Regression Analysis

<Insert Table 3 about here>

As can be seen in Table 3, we replicate the GIM return results and show that the return results hold for our subsample of the GIM data. In the first panel, we replicate GIM Table VI, which follows a trading strategy that takes a long position in a value-weighted portfolio of democracy firms (G ≤ 5) and takes a short position in a value-weighted portfolio of dictatorship firms (G ≥ 14). This hedge portfolio¹⁰ earns excess return of 71 basis points per month from 1990 to 1999. The second panel is that we estimate four-factor regressions of value-weighted monthly returns for a trading strategy based on G-index. Following GIM (2003), the independent variables are Fama and French three factors. Momentum follows the procedure of Carhart (1997). Although the returns for this subsample are slightly larger than the original results, they are significant and statistically indistinguishable from GIM’s results.

10 This portfolio are reset in September 1990, July 1993, July 1995, and February 1998 because the IRRC does not publish data every year, and the abnormal return of this portfolio is about 8.5 percent per year.

18

We interpret a significantly positive estimate of β₀ as evidence of an association between the strength of shareholder rights and sentiment index in the equation (1).

<Insert Table 4 about here>

Regression results of the equation (1) are presented in Table 4. Panel A shows the results for full sample, Panel B and Panel C show the results for restricted samples that contain the 1990s and early of the 2000s. In these three panels, the regression coefficients of G are all positive and statistically significant under controlling firm characteristics. These results are broadly consistent with the hypothesis that investor sentiment for individual firm (sentiment beta) is affected by the change of corporate governance. Additionally, this result reveals that firms of the same characteristics with different governance have different effect on sentiment beta, i.e. the sentiment beta difference of firms is because of the difference in governance. As a result of, governance has the powerful explanation in sentiment beta. Investor will tend to open their mind toward securities with stronger shareholder rights because of openness signal to investor or higher arbitrage opportunity.

When controlling corporate governance, several sorts of characteristics are negative statistically significant with sentiment beta, including, AGE, SIZE, and DIVIEND. G&D is positive statistically significant with sentiment beta. The two

dummy variables are both statistically significant with sentiment beta, which implies the extreme situation of earnings and dividend that fluctuates with the sentiment beta.

The exception is only SIGMA in our full sample period. In 1990-1999, Changes of Sigma with the sentiment beta in the same direction is in tune with Baker and Wurgler (2006).

With the result of equation (1), sentiment beta indeed changes with corporate governance. Using six characteristics from Baker and Wurgler (2006) as a proxy we find the transition influence. We divide data equally to three parts to examine the

19

relationship between sentiment beta and firm characteristics under other things being equaled¹¹.

There are two discussions in our sample. One is that sentiment beta of those firms which are easily affected by sentiment is larger because of more restrictions on shareholder rights (more dictatorship).

<Insert Figure 1 about here>

It can be seen from Figure 1 that the relationships between governance and sentiment beta on the first one-third and the last one-third in every panel are from 1990 to 2005, i.e. the youngest and the oldest, the smallest and the largest and so on.

In this period, sentiment beta becomes gradually larger with the use of more shareholder restrictions under small stocks, young stocks, unprofitable stocks, and extreme growth and distressed stocks. Additionally, in Table 5 the result of the t test shows a significant effect of the difference of democracy and dictatorship on characteristics. AGE, SIZE, and EARNING, are negative statistically significantly on the last one-third but G&D is positive statistically significantly on the first one-third.

This result is compatible with Baker and Wurgler (2006).

<Insert Table 5 about here>

On the contrary, the other discussion is that sentiment beta of those firms which are not easily affected by sentiment is larger because of fewer restrictions on shareholder rights (more democracy). In Panel D of Figure 1, we can observe that mean of sentiment beta of those firms which pay more dividend is becoming larger from the dictatorship set to democracy set, with a t-statistic of 2.43. Firms with fewer restrictions display higher levels of trading activity, private information flow, and information about future earnings in stock prices (Ferreira and Laux (2007)) implying that investor sentiment will be affected through finding of private information. No

11 The two critical points are on Appendix A.

20

significant trend is uncovered between governance and sentiment beta when using Sigma to examine the relationship from 1990-2005.

