bluuebunny/crossref_metadata_2025 huggingface dataset:
A REVIEW OF THE THEORIES OF AND EVIDENCE ON RETURNS RELATED TO MERGERS AND TAKEOVERS.
Authors: Mathur Ike , De Soumendra
Published: January 2008

The market for mergers and takeovers, often referred to as the market for corporate control [Manne (1965)], has always attracted the attention of investors and researchers because takeovers represent corporate investment decisions on a scale several times larger than the normal, ongoing, growth‐maintaining capital outlays by the typical value‐maximising firm. Although the theoretical justifications for such corporate actions are reasonably well understood, the true motives for the mergers and the strategies adopted by acquiring firms to consummate them can be complex and diverse in scope. Corporate acquisitions can therefore have widespread effects on the wealth of various groups of agents involved in the market for corporate control.
THE TAKEOVER MECHANISM AS AN EFFICIENCY ENFORCER: THE CASE OF BANK HOLDING COMPANIES.
Authors: Rangan Nanda
Published: January 2008

The importance of the market for corporate control as a disciplining device has received considerable research interest in recent years. Since the advent of event study methodology pioneered by Fama, Fisher, Jensen and Roll (1969), and the availability of machine readable returns data from the Center of Research on Security Prices, the effects of various control related corporate events have been well documented. Jensen and Ruback (1983) in their review of the empirical literature on the market for corporate control report that the findings in general support the hypothesis that outside takeover mechanisms do act efficiently to limit managerial departures from the objective of maximising the economic well‐being of its shareholders. They further point out that studies using the event study methodology cannot distinguish between the different sources of gains in the takeover process, namely those due to synergies, or those due to lack of efficient management in the acquired firm.
SHAREHOLDER RETURNS FOR INTERNATIONALMERGERS IN THE U.S.
Authors: Mathur Ike , Chhachhi Indudeep , Sundaram Sridhar
Published: January 2008

The number of mergers in the U.S.A. increased from 2,339 in 1983 to 3,701 in 1987—an increase of 58.23 per cent. Over the same time period the value of mergers increased from $51.89 billion to $167.48 billion—an increase of 323 per cent. Merger activities of this magnitude can be expected to attract a great deal of attention, and they have.
DO STOCK MARKET PRICES AFFECT MERGERS?
Authors: Sharma Subhash C. , Mathur Ike
Published: January 2008

Merger activities and stock market prices tend to vary over time. An interesting issue is whether changes in stock market prices stimulate changes in merger activities, or vice versa. The results of this study, based on the Granger test for causality, indicate very strong causality going from stock market prices to merger activities. Increases in stock market prices, perhaps indicating a favourable economic environment, lead to increases in the number of mergers being completed.
EXPERT SYSTEMS FOR MANAGEMENT OF FINANCIAL REGULATIONS: APPLICATION TO WORKERS' COMPENSATION INSURANCE PREMIUM AUDITING AND EVALUATION
Authors: Koster Alexis
Published: January 2008

Financial expert systems have been developed in the past few years for applications such as credit assessment, portfolio management, and insurance underwriting. The decision making process of the experts in these application domains to a large extent relies on intuitive knowledge acquired by these experts after many years of practice. Eliciting and formalizing this knowledge is a critical phase in the design and development of such expert systems. This paper describes a prototype expert system for auditing and evaluating workers' compensation insurance premiums. This system differs from the abeve expert systems in that most of the experts' knowledge is explicitly accessible as regulations in procedures and manuals. This expert system is an instance of what can be called an expert system for regulation management (ESRM). The main role of the expert in the development of an ESRM is to explain regulations. The expert system presented here exhibits two features critical to the effectiveness of an ESRM: (i) an appropriate representation of complex regulations, and (ii) the capability to incorporate frequent changes to regulations quickly.
APPLICATION OF EXPERT SYSTEMS IN EVALUATION OF CREDIT CARD BORROWERS
Authors: Nikbakht Ehsan , Tafti Mohammed H.A.
Published: January 2008

An appropriate approach to determine and measure the characteristics of “good” borrowers has always been the subject of inquiry by various lenders both in domestic and international financial markets. Cost of bad debts incurring from non‐payers and slow payers is a major source of loss which would affect profits and consequently the value of the lending firm. A carefully designed and economically feasible method to select the right borrowers is consistent with the goal of a modern lending institution which is to minimize the risk of bad debts and increase the wealth of its shareholders. The issue of selecting good borrowers is more serious in the case of potential credit card holders where the number of applicants is far greater than the number of commercial, real estate, and other institutional borrowers. Lending institutions cannot afford spending more than a certain limited amount of time to scrutinize the application of each applicant. Competition and increasing cost of information are other reasons that a lender should approve or reject submitted applications in a reasonably short period of time with minimum decision errors.
THE IMPACT OF ECONOMIC CONDITIONS ON THE SIZE OF INVENTORIES
Authors: Kohers Theodor
Published: January 2008

