bluuebunny/crossref_metadata_2025 huggingface dataset:
CREATING VALUE: THE APPROPRIATE USE OF CAPITAL BUDGETING
Authors: Ehrhardt Michael C. , Reeve James M.
Published: January 2008

Traditional approaches to capital budgeting may be inadequate in today's complex business environment. This paper identifies problems with a narrow approach to capital budgeting and suggests several improvements. In particular, an example illustrates an option‐based approach to valuing managerial flexibility.
The Pre‐Bid Share Price Performance of Target Companies Involved in the Successful and Unsuccessful Defence of a Hostile Takeover Bid: A Pilot Study
Authors: Parkinson Chris , Ian Shaw Matthew
Published: January 2008

The content of this paper is adapted from two studies of contested takeover bids. These studies, and this paper, are attempts to add to the limited research conducted in the UK into the share price performance of companies involved in mergers and acquisitions. Research directed specifically at defended takeover bids is even more limited and only one piece of research (Holl and Taffler, 1988) to date has addressed this particular topic in the UK.
Regulating the Market for Corporate Control: Some UK Evidence
Authors: Forbes William P.
Published: January 2008

This paper presents an analysis of UK merger policy based upon the allocative effects of Monopoly and Mergers Commission (MMC) decisions. For some time now evidence has been available concerning the ineffectiveness of MMC decisions in reducing product market concentration (see Simpson and Shaw 1986, 1989). So, if the reduction of market concentration is not a systematic result of decisions of the MMC, it is interesting to ask what have been the discernible effects of the MMC's activities and what revised objectives might be formulated for that body?
Cash Flow, Earnings, and Corporate Control
Authors: Bannister James W. , Riahi‐Belkaoui Ahmed
Published: January 2008

This paper examines the ability of cash flow and earnings based measures of return to assess the differences between target firms and their industries and to explain target firms' abnormal returns during the takeover period. In a sample of 63 completed takeovers over the period 1977 to 1989, takeover targets have mean cash flow to total assets and earnings to total assets below their industry average in each of the three years preceding the year of the takeover. If these ratios are interpreted as measures of managerial performance, the implication is that target firms were underperformers which may have been taken over for a better use of their asset potential. Target firm abnormal returns observed during the takeover period are significantly related to both the difference between target firm and average industry earnings to total assets and to the difference in cash flow to total assets. Abnormal returns are negatively related to the difference in earnings to total assets, suggesting that target firm assets are indeed underutilized. The difference between target firm and target industry cash flow to total assets is positively related to target firm abnormal returns, suggesting that acquiring firms value the near term cash flow of targets.
Market Reaction to Capital Structure Changes and its Association with Profits, Cashflow and Dividends
Authors: Long Michael S. , Malitz Ileen B. , Sefcik Stephen E.
Published: January 2008

We provide evidence of stock market performance prior to announcements of the assuance or retirement of securities which is consistent with Myers and Majluf [1984] and Miller and Rock [1985]. Stocks of firms issuing seasoned common equity are significantly over‐valued in the market prior to the issue, but in the year following, decline to their original level. Stocks of firms issuing convertible debt also are over‐valued, but to a lesser degree than that of firms issuing seasoned equity. Stock of firms issuing straight debt appears to be neither over‐valued nor undervalued. The after‐market firm performance, measured by earnings, cash flows or dividends, is consistent with Miller and Rock. We document a decline in after‐market performance for firms issuing convertible or straight debt and an improvement for those repurchasng shares. However, contrary to predictions, we find that firms issuing seasoned equity do not have lower earnings or cash flows in the following year, and increase their rate of dividend payment as well. We document evidence indicating that firms issue equity to maintain or increase dividends. The market anticipates the dividend increase and shows no response to announcements of dividend changes following an equity issue. However, we are unable to explain why the market reacts in such a negative manner to equity issues, when the after‐market performance of the firm is as expected.
Predictive Accuracy of Judgmental vs Statistical Approaches to Bank Loan Appraisal: Empirical Evidence from Nigeria
Authors: Ariyo Ademola , Kayode Abegunde Emmanuel
Published: January 2008

There has been a general concern about the alarming rate of loan default, resulting in a large number of bad and doubtful accounts, in the Nigerian banking industry. To stem this undesirable trend, some observers have advocated the employment of statistical models to enhance the objectivity and, hence, the predictive accuracy of banker's loan decisions.
The Funds Statement: An Inquest
Authors: Donleavy Gabriel D.
Published: January 2008