<Insert Figure 2 about here>

The second situation is also discovered on AGE, Dividend, and G&D in Figure 2 (the sample period is 1990-1999). Sentiment beta becomes larger from the more restrictions on shareholder rights to fewer ones with a t-statistic of 6.33, 2.74, and 0.11, respectively. Why the sentiment betas of old stocks, paying-dividend stocks, and G&D stocks in the democracy set are larger than those in the dictatorship set?

According to Charkravarty (2001) and Hartzell and Starks (2003), institutional investors actively collect and trade on private information. Piotroski and Roulstone (2004) find that institutional trading is associated positively with idiosyncratic volatility. There is a connection between antitakeover provisions and institutions’

decision. (Bethel, Liebeskind, and Opler (1998)) Additionally, fewer antitakeover provisions can increase the probability of a takeover and reduce the probability of insiders’ and managers’ controlling to contribute to the incentives of speculation and collecting private information (Ambrose and Megginson (1992), Comment and Schwert (1995), and Ferreira and Laux (2007)). Ferreira and Laux (2007) show that firms with fewer antitakeover provisions have higher level non-governance risk, unsystematic risk. Sentiment beta is defined as the sensitivity of individual stock returns to sentiment change. Risk of individual sentiment beta belongs to unsystematic risk. Therefore, higher sentiment beta in democracy set is consistent with Ferreira and Laux (2007). In other words, governance leads to the difference of sentiment betas between the democracy set and the dictatorship set in old stocks, paying-dividend stocks, and G&D stocks. This result is consistent with our hypothesis.

<Insert Figure 3 about here>

21

It can be seen in the Figure 3, we could find that AGE seems to be close to the hypothesis from Baker and Wurgler (2006), with a t-statistic of 2.03. Nevertheless, we do not find any clear trend in other characteristics.

<Insert Table 6 about here>

Furthermore, we clean the sign of sentiment beta by its absolute value and rerun the regression for equation (1) to robust our result. As in the Table 6, changes of firm characteristics with the sentiment beta coincide well with Baker and Wurgler (2006) in 1990-2005. Separately, the coefficient of G, SIGMA, and G&D are positively significant with t-statistics of 2.29, 65.04, and 3.21. This result shows that G, SIGMA, and G&D become larger while sentiment beta increases. AGE, DIVIDEND, SIZE, and EARNING are negatively significant with t-statistics of -13.5, -3.39, -11.76, and -1.87,

respectively, which imply that AGE, DIVIDEND, SIZE, and EARNING become smaller while sentiment beta decreases. These result not only provides evidence that firms with several characteristics do affect on investor sentiment but also support our hypothesis that governance difference indeed has effect on investor sentiment. In other words, firm characteristics and G-index have powerful influences on absolute sentiment differences whether sentiment beta is positive or negative.

In addition, we also have similar results in subperiod of 1990-1999 and 2000-2005. G-index and sentiment beta are statistically significant with a t-statistic of 3.45 and 2.16 in the two subperiod samples, respectively. Other firm characteristics and sentiment beta almost are statistically significant and fluctuate as well as our expectation. These result robust our hypothesis again.

22 V. Conclusion

In this paper, we examine two related hypotheses. The first hypothesis is whether investor sentiment for individual firm is affected by the change of corporate governance. The second hypothesis is that whether sentiment betas of the firms are affected by corporate governance when controlling for all other characteristics.

Evidence on the validity of these hypotheses is important for investors’ portfolio allocation because it helps in understanding what types of stocks are most pronouncedly affected by sentiment, of which firm characteristics play a determining role thus resulted in the potential implications.

In order to examine these hypotheses, we use the sentiment index from Baker and Wurgler (2006) and follow Glushkow (2006) to estimate sentiment for individual firms recorded in G-index. This paper provides evidence of firm characteristics being easily affected by sentiment is consistent with Baker and Wurgler (2006) and also indicates one’s investment decision would be affected by governance because well-governance is in favor of openness and arbitrage signal than bad-governance.

