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    The financial impacts of climate risk : the dissertation presented in fulfillment of the requirements of the degree of Doctor of Philosophy, PhD in Finance at Massey University, Manawatū, New Zealand
    (Massey University, 2025-11-13) Trinh, Hai Hong
    Drawing on state-level data on temperature anomalies, the dissertation contributes to the growing literature on the financial impacts of climate change on US-headquartered firms. Benchmarking long-term climate change, the first two chapters are empirical corporate finance papers examining the impacts of statewide climate change risks on corporate payout policy and the value of firms' financial flexibility. The third chapter is an asset-pricing paper that predicts corporate climate sensitivity of firms’ stocks to state-level climate change as a new systematic risk factor. The first chapter shows that long-term climate change adversely affects corporate dividend payout policy. With state-level temperature anomalies (SLTA), the impacts of climate change on corporate payout are severely persistent when firms are exposed to abnormally warmer temperatures. Cash holdings, trade credit, and market leverage present statistically significant mediating roles in the impacts of long-term climate change on corporate payout policy. The impacts of SLTA on corporate payout are pronounced for firms with higher vulnerability to climate transition risk (e.g., polluting firms) since the Paris Agreement (COP21). Smaller and younger firms and firms with higher tangibility are sensitive to the long-term impacts of climate change across US states. The contributions of the study to related literature are threefold. First, the study shows that the consequences of climate change on firms are chronically severe. With the persistent predicted decrease in dividend policy, climate change affects firms’ growth prospects, with its geographical complexity, escalating earnings uncertainty for firms. Second, the long-term systematic risks of climate change imposed on firms are multifaceted, with high geographical divergence, for which firms might face great challenges in opting for flexible and reliable financing choices in the long-term period. The impacts of SLTA on corporate dividends are persistently robust when the study controls the mediating effects of corporate financial policies and the moderating effects of other climate risk factors. The geographical complexity of long-term climate change impacts on firms is investigated in the second chapter through the lens of corporate financial flexibility. The second chapter shows that long-term climate change is adversely associated with the value of corporate financial flexibility (VOFF). Using the forward-looking and market-based measure, the predicted decrease in VOFF supports evidence from the first chapter by showing that long-term climate change systematically affects firms’ growth opportunities across the US states. The impact of SLTA on firms’ VOFF is persistent for firms with higher market-to-book values and larger firms. The impacts of long-term climate change on the VOFF are robust when the study controls the mediating effects of financial policies and the joint effects of other climate-related externalities. The third chapter estimates the state-level corporate climate sensitivity (SL-CCS) to temperature anomalies. Using the predicted SL-CCS for each firm’s stock, the study examines whether the financial market is pricing the SL-CCS betas as a new systematic risk factor. The broad findings show that the pricing of financial markets to the SL-CCS betas is conditional on the levels of global warming across the US states. Investors demand a premium when firms’ stocks are exposed to abnormally warmer temperatures; otherwise, there is a negative association between SL-CCS betas and firms’ stock returns (RET). The varying associations between SL-CCS betas and RET are aligned with our predictions when the study tests for other endogenous and exogenous climate-related risk factors.