For many businesses the investment in inventories, measured in absolute amounts or as a percentage of assets, turns out to be quite significant. According to recent statistics, the average nonfinancial US corporation has a larger percentage of its funds invested in inventory than in any other current asset. In fact, the role of inventories for many firms in the wholesale and retail trade is even more pronounced where many firms have in excess of 40 percent of their total assets invested in inventory.
INVESTOR RESPONSE TO CHANGES IN CORPORATE LIQUIDITY
Authors: Huth William L
Published: January 2008

The liquidity component from financial analysis has been found to be an important predictor of a firm's financial well being. Altman's credit worthiness and financial viability system uses, among six other financial measures, the current ratio as a liquidity discriminant variable. The Altman system itself has had considerable success in the prediction of corporate bankruptcy. Altman reported that the system correctly predicted bankruptcy 93% of the time using financial statements one period prior to failure and 87% with financial statements two periods prior. The Value Line Investment Survey also contains a measure of financial strength that incorporates a liquidity measure.
AN OVERVIEW OF USES OF OR TECHNIQUES IN BANK MANAGEMENT
Authors: Cheng T.C.E.
Published: January 2008

This paper presents an overview of the application in the banking industry of operations research (OR) techniques such as linear programming, statistical analysis and simulation which have been widely applied in banks to help improve operational effectiveness and productivity. The aim is to highlight, through illustrating some successful case studies, the potential benefits of using quantitative analysis tools in bank management.
STATISTICAL DECOMPOSITION ANALYSIS OF FINANCIAL STATEMENTS AND PREDICTION OF BOND RATING CHANGES
Authors: Ibrahim Mohamed E. , Metawae Saad A. , Aly Ibrahim M.
Published: January 2008

In recent years, a sizeable amount of research in finance and accounting has been devoted to the issue of bond rating and bond rating changes. A major thrust of these research efforts was to develop and test some prediction‐based models using mainly financial ratios and their trends. This paper tests the ability of statistical decomposition analysis of financial statements to predict bond rating changes. The results show that the decomposition analysis almost does not beat the a priori probability model and is no better than multiple discriminant analysis using simple financial ratios. One important piece of information for participants in debt markets is the assessment of the relative risk associated with a particular bond issue, commonly known as bond ratings. These ratings, however, are not usually fixed for the life of the issues. From time to time, the rating agencies review their ratings of the outstanding bond issues and make changes to these ratings (either upward or downward) when needed. Over the years, researchers have attempted to develop and test some prediction based models in order to predict bond ratings or bond rating changes. These prediction models have employed some variables that are assumed to reflect the rating agency decision‐making activities. Although the rating process is complicated and based mainly on judgmental considerations, Hawkins, Brown and Campbell (1983, p. 95) reported that the academic research strongly suggests that a reliable estimate of a potential bond rating or rating change can be determined by a few key financial ratios. Information theory decomposition measures have received in recent years considerable attention as a potential tool for predicting corporate events, namely corporate bankruptcy (e.g., Lev 1970; Moyer 1977; Walker, Stowe and Moriarity 1979; Booth 1983). The underlying proposition in these studies is that corporate failure, as an event, is expected to be preceded by significant changes in the company's assets and liabilities structure. Although the event of bond rating changes is different from the bankruptcy event in terms of consequences, one can still propose that a bond rating change, as a corporate event, is also expected to be preceded by some significant changes in the company's assets and liabilities structure. Therefore, the decomposition analysis may have a predictive ability in the case of bond rating changes. The purpose of this paper is to empirically test and compare the classification and predictive accuracy of the decomposition analysis with the performance of a multiple discriminant model that uses financial ratios and their trends in the context of bond rating changes.
THE MATCHING OF ASSETS WITH LIABILITIES BY GOAL PROGRAMMING
Authors: Rosenbloom E.S. , Shiu Elias S.W.
Published: January 2008

A major problem facing the financial industry today is interest rate fluctuations. An important technique for insulating a fixed‐income portfolio from shifts in the term structure of interest rates is the method of cash‐flow matching. This method can be enhanced by allowing carry forward and borrowing from future surpluses. Unfortunately, the resulting mathematical program is non‐linear. In this paper, we show that the introduction of deviational variables linearises the problem. As the decision maker may have several incommensurable objectives, we propose a goal programming formulation as a realistic and flexible model for this problem. The resulting model can then be solved by using a standard operational research computer package.
POLITICAL RISK IN INTERNATIONAL CAPITAL BUDGETING
Authors: Goddard Scott
Published: January 2008