Additionally, we divide data equally to three parts to examine the relation between sentiment beta and firm characteristic under the same procedure. The sentiment beta of the last 33% of sample increase gradually from the democracy set to dictatorship set on AGE, SIZE, and EARNING, further, the sentiment beta of the top 33% increase gradually from the democracy set to dictatorship set on G&D in 1990-2005 is resulted from their characteristics with hard-to-value and difficult-to-arbitrage. Because their specific characteristics would lead to higher trading cost and difficulty to short their stock (Amihud and Mendelsohn (1986), Baker and Wurgler (2006)), this result is in accordance with previous studies. The sentiment beta of the top 33% decrease gradually from the democracy set to dictatorship set could be the result of

23

idiosyncratic risk, which can be mitigated by portfolio diversification. As individual risk can be diversified under diversification, this result also indicates that well-governance firms with specific characteristics will only be affected by fundamental economic factors. It also supports our second hypothesis that the difference of sentiment beta of the firms is affected by corporate governance after controlling other characteristics of firms. Further, we use absolute value of sentiment beta to rerun the equation (1). The result corresponding with our first hypothesis and Baker and Wurgler (2006) provides a robustness support.

We do not find clear trend in 2000-2005. It may be that lower sentiment in this period induces the sentiment effect or the existence of long run relation between variables. We can extend our sample period in 2000-2008 or 1980-1990 to search if the similar result exists. Moreover, to consider more other sentiment indicators or firm characteristics are also necessary in finding out similar result to support our consequence.

24 Appendix

The critical points of every firm characteristic are below.

1990-2005 1990-1999 2000-2005

Over this critical point is the top 33%

Less this critical point is the last of 33%

Over this critical point is the top 33%

Less this critical is the last of 33%

Over this critical point is the top 33%

Less this critical is the last of 33%

Age (Years) 30.17 17.5 29.17 19.33 31.25 15.33

Size ( $M) 2025.47 545.06 1735.55 440.88 2564.13 705.21

Sigma(%) 11.9160 7.8900 10.0476 6.9492 14.4332 9.7338

Dividend (%) 3.5588 0 4.9482 2.4936 2.4462 0

Earning (%) 17.0646 10.3231 14.0303 7.2796 17.8204 9.4279

|G&D| (%) 9.5119 3.6361 9.5294 3.6446 9.4767 3.6042

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28

Table 1 Summary Statistics

This table provides the descriptive statistics of our independent variables and dependent variables. Panel A shows the estimation data of sentiment beta, including RMRF, SMB, HML, Momentum, and ∆sentindex. Panel B consists of 127814

Panel A: Sentiment Beta Estimation (1985~2005)