In 1985 Canada became the first country to replace its funds flow statement by a cash flow statement. By mid 1991, South Africa, the USA and New Zealand had done the same. Britain, Australia and the IASC all issued statements announcing their intention to follow suit. Thus we have the first example in accounting history of the replacement of one of the three final accounts by an entirely new report. The new report, the cash flow statement, when compiled under the direct method, is a receipts and payment account rearranged under the three headings of operations, financing and investment. A receipts and payments account is the earliest and simplest form of final account, long predating the profit & loss account and balance sheet, and long predating Pacioli's “De Summa Arithmetica” in 1492. The statement which the Cash Flow Statement replaces is less than 120 years old (Rosen & De Coster 1969) and was only mandatory in published British accounts since SSAP 10 came into force in 1975. The purpose of this article is to hold an inquest into the death of the funds statement to determine the cause of death.
Towards an Accounting Science
Authors: Baccouche Chedli
Published: January 2008

The field, currently termed “accounting”, constitutes a confused mix of accounting theories, accounting techniques, and accounting practices. This confusion is clearly reflected in accounting curriculum. Parallel to this confusion is a confusion at the sociological level, where the roles of academicians and those of practitioners are confusingly interchanged. These confusions represent conceptual and practical barriers to the ongoing efforts to develop the discipline.
Proxy Contests: A Re‐examination of the Value of the Vote Hypothesis
Authors: Ghosh Chinmoy , Owers James E. , Rogers Ronald C.
Published: January 2008

This paper presents new evidence on the market value of voting rights during a proxy contest. It tests the hypothesis that the positive announcement period abnormal returns associated with proxy contests may in part be attributed to the incremental value of the voting right. Investigation of board‐seat and issue contests reveals that the announcement period positive returns and the ex‐record day negative returns are higher for board‐seat than for issue contests. For board‐seat contests, the announcement period price increase and the ex‐record day price decrease are larger under cumulative voting than under non‐ cumulative voting. The evidence is consistent with the notion that the increased demand for voting shares during a proxy contest enhances the voting premium and that the effect is proportional to the incremental voting power. The ex‐record day evidence reinforces this argument.
Proxy Contests: Are They Close Encounters of the Worst Kind?
Authors: Farrelly Gail E.
Published: January 2008

This essay considers some of the negative effects of proxy contests and emphasizes that the proxy contest should be the choice of last resort. When costs are weighed against benefits, it would seem that there are better and cheaper ways for owners and managers to communicate and settle their differences. Recent research on this topic is considered and suggestions for research to judge the long‐term effects of proxy contests are offered. The essay concludes with some thoughts on how newly emerging corporate governance schemes may eventually obviate the need for proxy contests.
Corporate Behavior After the Proxy Contest for Control: The Short, Intermediate and Long Term
Authors: Mukherjee Tarun K. , Varela Oscar
Published: January 2008

The effects of a proxy contest for control on a company are examined in this paper over a short, intermediate and long‐term post‐contest period of time. Major findings are as follows. First, compared to a non‐contest matchinggroup of firms, proxy contest for control firms as a whole are poor performers in the immediate post‐contest period. Successful contest firms, however, tend to improve performance whereas unsuccessful ones tend to deteriorate in the short‐term. Second, contest outcome does not appear to affect survivability over either the intermediate or long term. However, over the intermediate term, unsuccessful contest firms more often suffer losses and are acquired, and are less often involved in divestiture and expansion activities. Finally, in the long term, successful contest firms show a higher incidence of bank‐ruptcy and are more likely to engage in a name change.
Merger Premium and the Characteristics of the Board of Directors
Authors: Aziz Abdul , Mortazavi Saeed
Published: January 2008

Since the publication of The Modem Corporation and Private Property, by Adolf A. Berle, Jr. and Gardiner C. Means, economists have written extensively on the proposition that ownership and control have been separated in the large corporations. Additionally, the effects of this separation on the conduct of corporate enterprise have been the subject of many investigations. The present standing of financial economists on this issue is formalized by Jensen and Meckling. They consider the managers as the agents of firm's stockholders and conclude that a certain amount of agency costs is unavoidable. These costs, they argue, emanate from pecuniary as well as non‐ pecuniary expenditures by the managers to maximize their own utilities that will be detrimental to the firm's stockholders.
Statistical Evidence of the Endogeneity Problem: Predicting the Outcome of Tender Offers
Authors: Stone Charles A. , Zissu Anne
Published: January 2008

In the paper “Predicting the Outcome of Tender Offers: An Endogeneity Problem”, we argue that previous econometric models designed to predict the outcome of tender offers have been estimated incorrectly. We illustrate that the source of the estimation error comes from variables which are posited to explain the outcome of tender offers and treated as exogenous when in fact they are endogenous. We discuss the possibility, using the Nelson‐Olson simultaneous equation model, to solve the endogeneity problem. Although correct at the theoretical level we did not actually estimate the model using the Nelson‐ Olson technique. The complexity of applying the Nelson‐ Olson technique motivated us to search for an alternative solution to the endogeneity problem.
Theory Succession, the CAPM, and the APT
Authors: Kolb Robert W.
Published: January 2008

