers in behavioural finance. For instance, Gagnon and Karolyi (2004) find that shares that trade simultaneously on different markets violate the law of one price. Moreover, the authors find that cross-listed shares show higher systematic comovement with host market indexes and lower comovements with home market indexes than their equivalent home-market shares. The later result contradicts the traditional view of finance which states that comovement in prices should reflect comovement in fundamentals.
Furthermore, listing on a foreign market may influence the behaviour of firms and corporate policy. For example, firms that cross-list on markets with better information environment than their home markets have to provide more disclosure and better earnings quality, which in turn induce more analysts to follow the firm. Moreover, listing on a foreign market with better investor protection rights may be a venue for venture capitalist to take their firms public. Pagano, Panetta and Zingales (1998) argue that one possible explanation why some firms need so much time before going public in some countries is the lack of enforcement of minority rights.
The aim of this special issue is to publish high quality research papers that enhance our understanding of the behavioural aspects of the firm’s listing and financing decisions. The guest editors welcome empirical, theoretical and critical work. The guest editors seek and encourage the submission of papers that provide a global perspective.
Baker, M., Ruback, R.S., and Wurgler, J. (2004), “Behavioral corporate finance: a survey.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=602902.
Gagnon, L. and A. Karolyi (2004), “Multi-market trading and Arbitrage.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=577004.
Malmendier, U., Tate, G., and Yan, J. (2005), “Corporate finance policies with overconfident managers.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=895843.
Pagano, Marco, and Röell, Ailsa, 1998, The choice of stock ownership structure: Agency costs, monitoring, and the decision to go public, The Quarterly Journal of Economics 113, 187-225.
Ritter, Jay (1991), “The long-run performance of initial public offerings”, The Journal of Finance 46, 3-27.Subject Coverage
Topics of interest include, but not limited to:
- Managerial overconfidence and external financing.
- Managerial irrationality and firm capital structure.
- Managerial irrationality and the decision to go public.
- Investor irrationality and firm capital structure.
- Investors' overconfidence and overvaluation of the listed stocks.
- Investors' sentiment and the long term underperformance IPOs.
- Mispricing across international capital markets and the decision to cross-list.
- Co-movement in return of the cross-listed stocks and "habitat-based" theory of co-movement.
- Price differential and limits to arbitrage.
- Price differential and investor irrationality.
- Investors' overconfidence and trading in cross-listed stocks.
- Managers' overconfidence and takeover activity.
- Cross-listing and anchoring effect.
- Analysts' behaviour to cross-listing.
- Cross-listing and the firm's information environment.
- Cross-listing and corporate governance.
- Start-up financing and venture capital
- Private equity
- IPOs and the decision to list on AIM
Notes for Prospective Authors
Submitted papers should not have been previously published nor be currently under consideration for publication elsewhere. (N.B. Conference papers may only be submitted if the paper was not originally copyrighted and if it has been completely re-written).
All papers are refereed through a peer review process. A guide for authors, sample copies and other relevant information for submitting papers are available on the Author Guidelines page
Deadline for manuscripts submission: 30 June, 2010