Variable N Mean Std Dev Minimum Maximum

EARNING (%) 127814 6.765778 72.03324 -676.738 396.1491

G&D (%) 127814 5.518138 26.87357 -59.4669 1099.6

│G&D│(%) 127814 10.28955 25.43153 0 1099.6

Sentiment Beta 127814 -0.15814 2.504034 -14.7625 27.18167

Dividend>0 74802 5.926426 27.9911 0.0156 1782.31

Earning>0 74802 17.53324 26.76272 0 396.1491

29

Panel C: 1990-1999

Variable N Mean Std Dev Minimum Maximum

G 71759 9.158015 2.890765 2 18

Age(years) 71759 27.38395 17.2716 5.08 74

Size ($M) 71759 3,241.08 7,415.83 8.8337 55,098.144

Sigma (%) 71759 9.2522 4.3228 2.9885 40.82446

DIVIDEND( %) 71759 3.949609 11.17958 0 830.7692

EARNING (%) 71759 7.375708 49.72423 -676.738 396.1491

G&D (%) 71759 5.309172 18.69463 -59.4669 1099.6

│G&D│(%) 71759 9.762866 16.80363 0 1099.6

Sentiment Beta 71759 0.101112 2.488418 -11.306 27.18167

Dividend>0 46460 5.574431 13.45093 0.0156 830.7692

Earning>0 46460 16.2381 25.48949 0 396.1491

Panel D: 2000-2005

Variable N Mean Std Dev Minimum Maximum

G 56055 9.171046 2.637262 2 18

Age(years) 56055 26.97478 18.44724 5.08 76.75

Size ($M) 56055 4,729.164 9,264.855 8.8337 55,098.144

Sigma (%) 56055 13.2834 6.7453 2.9885 48.2446

DIVIDEND (%) 56055 3.566646 30.23509 0 1782.31

EARNING (%) 56055 5.984974 93.08638 -676.738 396.1491

G&D (%) 56055 5.785646 34.6293 -59.4669 1099.6

│G&D│(%) 56055 10.9638 33.35349 0 1099.6

Sentiment Beta 56055 -0.49001 2.484736 -14.7625 15.22837

Dividend>0 28342 6.503438 42.0807 0.0399 1782.31

Earning>0 28342 19.65631 28.60193 0.0606 396.1491

30

Table 2 Pearson correlation coefficients

Panel A provides the correlations between independent and dependent variables from 1990 to 2005. Panel B and Panel C provide the correlations coefficients from 1990 to 1999 and 2000 to 2005, respectively. The p-values are showed in parenthesis.

Panel A : 1990-2005

G Age Size Sigma Dividend Earning G&D Sentiment beta

G 1.0000

Age 0.2710 1.0000

(<.0001)

Size 0.0217 0.3284 1.0000

(<.0001) (<.0001)

Sigma -0.1480 -0.2549 -0.1343 1.0000

(<.0001) (<.0001) (<.0001)

Dividend 0.0373 0.1145 0.0629 -0.0840 1.0000

(<.0001) (<.0001) (<.0001) (<.0001)

Earning 0.0244 0.0315 0.0521 -0.1543 0.0776 1.0000

(<.0001) (<.0001) (<.0001) (<.0001) (<.0001)

G&D 0.0029 -0.0424 0.0132 0.0420 -0.0211 -0.0413 1.0000

(0.3015) (<.0001) (<.0001) (<.0001) (<.0001) (<.0001)

Sentiment Beta -0.0200 -0.0767 -0.0110 0.0225 -0.0225 -0.0237 0.0111 1.0000

(<.0001) (<.0001) (<.0001) (<.0001) (<.0001) (<.0001) (<.0001)

31 Panel B: 1990-1999

G Age Size Sigma Dividend Earning G&D Sentiment

beta

G 1.0000

Age 0.2594 1.0000

(<.0001)

Size 0.0226 0.3452 1.0000

(<.0001) (<.0001)

Sigma -0.1741 -0.3014 -0.1955 1.0000

(<.0001) (<.0001) (<.0001)

Dividend 0.0414 0.1347 0.1167 -0.1575 1.0000

(<.0001) (<.0001) (<.0001) (<.0001)

Earning 0.0389 0.0834 0.0766 -0.1562 0.1019 1.0000

(<.0001) (<.0001) (<.0001) (<.0001) (<.0001)

G&D -0.0163 -0.0883 0.0105 0.0406 -0.0371 -0.0689 1.0000

(<.0001) (<.0001) (0.0049) (<.0001) (<.0001) (<.0001)

Sentiment Beta -0.0244 -0.0692 -0.0287 0.1382 -0.0608 -0.0352 -0.0024 1.0000

(<.0001) (<.0001) (<.0001) (<.0001) (<.0001) (<.0001) (0.5284)

32 Panel C: 2000-2005

G Age Size Sigma Dividend Earning G&D Sentiment

beta

G 1.0000

Age 0.2882 1.0000

(<.0001)

Size 0.0209 0.3188 1.0000

(<.0001) (<.0001)

Sigma -0.1551 -0.2491 -0.1646 1.0000

(<.0001) (<.0001) (<.0001)

