equity valuation using multiples we examine the valuation performance of a comprehensive list of value drivers and find that multiples derived from forward earnings explain stock prices remarkably well pricing errors are within 15 percent of stock prices for about half our sample in terms of relative performance the following general rankings are observed consistently each year forward earnings measures are followed by historical earnings measures cash flow measures and book value of equity are tied for third and sales performs the worst curiously performance declines when we consider more complex measures of intrinsic value based on short cut residual income models contrary to the popular view that different industries have different best multiples these overall rankings are observed consistently for almost all industries examined since we require analysts earnings and growth forecasts and positive values for all measures our results may not be representative of the many firm years excluded from our sample

marshall s scale economies using panel data this paper estimates plant level production functions for machinery and high tech industries that allow for scale externalities from other plants in the same industry locally and from the scale or diversity of local economic activity outside the own industry the paper finds that the count of other own industry plants representing a count of local information spillover sources has strong productivity effects in high tech but not machinery industries single plant firms both benefit more from and generate greater external benefits than corporate plants given their greater reliance on external environments on dynamic externalities high tech single plant firms benefit also from the scale of past own industry activity i find little evidence of economies from the diversity or scale of local economic activity outside the own industry

monitoring as a motivation for ipo underpricing brennan and franks 1997 and stoughton and zechner 1998 provide contrasting arguments for why monitoring considerations create incentives for managers to underprice their firms ipos initial public offerings like smart and zutter 2003 we examine these arguments using a sample of u s ipos however we find evidence that the determinants of initial returns institutional shareholdings and post ipo likelihood of acquisition are not consistent with these arguments thus we conclude that monitoring considerations are not important determinants of ipo underpricing evidence that the prices of unseasoned new issues of common stock ipos in early secondary market trading are substantially higher on average than their offer prices has evoked an extensive literature trying to explain such underpricing while prior literature has tended to focus on uncertainty asymmetric information stories for such underpricing e g rock 1986 and benveniste and spindt 1989 recent literature has suggested that post ipo ownership considerations are also important more specifically this literature has suggested that monitoring considerations create incentives for managers to underprice their firm s stock in its first public offering brennan and franks 1997 for example argue that insiders have an incentive to underprice the ipo of their firm s stock in order to ensure its wide distribution thereby reducing the likelihood of being monitored or removed by new shareholders particularly institutional shareholders brennan and franks call their hypothesis the reduced monitoring hypothesis consistent with their hypothesis for a sample of 69 u k ipos during 1986 to 1989 they find that 1 smaller applicants are allocated a larger share of oversubscribed underpriced issues and 2 the size and amount of subsequent outside large shareholdings are inversely related to the firm s degree of ipo underpricing 1

state characteristics and the location of foreign direct investment within the united states a conditional logit model of the location decision of foreign firms investing in manufacturing facilities in the united states is developed and estimated the authors results for 1981 83 indicate that states with higher per capita incomes and higher densities of manufacturing activity attracted relatively more foreign direct investment in addition higher wages deterred foreign direct investment while higher unemployment rates attracted it surprisingly higher unionization rates were associated with increased foreign direct investment overall higher taxes deterred foreign direct investment however more extensive transportation infrastructures and larger promotional expenditures were associated with increased foreign direct investment copyright 1991 by mit press

industry classifications and return comovement a company s industry affiliation is commonly used to construct homogeneous stock groupings for portfolio risk management relative valuation and peer group comparisons a variety of industry classification systems have been adopted however creating disagreements as to companies industry assignments this analysis of the global industry classification system gics and fama french system indicates that common movement in returns and operating performance resulting from industry effects is stronger for stocks of large companies than for those of small companies also increasingly fine levels of disaggregation improve discrimination up to six digit gics codes after which the benefits tail off stock groupings based on industry exhibit stronger out of sample homogeneity than groups formed from statistical cluster analysis