Philosophers and historians of science, along with scientists themselves, have long been interested in the problem of theory succession: “How does one theory supersede another?” Concern with this general topic has led to the development of two major recent theories regarding the issue. These theories of theory succession have emerged principally from reflection on physics. In the eyes of most scientists, this is probably appropriate, since physics seems to offer (at least to most observers) science in its purest form.
An Application of the Arbitrage Pricing Theory Using Canonical Correlation Analysis
Authors: Christofi Andreas C. , Christofi Petros C. , Philippatos George C.
Published: January 2008

This paper demonstrates an application of the Arbitrage Pricing Theory using canonical analysis as an alternative to the conventional factor analysis. Following the traditional view that asset prices are influenced by unanticipated economic events, the systematic effects of the major composite economic indices on a wide spectrum of industry returns are explored. The main conclusion is that profitability may be considered as the single most important factor that influences security returns. Also, the composite lagging economic indicators appear to be more useful to investors in forming market expectations than the composite leading economic indicators. Finally, it is argued that the composite index of coincident economic indicators do not exhibit any significant influence in the pricing of capital assets.
Psychology and Financial Decisions: A Literature Assessment
Authors: Kanaan George K.
Published: January 2008

A common finding of many surveys of corporate financial management practice is that the actual usage of normative financial models is infrequent. This is mainly due to the complexity of the decision environment, the use of information processing heuristics by decision makers, and the presence of psychological factors that influence the decision maker's behaviour. This paper reviews certain psychological concepts and their effects on the validity of traditional fundamental analysis in finance. Second, it discusses how cognitive limitations of human information processing may interfere with the implementation of certain decision rules in financial management, especially when decision makers experience information overload. Third, it provides a review of the advances that have been suggested to overcome the cognitive limitations of human information processing and to evaluate whether such advances can circumvent the psychological biases inherent in human decision makers.
Decision Making Under Uncertainty: Some Experimental Evidence From Auditing
Authors: Khalid Nainar S.M. , Shehata Mohamed
Published: January 2008

The dominant theory of individual decision making under uncertainty is the von Neumann and Morgenstern's expected utility model (EUM). Although, this model has gained its popularity from its ability to explain a wide range of attitudes toward risk, empirical evidence over the last three decades has documented paradoxical behavior that is inconsistent with the EUM model. The present study examines in an experimental setting individuals' inconsistent behavior in choosing between two pairs of lotteries known as the Allais paradox. This study extends previous literature on money gamble situations by conducting a series of experiments to test expected utility behavior on auditing student subjects in pure money and audit settings. Two variants of audit settings are examined: overall audit plan case and audit procedure evaluation of internal control case.
Behavioral Judgment and Cue Utilization: The Case of Corporate Takeovers
Authors: Al‐Khafaji Abbass , Aly Ibrahim M. , Gheyara Kelly F. , Metawae Saad
Published: January 2008

This paper examined the explanatory power of a set of acquisition factors and the ability of decision makers to utilize these factors within the context of corporate takeover decisions using multiple regression and correlation techniques. The acquisition factors included size of cash flow, level of technological advancement, marketing techniques, and management expertise in strategic planning. The results indicate that the size of cash flow, management expertise in strategic planning and vertical marketing systems are significant factors in acquisition decisions.
Framing Effects and Confidence in Judgment
Authors: Fishara Fatma , Habib Abo‐El‐Yazeed , Simyar Farhad
Published: January 2008

This paper addresses the relationship between framing effects and decision makers' confidence in their judgments. In an experimental setting, a sample of financial officers of sixty medium size organizations were asked to evaluate the likelihood of making an investment in a series of four joint ventures for oil and gas exploration based on different sets of probabilities and payoff information for each joint venture. Subjects were also asked to provide a rating of confidence in their judgment. The results indicate that subjects' rating of the likelihood of making investment decisions are affected by information frame and payoff information. However, confidence ratings were not significantly affected by information frame.
A Note on the Bankruptcy Reform Act of 1978, An Agency Perspective
Authors: Dufrene Uric B.
Published: January 2008

Significant attention has been devoted to agency theory in the financial literature. Dating back to the seminal contribution of Jensen and Meckling (1976), financial economists have examined agency relationships mainly in the context of shareholders versus managers, and shareholders versus creditors. The purpose of this essay is to document the existence of additional agency problems created as a result of the adoption of the Bankruptcy Reform Act of 1978. An introduction to the bankruptcy environment and the main features of the Bankruptcy Reform Act of 1978 (hereafter referred to as the Act) are followed by description of the agency problems arising out of the 1978 Act.
Conflicts of Interest and Measurement Issues and Their Effects on Reporting of Environmental Liabilities
Authors: Cerf Douglas C.
Published: January 2008

