bluuebunny/crossref_metadata_2025 huggingface dataset:
The June 1989 Regulatory Mandated Argentinean Loan Write‐offs and US Bank Security Returns: An Empirical Investigation
Authors: Kabir Hassan M. , Sackley William H.
Published: January 2008

This study examines the stock market reactions to an involuntary adjustment to loan‐loss reserves by the write‐downs of Argentinean loans by major banks with Argentinean loan exposure. This event has escaped investigation in the empirical literature of the LDC debt crisis. A seemingly unrelated regression study, rather than a Brown and Warner (1980) event study, is employed to investigate two pairs of hypotheses, namely the new‐information vs. information‐leakage hypothesis and the rational‐pricing vs. investor‐contagion hypothesis, using daily stock market data. Sample banks are grouped into three portfolios (highly exposed multinational banks, mildly exposed regional wholesale banks and unexposed or nominally exposed regional consumer banks) to test the investor‐contagion effect. The results indicate that the stock market adjusts quickly to new information, thereby providing evidence of semi‐strong‐form market efficiency. Unlike previous research, this research finds strong evidence for an investor‐contagion effect.
Stakeholders Versus Stockholders and Financial Ethics: Ethics to Whom?
Authors: Dufrene Uric , Wong Alan
Published: January 2008

Corporate finance is under attack. Commentators mention that corporate managers have enriched themselves and shareholders, and in the process have failed to consider the interests of all stakeholders (Hennessy, 1989, Alkhafaji, 1989, Newton, 1989, Dunfee, 1989, Steidlmeier, 1989, Jones and Hunt, 1991). They cite the active corporate control market that produced hostile takeovers, leveraged buyouts, and corporate restructuring activity, all presumably causing a reduction in social welfare. This view is now beginning to permeate itself into the financial education debate. For example, Hawley (1991) suggests that financial educators are abdicating their responsibility of helping prepare corporate managers to recognize and deal with business ethics‐social responsibility effectively. Hawley proposes that the shareholder wealth maximization model for corporate management rationalizes the commission of unethical or socially irresponsible actions. Because of this ongoing criticism being levied against the practice of corporate finance, financial educators are now moving to incorporate ethics in the finance curricula. Although this move may be welcomed, we suggest that financial educators proceed with caution.
The North American Free Trade Agreement (NAFTA) and Full Disclosure: Accounting for Stakeholders
Authors: Brokie Leonard Barbara
Published: January 2008

The accounting profession has been charged by Supreme Court Chief Justice Warren Burger with a public responsibility to fulfill a “public watchdog” function. This function demands that the accountant maintains total independence from the client at all times and requires complete fidelity to the public trust (Briloff, 1990). The accounting profession also fulfills a monitoring and enforcing role in society in that the monitoring of contracts is considered a necessary cost of contracting (Jensen & Meckling, 1976). The North American Free Trade Agreement is viewed as a coalition of participants who interact through a system of contracts and agreements regarding trade between Canada, Mexico, and the United States. Explicit in the agreement is the recognition of the individual rights of the labor sector. This article discusses the rights of labor acknowledged by NAFTA, and the role accounting should play as a response to these agreements. Previous papers have called for the creation of a value theory in accounting that is socially conscious (Tinker, Merino, and Neimark, 1982) and for the development of a political economy of accounting which explicitly considers the relationships between accounting and the institutional structure of the economy (Cooper & Sherer, 1984).The Economist(4/9/94, p.14) calls for social disclosure as a means of advancing the cause of human rights in the third world. Following this literature, which calls on the accounting profession to become actively involved in setting accounting policy that is socially conscious, this article recommends making changes to the existing U.S. and North American accounting systems to facilitate fair economic growth and resource allocation between the North American countries. Recommendations include encouraging accounting standard setters and governmental bodies to require publicly traded companies doing business under NAFTA to provide additional disclosures concerning labor and other NAFTA agreements, such as environmental disclosures, in order to provide socially relevant information to stakeholders in all three countries. Additionally, an international group of auditors should be formed and funded by the NAFTA countries to monitor and publish compliance with the NAFTA agreements on labor and other issues, and to provide credibility to the required disclosures.
The Nature of Globalization and the Muslim World
Authors: Alam Choudhury Masudul
Published: January 2008

Post‐Cold War world is a bastion of economists, strategists and cold calculators. It is a world of vehement competition and mergers in the name of economic integration and the rise of market power, from the cradle to the grave. While the belligerence of world‐wide military conflict recedes, yet the raison d'etre behind the passion for acquisition and political strategem out of war, is all over being realized through the instrument of economic power. In this economic power resides institutional functions integrating dominant decisions in view of shared returns from a well‐coordinated direction of change by design.
Economic Growth, Investment, and Exchange Rate Changes in a Poor‐Capital Economy
Authors: Suliman Osman
Published: January 2008