the nonparametric risk adjusted efficiency measurement an application to taiwan s major rural financial intermediaries in this article a nonparametric approach is used to incorporate risk into the measurement of technical efficiencies of the major financial intermediaries in rural taiwan risk is treated as a joint but undesirable output given the fact that various regulatory actions may prevent its free disposability three risk indicators nonperforming loans allowance for loan losses and risky assets are employed alternatively in the empirical work results suggest that all three risk constraints are binding regulations on controlling risky assets and loan loss reserves are effective but more burdensome than those on controlling loan quality

inter city competition for foreign investment static and dynamic effects of china s incentive areas abstract china s open door policy has created a natural experiment for studying agglomeration externalities and the role of incentives designed to attract foreign direct investment we build a model which predicts that foreign firms will prefer cities where other foreign firms are located we estimate the model using data on 931 foreign ventures we then use simulations to explore the effect policies favoring particular cities had on the distribution of investment we find that attractive cities those with good infrastructure and an established industrial base gained most and that agglomeration effects greatly magnified the direct impact of policy

business risk and return a test of simultaneous relationships bowman 1980 found an unexpected and paradoxical negative relationship between risk and return in many firms and for about a decade various researchers have attempted to explain the paradox this article summarizes some of those explanations and shows that industry conditions and business strategies are likely to influence both risk and return the relationships are depicted in a simultaneous model where business return risk and debt are endogenously determined the model is tested with 132 nondiversified firms in 8 disparate industries ols estimates of the parameters of the model show the risk return relationship to be significantly negative as many past researchers have found however 3sls estimates of the parameters of the simultaneous model reveal no significant relationship between risk and return the tentative conclusion is that many of the studies in the line of research concerned with bowman s 1980 paradox may have used an improperly specified model and that when a more realistic sim

can megamergers improve bank efficiency abstract this paper uses a fitted multiproduct translog cost function to simulate mergers between pairs of us commercial banks with assets exceeding 1 billion and studies the predicted impact of such mergers on total costs thick frontier analysis reveals that variations in x efficiency dominate scale product mix and branching efficiencies ex ante financial data imply that costs could potentially be reduced in nearly half of the possible mergers except those between banks each larger than 10 billion most cost efficient mergers are across state lines apparently a result of variations in product mix

geography industrial organization and agglomeration this paper makes two contributions to the empirical literature on agglomeration economies first the paper uses a unique and rich database in conjunction with mapping software to measure the geographic extent of agglomerative externalities previous papers have been forced to assume that agglomeration economies are club goods that operate at a metropolitan scale second the paper tests for the existence of organizational agglomeration economies of the kind studied qualitatively by saxenian 1994 this is a potentially important source of increasing returns that previous empirical work has not considered results indicate that localization economies attenuate rapidly and that industrial organization affects the benefits of agglomeration

a dea study to evaluate the relative efficiency and investigate the reorganization of the credit department of farmers associations in taiwan in this study data envelopment analysis models were applied to evaluate the relative efficiencies of the credit departments of farmers associations cdfas in taiwan the findings show that the overall efficiency scores are not best and scale for cdfas in taiwan is relative small it implies that the reorganization of the cdfas may be appropriate if more efficient organization is to be pursued thus this study investigated cdfas reorganization to increase the efficiency the proposed cdfas reorganization alternatives have higher average efficiency scores than the current cdfas

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

mutual holding companies evidence of conflicts of interest through disparate dividends abstract the mutual holding company mhc structure establishes a dual class stock that creates a unique opportunity to transfer wealth from thrift depositor owners to new minority shareholders through the disparate payment of dividends we show that mhcs are priced higher than comparable non mhcs and dividend policy is a significant component of this valuation we also show that mhc thrifts pay significantly higher dividends than non mhc thrifts and that an office of thrift supervision ots ruling reducing the potential for disparate dividends between the two classes of shareholders resulted in lower dividends these results have policy implications of special significance given that the ots reversed its position in 2000 and because of the current controversy over the use of the mhc structure in the financial service industry