There are many decisions for which management must consider the broad interests of society at large (all stakeholders) in addition to the interests of the stockholders. One such situation is management's handling of decisions that could cause environmental damage. This paper will discuss the nature of the conflicts of interest between management and all stakeholders and how these conflicts affect the firms' incentives to disclose their responsibility for environmental liabilities. When faced with the choice of acting in the interest of current shareholders or society at large, management appears unwilling to disclose its responsibility for environmental cleanup in order to convince society that its interests are being protected. Businesses, as a group, have a massive responsibility to clean up environmentally damaged, hazardous sites. This responsibility leads to a large expected aggregate obligation (estimated in the hundreds of billions of dollars) for cleanup of environmental damage; however, there are many questions regarding how this responsibility is being accepted and communicated (reported) by the individual firms. Therefore, there is a discrepancy between the expected aggregate environmental obligation and the sum of the individual obligations as reported by firms.
The Political Economy of Development Finance
Authors: Nienhaus Volker
Published: January 2008

Development, Markets, Competition and Entrepreneurs. Economic development shall improve the efficiency of resource utilization; this requires profound structural change. A policy impeding change obstructs development. After the collapse of the centrally planned economics it has become a commonplace that markets can enforce efficiency and shall induce development. Economic textbooks explain that markets require private property and prices determined by demand and supply. When some former socialist countries started their transformation towards‘market economies’by liberalizing prices and privatizing large public enterprises, the result was a sharp increase of prices and unemployment. Public monopolies with controlled prices were replaced by private monopolies with unregulated prices, and while the public enterprises (whose losses were covered by the state) were vehicles for the (formal) realization of the full employment guarantee, the privatized enterprises as pofit‐oriented ventures are compelled to reduce costsespecially costs of overstaffing. The lesson to be learned (or recalled) from this experience is that it is not the market as such which improves the general welfare of the people, but the competitive market.
Equity Finance of Economic Development: Feasibility and Ethical Desirability
Authors: Wilson Rodney
Published: January 2008

In the literature on development finance, there is a growing interest in the subject of equity participation as a means of promoting development. The limitations of debt finance are increasingly evident at both the micro and macro level, especially given the growth of bad debt as far as business is concerned, and the problem of national indebtedness involving many Third World countries. Borrowing has its uses of course, but inevitably leads to problems if it is used as a means of financing risky ventures or projects which are of a long term nature. In contrast, equity finance means that it is the provider of capital who takes on the risk. The fact that there is flexibility in the pay‐off, which is related to the project being backed, actually serves to reduce risk and enhance the likelihood of successful outcomes.
FUNDAMENTALS OF SMALL BUSINESS FINANCIAL MANAGEMENT FOR START UP, SURVIVAL, GROWTH, AND CHANGING ECONOMIC CIRCUMSTANCES
Authors: Dunn Paul , Cheatham Leo
Published: January 2008

In the life of a business, the lack of adequate liquidity to meet current obligations when they come due frequently results in problems which, more often than desirable, result in the failure of the enterprise. A common cause of such small business failures at various stages in the business's life cycle is poor financial planning. One planning deficiency which results in early failure is under capitalization. Under capitalization results from several errors made during the initial stages of financial planning and implementation. Cash flow problems are a common symptom among businesses with this problem.
UTILIZING FINANCIAL STATEMENTS AS CASH FLOW PLANNING AND CONTROL TOOLS
Authors: Cheatham Leo , Cheatham Carole
Published: January 2008

Evidence in the literature repeatedly points towards failure to understand cash flow shortages as a major problem of small business operators. Theoretically, they should be able to use financial statements prepared by their accountants as planning and control tools. However, because of accountants' use of the accrual system, rather than cash, and the meticulous detail that tends to make statements too complicated for the untrained user, many operators simply do not attempt to use these statements.
Target Payout Ratios and Dividend Policy: British Evidence
Authors: Allen D.E.
Published: January 2008

This paper features a study of the dividend policies of the larger listed British companies. It focusses on the sample companies' usage of target payout ratios. A company with a target payout is defined as one which has a policy of attempting to pay out a fixed proportion of available earnings as dividends. In particular, it examines the extent of the usage of explicit target payouts, the range of target payouts adopted and the frequency of changes in such targets. It also examines the factors which are perceived to have an influence on the company's choice of these targets. Finally, it extends and parallels previous work by Partington (1984) on the use of target payouts by Australian companies.
Some features of Dividend Policy in Japan
Authors: Allen D.E.
Published: January 2008

This paper reviews the singular aspects of the dividend policies pursued by Japanese companies. The most notable feature of this is the customary practice of paying a dividend which is 10 per cent on the par value of the share. The paper begins by discussing some relevant and unique features of Japanese company practices. These may conceivably condition managements' attitudes to shareholders and influence their dividend policies.
Benefits from International Diversification: Across Time and Country Perspectives
Authors: Madura Jeff , Soenen Luc
Published: January 2008

