Business Commons^™

Spacs And The Macroeconomy: An Empirical Examination Of Real Interest Rates' Impact On Spacs, Ryan A. Jacobs

Doctoral Dissertations (DBA)

Special Purpose acquisition companies (SPACs) are an alternative way private entities enter public markets through reverse merger of a publicly listed pool of capital. Price discovery is more transparent than the traditional IPO process, as valuations are negotiated between the SPAC Sponsor and the firm’s management team before shareholders approve through a shareholder vote. I conducted an OLS regression test for a relationship between SPAC activity, using capital invested in SPAC IPOs as a proxy, and various macroeconomic variables. I did not find evidence of a linear relationship. I examined the impact of the real interest rates on monthly pre-merger …

Esg Scores Impact On U.S. Insurance Companies’ Financial Performance, Franceska Xhafa

Doctoral Dissertations (DBA)

This paper examines the impact of Environmental, Social, and Governance (ESG) scores on U.S. insurance companies' financial performance and is among the first to do so. The existing literature has sundry conclusions on whether there is any impact; this study intends to add to the existing literature to elucidate an answer. In this study, the financial ratio, net profit margin, is used as the dependent variable. The ESG score, governance score, and governance metrics such as the number of independent directors on the audit committee, size of the compensation committee, board size, and the number of executives are used as …

Cultural Distance And Momentum Effect—The Case Of Cross-Listed Companies In The United States, Ling Liu

Doctoral Dissertations (DBA)

This paper examines the momentum effect in U.S. cross-listed companies, exploring the relationship between cultural distance and momentum portfolio formation, and how cultural distance affects momentum portfolio returns for US cross-listed firms. The study selects cross-listed companies from January 2001 to December 2022 and create momentum portfolios (Chui, Timan, & Wei, 2010) to test the momentum effect of cross-listed companies in the United States. The cultural distance for cross-listed companies is then calculated using the within-group cultural diversity method (Frijns, Dodd, & Cimerova, 2016) and the Hofstede (2001) dimensional method to find the momentum effect in cultural distance sorted groups. …

Assessing Diversification Of S&P500 And Cdx Indexes, Jeffrey A. Palma

Doctoral Dissertations (DBA)

In this paper, I conduct a study of comovement between equity and corporate bonds using S&P500 and Investment Grade and High Yield CDX Indexes to evaluate the diversification benefits of holding these assets in portfolios. I assess comovement and diversification potential using DCC-GARCH and copulas. This approach allows for a review of equity and credit linkages through multiple lenses and evaluation of how these relationships have evolved over time. In general, I find only modest potential for diversification between equity and CDX markets and strong evidence of increased comovement over time.

Forecasting Variance Swap Payoffs, Jonathan Dark, Xin Gao, Thijs Van Der Heijden, Federico Nardari

WCBT Faculty Publications

We investigate the predictability of payoffs from selling variance swaps on the S&P500, US 10-year treasuries, gold, and crude oil. In-sample analysis shows that structural breaks are an important feature when modeling payoffs, and hence the ex post variance risk premium. Out-of-sample tests, on the other hand, reveal that structural break models do not improve forecast performance relative to simpler linear (or state invariant) models. We show that a host of variables that had previously been shown to forecast excess returns for the four asset classes, contain predictive power for ex post realizations of the respective variance risk premia as …

Empirical Studies Of Esg Scores With Corporate Credit Spreads (Insights From Popularity-Based Pricing), Eugene Okyere-Yeboah

Doctoral Dissertations (DBA)

This study examines various factors or characteristics (risk and non-risk) that determine a firm’s credit risk premium, as measured by its credit default swap (CDS) spread, with a particular focus on the impact of environment, social, and governance (ESG) scores. The framework employed is a general equilibrium asset pricing model which integrates classical and behavioral finance elements, known as popularity-based asset pricing. It treats all attributes or characteristics of an asset as ”factors” to which investors assign a degree of popularity, which changes over time. Non-risk characteristics are classified as ”tastes” or ”disagreements”, Fama French (2007). Firms’ degree of adherence …

10 Good Reasons Why Llcs Should Not Elect To Be S Corporations, Paul N. Iannone, Danny A. Pannese

WCBT Faculty Publications

Since 2004, the IRS has administratively made S elections for limited liability companies (LLCs) very easy. An LLC that is otherwise eligible to be an S corporation that is classified as a partnership or a disregarded entity can simultaneously elect to be classified as both a corporation and an S corporation by timely filing Form 2553, Election by a Small Business Corporation, without the need to also file Form 8832, Entity Classification Election. The Treasury regulations treat the "one-stop-shop" rule as a "deemed election" under the entity classification regulations.