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

home field advantage location decisions of portuguese entrepreneurs an investor s home bias in industrial location decisions may stem from personal factors social capital other non transferable assets and imperfect information about the urban and regional environment this paper explores the distinction between home base and non home location decisions in portugal we reach two important conclusions first the introduction of a variable accounting for prior base of economic activity significantly improves the statistical results second we find that the weighting of distinct location attributes differs between home and non home locations notably non home location choices are strongly governed by agglomeration economies and proximity to major urban centers possibly replicating prior location decisions to economize on search costs the results also enable us to quantify the investor s willingness to opt for a possible home field advantage for example entrepreneurs accept over three times higher labor costs to compete in their resident area of business 2002 elsevier science usa all rights reserved

industrial groupings and foreign direct investment we explore worldwide foreign direct investment location decisions by japanese manufacturing firms from 1985 through 1991 our conditional logit estimates provide evidence that firms location decisions are affected by membership in either vertical or horizontal keiretsu consistent with previous studies that stress agglomeration effects on firms location decisions we find that the stock of investment in a region by a firm s vertical keiretsu partners increases the probability of location further we find that the recent flow of investment into a region by a firm s horizontal keiretsu partners increases the probability of investment to the region providing evidence of networking effects

corporate diversification and credit constraints real effects across the business cycle we study whether differences in access to credit cause focused firms to perform differently from diversified firms in the product market prior work has identified binding credit constraints for bank dependent firms during recessions we assess whether corporate diversification alleviates these constraints we find that during recessions sales growth rates drop more for bank dependent focused firms than for rival segments of bank dependent diversified firms we also find that during recessions inventory growth rates drop more for bank dependent focused firms than for bank dependent diversified firms even after we control for contemporaneous sales growth consistent with a credit constraint explanation we find no difference in the sensitivities to recessions of bank independent focused and bank independent diversified firms jel g30 g31 g32 copyright 2006 oxford university press

the effect of the set of comparable firms on the accuracy of the price earnings valuation method the price earnings pie valuation method estimates a firm s stock price as the product of its earnings and the pie multiple determined from a set of comparable firms this paper studies empirically the accuracy of the pie valuation method when comparable firms are selected on the basis of industry risk and earnings growth the effect of adjusting earnings for cross sectional differences in leverage is also examined

firm heterogeneity and location choices evidence from foreign manufacturing investments in china this paper develops a model which indicates that foreign firms location choices are determined jointly by site attributes and firm heterogeneity the model is estimated using data on 2565 foreign manufacturing investments in china the conditional logit estimates and simulation results provide supportive evidence an increase in a firm s labour intensity magnifies the impact of labour cost while a location s local communications infrastructure has a stronger influence on foreign firms that have adopted modern information technology it is also found that agglomeration effects decrease with firm size and labour quality implications for researchers and policy makers are discussed in the conclusion

information costs agglomeration economies and the location of foreign direct investment in china1 he c 2002 information costs agglomeration economies and the location of foreign direct investment in china reg studies 36 1029 1036 foreign investors suffer from adverse information asymmetry and face internal and external uncertainties in host economies better access to information and a variety of agglomeration economies could attenuate the disadvantages that foreign investors encounter statistical results strongly buttress the argument that foreign investors are inclined to favour such locations that could minimize information costs and offer a variety of agglomeration economies theoretical and policy implications and further research directions are discussed at the end 1 this paper was presented at the 63rd annual meeting of the association of pacific coast geographers sept 13 16 2000 arcata ca