Over the last 20 years, research has confirmed and reconfirmed the benefits of international diversification. [See Madura (1984) for a review of this research.] However, changes in international stock market and foreign exchange market behavior require that some issues be reassessed. First, how do potential gains from international diversification vary across perspectives? Most of the past research focused solely on a U.S. perspective. Solnik (1974) assessed various perspectives, but the period assessed was prior to the inception of floating exchange rates. Because of the high degree of integration of stock markets and the volatility of foreign exchange rales, a reassessment from various perspectives is necessary.
European Diversification Opportunities in the 1990's
Authors: Rose Lawrence C. , Black Joseph H.
Published: January 2008

This paper attempts to identify potential countries in Europe for direct foreign investment. Correlations of GNP per capita across international borders indicate Bulgaria and Czechoslovakia may qualify. The countries that seem to be in the best position to make the investment include Japan, Norway, Sweden, Switzerland, and the United Kingdom from those countries included in the study.
Effects of the Single European Act on EEC Diversification
Authors: Zarruk Emilio , Picou Armand
Published: January 2008

The 1987 Single European Act's intended goal is to unify European member nations. The Act provides a series of steps over time that dismantles the various trade barriers between the European Economic Community (EEC) members. The main economic reforms, reduced trade and increased capital flows, combine disparate goals and government policies to enhance the economic efficiency of EEC members. The EEC economic system is therefore changing to create a globally competitive community of nations with efficient internal trade and capital markets.
Uncertain Perception of Economic Exchange Risk and Financial Hedging
Authors: Franke G.
Published: January 2008

This paper provides some justification for the observation that managers hedge transaction and translation risk through financial contracts and not economic risk as recommended by economists. One reason for the observed behavior is uncertainty in the perception of economic risk. If the manager is more heavily penalized for mishedging than rewarded for proper hedging, then uncertainty of perception may induce him not to hedge economic risk. Another reason is that accounting rules may lead to high accounting losses if economic risk is properly hedged by financial contracts.
Forward and Futures Prices during the 1984/85 Sterling Exchange Rate Crisis: An Analysis of Time Series Structure and Implied Transactions Costs
Authors: Davidson I.R.
Published: January 2008

Whereas the last decade has seen remarkable growth in United States (US) futures business, in the United Kingdom (UK) the volume in some sectors has been disappointing. Although new markets are continuing to appear (such as the Baltic International Freight Futures Exchange, BIFFEX, which opened for business in May 1985), on 31 January 1985 the London Gold Futures Market (LGFM) announced its intention to close and from time to time there has been speculation that LIFFE, the London International Financial Futures Exchange, may not be able to continue in its present form because of lack of business (although the range of traded instruments continues to expand). Some factors that would tend to discourage business are:
Mergers and Acquisitions: A Means of Harvesting the Venture
Authors: Petty J.William , Shulman Joel , Bygrave William E.
Published: January 2008

The harvesting of a venture is one of the more significant events in the life of an entrepreneurial firm and its owner. Little is known about this process beyond anecdotal information. This study is an exploratory effort to investigate this part of the entrepreneurial process when it is accomplished by selling the firm.
Forecasting Stock Returns in the Japanese, UK and US Markets During the Crash of October 1987
Authors: Koch Paul D. , Koch Timothy W.
Published: January 2008

The observation that different national stock markets are interrelated to different degrees is well established in the literature on global market integration. This literature documents that different national markets display more or less sensitivity to movements in other national equity markets, depending on various factors such as: their geographic proximity, their trade relationships, their relative importance to world economic activity, and the time period under scrutiny. While equity values in a few major markets, such as Japan, the UK and the US, tend to lead global price movements, the nature of these intermarket relationships appears to vary at different points in time. Roll (1989), for example, documents that October 1987 is the only month in recent experience during which all markets moved in the same direction. This result suggests that intermarket price relationships differ in periods of normal market activity from those in periods of extreme price moves, such as October 1987.
Price Discovery in Asset Markets
Authors: Stein Jerome L.
Published: January 2008

Holbrook Working (1949) discovered that the percentage change in futures prices seemed to be largelyrandom. This led Paul Samuelson (1965) to develop the Efficient Market Hypothesis (EMH) which claims that the current spot and futures1 prices fully reflect all relevant information. Furthermore, because the future flow of information cannot be anticipated, price changes will not be serially correlated. These papers linked the notion of randomness of price changes to informational efficiency. From that point on, a major part of the empirical studies of asset markets has been the application of time series analysis to asset prices, in order to evaluate whether the price changes are random and whether futures prices reflect all available information. As the statistical tests became more sophisticated, the number of empirical studies increased and the results became more contradictory and difficult to interpret. An economic theorist can only be bemused by contemplating the empirical/econometric studies in the finance literature.
International Equity Market Integration
Authors: Huth William L.
Published: January 2008