The discussion of the appropriate means to attain external balance arose as a result of the recurring problem of acute shortages of foreign exchange for many small, open, developing economies. Thus, as Findlay (1973) and Diamond (1978) contend, it is now widely held that the critical bottleneck restricting the rate of economic growth in developing countries is the shortage of foreign exchange. The Latin American structuralist school and the Indian strategy of development has long maintained that the limited capacity to import in relation to high and inelastic capital imports requirements has been one of the main factors responsible for the chronic inflation and stagnation in those countries.
Investment Under Profit‐Sharing Contracts: The Adverse Selection Case
Authors: Bashir Abdel‐Hameed M.
Published: January 2008

In this paper we analyze investment behavior under profit‐and‐ loss sharing contracts in an environment of asymmetric information. Under certain restrictive assumptions, PLS contracts are characterized with over investment, where the equilibrium level of investment exceeds the first best (full information) level. A zakat tax on profit is shown to restore efficiency.
Globalisation Challenges and Competitiveness: The Role of the State and Private Sector in Malaysia
Authors: Anuar Adnan M. , Ali Supian , Ali Anuwar
Published: January 2008

This paper will examine the challenges of the globalisation process on the Malaysian economy and the role of the state and the private sector and their state of competitiveness in meeting the challenges. Issues relating to the enhancement of technological capability, the role of education, training and R&D will be examined in greater depth with respect to the country's quest for industrial nation status by the year 2020.
Privatisation: The Malaysian Response to National Debt and Economic Restructuring
Authors: Malik Uzir A.
Published: January 2008

Privatisation which was made popular as a policy instrument in the western economies during the early 1980s has now become a global economic phenomenon. The Malaysian response to it, however, was relatively early. When the Thatcher government in Britain and the Reagan administration in the United States started their economic liberalisation policy during the period, the Malaysian government under the administration of Prime Minister Dr Mahathir Mohamed immediately saw its potential not only in balancing the role of government and the private sector but also as instruments for lessening the national debt burden and attaining national economic restructuring.
Manufacturing as Engine of Growth and Industrialisation in Malaysia
Authors: Rasiah Rajah
Published: January 2008

Structural economists have been amongst the foremost proponents of a pro‐active industrial policy as the mechanism for promoting rapid economic growth (Lewis, 1956; Myrdal, 1957; Kaldor, 1967; Thirlwall, 1989). This is substantiated by the argument that manufacturing being characterised by increasingly specialised inter‐related activities, radiates tremendous impulses both intra and inter sectorally (Young, 1928: 527–42). Using a sample of 12 developed countries, Kaldor (1967:3–23; 1975:891–6; 1979; 1989:282–310) attempted an empirical study to support this relationship. A positive correlation between manufacturing growth and that of the economy has been defended on the grounds that manufacturing growth increases static (relate to size and scale of production units and are characteristic largely of manufacturing where in the process of doubling the linear dimensions of equipment, the surface increases by the square and the volume by the cube), as well as dynamic (relate to increasing returns brought about by ‘induced’ technical progress, learning by doing, external economies in production, etc.) returns (Thirlwall, 1989: 60). Since manufacturing also produces capital goods that are used in different industrial branches and other sectors, it is seen as a powerful mechanism for transmitting technical change (Weiss, 1988). It is for these reasons, structuralists generally prescribe government policies that favour manufacturing expansion. Malaysia is a good example of a natural resource rich country that has made manufacturing its main plank of economic growth especially since the launching of the New Economic Policy (NEP) in 1971 (see Malaysia, 1976). However, as industrial policy in each socio‐political space offers state‐specific characteristics, we will analyse industrialisation within Malaysia's setting.
Finance and the Regulatory Environment — An Introduction
Authors: Fields M. Andrew
Published: January 2008

The pace of new regulation has been quite rapid in the United States during the past fifteen years. Consider the number of major pieces of legislation that have been passed during this time span and you immediately gain insight into this fast‐paced regulatory climate. It has been argued by some that oversight during the 1980s was lax and that regulations were much less enforced than in previous decades. This may be true in certain areas such as antitrust enforcement, but there can be no doubt that the total body of regulation has been expanding continuously.
The Relationship Between Materiality Thresholds and Judgments of Fraud Risk
Authors: Bernardi Richard A. , Pincus Karen V.
Published: January 2008

Researchers and practitioners have long debated the arguments in favor of and against providing specific mathematical materiality guidelines in auditing standards. Yet, there is little empirical evidence about the relationship between materiality thresholds and audit risk judgments in the absence of such guidelines. In this study, 152 Big Six managers evaluated materiality and risk for an audit simulation based on an actual case where material fraud was undetected. The auditor subjects were allowed to choose the evidence they would examine before reaching a decision. The major findings of the study are that while auditor materiality judgments differ, these differences were not statistically significantly related to either fraud risk judgments or the amount of evidence the auditors chose to examine before rendering their judgments. This empirical evidence does not support the need for specific quantitative guidance in accounting standards related to materiality. However, other considerations (such as concern for legal liability) could also have an impact on the advisability of providing specific quantitative guidance for setting materiality thresholds.
Materiality and Risk Judgements: A Review of Users' Expectations
Authors: De Martinis Michael R. , Burrowes Ashley W.
Published: January 2008