One of the practical difficulties of international capital budgeting is how to incorporate political risk into the decision process. This paper examines the nature of political risk and the use of analytical techniques in the evaluation of such risk. Questionnaire and interview findings from a survey of UK multinational companies suggest that corporate practice differs from the theoretical ‘textbook’ treatment of this type of risk.
COST OF CAPITAL IN CAPITAL BUDGETING FOR FOREIGN DIRECT INVESTMENT
Authors: Stanley Marjorie T.
Published: January 2008

The concept of a company's cost of capital is used in capital budgeting as a potential basic discount rate to be applied to expected future cash flows from a proposed investment project being subjected to evaluation for acceptance or rejection. Discounted‐cash‐flow capital budgeting techniques derive from valuation theory that determines present value of expected future cash flows by discounting them down to the present at a discount rate appropriate to the degree of risk involved. Conceptually, this is true with regard to both domestic investment and foreign direct investment. However, there is recognition in the literature that capital budgeting for foreign direct investment decisions may involve complexities not present in the domestic case. These include economic, financial, and political factors, and related risks, e.g., foreign exchange risk, blocked currencies, expropriation. On the other hand, foreign direct investment is thought to provide diversification benefits, so that risks that are not domestically diversifiable are internationally diversifiable, thereby eliminating some otherwise systematic risk. Complexities such as these place a considerable burden upon the concept of cost of capital as a discount rate appropriately reflective of the degree of risk involved in a foreign direct investment project. Furthermore, cost of capital may be affected by environmental factors associated with what country the parent corporation calls “home” (Stonehill and Dullum).
EMPIRICAL EVIDENCE OF THE USE OF A FRAMEWORK OF RISK AND RETURN IN CAPITAL BUDGETING FOR FOREIGN DIRECT INVESTMENT
Authors: Wilson Mark
Published: January 2008

This paper presents the results of an empirical investigation into the capital budgeting practices of UK multinationals for foreign direct investment, with particular reference to the use of a conceptual framework of risk and return. Drawing upon Robock's (1965) criticisms of the lack of a conceptual framework for businessmen within which to make international financing and capital budgeting decisions, we assess briefly the developments in the theoretical framework of risk and return since Robock's address. We then review the existing empirical literature (mainly from America) and combine this with our own research involving 59 UK multinationals, to conclude that the developments in the theoretical framework of risk and return have not been translated into practice. We offer suggestions as to why this is the case.
An Application of Seasonal Adjustment Models to the Volatility Patterns of Futures Prices
Authors: Chen Shaw K. , Wrobleski William J. , Brophy David J.
Published: January 2008

This paper examines the empirical patterns of futures prices volatility by using different seasonal adjustment techniques The average absolute month to month percentage (AAPC) figures are used to describe the extent of smoothness when seasonal adjustment methods are applied. Several interesting patterns are suggested from the observation of different futures contracts. The authors then suggest further that if seasonal patterns do exist for futures prices volatility, it is possible to focus the study of futures prices volatility on the different seasonal filters selection, and/or on the different seasonal models alternatives.
Tests of Unbiased Forecasts in Stock Index Futures Markets
Authors: Fung Hung‐Gay , Jarrett Jeffrey E. , Leung Wai K
Published: January 2008

In this study the martingale hypothesis concerning the stock index futures market is analyzed. The purpose is to understand how this notion concerning the behavior of the index futures affects the forecasting process. In addition, the forecasting of both daily and weekly stock index futures is examined. For daily forecasting, we find that the martingale method outperforms stepwise autoregressive and exponential smoothing methods However, for weekly forecasts, the stepwise autoregressive method is best.
The Forecasting Performance of the Implied Standard Deviation in Currency Options
Authors: Fung Hung‐Gay , Lie Chin‐Jen , Moreno Abel
Published: January 2008

This study evaluates the forecasting performance of different predictive measures for the future exchange rate variability. Results seem to indicate that the out‐of‐the‐money ISD outperforms the at‐the‐money ISD and other predictive measures. Thus, when ISD is used to forecast future exchange rate variability, out‐of‐the‐money options should be selected instead of using all other options to compute the complicated weighting schemes.
Evaluating Methods for Forecasting Earnings Per Share
Authors: Jarrett Jeffrey E.
Published: January 2008

In this study, the relative accuracy of four well known methods for forecasting are compared The methods are applied to the time series of earnings per share for a random sample of United States corporations over a lengthy period of time. All the time series exhibit both period‐to‐period movements and seasonal fluctuation. The four models are, (1) Holt‐Winters multiplicative exponential smoothing model, (2) univariate Box‐Jenkins model, (3) linear autoregression of data seasonally adjusted by the Census II–XII method, and (4) linear autoregression of the data seasonally adjusted by the X11‐ARIMA method. The study of financial data of this type is important because (1) these data exhibit time series properties of trend, seasonality, and cycle, (2) earnings per share forecasts are important for purposes of financial planning and investment; and (3) previous studies of this nature were not as exhaustive in terms of the statistical analysis of the results
THE SINGLE EUROPEAN ACT AND THE RELATIONSHIP BETWEEN SMALL FIRMS AND THEIR BANKS IN THE UK
Authors: Binks M.R. , Ennew C.T. , Reed G.V.
Published: January 2008