Economic interdependence between nations has been the focus of considerable research. A particular avenue of international interrelationship that has received a great deal of recent attention is the integration of international stock markets. Increased trade between nations implies that domestic corporate profitability will be influenced by economic conditions in other countries. If international influence is widespread between particular markets then it is likely that measures of overall market performance will be related.
International Mutual Fund Performance: A Comparison
Authors: Apap Antonio , Collins Harold
Published: January 2008

Cumby and Glen examined the performance of a sample of fifteen internationally diversified mutual funds for the period 1982–1988. The authors state that “While considerable evidence on the behavior of mutual fund returns now exists, there is surprisingly little evidence about the performance of internationally diversified funds.” Cumby and Glen found no evidence that the funds, individually or as a whole, gave investors any advantage in performance over that of a broad, international equity index for the sample period. While they found some evidence that international fund performance exceeded the Morgan Stanley US index during the period, they felt that this was most likely due to the benefits of international diversification rather than superior performance by fund managers.
Athens Stock Exchange: Organization, Management, and Behavior of Major Stock Market Indices
Authors: Negakis Christos , Kambouris Dimitris
Published: January 2008

This paper explores some institutional aspects of the Athens Stock Exchange (ASE) and investigates the time‐series properties of three major ASE stock indices. The results depict that future returns on these indices are difficult to predict. However, volatility in these indices can be predictable using the GARCH models. Various models for predicting volatility patterns are presented.
Modeling Volatility of Foreign Exchange Price Changes
Authors: Kahya Emel , Koutmos Gregory , Nuven Diep
Published: January 2008

This paper investigates the behavior of exchange rate volatility during appreciations and depreciations. Six US dollar exchange rates are investigated. In all instances the response of volatility to exchange rate changes is asymmetric. For dollar exchange rates with respect to EMS currencies, volatility is higher during dollar depreciations, whereas, for non‐EMS dollar exchange rates, volatility is higher during dollar appreciations. In addition, there is evidence that exchange rate changes are related to volatility.
CAPITAL BUDGETING: EMERGING ISSUES AND TRENDS
Authors: Zinkhan George M. , Christian Zinkhan F.
Published: January 2008

Since organizations have limited resources, it is not possible to invest in every opportunity which is recognized or imagined. Once a set of promising projects has been identified and investigated, it is necessary to reject some projects but invest in others. In this respect, the process of capital budgeting serves to shape the future of organizations, and a variety of capital budgeting methods have been proposed to assist managers who are engaged in this important planning task.
THE APPLICABILITY AND USAGE OF NPV AND IRR CAPITAL BUDGETING TECHNIQUES
Authors: Agnes Cheng C.S. , Kite D. , Radtke R.
Published: January 2008

Capital budgeting plays an essential role in a firm's long‐term viability and survival. The capital budgeting process includes: identification of potential projects, prediction of possible outcomes, project selection, financing and implementation of the chosen project, and monitoring project performance (Mukherjee and Henderson, 1987). Although economic considerations should govern the capital budgeting decision, individual opinions and preferences often become primary factors affecting project selection.
EVALUATING THE IMPACT OF INVESTMENT PROJECTS ON THE FIRM'S CURRENCY EXPOSURE
Authors: Johnson Robert , Soenen Luc
Published: January 2008

Methods of capital budgeting have been well established in the finance literature as well as in corporate practice. In general, the discounted cash flow methods (IRR, NPV, PI) are considered to be superior. An investment project is therefore acceptable (at least in financial terms) when its net present value is positive or its internal rate of return is above the specified cut‐off rate. In case of capital rationing, we allocate funds and consequently approve projects in descending order of their profitability index to make sure we obtain the maximum present value per dollar invested.
EFFECTS OF DEBT ON OPTIMAL ASSET DURATION AND INVESTMENT
Authors: Prezas Alexandros P.
Published: January 2008

The question whether the use of an asset will be terminated before its physical life expires is of interest to financial managers. In other words, purchasing an asset does not necessitate its use until the end of its physical life. An asset might be terminated because it is inefficient to continue operating, or because it can be replaced. Thus, in a single cycle problem, the objective is to determine how long an asset should be employed before termination. In a replacement problem, the focus is on determining how long the asset should be held before being replaced with a similar one.
International Capital Budgeting Using Option Pricing Theory
Authors: Sercu Piet , Uppal Raman
Published: January 2008