In reviewing contemporary literature on materiality judgement and the audit expectations gap (AEG), this paper considers an apparent void concerning that aspect of the AEG caused by the non‐disclosure of materiality and risk thresholds and criteria in the financial reports. The review enables the formation and discussion of two premises: first, disclosing cornerstone concepts, such as materiality and risk judgements, in financial reports enhances users' understanding of the limitations of information contained therein; and second, expanding the wording in audit reports reduces the AEG and enhances users' understanding of the objectives and limitations of an audit. In supporting the validity of these premises, it is concluded that the disclosure of materiality and risk judgements in financial reports may reduce the AEG. This hypothesis may be useful for future empirical research.
Commercial Banks' Role in Privatization: The Case of Poland
Authors: Walker David A.
Published: January 2008

Poland has made rapid economic advancement since introducing its shock therapy program January 1,1990. Inflation is now below 22 percent and real growth exceeds 5.1 percent. Poland's future will be highly dependent on the development of its financial institutions. The commercial banks that had been branches of the National Bank of Poland and several other major banks are leading the privatization process. Five banks have been privatized and others will follow shortly. Cooperative — twinning — arrangements are being developed to provide international banking expertise and financial support for Poland's commercial banks. The profit maximizing financial institutions will be the primary vehicles to fund the development of Poland's market‐based economy. The privatized institutions will support the planned initial public offerings and joint business arrangements that are developing with western companies.
Performance Characteristics of Private and State‐Owned Banks: The Turkish Case
Authors: Aydogan Kürsat , Geoffrey Booth G.
Published: January 2008

This paper investigates the performance characteristics of Turkish private and state‐owned commercial banks for the 1986– 1990 period. The link between interest margins and maturity structures of bank asset and liabilities is specified. Empirical evidence indicates that banks with longer positions experienced lower interest margins, a finding consistent with the presence of a downward sloping yield curve during most of this period. The results document that bank margins suffered after the financial reforms of 1988. Further, compared to private banks, state‐owned banks exhibited lower interest margins and longer maturities, which is a direct consequence of portfolio constraints and management style of banks.
Russian Mass Privatization: Analysis of Financial Structure and Initial Cash Endowments
Authors: Puntillo Richard , Schneiderman Marina , Keehn Matthew
Published: January 2008

This paper analyzes the cash flow and corporate finance structure of large‐size Russian enterprises required by law to privatize. The legal framework and governmental regulatory structure of Russia's mass privatization program are presented, and particular emphasis is placed on tracing the flow of cash (versus Russian privatization vouchers) between enterprises, investors and the government. Most Russian firms raise no cash during the initial privatization process and, accordingly, have substantial difficulties in obtaining funds to continue operations and to finance their growth and expansion. The authors believe that undue emphasis on the use of privatization vouchers has placed many newly privatized firms in conditions of extreme financial distress. Examples of the initial financial structure of three Western corporate finance transactions — spin‐offs, leveraged buy‐outs (LBOs) and Chapter 11 reorganizations — are compared to the initial endowment of liquid resources in Russian firms undergoing privatization.
Prospects for Small Business in Poland's Future
Authors: Fairfield‐Sonn James W. , Lacey Nelson
Published: January 2008

Poland has undergone a dramatic shift in its economy during the 1980s and early 1990s by essentially moving from a command to a free market orientation. To realize the full benefit of this shift, however, Poland will need to do everything possible to exploit its current national competitive advantages. In this paper, we focus on the role small business development can play in this effort in light of the current social, legal, and financial conditions in the country. The paper concludes with a discussion of several intriguing strategic options that could be profitably pursued.
DECISION MAKING ON THE BASIS OF EXPECTED COST VARIANCE: A FUZZY SET APPROACH
Authors: Kleyle R. , de Korvin A. , McLaughlin T.
Published: January 2008

In this paper we discuss a mechanism for making business decisions on the basis of an expected penalty function associated with cost variance. We assume that the decision maker is knowledgeable of the economic environment in which the decision will be made, but that he has no hard data” such as a market research report. In this setting fuzzy logic is more applicable than ordinary statistical decision theory. We develop a method of computing a fuzzy expected penalty based on a fuzzy distribution of cost variance and a fuzzy penalty function. These fuzzy expected penalties are then defuzzified” so that a non‐fuzzy decision can be made.
A ROUGH SET APPROACH TO DEALING WITH AMBIGUITY IN THE PEER REVIEW PROCESS IN PUBLIC ACCOUNTING
Authors: Omer Khursheed , Leavins John R. , O'Shaughnessy John
Published: January 2008