With the creation of the Single European market in 1992, there will be intensification of competitive pressure on small firms in the UK and on UK banks as their main providers of finance. Evidence is presented of possible mismatching of the services actually provided by UK banks and those desired by small firms, and of the unwillingness of UK small firms to switch banks, particularly if it involves crossing the Scots/English border. It is argued that the competitiveness of UK small firms after 1992 depends on either an autonomous change in the services provided by UK banks or the switching of accounts to non‐domestic banks who may move into the domestic market.
BUILDING SOCIETIES IN TRANSITION: STRATEGY IN A NEW MARKET ENVIRONMENT
Authors: Ennew C.T. , Wright M.
Published: January 2008

During the course of the 1980's, the market environment facing the personal financial services sector has undergone a radical change which has forced market participants into a period of strategic realignment. In part this change has been demand driven as a result of both an increase in the volume of personal savings and a requirement for increasingly sophisticated products from a more financially aware consumer. However, many of the most visible developments have been supply driven, in the form of extensive deregulation, developments in information technology and the associated globalisation of financial markets.
REASONABLE EXPECTATIONS ‐ UNREASONABLE COST?
Authors: Clarke Malcolm
Published: January 2008

Contracts are a framework for commercial activity, a foundation that is firm and sure to which the parties can point, if disputes arise. For this the contract must mean what it says, and say what it means. The goal is certainty. When it comes to insurance contracts, whether the line is personal or commercial, the goal is the same. The insurer wants to know his exposure, which depends in part on the risks he has written. The insured wants to know that he is covered.
THE MORTGAGE VALUATION DILEMMA
Authors: Croydon R.
Published: January 2008

Writing in 1965 the building society historian E.J. Cleary drew attention to the cyclical nature of crises within the mortgage business and predicted that the next crises would occur in the 1980's. It may be argued that a crisis occurred which was aggravated rather than addressed by the Building Society Act of 1986. This crisis is in the statutory provision for the valuation of property offered as security against a mortgage loan. Cleary demonstrated how these were introduced in response to fraud on lending institutions and the primary purpose of these measures was to protect the building society investor against misrepresentation of values, often made by directors and staff of the societies, or with their collusion. Due to subsequent legal and commercial developments the valuer's duty of care has been extended, culminating in recent High Court decisions which confirm that a valuer may owe a duty of care to both lender and borrower. These decisions may suggest a legal trend towards stricter liability together with the redristribution of risk among participants in the mortgage transaction. Whilst the crisis has affected independent valuation firms employed by the mortgage lenders and now affects lenders more directly due to their increasing employment of staff valuers, these market participants may be unable to offer a satisfactory remedy themselves. It may be argued that the response of the lending institutions and the valuation profession to these developments has further obscured the original purpose of obtaining a mortgage valuation and that this purpose must be redefined by legislation.
INVESTOR PROTECTION AND THE “COWBOY” STEREOTYPE: A CRITICAL VIEW
Authors: Grey Christopher , Knights David
Published: January 2008

The 1986 Financial Services Act (FSA), operational since the end of April 1988, was an Act designed to protect investors from “cowboys” such as life insurance salesmen whose interests do not extend beyond their commission cheques, and offshore investment companies who fail to keep proper accounts. This image lies in sharp contrast to the large established institutions who, under the avowedly self‐regulatory regime, have important responsibilities for ensuring high standards among their staff and representatives. In this brief polemic we explore the validity of this contrast since we do not believe it is simply stereo‐typical cowboys who threaten the investor, and question whether, even within the limited terms of this stereotype, the Act can be seen as effective in the sphere of collective investment products. In providing this account we draw upon our academic research into the financial services industry.
Understanding Financial Markets
Authors: Green Christopher J.
Published: January 2008

This essay provides a non‐technical account of the development of thinking about the ways in which financial markets work. The account is organized by distinguishing between the “financial approach” and the “monetary approach” to the study of financial markets. The financial approach emphasizes the importance of arbitrage in determining financial asset prices. The monetary approach utilizes the more traditional tools of supply and demand, and places greater emphasis on the role of market imperfections. The essay evaluates the contribution of each approach to improving our understanding of financial markets. It concludes that the central problem in financial market research remains that of providing a satisfactory explanation of the determination of asset prices. In the emerging regime of liberalized, competitive financial markets both the financial approach and the monetary approach have a distinctive contribution to make in understanding how these markets work. This paper is based on research funded by the Economic and Social Research Council under grant No. B0023‐2151.
Some Economic Issues in the Regulation of Financial Markets
Authors: Miles David K.
Published: January 2008