Typically, international capital budgeting is carried out using the adjusted net present value (NPV) approach. In this article, we present an alternate method for valuing international investments; one that is based on the option pricing theory developed by Black and Scholes (1973). We show that when (a) the decision being valued involves an irreversible investment, (b) the investment decision can be postponed, and (c) uncertainty is resolved gradually over time, using the option pricing approach may be more appropriate than the NPV approach. Applying the traditional NPV approach to value investments such as the decision to enter a new market, expand production, suspend operations temporarily or liquidate operations, may lead one to underestimate their value. This is because the naive NPV criteria is a static valuation method that ignores a firm's flexibility to postpone projects, to abandon them, or to shut down operations temporarily.
Evaluating the Foreign Listing Decision in a Capital Budgeting Framework
Authors: Mittoo Usha R.
Published: January 2008

Evaluation of the foreign listing decision involves many complexities since it impacts a firm's financing, investment, and marketing decisions. In this paper, we identify major costs and benefits of foreign listing based on the available evidence and suggest evaluation of the foreign listing decision using an Adjusted Present Value method. We also discuss implications of some recent regulatory changes on the costs and benefits of foreign listing.
The Magic in Value Added: Merits of Derived Accounting Indicator Numbers
Authors: Riahi Belkaoui Ahmed , Fekrat M. Ali
Published: January 2008

The American Accounting Association (AAA) Committee on Accounting and Auditing Measurement (1991) had recommended that value added be considered for mandatory disclosure in the US in addition to the income and cash flow statements. This study examines empirically the relative merits of derived performance indicator numbers from value added reporting, accrual accounting and cash flow accounting. The results show that the derived performance indicator numbers based on net value added had lower variability and higher persistency than corresponding numbers based on either earnings or cash flows of 673 US firms for the 1981–1990 period. These results and other related considerations argue strongly in favor of the recommendation of the AAA Committee.
The Impact of Performance Plan Adoption on Value Added and Earnings
Authors: Askren Barbara J. , Bannister James W. , Pavlik Ellen L.
Published: January 2008

Theoretical arguments have indicated that long‐term accounting‐based performance plans motivate executives to improve long‐run firm performance (Smith and Watts, 1982; Larcker, 1983). Following conflicting empirical evidence related to the stock market reaction associated with the adoption of accounting‐based long‐run performance plans, this study seeks to gain further insight into the effect of such plans on accounting income‐based and value added‐based measures of productivity and return. The results indicate that firms adopting accounting‐based performance plans do not experience any greater gains in accounting return or productivity measures than do a set of control firms. Thus, such plans may not have the intended effect. Because performance plans are a popular method of executive incentive compensation, further research on the impact of these plans is indicated.
Explaining Market Returns: Earnings Versus Value Added Data
Authors: Riahi‐Belkaoui Ahmed , Picur Ronald D.
Published: January 2008

The objective of this study is to determine whether value added variables possess incremental information beyond accrual earnings in the context of explaining security return. The evidence points to the superior explanatory power of value added variables in explaining security returns of US firms that disclose data needed for the computation of net value added. A case can be made for the disclosure of value added reports in the US.
Net Value Added as An Explanatory Variable for Returns
Authors: Riahi‐Belkaoui Ahmed , Picur Ronald D.
Published: January 2008

This study investigates the usefulness of net value added in explaining stock returns of a sample of US firms. The results provide evidence that current and past levels of net value added or current and past levels of changes in net value added are associated with stock returns. A case may be made for the disclosure of value added information by US firms.
Accounting for Risk in Financial Instruments: A Review of Accounting Standards
Authors: Howieson Bryan , Hancock Phillip
Published: January 2008

Accountants have long sought methods by which the concept of risk can be communicated through financial statements. Traditionally, certain financial ratios such as the current ratio and leverage ratios have been used for this purpose. Other information cues such as the variability of accounting earnings and asset size have also been employed as proxies for an entity's riskiness. Research suggests that these accounting numbers have an implicit, if not explicit, impact upon the risk expectations of financial analysts and securities markets (see, for example, Beaver, Kettler and Scholes [1970]; Eskew [1979]; Elgers [1980]; Farrelly, Ferris and Reichenstein [1985]).
Risk Management Using Derivative Securities
Authors: Walsh David
Published: January 2008

The greatest revolution in financial management over the last 20 years must be the growth in the use of derivative securities. We can also consider this area to be part of the much larger concept of financial engineering. Limited in their use for many years, innovative financial institutions have now introduced derivatives of every colour and flavour. Principal driving forces in this growth have been:
Bank Credit Risk Management
Authors: Boffey R. , Robson G.N.
Published: January 2008

Bank management, from a finance theory perspective, is generally acknowledged to involve the management of four major balance sheet risks: liquidity risk, interest rate risk, capital risk and credit risk (Hempel et al, 1989). Of these, credit risk has commonly been identified as the key risk in terms of its influence on bank performance (Sinkey, 1992, p.279) and bank failure (Spadaford, 1988).
Bond Rating Changes and CEO Compensation
Authors: Fosberg Richard H. , James Joe F.
Published: January 2008