applying data envelopment analysis in analysing the organizational change for credit departments of farmers associations in taiwan this study attempts to apply the data envelopment analysis to approach the performance of the credit departments of farmers associations in taiwan based on the structure of the data envelopment analysis approach this study measures the relative efficiency for credit departments of farmers associations in taiwan via resource redistribution when the amount of resource is fixed it can be distributed to each unit within an organization in a better way it is intended to find the possible improvements for those inefficient credit departments of farmers associations the empirical results show that the overall efficiency scores of the teams indicate is not best and scale for credit departments of farmers associations in taiwan is relatively small it implies that the reorganization of the credit departments of farmers associations may be appropriate if more efficient organization is to be pursued finally the reorganization of the credit departments of farmers associations are studies evidences show

sics as delineators of economic markets the standard industrial classification sic is often used to divide firms into homogeneous markets firms classified into the same n 1 digit sic are thought to be more homogeneous than firms sharing only the same n digit sic this study measures how well the sic succeeds at combining firms into homogeneous economic markets assuming that firms in more similar economic markets should display more similar sales changes profit rates or stock price changes than firms in less similar economic markets the author finds that the sic is not successful at identifying firms with such similar characteristic variables copyright 1989 by the university of chicago

modelling intrametropolitan location of foreign investment firms in a chinese city foreign direct investment fdi is now becoming a driving force for world wide urban structuring very few studies have been made at the intrametropolitan scale of industrial location in post socialist cities studies at a regional scale have generally emphasised the peculiar nature of fdi and have resorted to the description of special factors such as kinship ties and social networks to explain fdi location processes in contemporary urban china with the aid of gis techniques this study geo located fdi firms through their postal codes and measured the site characteristics through cross referencing location factors presented in the coverage such as infrastructure and land use this study used logistic regressions to examine how site attributes influence the popularity of a development site the results suggest that intraurban fdi firm location can be explained by the location advantages prevailing at development sites among which highway accessibility the access to major high ranking hotels and the status of the economic and technological development zone etdz are important determinants in addition to conventional location factors such as access to railway terminals agglomeration economies and labour markets the implications of fdi location for the urban spatial structure are profound first fdi has transformed the function of the city centre for example an emerging cbd secondly the intrametropolitan distribution of fdi has triggered polycentric urban growth in chinese cities

the match between ceo and firm we investigate the role of job match heterogeneity in the ceo labor market we document a high percentage of ceo turnovers in the early years of tenure as illustrated by the hazard that increases until the fifth year of ceo tenure and then decreases evidence suggests that a good match is more likely if the new ceo performs better than the previous ceo the best matches tend to occur when inside outside ceos follow previous ceos who quit are dismissed evidence consistent with match theory in the ceo labor market suggests factors that influence the likelihood of observing a good match

some economic determinants of time series properties of earnings abstract the earnings time series literature in accounting focuses on the statistical characteristics of the processes which generate corporate earnings in order to further our understanding of earnings behavior this study investigates the question whether inter firm differences in these statistical characteristics autocorrelations and variances of earnings changes can be explained by economic factors various relationships between economic factors and earnings behavior are derived from the economic literature and examined empirically in this study findings indicate that autocorrelations and variability of annual earnings and earnings over equity changes are systematically associated with the following factors the type of product the height of industry barriers to entry a surrogate for degree of competition the degree of capital intensity operating leverage and the firm size

do industry level analyses improve forecasts of financial performance prior research documents mean reversion in firm profitability and growth under the implicit assumption that profitability and growth of all firms revert to a common benchmark at the same rate however a large body of academic research suggests that there are systematic interindustry differences e g industry barriers to entry that differentially affect firm performance based on industry membership we evaluate the relative forecast accuracy of mean reverting models at the industry and economywide levels and find that industry specific models are generally more accurate in predicting firm growth but not profitability