This paper presents a methodology based on rough set theory whereby certain and possible rules can be derived utilizing the experience of the reviewers. Adoption of this methodology will help the AICPA in closely monitoring the peer review and identifying inconsistencies in the process.
Assessing The Potential Benefits from Investing in Emerging Markets
Authors: Sinclair C.D. , Lonie A.A. , Power D.M. , Helliar C.V.
Published: January 2008

In the early 1990s growing numbers of investing institutions in the UK financial community crossed a threshold of awareness about the opportunities offered by the emerging stock markets of developing countries (ESMs); the returns per unit of risk, formerly considered by most fund managers to be unacceptably low because of the high risk factor, were frequently reappraised and judged to fall within the parameters of acceptability. Investment funds were set up which either invested solely in emerging markets or adopted a policy of investing a fixed percentage of their funds in these markets (Clark, 1991; Bailey and Lim, 1992). Well‐advertised instances of spectacular returns achieved by equities in emerging markets2 apparently persuaded fund managers to overcome their misgivings and to invest in these markets despite the continuing risks associated with such investment.
Lease Finance in Emerging Markets: An Eastern European Study
Authors: Gao Simon S. , Herbert Wilson E.
Published: January 2008

The emergence of lease markets in Eastern Europe provides a new menu of opportunities for inward foreign leasing investment by Western Multinational Enterprises (MNEs). The Eastern European markets, like other emerging markets, exhibit high expected returns as well as high volatility.
Currency Risks in Emerging Markets Investments
Authors: Sullivan Michael A. , Dandapani Krishnan
Published: January 2008

This paper analyzes the special character of currency risks associated with equity investments in emerging capital markets. Such investments are an important and growing source of funds for financing projects which contribute to the rapid pace of growth in emerging markets. While investors in any foreign market face the consequences of possible changes in the value of foreign currency, uncertainty about the terms for currency conversion in emerging markets are aggravated by the interaction of capital flows and currency values, particularly for countries which rely heavily on external sources of financing. In such an environment, it is essential for investors to understand the characteristics of currency risk in order to incorporate them in their investment decisions. This paper analyzes equity market returns and currency fluctuations in a group of emerging markets by comparing them to a set of developed countries. By traditional measures of risk emerging markets appear to have low levels of currency risk. This paper demonstrates that there has also been substantial changes in currency risk in emerging markets which have not occurred in developed markets. This paper also discusses methods of hedging currency risk, taking into account the limitations on hedging strategies in emerging markets and the special characteristics of currency risks in those markets.
Using Efficiency Measures to Distinguish Among Alternative Explanations of the Structure‐Performance Relationship in Banking
Authors: Berger Allen N. , Hannan Timothy H.
Published: January 2008

Prior research on the structure‐performance relationship has not investigated all of the relevant relationships among market structure, profits, prices, and explicitly calculated measures of firm efficiency. This paper replicates the four approaches in the literature, adds several innovations, and applies the analysis to banking data. We find more support for the structure‐conduct‐performance hypothesis than for the relative‐market‐power and efficient‐structure hypotheses, although the data are not fully consistent with any of these theories. We also find support for Hick's quiet‐life hypothesis, which implies that firms with market power adhere less rigorously to efficiency maximization. J.E.L. Classification Numbers G21, G28, L41, L89 The opinions expressed do not necessarily reflect those of the Board of Governors or its staff. The authors thank Dean Amel, Jim Berkovec, Myron Kwast, Nellie Liang, LenNakamura, Steve Rhoades, and participants in the meeting of the Federal Reserve System Committee on Financial Structure and Regulation for helpful comments, and Ken Cavalluzzo, Jalal Akhavein, John Leusner, and Seth Bonime for outstanding research assistance.
Bank Mergers, X‐Efficiency, and the Market for Corporate Control
Authors: DeYoung Robert
Published: January 2008

A thick cost frontier methodology is used to estimate pre‐ and postmerger X‐inefficiency in 348 mergers approved by the OCC in 1987/88. Efficiency improved in only a small majority of mergers, and these gains were unrelated to the acquiring bank's efficiency advantage over its target. These results are not consistent with the traditional market for corporate control story, in which well‐managed firms acquire poorly managed firms and subsequently improve their performance. Rather, the results suggest motivations other than cost efficiencies were driving U.S. bank mergers in the late 1980s. Efficiency gains were concentrated in mergers where acquiring banks made frequent acquisitions, suggesting the presence of experience effects.
Alternative Models for the Conditional Heteroskedasticity of Stock Returns: Evidence from Deposit Institutions
Authors: Francis Bill B.
Published: January 2008