Securing Repo: Counterparty Risk And Collateral Supply Effects In The Tri-Party Repo Market, Stephen H. Frank

Doctoral Dissertations (DBA)

I examine the co-variance between tri-party repurchase agreement (repo) spreads and proxies for collateral values and counterparty risk. Since the Global Financial Crisis of 2008 (GFC), the Federal Reserve (Fed) has taken measures to mitigate repo market instability. These measures have collectively placed the Fed astride repo markets as ongoing borrower, lender and purchaser of US Treasury and Agency securities. By analyzing the relationships between repo spreads, the US 10-year yield and the TED spread, I assess the effectiveness of Fed measures to mitigate repo market instability. Using multiple breakpoint Bai-Perron regression and Markov Switching tests, I find that these …

The New Accounting For Operating Leases: Unintended Consequences In The Airline Industry, Renata Bandeira, Bridget M. Lyons, Carolyn Trabuco

WCBT Faculty Publications

By 2020, new accounting rules for operating leases were applicable to publicly traded companies reporting under either the US Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The accounting authorities under both standards noted that the new rules were developed to increase the transparency of lease transactions to provide more relevant and comparable information. We compare two Brazilian airlines reporting under IFRS, Azul and Gol, with an operationally similar US airline reporting under US GAAP, JetBlue, to determine whether the new standards improve the ability to understand, evaluate, and compare performance, managerial decision making and credit metrics. …

Valuation Challenges Arising From The New Leasing Standard Asc 842: A Teaching Note, Bridget M. Lyons

WCBT Faculty Publications

Accounting Standards Codification (ASC) Topic 842, the new accounting standard on leasing, aims to improve transparency related to leasing and to enable users of financial statements to more readily compare firms that lease with firms that borrow to buy assets. The standard is effective for 2020 and has had a significant impact on the balance sheets of many firms. This note provides an overview of the accounting changes and highlights key issues related to financial analysis and valuation with guidance on how to avoid common errors and accurately calculate and compare enterprise value, EBIT, EBITDA, valuation multiples and key valuation …

A Bayesian Approach To Assessing The Risk Premium On Catastrophe Bond Derivatives At Issuance, Dickson K. Nkwantabisa

Doctoral Dissertations (DBA)

Catastrophe (CAT) bond pricing is a challenging task due to the uncertainty inherent in the incomplete market setting in which they operate as such various pricing approaches have been proposed. In this paper, we offer an alternative Bayesian methodology which is a natural approach in the context of uncertainty. Our Bayesian model is highly flexible and can be implemented under different model assumptions without losing generalization. We develop an entire Bayesian framework to model the two fundamental sources of risks in CAT bond pricing – catastrophe and interest rate risks. Using a Hierarchical Dirichlet Process model (Teh et al., 2006), …

Analysis Of Key Factors That Impact Large Cap Us Firms’ Financial And Market Performance At Different Phases During The 2007- 8 Financial Crisis, Ken Lobo

Doctoral Dissertations (DBA)

The financial crisis of 2007-8 provides an opportunity to investigate which factors have a significant impact on firms at different stages of the crisis. This paper considers this shock event along these lines: impact of leverage on a firm can vary depending on timing of the crisis; firm are challenged to invest as the crisis recedes; revenue growth can enhance and sometimes impede returns; choosing to hold cash or not when a firm make the trade-off with investment and both the timing and decision are important; investors, managers and shareholders perceive these actions and events differently. Large cap US firms …

Cfo Compensation And Public Company Audit Fees: A Study Of Relationships And Influence On Audit Pricing, Charles T. Fagan

Doctoral Dissertations (DBA)

From the Introduction:

In corporate America, most executives have multiple forms of compensation ranging from a base salary, which is fixed, to annual and multi-year bonuses, which are normally tied to some performance based metrics; to longer-term incentives such as stock options, stock grants, restricted stock units (RSUs) and other forms of equity-based compensation. Aside from a base salary within normal ranges, all other forms of compensation are normally meant to incentify an executives’ behavior to work in the best interest of the company and its shareholders. At least, that is the theory on incentive-based compensation.