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    Essays on finance and deep learning : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey University
    (Massey University, 2025-07-25) Pan, Guoyao
    This thesis aims to broaden the application of deep learning techniques in financial research and comprises three essays that make meaningful contributions to the related literature. Essay One integrates deep learning into the Hub Strategy, a novel chart pattern analysis method, to develop trading strategies. Utilizing deep learning models, which analyze chart patterns alongside data such as trading volume, price volatility, and sentiment indicators, the strategy forecasts stock price movements. Tests on U.S. S&P 500 index stocks indicate that Hub Strategy trading methods, when integrated with deep learning models, achieve an annualized average return of approximately 25%, significantly outperforming the benchmark buy-and-hold strategy's 9.6% return. Risk-adjusted metrics, including Sharpe ratios and Jensen’s alpha, consistently demonstrate the superiority of these trading strategies over both the buy-and-hold approach and standalone Hub Strategy trading rules. To address data snooping concerns, multiple tests validate profitability, and an asset pricing model with 153 risk factors and Lasso-OLS (Ordinary Least Squares) regressions confirms its ability to capture positive alphas. Essay Two utilizes deep learning techniques to explore the relationships between the abnormal return and its explanatory variables, including firm-specific characteristics and realized stock returns. Trained deep learning models effectively predict the estimated abnormal return directly. We evaluate the effectiveness of detecting abnormal returns by comparing our deep learning models against three benchmark methods. When applied to a random dataset, deep learning models demonstrate a significant improvement in identifying abnormal returns within the induced range of -3% to 3%. Moreover, their performance remains consistent across non-random datasets classified by firm size and market conditions. In addition, a regression of abnormal return prediction errors on firm-based factors, market conditions, and periods reveals that deep learning models are less sensitive to variables like firm size, market conditions, and periods than the benchmarks. Essay Three assesses the performance of deep learning predictors in forecasting momentum turning points using the confusion matrix and comparing them to the benchmark model proposed by Goulding, Harvey, and Mazzoleni (2023). Tested on U.S. stocks from January 1990 to December 2023, deep learning predictors demonstrate higher accuracy in identifying turning points than the benchmark. Furthermore, our deep learning-based trading rules yield higher mean log returns and Sharpe ratios, along with lower volatility, compared to the benchmark. Two models achieve average monthly returns of 0.0148 and 0.0177, surpassing the benchmark’s 0.0108. These gains are both economically and statistically significant, with consistent annual results. Regression analysis also shows that our models respond more effectively to changes in stock and market return volatility than the benchmark. Overall, these essays expand the application of deep learning in finance research, demonstrating high predictive accuracy, enhanced trading profitability, and effective detection of long-term abnormal returns, all of which hold significant practical value.
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    Essays on stock misvaluation : a thesis presented in fulfilment of the requirement for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand
    (Massey University, 2024-07-29) Feng, Qifang
    This thesis consists of three essays on stock misvaluation in the Chinese stock market. The Chinese stock market is dominated by risk-seeking speculators with behavioural biases. The first essay explores whether this leads to stock misvaluation and generates return premiums. We modify a pricing deviation-based approach developed by Rhodes–Kropf et al. (2005) by adding ownership classification in benchmark regressions to measure stock misvaluation, because one feature of many Chinese companies is state-ownership. We find that the accounting variables of the pricing deviation-based approach can explain more of the within-industry variation in firm value of state-owned enterprises (SOEs) than for non-state-owned enterprises (non-SOEs). The misvaluation effect of SOEs is stronger than non-SOEs, while the misvaluation of SOEs corrects faster than that of non-SOEs. Moreover, we find that loadings on the misvaluation factor positively forecast the cross-sectional returns in the rolling-window Fama-Macbeth two-stage regressions. The misvaluation effect in the Chinese stock market is significant. The second essay examines the effect of market constraints on stock misvaluation. A pioneering study by Chang et al. (2014) demonstrates that intensified short-selling activities, not margin-trading activities, improve price efficiency after the ban on margin trading and short selling is lifted. We find that their finding is subject to the limitation of the short sample period and the result reverses after extending the sample period to December 2020, primarily due to the soaring margin-trading activities. The imbalanced development of margin trades and short sales positively affects stock misvaluation, escalating overvaluation while reducing undervaluation. The positive effect of the imbalanced trading activities on misvaluation is primarily sourced from margin trades. We argue that margin traders are information providers whose trading activities reduce undervaluation. The third essay investigates the relationship between firm-level environmental, social and governance (ESG) score, and stock misvaluation. We find that the ESG score is negatively and significantly related to stock misvaluation. We extend our research by analysing the three pillars of ESG, as each pillar measures different aspects of a firm. The G score is negatively associated with stock misvaluation, effectively mitigating deviations from intrinsic value for overvalued and undervalued firms. The S score causes overvaluation, while the E score does not have a significant influence on misvaluation. These findings enhance the importance of evaluating E, S and G separately. The overall ESG score may counterbalance the influence of each individual ESG pillar on stock misvaluation. Further analyses show an influencing role of ESG (G) disclosure score in the ESG(G)- misvaluation relationship. The negative effect of the ESG (G) score on misvaluation is attributed to increasing information transparency.