The interest shown in the study of the volatility of asset prices has been considerable for several years. In an important paper, Merton (1980) pointed out that a weakness of a significant number of empirical studies of asset returns is the failure to account for the effect of changes in the level of risk when estimating expected returns. He further pointed out that estimators which use ex‐post returns should take account of heteroscedasticity. He concluded that one of the most important directions for future research is to develop accurate variance estimation models which take account of the errors in variance estimation. The development of autoregressive conditional heteroscedasticity (ARCH) by Engle (1982) and the generalized ARCH (GARCH) by Bollerslev (1986) has provided financial economists with a model for returns which specifically allows for changing conditional variances. In this paper I apply ARCH modeling strategy to study the relationship between risk and returns of deposit institutions.
The Re‐Internationalization of Banking and the Financial System
Authors: Lothian James R.
Published: January 2008

Banking and finance during the past several decades have become “re‐internationalized,” not simply “internationalized.” This becomes clear when we compare the institutional features of banking and finance today with those in the early part of this century, the last period in which both had a substantial international dimension. It is further apparent in historical data that are analyzed in the paper: cross‐country spreads between real interest rates over the long period 1835 to 1990, and figures for gross foreign assets available for a number of major countries at key points in time from 1885 to 1994. The paper concludes by discussing the factors responsible for the changes that have occurred in banking and finance during the past several decades.
Accounting Income and Market Prices: Explaining Core‐Deposit Premiums
Authors: Carhill Mike
Published: January 2008

Core‐deposit franchises usually fetch substantial premiums when placed on the market. Those premiums are consistent with the “core‐deposit hypothesis:” because of limitations on competition (rationing of charters), deposits provide below‐market funds to financial intermediaries (Spellman, 1982, Chapter 3). However, two other hypotheses can explain core‐deposit premiums. The first holds that generally accepted accounting principles (GAAP) misallocate the costs of developing a core‐deposit base, by charging such costs against current income rather than capitalizing them as an asset; core‐deposit premiums merely represent a normal return to the costs of developing a core‐deposit base. The second holds that core‐deposit premiums arise from banks' good reputation (“goodwill”). A test which can discriminate between the three hypotheses is needed.
Thrift Size, Risk‐Taking and Return Performance
Authors: Knopf John D. , Teall John L.
Published: January 2008

Return and risk performance of US thrift institutions during the period 1986–90 was inversely related to both firm size and the extent to which the thrifts engaged in non‐traditional activities. Our results contrast earlier studies which found economies of scale in the thrift industry. Most of these earlier studies were based on testing periods prior to the deregulatory activity in the early 1980's. The central question addressed in this paper is whether and how this deregulatory activity might have caused an industry which previously experienced economies of scale to experience performance inversely related to firm size. Our results suggest that at least part of this inverse relationship between size and performance is explained by self‐ serving managerial behavior.
Targeted Share Repurchases, Free Cash Flows, and Shareholder Wealth: Additional Evidence
Authors: Choi Dosoung
Published: January 2008

This paper presents evidence that the valuation consequences of targeted share repurchase announcements are positively related to the size of the firms' pre‐repur‐chase free cash flows and to the firms' pre‐repurchase build‐up of liquid assets. The paper further reports that the level of liquid assets declines permanently following the share repurchases. The results suggest that a share repurchase is a viable means to cut down surplus cash and that such decision can increase shareholder wealth by reducing agency costs of free cash flows.
CREATING A MEANINGFUL WORKING CAPITAL GUARANTEE PROGRAM FOR THE SMALL EXPORTER: THE CASE OF THE U.S. EXIMBANK
Authors: Holden Alfred C.
Published: January 2008

Small exporters often confront a reluctance of financial institutions to extend short‐term credit lines needed to meet the manufacturing and related marketing costs associated with an overseas order. This problem has been particularly acute in the United States in the last decade as many regional banks sought to avoid such “international” risk as accepting foreign receivables as collateral for such a working capital loan. This paper examines the evolution and success of a newly‐enhanced Working Capital Guarantee Program instituted by the Export‐Import Bank of the United States (Eximbank) that encourages local financial institutions to extend lines that selectively enable smaller firms to meet export orders.
INTERNATIONAL CREDIT MANAGEMENT POLICIES OF U.S. SUBSIDIARIES
Authors: Shao Lawrence Peter , Shao Alan T. , Hasan Iftekhar
Published: January 2008

One important issue international firms must face involves the evaluation and control of credit risk. Many studies dealing with international credit management have focused on the practices used by multinational enterprises. In this study we take a different approach to this topic by analyzing the credit management decisions made by 188 U.S. foreign subsidiaries. We examine many aspects of the foreign subsidiary manager's credit policies including credit standards, credit terms, collection efforts and customer creditworthiness. The results of this study indicate that credit management practices of foreign subsidiaries are similar to those used by parent companies. In addition, the findings show that foreign managers generally use theoretically‐preferred methods when making credit decisions.
ANALYZING CHANGES IN CREDIT POLICY IN AN INTERNATIONAL ENVIRONMENT
Authors: Riener Kenneth D. , Soenen Luc
Published: January 2008