Dividend 0.0430 0.1210 0.0493 -0.0676 1.0000

(<.0001) (<.0001) (<.0001) (<.0001)

Earning 0.0162 0.00002 0.0419 -0.1634 0.0725 1.0000

(0.0001) (0.9966) (<.0001) (<.0001) (<.0001)

G&D 0.0177 -0.0152 0.0139 0.0420 -0.0172 -0.0310 1.0000

(<.0001) (0.0003) (0.001) (<.0001) (<.0001) (<.0001)

Sentiment Beta -0.0134 -0.0900 0.0284 0.0113 -0.0100 -0.0201 0.0233 1.0000

(0.0015) (<.0001) (<.0001) (0.0077) (0.018) (<.0001) (<.0001)

33

Table 3 Monthly Abnormal Return from September 1990 to December 1999 We estimate four-factor regressions of value-weighted monthly returns for a trading strategy based on G-index. Following Gompers, Ishii, and Metrick (2003), their trading strategy is taking a long position in a value-weighted portfolio of Democracy firms (G ≤ 5) and taking a short position in a value-weighted portfolio of Dictatorship firms (G ≥ 14). The dependent variables are Fama and French three factors.

Momentum follows the procedure of Carhart (1997). The first regression represents the original results in GIM. The second regression is our replication using the same restrictions as in GIM.*, **, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively.

Intercept RMRF SMB HML Momentum

Original Results by GIM(2003), Table VI

Coefficient 0.71*** -0.04 -0.22** -0.55*** -0.01

Standard error 0.26 0.07 0.09 0.10 0.07

t-statistic 2.73 -0.57 -2.44 -5.50 -0.14

Replication of GIM Result for Full Sample

Coefficient 0.75** -0.12 -0.30** -0.61*** 0.11

Standard error 0.37 0.11 0.13 0.15 0.09

t-statistic 2.01 -1.13 -2.26 -3.95 1.19

34

Table 4 Regression Results (1)

β_{! ",#}=αβ_AGE_,βσ,'β SIZE_,'β_EARNING_,'β_DIVIDEND_,'β_-G&/_,'β₀G_,β₁D_β₂D 3_,

We use firm characteristics from Baker and Wurgler (2006), G-index form GIM (2003) and follow Glushkov (2006) to estimate sentiment beta.

The first panel is our main sample from 1990 to 2005. The second and third panels are subsample period. *, **, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively. The R square of three panels is 1.11%, 2.95%, and 1.02%.

Intercept G Age Dividend Sigma | G&D | Size Earning d_ d obs

Panel A: 1990-2005

Coefficients 0.6147*** 0.0056** -0.0086*** -0.0010*** -1.2190*** 0.0011*** -0.0217*** -0.0001 0.1452*** -0.3126*** 127814 Standard error 0.0726 0.0026 0.0005 0.0003 0.1346 0.0003 0.0049 0.0001 0.0256 0.0186

t-statistic 8.47 2.12 -19.01 -3.13 -9.05 4.06 -4.46 -1.17 5.68 -16.8

Panel B: 1990-1999

Coefficients -1.0384*** 0.0091*** -0.0049*** -0.0069*** 5.6323*** -0.00059 0.0695*** 0.0005*** 0.1733*** -0.4370*** 71759 Standard error 0.0996 0.0033 0.0006 0.0008 0.2454 0.0006 0.0066 0.0002 0.0340 0.0263

t-statistic -10.43 2.74 -8.05 -8.13 22.96 -1.07 10.52 2.65 5.09 -16.62

Panel C: 2000-2005

Coefficients 0.0824 0.0144*** -0.0115*** 0.0003 -0.9581*** 0.0015*** -0.0121* -0.0007*** -0.1106*** -0.1864*** 56055 Standard error 0.1148 0.0042 0.0007 0.0004 0.1755 0.0003 0.0074 0.0001 0.0388 0.0266

t-statistic 0.72 3.45 -17.26 0.83 -5.46 4.85 -1.64 -5.22 -2.85 -7.01

35

Table 5 T test of Democracy and Dictatorship

We use the absolute value of sentiment beta to observe degree of change of sentiment and divide every characteristic into three equal parts to examine the relation between sentiment beta and firm characteristic under the same level of governance or the relation between sentiment beta and governance under the same level of firm characteristic, i.e. when G=5, there are three level under characteristic, including the top of 33%, middle of 33%, the last of 33%. We use t test to examine whether sentiment beta of democracy set is larger than sentiment beta of dictatorship set. The p-values are showed in parenthesis. *, **, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively.