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    Essays on stock price crashes : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey University
    (Massey University, 2024-03-29) Roy, Suvra
    This thesis comprises three essays that contribute to the literature on the consequences of stock price crashes. Essay One explores the post-crash responses of managers, the motives behind those responses, and the effects of those management responses on shareholders. The essay finds that managers of the crashed firms change their course of action to regain the trust of investors and improve firm value. Managers shift their attention towards enhancing transparency, optimizing investments, resolving internal conflicts, and investing in social capital and employee well-being. These initiatives contribute to enhancing the firm's value. Furthermore, this research proposes that management engages in these measures with consideration for their job security. Essay Two investigates the extent to which firm systematic risk changes following stock price crashes. It shows that stock price crashes result in increased systematic risk. This is evident across firms with both low and high betas. The higher systematic risk following a crash primarily stems from heightened default risk and results in equity financing becoming more expensive. Essay Three examines whether a firm price crash leads to the returns of the firm’s non-crash peer firms co-moving more with the returns of the market. The essay finds that this does occur. Investors focus more on firms that have experienced a crash while paying less attention to their non-crashed peer firms. This suggests that the investor trading behavior of these peer firms relies less on specific stock-related news and more on general market trends. The essay does not find any evidence to consider internal as well as external monitoring and information asymmetry as possible mechanisms of investor distraction. Overall, these essays provide contributions to the literature on stock price crash risk, financial markets, and corporate risk management. The thesis highlights how stock price crashes impact management responses, systematic risk, and the behavior of non-crashing peer firms, offering valuable insights for managers, investors, and market regulators to manage and respond to such events effectively. The thesis suggests that managers need to ensure their actions are taken post-crashes and potentially even before to prevent adverse events. Increased firm beta post-crash affects equity financing, portfolio management, risk assessment, and hedging decisions. Understanding firms’ systematic risk holds implications for managers, portfolio managers, and market regulators to manage firm systematic risk effectively. This thesis also documents a new source of return co-movement distinct from market-level shocks.
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    Labour market friction effect on corporate performance : evidence in the global market : a dissertation submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, School of Economics and Finance, Massey University
    (Massey University, 2023-08-31) Bai, Hengyu
    This thesis represents the first academic endeavour to investigate the impact of labour market friction on corporate performance in a global context. In traditional neoclassical economic theory and relevant research, human capital was considered merely an input to generate economic value. Unemployed workers were assumed to fill vacant job positions perfectly, similar to interchangeable machine parts. However, as understanding has evolved, economists now recognise the complexities of filling a job vacancy, which needs to take into account the skills, geographic locations, labour preferences, and various objective factors of the labour force. Consequently, a mismatch often occurs between unemployed workers and vacant jobs, resulting in simultaneous unemployment and job vacancies. This phenomenon is termed labour market friction. This thesis comprises three subprojects, each contributing a distinct essay. The first essay examines the effect of labour market friction on expected stock returns in the Chinese stock market. Utilising the portfolio sorting approach and the Fama-MacBeth regression model, the findings indicate that firms with higher labour friction risk are likely to experience higher stock returns in the subsequent month. This suggests that labour friction risk serves as a significant risk factor in asset pricing. Additionally, the study reveals that the positive effect of labour friction on expected stock returns is more pronounced in firms with either high productivity or poor employee welfare. Furthermore, firms in regions with high levels of development are more likely affected by the labour friction risk. The second essay expands