For centuries economists have been analysing how regulations governing the operation of markets may improve the workings of an economic system. In the past twenty years, particularly in the United States, there has emerged a large body of research which analyses the role of a particular type of regulation: those operating in financial markets. Much of this research reflects the particular forms of regulation of financial ‐ and in particular banking ‐ oper‐ations in the United States. As in the UK, there are forms of supervision and regulation of financial markets in the United States which are unique to that sector of the economy. This has prompted a whole range of questions ‐ can the existence of special forms of regulation for banks and other financial institutions be justified in terms of some fundamental differences between these and other (non‐finan‐cial) firms? Who benefits from the restrictions on financial firms? What are the costs of the particular forms of supervision which are used?
An Appraisal of Stock Market Circuit Breakers
Authors: Miles David K.
Published: January 2008

In October of 1987 stock market prices all over the world fell by staggering amounts. A financial panic spreading beyond stock markets did not occur and it would appear that any real economic consequences of the crash have, thus far, been small. A superficial reading of economic history suggests that things might have turned out a whole lot worse. It is this thought that makes an evaluation of various restrictions designed to limit stock market volatility ‐ so called circuit breakers ‐ timely.
Creating Value Through Mergers and Acquisitions: Some Motivations
Authors: Severiens Jacobus T.
Published: January 2008

The pace of international mergers and acquisitions activity has quickened dramatically in the past few years. European companies have continued their spending spree in the United States, while Europe, especially the United Kingdom, has become a corporate battleground. In addition, Japan has become a major buyer in Europe as well as in the United States.
Gains and Losses from Mergers: The Evidence
Authors: Ravenscraft David J.
Published: January 2008

The preceeding article has examined some of the motivations behind the high premiums offered shareholders of target firms in acquisitions and mergers. In essence, the acquirers appear to be looking for gains largely through enhanced efficiency of operations or by the replacement of inefficient management.
Financing Takeovers: Junk Bonds and Leverage Buyouts
Authors: Plath D. Anthony
Published: January 2008

Corporate takeovers have become a prominent feature of global business. Merger and acquisition activity in the United States alone climbed from $32 billion in 1980 to $300 billion in 1988, an annual rate of increase of 32 percent. The individual size of these transactions has reached an all‐time high. Any company, whatever its size, may be vulnerable as a target.
Capital Budgeting in a Competitive Environment
Authors: Ang James S. , Dukas Stephen P.
Published: January 2008

The Net Present Value (NPV) criterion of project evaluation has traditionally been accepted as the theoretically superior capital budgeting technique due to its concordance with the principal of value maximization. Recently, several authors have criticized the application of this criterion in that it understates the true value of an investment by ignoring 1. strategic growth opportunities, 2. the fact that management can discontinue the project before the end of its economic life, 3. the ability of management to delay the investment decision, 4. the arrival of information throughout the life of the project, and 5. management's option to temporarily “shut down” the production process. Through these omissions, it has been asserted that the use of net present value criteria has undermined the levels of real investment in this country, and stunted economic growth.
An Integrated Options‐Based Strategic Planning and Control Model
Authors: Trigeorgis Lenos , Kasanen Eero
Published: January 2008

Managerial practice differs from standard capital budgeting theory in a number of respects. For example, managers often take projects that have negative NPV (e.g., R & D investments) due to their flexibility, synergy strategic positioning etc. Furthermore, managers continue to use accounting‐based measures in capital budgeting even though NPV is widely accepted as the only correct valuation measure. In fact, managers and strategists probably have always attempted to intuitively attach value to a variety of “strategic” and other concerns, even when they couldn't quantify them.
An Application of the Box‐Jenkins Methodology to Capital Budgeting
Authors: Fallone Paul , Giaccotto Carmelo
Published: January 2008

The authors derive the probability distribution of the net present value of a project under the quite general assumption that the cash flows follow either an autoregressive moving average process or an integrated autoregressive process. Examples are presented which serve to both illustrate the application of the results as well as to underscore how to use utility functions for decision making, how to determine a project's Internal Rate of Return, and the dynamic resolution of uncertainty.
Capital Budgeting for Replacements with Unequal Remaining Life
Authors: Brooks LeRoy D.
Published: January 2008

A capital budgeting decision procedure appropriate for choosing the continuance, replacement, or abandonment of an asset‐in‐place is examined. The optimal replacement decision on an asset already in service requires simultaneous consideration of project life, project chaining, and possible abandonment points for both the asset‐in‐place and the replacement asset. The additional information required for the suggested procedure over the traditional replacement procedure is generally manageable and a practical solution procedure is feasible.
The Crucial Task: Finding the Right Investments
Authors: Groth John C.
Published: January 2008

This issue of Managerial Finance focuses on factors related to the critical long term decisions for a firm. What it should do, and what capital investments are necessary to attain its goals. The right goals, the appropriate capital resources, and effective management will lead to success. Capital investments are for the tomorrows. That characteristic of capital investments must command attention from corporate leaders and managers.
Management of Accounting Exposure to Currency Changes: Role and Evidence of Agency Costs
Authors: Aggarwal Raj
Published: January 2008