Jensen and Murphy (1990) and others have found a small but statistically significant relationship between firm performance (as measured by change in shareholder wealth or firm profits) and executive compensation. In this study we investigate the pay‐ performance relationship further by considering the relationship between an outside measure of firm performance (changes in the firm's bond rating) and the contemporaneous change in the compensation of the firm's CEO. We find that when a firm's bond rating is down‐graded, CEO total compensation declines by a relatively small amount ($165,500) and when a firm's bond rating is upgraded, CEO total compensation increases markedly ($3,202,900). Thus, while a positive pay‐performance relationship exists, the relationship is not symmetric. CEO compensation changes (increases) much more when firm performance improves than it changes (decreases) when firm performance declines. Further, most of the change in CEO compensation occurs in the stock gains (profits from the exercise of stock options) category for both firms experiencing bond rating upgrades and down‐grades.
Antecedents of Executive Compensation: The Use of Covariance Structure Modeling
Authors: Fiet James O. , Kosnik Rita D.
Published: January 2008

The use of covariance structure modeling is explored as a means of moving toward a resolution of the debate over the antecedents of executive compensation. The major strength of this methodology is that it enables researchers to measure the effects of unobserved factors on measured variables. It is suggested that covariance structure modeling is a promising way of studying the effect of institutional isomorphism on executive compensation. The popular business press has questioned repeatedly the justification for and the performance effects of prevailing executive compensation systems (Crystal, 1988; Loomis, 1982; Patton, 1985). These articles argue that executives are more interested in creating wealth for themselves than for stockholders. They also underscore the absence of an obvious link between executive compensation and firm performance. Recent academic research on executive compensation adopts an agency perspective that emphasizes potential conflicts of interest between managers and stockholders. It contends that, in the absence of effective disciplining and monitoring systems, executive compensation plans may direct managers' efforts toward personal wealth enhancement to the detriment of firm value (Baumol, 1958; Berle & Means, 1932). In response, scholars have urged that executive compensation plans contain monetary incentives that only accrue to executives when shareholder wealth is maximized (Kerr, 1985; Rappaport, 1983; Tehranian & Waegelein, 1985). However, designing compensation systems that effectively align the interests of managers and stockholders requires a knowledge of the role and effect of relevant driving forces on compensation. Statistical research on executive compensation has been guided predominantly by a search for tangible, observable determinants (Ciscel & Carroll, 1980), examples of which have been firm size or growth rate (Baumol, 1967; Marris, 1963), inter‐firm and inter‐in‐dustry differences (Coughlan & Schmidt, 1985), and performance (Murphy, 1986). The emphasis on such tangible explanations is not surprising given the overwhelming use of econometric techniques, such as ordinary least squares regression (Ciscel & Carroll, 1980; Finkelstein & Hambrick, 1988), logistic regression (Walking & Long, 1984), time series analysis (Murphy, 1985), and event studies (Brickley, Bhagat & Lease, 1985; Coughlan & Schmidt, 1985; Tehranian & Waegelein, 1985). This paper argues that the focus on tangible, observable variables by compensation researchers is a methodologically ‐ driven practice that constrains theory building and testing. As a result, we may have ignored interesting and relevant theoretical frameworks for the study of executive compensation. We also have overlooked the use of analytical techniques that allow us to examine the role of potentially relevant latent constructs. In this paper, we will describe and illustrate the use of covariance structure modeling for the study of institutional pressures on executive compensation.
An Application of Control System To Cost Variance Analysis
Authors: de Korvin Andre , Strawser Jerry , Siegel Philip H.
Published: January 2008

Accounting, particularly in the area of cost variance analysis, contains a great deal of ambiguity due to imprecise or ill‐defined control terms. Cost accountants must continually incorporate good sense and professional judgment in the accounting process to overcome that ambiguity. Because of the construction of accounting expert systems, no ambiguity is present in the facts or rules, thereby excluding human reasoning and analysis of feedback within those systems. The use of fuzzy sets to build fuzzy control systems provides a method to incorporate ambiguity into expert systems, allowing expert systems to more closely emulate the complex human decision making process.
A Model for the Evaluation of and Response to Economic Exposure Risk by Multinational Companies
Authors: Ahkam Sharif N.
Published: January 2008

While economic exposure is an important issue for the management of a multinational financial system, few models have been developed to measure this risk. The major challenge to measuring economic exposure is the interdependence of affiliate performances vis‐a‐vis changes in currency values. In this paper, a model has been developed that not only measures the sensitivity of the value of the firm to changes in currency values, but also recognizes the interdependence among the affiliates. The model takes a global view of the problem and also leads to guidelines for managing economic exposure. While the discussion focuses on geographically diversified multinational companies, the content of the paper is equally applicable to domestic companies.