the scope from the Chinese stock market to global stock markets, including North America, Asia-Pacific, and Europe. The results reveal regional variations in the impact of labour market friction on expected stock returns. Specifically, labour friction risk has a negative association with expected stock returns in North American markets, whereas it is positively correlated in Asia-Pacific markets. The significant labour market friction effects are pronounced in different industries due to the varieties of labour market structures, where the North American markets contain a large partial of high technology companies, while the Asia-Pacific markets are dominated by numerous industrial companies. There is no significant relationship between labour friction risk and expected stock returns in European markets. The study also finds that the effect of labour friction is particularly pronounced in markets that are non-immigrant or non-English-speaking, providing higher external labour supply and mobility in such markets, which reduces firms’ recruitment pressures. The third essay centres on Corporate Social Responsibility (CSR) behaviours under the influence of labour market friction in a global setting. The results suggest that firms facing higher labour friction risks are more inclined to engage in CSR activities, even when controlling for year, industry, and region effects in the regression model. This CSR engagement is notably more prominent in markets with a higher demand for labour, characterised by a higher number of new businesses and job vacancies. These findings remain consistent across markets that encourage business creation and expansion through strong investor protection and low labour taxation policies. Markets with higher levels of advanced education have a more significant labour market friction effect on CSR decision-making as they have numerous labour-intensive firms which require a large labour force. Additionally, when labour unions have the strong bargaining power to protect the welfare of employees, firms are less inclined to conduct CSR activities due to the less function in controlling the labour market friction risk. In summary, this thesis contributes to the existing literature by providing empirical evidence of the effects of labour market friction on corporate performance and behaviours across different global markets. It demonstrates that the impact of labour market friction varies due to differing labour market policies and structures and is significantly influenced by the dynamics of labour supply and demand. The insights derived from examining labour market friction across diverse markets have critical implications for both corporate managers and policymakers seeking to mitigate the associated risks.
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    Essays on individual stock returns predictability : a thesis presented in fulfillment of the requirement for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand
    (Massey University, 2022) Zeng, Hui
    This dissertation considers different aspects of individual stock predictability. The first essay shows that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with high limits to arbitrage (small, illiquid, volatile firms), while macroeconomic variables better predict firms with low limits to arbitrage. Technical predictors show a stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions. The second essay shows that 14 widely documented technical indicators explain cross-sectional expected returns. The technical indicators have lower estimation errors than the three-factor Fama-French model and historical mean. The long-short portfolios based on cross-sectional estimated returns consistently generate substantial profits across the entire period. The well-known cross-sectional expected return determinants, including momentum, size, book-to-market, investment, and profitability, do not explain the explanatory power of technical indicators. Our findings suggest that technical indicators play an important role in determining the variation in cross-sectional expected returns in addition to the five-factor model. In the third essay, we use firm characteristics to estimate the enduring momentum probabilities for past winners (losers) to continue to be future winners (losers). The enduring momentum probability is significantly related to stock return persistence and explains cross-sectional expected returns. In addition, it contains different information from momentum signals. Combining the two pieces of information generates an enduring momentum strategy that produces a 2.19% return per month, almost doubling the momentum return. Factors that drive the price momentum strategy, such as seasonality, limit to arbitrage, and transaction costs, do not fully capture the performance of the enduring momentum strategy.