This paper contends that, contrary to conventional wisdom, it may be rational to manage translation exposure. Accounting procedures for the translation of foreign currency accounts influence the reported income of a multi‐national firm. With non‐zero agency costs, reported income impacts real costs. In such cases, therefore, it may be rational to hedge translation exposure. Empirical evidence of agency costs and the managerial tendency to report higher levels of translated income, based on the early adoption of Financial Accounting Standard No. 52, is presented.
Use of Currency Options to Enhance Exchange Rate Forecasts
Authors: Madura Jeff , Tucker Alan L. , Zarruk Emilio
Published: January 2008

Since the early 1980s, currency options have become a popular means for hedging foreign currency positions or speculating on anticipated movements in exchange rates. Yet, they can also be used to enhance the forecasting of exchange rates. Corporate forecasts of exchange rates involve two tasks: (1) a point estimate of a currency's exchange rate, and (2) a confidence interval that suggests the degree of uncertainty associated with the point estimate forecast. A currency forward or futures price is often used as the point estimate required. The confidence interval is commonly developed by using the historical volatility of exchange rate movements. However, an alternative method is to use the market's anticipated volatility in developing the confidence interval. Scott and Tucker (1990) have shown that the volatility implied from contemporaneous currency option prices is a better forecast of future volatility than historical measures. Therefore, a confidence interval implied by currency options should also be more reliable. Our objective is to illustrate how confidence intervals can be developed from currency option information. Given the degree of difficulty in forecasting exchange rates, more reliable confidence intervals could greatly improve managerial decisions.
GLOBAL ACCOUNTING STANDARD STATEMENT: BASIS FOR INCREASED VALUE
Authors: Groth John C. , Nixon Clair J.
Published: January 2008

Adoption of mental horizons of a global nature have prompted a variety of interests and developments. The trend will continue, especially in the areas of economics and business. This development has been accompanied by the globalisation and increased interest in international equity and credit investments and the development of currency, money, capital, and even commodities markets.
TAX SCENARIOS & VALUE CREATION: POST 1992 EUROPE
Authors: Kinney Michael R. , Groth John C.
Published: January 2008

The prescription for 1992 for the European Community calls for the completion of the Internal Market and the absence of many of the fiscal and physical barriers to the movement of goods, capital, and labour within the community. However, realistically it is likely that residual fiscal and other barriers will remain into the next century. Both the effected change and delay in changes will induce predictable patterns in the movement of labour and capital, the distribution of goods and services, and industrial location and development.
Foreign Acquisitions: When Do They Make Sense?
Authors: Morck Randall , Yeung Bernard
Published: January 2008

Why should a firm expand across national frontiers? The costs of operating under different tax systems, coping with different cultural traditions and dealing with multiple bureaucracies are substantial. A new view of international economics called the internalization theory proposes that successful multinationals possess special intangible assets such as a technological lead, a marketing advantage or perhaps superior organizational ability. Our work indicates not only that this is so, but that in the absence of such intangibles a multinational structure may well be a liability. The traditional reasons economists and business managers cite to justify foreign acquisitions (such as the ability to declare profits where the tax rate is lowest, the increased stability gained through international diversification, and the lower labor and raw material costs prevailing in some foreign countries) appear to be minor effects.
Predicting the Outcome of Tender Offers: An Endogeneity Problem
Authors: Austin Stone Charles , Zissu Anne‐Marie
Published: January 2008

This paper proposes an alternative method of estimating a model that predicts the outcome of a tender offer. We argue that previous econometric models designed to predict the outcome of a tender offer have been estimated incorrectly. Explanatory variables which are endogenous have been treated as though they were exogenous. Ignoring the endogeneity problem results in estimates of re‐gression coefficients which are inconsistent. In order to derive consistent estimates of the regression coefficients, we construct a simultaneous equation model to explain the outcome of a tender offer. Since two of the three dependent variables in the simultaneous equation model are dichotomous, it is necessary to use the two stage limited dependent variable estimator (2SLDV) to find consistent estimates of the regression coefficients.
Defensive Strategies of Target Firms in UK Contested Takeovers
Authors: Sudarsanam P.S.
Published: January 2008

Takeovers play an important role in the allocation of re‐sources to the most efficient uses and represent a mech‐anism by which corporate resources are transferred from one management team to another (Jensen and Ruback, 1983). A result of this managerial displacement is expected to be an increase in shareholder wealth. This argument pre‐supposes that managers attempting takeovers are motivated to create value for shareholders. This picture of managerial disinterestedness in the service of share‐holders ignores potential agency conflicts between man‐agers and shareholders. When faced with a takeover bid, which if successful may lead to its own displacement, the management team at the target may devise ways of frus‐trating the bid.
Empirical Evidence on the Time‐Series Properties of Operating Cash Flows
Authors: Hopwood William S. , McKeown James C.
Published: January 2008