It is quite common …

Is There A Relationship Between The Gender Of The Ceo And Short-Termism Or Long-Termism?, Kerry Calnan

Doctoral Dissertations (DBA)

Based on a panel of S&P 1500 firms from the period of 2008-2016, we evaluate whether firms managed by female CEOs exhibit the same short-termism or long-termism as firms managed by male CEOs. We evaluate in terms of market based, firm based and investment indicator. Our goal is to better understand if there is a relationship between the gender of the CEO and short-termism or long-termism.

Our results find firms with female CEOs have lower Tobin’s Q, lower ROA, however, they spend more on research and development than firms run by male CEOs.

Incorporating Financial Statement Information To Improve Forecasts Of Corporate Taxable Income, Danielle H. Green, Erin E. Henry, Sarah M. Parsons, George A. Plesko

WCBT Faculty Publications

We contribute to the research on the information content of earnings as it applies to the forecasting of economic activity across reporting models. We examine whether publicly available financial statement information is incrementally useful in forecasting confidentially reported taxable income. More precise firm-level taxable income forecasts can improve policymakers’ modeling of the tax system and their ability to analyze the effect of proposed changes in corporate tax law. When aggregated, improved micro-forecasts can also yield more accurate macro-forecasts of corporate taxable income, a significant component of the federal budget. We find that financial statement information improves firm-level estimates of future …

An Empirical Examination Of Economic Determinants Of Financial Ceo Compensation: A Comparative Study On Pre And Post Financial Crisis Periods, Mahfuja Malik, Eunsup Daniel Shim

WCBT Faculty Publications

Inadequate risk monitoring and the executive incentive system of US financial institutions are considered to be significant factors in exacerbating the 2008 financial crisis, and regulators attempted to reform the executive compensation system in the post-crisis period. In this study, we conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and post-financial crisis periods, using data from US financial service institutions, since this is the sector that has been most affected by the financial crisis. We find that the mean values of total compensation and its incentive components, including cash …

Stock Buyback Announcements: An Examination Of Abnormal Returns In Stock Price & Credit Default Swaps For S&P100 Companies, Alan L. Delfavero

Doctoral Dissertations (DBA)

This event study examines the short-run effect of stock buyback announcements on stock price and credit default swaps (CDS) exclusively for mega capitalization S&P 100 companies. The research sample consists of 53 S&P 100 companies and includes 133 buyback announcement events occurring between September 2011 and May 2018. The study utilizes the market model to estimate expected returns and to compute abnormal returns (AR) for equity and abnormal change (AC) in CDS. Based on an initial analysis, it’s determined that there is a statistically significant AR and cumulative abnormal return (CAR) for stock price, and a significant AC in CDS, …

The Legend Of Wara And Benchmarking Purchase Price Allocation Data, Matthew Crane

Doctoral Dissertations (DBA)

This paper examines the relationship of the relative weightings of intangible assets recorded in purchase price allocations by industry based upon a weighted average rate of return (“WARA”) framework to determine if there is a statistical relationship between the value weightings and discount rates and if benchmarking the value weightings to industry data can be used as a reliable indicator of reasonableness. Both the WARA process and benchmarking assume that the relative values of intangibles impact the discount rate selected or that there is commonality in the industry ratios. Intuitively, the use of WARA and Benchmarking for financial reporting both …

Estimating The Cost Of Equity In Emerging Markets: A Case Study, Benoit Boyer, Ralph Lim, Bridget M. Lyons

WCBT Faculty Publications

A firm's weighted average cost of capital is an integral component in capital budgeting decisions and in assessment of the firm's enterprise and equity value. Estimation of the cost of equity is a key component in determining the overall cost of capital. The calculation of the cost of equity for U.S. based corporations is relatively straightforward and is most often estimated as a function of the U.S. risk-free rate, the firm's beta value, and an estimate of the average risk premium associated with equity investments compared to risk free assets. Since U.S. financial markets are fairly liquid and reasonably efficient, …

Restatement Vs Revision: A Case Study, Benoit Boyer, Danny A. Pannese, Alan L. Delfavero

WCBT Faculty Publications

There had been many recent cases of restatements of financial statements by US Corporations. Recently an article in the Wall Street Journal mentioned restatements by Bank of America, Nike and Alphabet among the 663 companies that filed financial revisions or restatements last year. Interestingly the frequency of these errors has more than doubled since 2002, when the Sarbanes-Oxley corporate governance law was enacted, partly to increase managerial accountability. We will also examine what are the differences between restatements and revisions. We will examine what are the most common mistakes. Over half of last year's corrections involved debt and equity, cash …