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    Essays on stop-loss rules : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand
    (Massey University, 2021) Dai, Bochuan
    Stop-loss rules are trading rules that involve selling a security when its price drops by a certain amount and buying the security back when its price rises above a pre-specified level. They are popularly used by practitioners. These rules are designed to protect gained profits as their sale trigger the price to be adjusted higher as prices increase. This thesis contributes to the literature on stop-loss rules in financial markets. The first essay investigates the time-series and cross-sectional determinants of stop-loss rules for risk reduction in the U.S. stock market. It finds that, even though stop-loss rules have poorer mean returns to a mean-variance optimal benchmark, they are effective at stopping losses. These rules reduce overall and downside risk, especially during declining market states. The transaction costs analysis shows that the significant effectiveness of risk reduction holds for these rules with larger stop-loss thresholds. Essay two examines the performance of stop-loss rules from the perspective of international equity market allocation. International diversification provides potential for larger returns but often induces higher risks. Thus, it is a natural setting to consider stop-loss rules from a global point-of-view. This essay finds that stop-loss rules are an important factor of international equity allocation in a parametric portfolio policy setting. These rules generate portfolios with larger mean and risk-adjusted returns. This result is economically stronger in declining markets. The outperformance is robust once the transaction costs are accounted for. Essay three shows that stop-loss rules enhance the returns to stocks with lottery features. Individual investors have a strong preference for lottery stocks that typically have irregular enormous gains and frequent small losses. Stop-loss rules are useful at reducing losses and protecting gains from large price rises. This essay highlights that the sell signals of popular technical rules and time-series momentum rules are consistent with stop-loss rules, thereby effectively increasing the risk-adjusted returns of lottery stocks. These rules would have helped investors avoid instances of major historical drawdowns and are particularly beneficial in recessionary markets. Some rules are robust to the inclusion of transaction costs.
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    Essays on financial accounting information, return predictability, and default risk : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand
    (Massey University, 2021) Thakerngkiat, Narongdech
    There is a growing realization of the importance of financial and accounting information on financial markets, and this is thus very much an area of focus for academics, practitioners, and regulators. This thesis consists of three essays on financial accounting information, return predictability, and default risk. The first essay considers the impact of inconsistent financial accounting information on the cross-section of stock returns. This essay uses earnings quality and firm characteristics to capture information signals about the firm value and measure information inconsistency as the variation across the information of the same company. The findings show that returns of information-consistent firms predict the returns of information-inconsistent firms in both equal- and value-weighted portfolios. However, such predictability varies over time due to liquidity funding and investor attention. This first essay thus contributes to the growing literature documenting the cross-section of stock return predictability as a result of the varying speed of information incorporation across stocks. The second essay examines whether the differences in accounting information between the pairs of stocks affect cross-asset return predictability. This essay uses a comprehensive set of accounting variables and market environments to capture the degree of information reflection. The results show that accounting variables such as abnormal accruals, earnings smoothness, book-to-market, firm age, leverage, abnormal capital investment, and investment growth, among others, explain the variation in predictability across pairing stocks. The cross-asset predictability varies over time and is associated with liquidity funding and market sentiment. A simple trading strategy based on our findings yields a higher mean return, lower standard deviation, and higher Sharpe ratio compared to the buy-and-hold strategy. The final essay investigates the impact of risk aversion on default risk. While a large body of research documents various firm characteristics and market conditions that drive corporate default, whether risk aversion matters for default risk remains under-investigated. This could be attributed to endogeneity concerns, such as that the investor risk aversion is not an exogenous variable or the presence of omitted variables that drive the default risk and the simultaneity bias between the default risk and the risk aversion. To address the endogeneity challenge, we use the largest mega-terrorist event, the 9/11 terrorist attacks, as an exogenous shock to investor’s risk aversion; the empirical evidence shows a significant increase in default risks at both market and firm levels following the 9/11 attacks. Terrorism causes an increase in market-wide default risk for firms located in the attacked states, as well as for those located in the non-affected states. The findings are consistent with the strand of literature suggesting that, following terrorist attacks, investors become more risk-averse and demand a higher premium for their investment, leading to increased default risk.