This study investigates the time‐series properties of operating cash flows per share and earnings per share for all manufacturing firms on the Compustat Quarterly Industrial tape for which sufficient data are available. Both individually‐identified and “premier” models are compared on the basis of their relative fit and forecasting accuracy. The empirical results suggest that for both accounting variables the individually‐identified models outperform the premier models, although this advantage is larger for earnings, and for forecast horizons beyond one quarter ahead. A major conclusion of the study is that the time‐series properties of cash flows are quite different than those of earnings. In particular, the cash flow series are considerably less predictable, as shown by their relatively high incidence of white‐noise series and relatively large forecast errors.
Tax and Financing ‐ Two Problems for the Analyst
Authors: Fox Alan F.
Published: January 2008

In carrying out the process of financial statement analysis, the analyst is confronted both with problems stemming from the function itself as well as problems caused by particular accounting practices. In this paper a selected few of these issues will be examined.
Reflections of a Corporate Conflict Freak
Authors: Austin Douglas V.
Published: January 2008

In reviewing proxy contests and tender offers of the past, the author concludes that the former has been inferior as a form of corporate conflict mechanism to the latter. However, he also underscores the important role that the proxy contest has played in the development of its competitor — the tender offer.
Battles for Control: An Overview of Proxy Contests
Authors: Hancock G.D.
Published: January 2008

This paper reviews the theoretical and empirical contributions to the proxy contest literature. The theoretical work, to date, suggests that (1) the use of the proxy contest as a method of taking over a corporation depends on its cost relative to the tender offer; (2) the security voting structure and the debt/equity ratio influence the outcome of the proxy contest; and, (3) the value of a proxy contest can be estimated using the principles of option pricing theory. A review of empirical research indicates that (1) firms which are inefficiently managed are more likely to become the target of a proxy fight; (2) wealth gains accrue to shareholders of contested firms during the contest period; and, (3) incumbent management is more likely to succeed in a proxy fight but not necessarily ‘win’.
Do Advisory Fees Contain Evidence of a Principal‐Agent Conflict?
Authors: Stone Charles A. , Zissu Anne
Published: January 2008

In a world where the objectives of managers differ from the objectives of shareholders, the analysis of management response to a tender offer must consider the possibility that management's response is a function of their equity interest in the company.
Bidder Companies and Defended Bids: A Test of Roll's Hubris Hypothesis
Authors: Limmack R.J.
Published: January 2008

Published reviews of the extensive body of research into mergers and acquisitions have generally concluded that shareholders as a body are not adversely affected by acquisition activity. For example Jensen and Ruback (1983) conclude that ‘corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose’. In a review of more recent research, however, Jarrell, Brickley and Netter (1988) conclude that acquirers ‘receive at best modest increases in their stock price, and the winners of bidding contests suffer stock‐price declines as often as they do gains’.
A Preliminary Analysis of Shifts in Market Model Regression Parameters in International Mergers Between US and British Firms: 1970–1980
Authors: Connell F. , Conn R.L.
Published: January 2008

This paper reports preliminary evidence on pre to post‐event shifts in the estimated values of the parameters, alpha and beta, of the simple regression market model. Samples, of US and British firms engaged in cross‐country acquisition, during the period 1970–1980 are examined. Using pre, pooled, and post‐event estimation periods, both alpha and beta show pronounced shifts in estimated value from the pre to the post‐event period. It is shown that these parameter shifts result in companion shifts in estimated pre to post‐even excess residual estimates. It is further shown, in the context of the market model, that shifts in alpha value account for approximately 80% of the shifts in excess residual estimates. Shifts in estimated beta account for only approximately 20% of the changes in estimated excess residuals. This result is interesting in regard to the results reported in most of the event study literature, which primarily consider only beta estimates.
Effects of Personal Attributes and Performance on the Level of CEO Compensation: Direct and Interaction Effects
Authors: Monti‐Belkaoui Janice , Riahi‐ Belkaoui Ahmed
Published: January 2008

CEO compensation is shown to be not only related to size and performance but also to personal attributes. CEO compensation is found to be positively related to the number of years as a CEO and to the interaction of age and tenure and negatively related to tenure and to the interaction of age and number of years as a CEO.
Determinants of Executive Tenure in Large US Firms
Authors: Riahi‐Belkaoui Ahmed , Pavlik Ellen L.
Published: January 2008

This study examined the relationship between executive tenure and selected company characteristics for 196 US corporations. Tenure was found to be negatively related to both unrelated and related diversification strategies, and positively related to firm performance and both types of ownership structure: stock concentration and management stockholdings.
Effects of Ownership Structure, Firm Performance, Size and Diversification Strategy on CEO Compensation: A Path Analysis
Authors: Riahi‐Belkaoui Ahmed , Pavlik Ellen
Published: January 2008