This paper derives a model for analyzing the net present value of a change in credit policy, in the presence of exchange rate uncertainty, tax differentials, and potential limitations on raptratiation of profits. When our model is compared to the standard model used in the domestic environment, we find a discrepancy, which we show to be an error in the latter model. We also find that the optimal timing of dividend payments depends upon after‐tax interest rate parity, rather than the widely‐used pretax interest rate parity.
The Market Reaction to Changes in Compensation Contracts: A Review of the Evidence
Authors: Gaver Jennifer J. , Gaver Kenneth M.
Published: January 2008

Empirical evidence on the shareholder wealth effects of changes in executive compensation agreements is provided by a body of research which examines common stock returns around the time that pay packages are modified. Most studies report significantly positive excess stock returns contemporaneous with the compensation event. Despite this, numerous methodological issues prevent researchers from ascribing a causal relation between the compensation change and the observed stock price behavior. This paper critically reviews the accumulated evidence from studies in this literature and suggests directions for future research.
Performance Plan Adoption and Performance: The Contingency of Ownership Structure
Authors: Riahi‐Belkaoui Ahmed , Picur Ronald D.
Published: January 2008

This study examined the relation between performance plan adoption and profitability. It posits that the nature of this relation varies with the ownership structure of the firm, arguing that following performance plan adoption, profitability will increase in owner‐controlled firms. Results based on data from a usable sample of 70 US firms support this contention with respect to owner‐controlled firms but not manager‐controlled firms.
Factors Associated with the Use of Long‐Term Earnings and Market‐Based Compensation Plans
Authors: Kumar Krishna R.
Published: January 2008

Factors associated with the use of long‐term plans in management compensation contracts and the choice between earnings‐based performance plans and market‐based long‐term plans are examined. Results indicate the firms using long‐term plans are large, have diffuse ownership and more long‐term growth. Furthermore, performance plans are more likely to be used when stock‐return variability is high relative to earnings variability. Firms using performance plans are also larger and have more diffuse ownership than firms with market‐based plans alone. Overall, the evidence is consistent with long‐term plans serving as incentive alignment mechanisms.
Investing in New Companies in an Unstable Economic Environment: A Fuzzy Set Approach
Authors: Kleyle Robert , de Korvin Andre , Karim Khondkar
Published: January 2008

In this paper we propose a strategy for investing in new companies for which there is relatively little hard data available. We use fuzzy set theory to represent these new companies as finite fuzzy subsets of established companies for which there is a history of investment data. A fuzzy set is also used to represent the economic environment in which the proposed new investments will be made. From this fuzzy information we construct a fuzzy expected return for each new investment under consideration. These expected returns are then defuzzified, and those proposed investments whose defuzzified expected returns fail to meet some specified criteria are discarded. An investment strategy is then proposed for investing available capital in those new companies that meet the criteria.
Foreign Exchange Risk Management — The Paradox
Authors: Belk P.A. , Edelshain D.J.
Published: January 2008

Two principal forms of cash flow exposure to real exchange rate changes have been identified in the literature, namely transaction exposure and economic exposure. A number of surveys carried out over the last two decades have reported that managers attach more importance to managing transaction exposure than to managing economic exposure. The theoretical literature, on the rare occasions when the issue has been addressed, indicates that while both forms of exposure are linked, economic exposure should be a more significant exposure than transaction exposure for corporations. This paper examines the available evidence from empirical surveys of foreign exchange risk and its management in order to confirm or reject theoretical predictions and the truth of this paradox, and in case of the confirmation of the paradox to suggest a rationale for its existence. In the event the evidence reviewed in this paper confirms the paradox and suggests alternative explanations for its existence.
Foreign Exchange Risk Management: Evidence from Finland
Authors: Hakkarainen Antti , Kasanen Eero , Puttonen Vesa
Published: January 2008

This study investigates foreign exchange risk management in major Finnish firms. The shift to a floating foreign‐exchange regime has increased risk aversion and intensified risk management in a number of firms. The managers feel they can forecast foreign exchange development, and that they have been successful in risk management. Managers pay attention to economic exposure, and instead of being closed out, the foreign exchange exposures are managed actively. The transaction risk of both agreed‐upon flows and budgeted items are hedged. Accounting exposures are also managed extensively.
Who Manages Foreign Exchange Risk?
Authors: Edelshain David
Published: January 2008