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    Perceived risk, risk tolerance and trust in debt decisions : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Manawatu, New Zealand
    (Massey University, 2020) Phung, Trang Thai Minh
    The perceived risk of stock investment, risk tolerance and trust play important roles in the stock market and in use of debt for stock investment, yet the relationship between these has received little attention. This thesis examines these direct and indirect relationships using three independent essays using structural equation modelling as the main technique. Vietnam is used as an illustrative example, as the use of informal borrowing is common. This thesis surveyed 420 Vietnamese individual investors and found the following results. Essay One finds that the perceived risk is positively associated with borrowing sources and the use of informal debt. Leverage risk and opportunity risk also directly relate to borrowing sources. Borrowing sources is positively related to perceived risk and debt decisions. Perceived risk is a mediator between borrowing sources and informal debt, and borrowing sources act as a mediator between perceived risk and debt decisions. The results of Essay Two show that risk tolerance has a direct relationship to the use of financial leverage, while investment horizons are related to the use of informal debt. Risk tolerance positively relates to the use of informal debt and mediates between investment horizons and debt decisions among stockbrokers. In Essay Three, the results reveal that there is a significantly positive relationship between trust in the stock market, and trading frequency and the use of informal debt. Trust in stockbrokers and brokerage firms are directly related to the use of informal debt. Trading frequency is also positively associated with trust in the stock market and the use of financial leverage. Trust is a mediator between trading frequency and informal debt, and trading frequency acts as a mediator between trust and financial leverage. Findings from this thesis will help provide useful insights into investors’ behaviour and its impact on debt decisions for stock investment amongst individual investors, users and non-users of informal and formal borrowing, stockbrokers and non-stockbrokers, male and female investors in the Vietnam stock market and other stock markets.
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    Essays on the determinant and consequence of tournament incentives : evidence from China : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University, Auckland, New Zealand
    (Massey University, 2020) Sun, Li
    This research investigates the determinant and consequence of tournament incentives using data of publicly listed Chinese firms. Understanding the role of the tournament incentive and its implications is crucial, since it affects firms’ profitability and, consequently, shareholders’ wealth. Furthermore, whether tournament incentives function as an effective governance tools has remained under-explored in emerging markets. Our study sheds new light on the use of tournament incentives in the Chinese market. This study is organized into three essays: (i) a survey of the existing literature on tournament incentives in the accounting and finance area; (ii) the relation between business strategy and tournament incentives; and, finally, (iii) the effect of tournament incentives on stock price crash risk. Essay One synthesizes the theoretical underpinnings of tournament models, reviews the extant empirical literature on the determinants and consequences of tournament incentives, critiques the findings, and offers suggestions for future research. We synthesize findings from 63 empirical papers and find that several firm-level fundamental and corporate governance variables affect the structure of corporate tournaments. Our review of the consequences of tournament structure reveals that tournaments affect financial reporting and auditing as well as firm-level operational and capital market-based outcomes. This review reveals that the existing accounting and finance literature lacks a strong justification for why one theory, rather than another, is favoured. Moreover, based on potential problems that may exist in empirical models, this review also offers some methodological implications for empirical tournament studies. In Essay Two, we investigate the association between business strategy and firm-level tournament incentives in China, and find that business strategy is positively associated with firm-level tournament incentives, as proxied by pay differences among senior executives. We further explore the association between tournament incentives and future firm performance, conditional on various business strategies. We find some evidence that the larger tournament incentives offered by firms following innovative strategies are associated with better operating performance. We also find that the positive relationship between business strategy and tournament incentives is manifested only for local, but not central, state-owned enterprises (SOEs). However, no differential evidence is found using firm performance analysis. Our study fills a gap in the existing tournament literature by incorporating business strategy as a critical determinant of the tournament incentives in the more cash-compensation setting of China. Finally, in Essay Three, we investigate the association between tournament incentives and firms’ stock price crash risk in China. We explore the Chinese setting, where a cash-based compensation system is the primary compensation scheme, as opposed to the equity-based incentive schemes commonly found in the U.S. We provide robust evidence that promotion-based tournament incentives, proxied by compensation differences among top executives, are negatively and significantly associated with firms’ stock price crash risk. We also find that conditional conservatism mediates the negative association between tournament incentives and price crash. Finally, we find that the negative relationship between tournament incentives and price crash is significant for the non-state-owned enterprises only. The findings advance our understanding regarding the corporate governance role of tournament incentives in protecting shareholders’ wealth, since the occurrence of stock price crash risk destroys shareholder value.