The p-values are showed in parenthesis.

1990-2005 1990-2005 1990-2005

Age Sigma Earning

The top 33% 1.09 The top 33% 0.47 The top 33% 1.85*

(0.2771) (0.6409) (0.064)

Middle -3.36*** Middle 6.81*** Middle 0.72

(0.0008) (<.0001) (0.469)

The last 33% -2.56** The last 33% -0.84 The last 33% -6.18***

(0.0107) (0.4015) (<.0001)

Size Dividend G&D

The top 33% 0.78 The top 33% 2.43** The top 33% 6.77***

(0.4367) (0.015) (<.0001)

Middle -0.12 Middle 4.72*** Middle 0.17

(0.9027) (<.0001) (0.8618)

The last 33% -5.62*** The last 33% 6.39*** The last 33% -1.55

(<.0001) (<.0001) (0.1209)

36

1990-1999 1990-1999 1990-1999

Age Sigma Earning

The top 33% 6.33*** The top 33% 3.52*** The top 33% 1.65*

(<.0001) (0.0004) (0.0997)

Middle -4.95*** Middle 4.1*** Middle 3.98***

(<.0001) (<.0001) (<.0001)

The last 33% 4.02*** The last 33% -2.45** The last 33% 6.07***

(<.0001) (0.0142) (<.0001)

Size Dividend G&D

The top 33% 0.45 The top 33% 2.74*** The top 33% 8.65***

(0.6499) (-0.0062) (<.0001)

Middle 2.25** Middle -4.03*** Middle -1.48

(0.0247) (<.0001) (0.1395)

The last 33% -7.22*** The last 33% 4.32*** The last 33% -0.11

(<.0001) (<.0001) (0.9088)

37

2000-2005 2000-2005 2000-2005

Age Sigma Earning

The top 33% -3.04*** The top 33% -4.66*** The top 33% -3.58***

(0.0024) (<.0001) (0.0004)

Middle -1 Middle -1.93* Middle -0.02

(0.3198) (0.0535) (0.9805)

The last 33% 2.03** The last 33% 4.12*** The last 33% -1.02

(0.0441) (<.0001) (0.3088)

Size Dividend G&D

The top 33% -0.37 The top 33% 0.46 The top 33% -3.08***

(0.7128) (0.6483) (0.0021)

Middle -1.67* Middle 3.87*** Middle 1.89*

(0.0954) (0.0001) (0.0588)

The last 33% -2.44** The last 33% -0.47 The last 33% -3.36***

(0.0147) (0.6374) (0.0008)

38

Table 6 Regression Results (2)

│β_{! }

",#│ αβ_AGE_,βσ,'β SIZE_,'β_EARNING_,'β_DIVIDEND_,'β_-G&/_,'β₀G_,β₁D_β₂D 3_,

We use firm characteristics from Baker and Wurgler (2006), G-index form GIM (2003) and follow Glushkov (2006) to estimate sentiment beta.

We use the absolute value of sentiment beta to examine the relationship between firm characteristics and corporate governance. The first panel is our main sample from 1990 to 2005. The second and third panels are subsample period. *, **, and *** indicate significance at the 10 percent, 5

We use the absolute value of sentiment beta to examine the relationship between firm characteristics and corporate governance. The first panel is our main sample from 1990 to 2005. The second and third panels are subsample period. *, **, and *** indicate significance at the 10 percent, 5

在文檔中 公司治理與情緒性因子的價格敏感度 (頁 26-0)