To understand how foreign exchange risk is managed it may be important to document who is involved in its management. Different individuals working in corporations will have different perspectives and different backgrounds including functional specialisms which fit them for functional roles. They will have specific job responsibilities inherent in their job descriptions. It is hypothesised that the nature of who gets involved in managing foreign exchange risk will impact on how it is managed. This paper reports on the findings of a postal survey of foreign exchange risk management practices in British Times 1000 corporations carried out in late 1991. The findings give support to the hypothesis and raise the issue of whether optimal foreign exchange risk management can occur when how it is managed is significantly influenced by who manages it. This is particularly so, given that the nature of the exposure reported by different corporations is not normally found to be significantly associated with who manages it. The paper concludes with a brief discussion of the implications of the findings.
The Management of Foreign Exchange Risk in US Multinational Enterprises: An Empirical Investigation
Authors: Duangploy O. , Bakay V.H. , Belk P.A.
Published: January 2008

This study examines how US multinational enterprises manage foreign exchange risks by exploring the concepts applied by management, the objectives followed, and how management has organised this important function of multinational financial management. Despite the change in generally accepted accounting principles from SFAS8 to SFAS52 and the fact that translation exposure is not real exposure, 19 of the 22 surveyed companies closely monitored accounting exposure and would take action under certain circumstances. Further, transaction exposure management still plays a significant role in foreign exchange risk management. Economic exposure management, which focuses on foreign exchange‐induced changes in future cash flows, was also perceived as essential, although the degree of sophistication varies. The majority of the participating companies are risk averse and have centralised their foreign exchange risk management.
Pension Choice: An Analysis of U.S. Corporate Financial Characteristics and Post‐Reversion Pension Plan Formation
Authors: Zychowicz Edward J.
Published: January 2008

This paper examines the formation of pension plans from a corporate finance perspective. The theoretical underpinnings for selecting a defined‐benefit or defined‐contribution plan are discussed and used to form empirically testable hypotheses. Linear probability and logit models are used to identify corporate financial characteristics that affect the likelihood of forming a defined‐benefit or defined‐contribution plan. The results strongly indicate that firms with high degrees of debt and intangible assets are least likely to form defined‐benefit plans in a post‐reversion situation, while firm size enhances the probability of forming defined‐benefit plans. The growth in private retirement plans over the past quarter century has made pension fund management a critical concern for many financial managers. The total amount of assets in private pension plans amounted to approximately $150 billion in 1970, while this figure was about $2 trillion in 1989. A corresponding trend to this growth has been an acceleration in the formation of defined‐contribution plans relative to defined‐benefit plans. In 1975 about 29 percent of all plans were defined‐contribution plans, and 71 percent were defined‐benefit plans. In contrast, defined‐contribution plans comprised 55 percent of all plans in 1988, while 45 percent were defined‐benefit plans.1 Gustman and Steinmeier (1987) suggest that the shift to defined‐contribution plans in recent years may be attributable to shifts in jobs in the economy away from the manufacturing sector and toward the service sector. Furthermore, the role of unions, firm size, and administrative costs have also been sighted as factors which partially explain the economy wide shift toward defined‐contribution plans (see Gustman and Steinmeier (1989), Clark and McDermed (1990), and Kruse (1991)). In this paper, we address the pension choice by examining the formation of individual plans from a corporate finance perspective. Specifically, we examine the pension choice issue when firms are faced with making this decision after the termination of an overfunded defined‐benefit plan. The remainder of this paper is organized as follows. Section I discusses the possible motives for selecting one plan over the other, and develops testable hypotheses. The data and methodology are discussed in section II, while section III presents the empirical results. Section IV summarizes and concludes the paper.
Managerial Ownership and Termination of Overfunded Pension Plans associated with Financial Weakness
Authors: Iqbal Zahid , Shetty Shekar , Haley Joseph , Jayakumar Maliyakkal
Published: January 2008

Terminations of overfunded pension plans may strengthen a financially‐weak firm. When manager's interests are aligned with shareholder's, either through high levels of stock ownership, or through labor and takeover market discipline at low levels of ownership, termination strengthens the firm and the stock price should react positively. In contrast, managers at middle levels of ownership hold enough stock to be entrenched, but not enough to be aligned with shareholder interests. Terminations may then be for reasons other than strengthening a financially‐weak firm and may not generate a positive stock price reaction. We find that the financial incentives for terminations differ significantly between terminators and nonterminators at high and low levels of managerial ownership, but not at intermediate levels. Our stock return analysis indicates that terminations by high and low ownership firms are consistent with shareholder welfare. Concern has been expressed that terminations of defined benefit pension plans transfer wealth from plan participants to plan sponsors. Plan terminations can have a value‐maximizing motive when the reversions are used as a source of financing, thereby helping firms avoid bankruptcy and liquidation. The empirical evidence (e.g., Alderson and VanDerhei (1992), VanDerhei (1987), and Hsieh, Ferris, and Chen (1990)) showing favorable stock price reactions to terminations by financially‐weak firms are consistent with the value‐maximizing justification for plan terminations. Prior studies (e.g., Agrawal and Mandelker (1987), Kim and Sorensen (1986), Sicherman and Pettway (1987), Hill and Snell (1989), Benston (1985), Morck, Shleifer, and Vishny (1988), Carter and Stover (1991) and Hermalin and Weisbach (1991)) have also documented that management's ownership interest in the firm has an important effect on the incentive to maximize firm value. This paper examines the effect of managerial ownership on financial termination. Specifically, we address whether or not financial motivation to terminate plans exists at all levels of managerial ownership. Our results suggest that the terminating firms, when compared to the nonterminating firms, are financially weak at high and low levels of managerial ownership. In contrast, there is no significant difference in financial weakness between the terminators and the nonterminators at the middle ownership levels. Also, stockholders reactions to terminations are higher at high and low levels of managerial ownership.
Capital Budgeting Techniques Among The Fortune 500: A Rationale Approach
Authors: Burns Richard M. , Walker Joe
Published: January 2008