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

product market competition and credit risk abstract this study theoretically and empirically investigates effects of product market competition on credit risk we first develop a real options based structural model in a homogeneous oligopoly and show that credit spreads are positively related to the number of firms in an industry the disparity of firm size in an industry is relevant to both product market competition and credit risk and we therefore extend the model to an asymmetric duopoly case in particular we demonstrate that credit spreads of relatively small large firms within an industry are positively negatively related to herfindahl hirschman index and the relative firm size in an industry is an important determinant of credit risk the models implications are empirically scrutinized by a reduced form hazard model and generally supported by performing out of sample analyses the results demonstrate that firm size together with the interaction terms between intra industry firm size dummies and competition intensity can effectively predict default

market structure and market value while the use of market models to determine the sources of economic profits is quite new at least two empirical studies considering the market structure and market value relation have appeared to date interestingly they conflict thomadakis 1977 found a close positive relation between the four firm concentration ratio and relative excess valuation measured as the difference between the market value of the firm and the book value of tangible assets all normalized by sales as a result thomadakis argued that industry concentration plays a role in the determination of excess profits from currently held assets and those expected from the firm s investment options p 185 in contrast lindenberg and ross 1981 reported no significant relation between concentration and tobin s q ratio measured as the ratio of the market value of the firm to the replacement cost of tangible assets this result disputes thomadakis s findings and a purely structuralist interpretation of economic profits according to lindenberg and ross market power may or may not be evident in highly concentrated markets since high q s can occur in concentrated or unconcentrated markets and conversely low q s indicating no significant market power can occur in markets that have high degrees of concentration p 28

explaining efficiency differences among large german and austrian banks cost efficiency scale efficiency and productivity change are estimated by data envelopment analysis and cost efficiency is regressed on explanatory variables no evidence is found for average productivity responding to deregulation over the period studied state owned banks are found to be more cost efficient likely owing to cheaper funds and cooperative banks to be about as cost efficient as private banks increasing economies of scale but decreasing economies of scope provide rationale for m as among banks with similar product portfolios interbank and capital market funding is found to be more cost efficient than deposits when the cost of retail networks is controlled

do firms undertake self tender offers to optimize capital structure this study investigates capital structure around 286 self tender offers from 1980 to 1997 firms that undertake self tender offers generally have debt ratios below their predicted levels before the offers the debt ratios following nondefensive self tender offers are close to predicted levels while the ratios following defensive self tender offers are above predicted levels further 20 and 43 of the debt ratings are downgraded following nondefensive and defensive self tender offers respectively finally the increases in debt ratios around the offers are negatively related to the difference from the predicted debt ratio before the offers

stick to the fundamentals and discover your peers the use of industry as a criterion for selecting peers for multiples based valuation rests on the notion that companies operating in the same industry are more likely to share fundamental value drivers i e profitability growth and risk however such companies may not have similar characteristics in terms of these drivers and thus should not be traded at the same multiple we analyze this issue by developing the sum of absolute rank differences sard approach the sard approach can account for an infinite number of proxies for profitability growth and risk while remaining independent of industry classifications our results indicate that the sard approach yields significantly more accurate valuation estimates than the industry classification approach

urban productivity in china in this empirical study we test the relationship of chinese urban productivity and city size using over 119 790 firm level production data cross 28 industries from the third national industrial survey along with the urban population data of 224 cities we find strong and prevailing significant agglomeration economies in chinese urban areas the estimated average agglomeration elasticity is around 0 051 implying that every doubling of city size will provide a 3 6 per cent gain in firm productivity the breakdown analysis suggests that based on current data the major source of the agglomeration advantage comes from localisation economies benefits from the concentration of firms of the same industry within one geographical area rather than urbanisation economies externalities from urban development itself the maximum size study also suggests that while most chinese cities have yet to grow to demonstrate the full strength of agglomeration economies many chinese industries have reached the optimal i

vertical multinationals and host country characteristics abstract we inquire into the question of what country characteristics particularly market size and labor force composition attract inward investment this approach is motivated by the empirical observation that the poorest countries attract a far smaller share of world direct investment than their share of income small markets receive less investment per capita than larger ones we develop a model that generates both stylized facts in equilibrium suggesting the existence of a development trap for small skilled labor scarce countries