The study developed and tested a model that attempts to describe the influence of ownership structure, diversification strategy, firm size and firm performance on CEO compensation. Results based on data from a cross‐sectional set of 216 Fortune 500 firms suggested that firm size, ownership structure and diversification strategy affect CEO compensation through the mediating effects of firm performance.
Earnings, Cash Flows and Executive Compensation: An Exploratory Analysis
Authors: Kumar Krishna R. , Ghicas Dmitri , Pastena Victor S.
Published: January 2008

This study examines the relationship between management compensation, earnings and cash flows. The preponderance of prior research reveals a substantial correlation between total earnings and compensation. However, the popular press indicates that many firms have switched to less traditional methods of awarding executive compensation. For example, Chrysler Corporation now bases substantial compensation on quality control in manufacturing while First Chicago bases compensation on the minimizing of loan losses. Because of their relatively high debt levels in the late 1980s, some firms are stressing cash flows in designing compensation plans. For example, the New York Times [2/25/90, p.29 in Section 3] reports that RJR Nabisco Inc. uses cash flows to compute the bonus pool while The Wall Street Journal [4/18/90, p. R26] indicates that board of directors often dump income‐based fixed compensation formulas in favor of performance goals such as cash flows. From a normative viewpoint, Holmstrom's [1979] analysis suggests that a performance evaluation scheme based on multiple signals is superior to one that is based on a single signal, provided the additional signals incorporate new information. Given these anecdotal reports indicating cash‐flow based compensation and the implications of existing theory, we explore the role of cash flows and working capital from operations in addition to total reported earnings in determining managerial compensation.
APT With Observed Factors and Conditional Heteroskedasticity
Authors: Koutmos Gregory , Theodossiou Panayiotis
Published: January 2008

Several authors have raised the issue of non‐stationarity of security returns in empirical tests of the Arbitrage Pricing Theory (APT). This paper tests for one form of non‐stationarity, namely, conditional heteroskedasticity, in the empirical APT with observed factors. Using monthly stock returns for the period 1970 to 1988, this paper shows that conditional heteroskedasticity is a pervasive phenomenon leading to inefficient estimates of factor betas. Ignoring the problem may produce erroneous conclusions as to which risk factors require a premium. Furthermore, grouping individual securities into portfolios does not appear to diminish the presence of conditional heteroskedasticity.
The Arbitrage Pricing Theory and Foreign Exchange Risk Premia
Authors: Sarver Lee , Philippatos George C.
Published: January 2008

This study explores the nature of the spot foreign exchange risk premium. Employing Ross's Arbitrage Pricing Theory (APT) as a vehicle, it tests the hypothesis that cross‐sectional differences in pure currency returns depend on measures of systematic (covariance) risk. These tests have greater power, in the sense of an enhanced ability to reject the hypothesis, since they explicitly allow for the possibility that idiosyncratic risk is priced. A battery of tests is unable to reject the hypothesis that expected exchange returns can be explained by a single‐factor APT. One implication of these results is that official intervention in exchange markets is unnecessary and undesirable.
INFORMATION SEQUENCE, RESPONSE MODE AND ASSET VALUATION JUDGMENT
Authors: Ibrahim Mohamed , Shehata Mohamed
Published: January 2008

Hogarth and Einhorn (1990) posited a psychological model for updating beliefs that is based on an anchoring and adjustment process which incorporates a contrast or surprise effect; in particular, the larger the current belief in a hypothesis or outcome, the more it is discounted by negative information and the less it is increased by positive information. The model provides a set of predictions that could be of important implications for financial decisions. It predicts strong recency effects for mixed or conflicting information (negative and positive), and no order effects for consistent information (all positive or all negative). Furthermore, an earlier version of the model (1985) predicts that simultaneous processing of consistent information leads to more extreme responses than the sequential processing of the same information. Einhorn and Hogarth refer to this phenomenon as a “dilution effect.” This paper reports the results of testing these qualitative predictions of the belief updating model. Three experiments involving a content rich scenario of asset valuation judgment were conducted using a sample of 120 subjects enroled in two MBA courses. The results support the model's prediction that there is no order effects attributable to sequential processing of consistent information. The results also support the existence of recency effects for mixed information regardless of the response mode. However, no significant effects were observed for processing consistent information under different response modes.
Moral Hazard, Adverse Selection and Reputation: A Synthesis
Authors: Dobson Associate John
Published: January 2008

This paper investigates the extent to which the agency problems of moral hazard and adverse selection are ameliorated by agents' desire to build and maintain reputations in a multi‐period environment. We find that reputation effects will tend to ameliorate moral‐hazard‐type agency problems. In the case of adverse selection, however, we show that reputation building may actually compound the agency problem.