In response to a call for more research on the “why” of capital budgeting practices, a survey was sent to the Fortune 500 firms to (1) look at the detailed reasons they used particular capital budgeting techniques, (2) to determine if and why they had changed their emphasis on any of those techniques in the last five or ten years, and (3) to explore the importance of strategic considerations in capital budgeting. Detailed reasons and their rankings are given for the choices of payback, discounted payback, accounting rate of return, internal rate of return, modified internal rate of return, profitability index, net present value, and other miscellaneous techniques.
Capital Budgeting and the Stochastic Cost of Capital
Authors: Chatrath Arjun , Seiler Michael J.
Published: January 2008

Despite its shortcomings, the IRR method continues to be a widely employed evaluation technique in capital budgeting. This paper demonstrates the reasons for its continued popularity. Specifically, the non‐requirement of a discount rate is suggested to be an important factor in the choice of IRR over the NPV criterion. A major implication is that managers face a very elusive, or stochastic, discount rate for NPV analysis. Thus, the aversion to NPV may go beyond simple aesthetics.
The Interface Between Marketing and Finance: Integrated Management in an Unstable World
Authors: Zinkhan George M. , Christian Zinkhan F.
Published: January 2008

Human existence is characterized by discontinuities, chaos, instabilities, constant changes, and paradoxes (Firat and Venkatesh, 1996). A challenge to social scientists is to construct theories which explain human behavior, given the plurality and complexity of human behavior. At the same time, business decision makers face the challenge of managing in an environment of constant change and flux. The economist, Joseph Schumpeter (1943), described this process well:
Managing Financial Variation: Insights into the Finance/Marketing Interface
Authors: Locander William B. , Goebel Daniel J.
Published: January 2008

During the past decade, corporations have experienced a number of environmental “shocks” which have forced CEOs to examine the nature of their enterprises. Today, more so than ever before, executives are having to react to the concerns of various internal and external stakeholders. Among the key concerns of CEOs are: increased competition, especially at the global level, environmental issues (e.g. “green marketing”), and the demands of various stakeholder groups. The result of this new competitive environment is heightened pressure for businesses to perform.
Wall Street's Reaction to Listing of the Northern Spotted Owl
Authors: Christian Zinkhan F. , Zinkhan George M.
Published: January 2008

The northern spotted owl (Strix occidentalis caurina) was declared a threatened species by the US Fish and Wildlife Service on June 22, 1990. Its listing as a threatened species makes it illegal not only to harm the owls directly, but also to destroy their habitat. Uncertainty associated with the federal government's handling of the owl habitat area increased with the announcement on June 27 that a plan for protection would be delayed. Subsequently, the Bush administration responded with a plan aimed at “balancing” environmental and employment considerations (Hooker and Rockwell, 1990). Reflecting the 1994 Clinton forest plan for the Pacific Northwest, total harvests of softwoods in the Douglas‐fir region of Western Washington and Western Oregon were recently projected to decline from 3.14 billion cubic feet in 1986 to 1.75 billion cubic feet in 2010 (Haynes, Adams, and Mills, 1995). Since the stock market responds very rapidly to new information, its reaction to the owl's listing can be investigated in an attempt to uncover Wall Street's perception of the likely future effect of the decision on the financial attractiveness of growing and marketing timber. Results have implications for the forest products industry and should be of interest to policymakers, forest industry planners, and security analysts.
Gender and Investment: The Influence of Gender on Investment Preferences and Practices
Authors: Lascu Dana‐Nicoleta , Babb Harold W. , Phillips Robert W.
Published: January 2008

The financial market offers an intricate laboratory for the study of consumer behavior. One area that has received little attention in the finance literature and that could benefit from insights from consumer behavior research is the relationship between gender and consumer investment preferences and practices. The primary goal of the present study is to explore the influence of consumers' gender on their investment behavior. The study examines the investment strategies of male and female investors using psychometric measures and self‐reporting of investment behavior.