Social Media Information And Analyst Forecasts, Mahfuja Malik, Rajib Hasan, Abu S. Amin

WCBT Faculty Publications

In the past decade, social networking has changed the landscape of information dissemination. The rapid diffusion of social media services such as Facebook and Twitter is unprecedented and offers immense possibilities for corporations to communicate with, and engage core stakeholders in, various business decisions. In this study, we investigate whether social media play any role as a source of information for financial analysts. We specifically focus on information revealed on the official Facebook pages of S&P 500 firms. We define information content on a Facebook page as the total number of posts by the corporations and the comments, likes and …

A Case Study In The Use And Potential Misuse Of Non-Gaap Financial Measures, Benoit Boyer, Ralph Lim, Bridget M. Lyons

WCBT Faculty Publications

Firms reporting under US GAAP are allowed to supplement financial information with non-GAAP measures. We examined 6 Firms in the chemical industry and looked at what information was presented (Dow, Du Pont, Monsanto, FMC, PPG, Praxair). We use the 2014 Annual Report so that we would have comparable data for all companies. For 2 firms we looked at numbers presented in Cap IQ and in Bloomberg and compared them to the numbers presented by the company (Dow and Du Pont). The numbers reported by the firms and the analysts differed greatly.

Liberating Trapped Cash: A Case Study Of Trapped Cash At Apple And Microsoft, Russell P. Engel, Bridget M. Lyons, Danny A. Pannese

WCBT Faculty Publications

The topic of trapped cash, or cash permanently reinvested overseas to avoid tax upon repatriation, has become a hot topic in accounting, finance and policy circles over the past two years. This case study analyzes the activities of two major technology firms, Microsoft and Apple, to liberate enormous holdings of trapped cash. The case prompts a discussion of the topic of trapped cash, stakeholder considerations and tools available to manage cash balances held outside the United States. The focus is to examine the strategies available and those selected by Microsoft and Apple to meet or at least appease stakeholder demands …

Institutional Shareholding And Information Content Of Dividend Surprises: Re-Examining The Dynamics In Dividend-Reappearance Era, Abu S. Amin, Shantanu Dutta, Samir Saadi, Premal P. Vora

WCBT Faculty Publications

We examine the role of institutional investors’ investment horizon on the information content associated with dividend announcement surprises in the “dividend-reappearance era”. We find that the presence of institutional investors negatively affects the announcement period cumulative abnormal return (CAR), which suggests that institutional investors reduce information content of dividend announcements. This result is primarily driven by the fact that institutional investors, especially the not-short-horizon investors, do not prefer dividend surprises – which leads to lower announcement period CAR. We do not find support for institutional investors’ informed trading argument. Our study reveals that in order to understand the dynamics between …

What's In Your Leadership Toolbox?, Barbara M. Tarasovich, Bridget M. Lyons

WCBT Faculty Publications

Senior finance executives play a pivotal role in achieving corporate strategic vision, fostering growth, and enhancing return on invested capital. But their role is becoming more and more complex. In addition to traditional functions, they and their finance teams must now do financial modeling, integrate data analytics, handle strategies for cyber security and complicated risk management, and more. To find out what capabilities must today's financial leaders have to be successful, the authors interviewed CFOs and human resources (HR) executives and identified the key required competencies. They identified six competencies frequently named by finance and HR executives that they believe …

"Trapped Cash" In The Technology Sector: Accounting Disclosures Of Permanently Reinvested Foreign Earnings & Foreign Cash Levels, Russell P. Engel, Bridget M. Lyons

WCBT Faculty Publications

Permanently reinvested earnings in foreign subsidiaries and cash balances held outside the United States have increased dramatically in the technology sector over the past five years. These values, as well as related unrecognized deferred tax liabilities, are significant to investors, regulators and others. We examine disclosures of the largest technology firms over the 2007 to 2013 period and find that, as a group, the firms have increased the information provided but by fiscal 2013 only four of the ten firms disclosed both foreign held cash and an estimate of the unrecognized deferred tax liability related to permanently reinvested earnings.

Audit Committee Composition And Effectiveness: A Review Of Post-Sox Literature, Mahfuja Malik

WCBT Faculty Publications

The Sarbanes–Oxley act (SOX) was enacted to strengthen corporate governance practices in the United States; since SOX enactment, the audit committee has received increasing emphasis in accounting research. The main objective of this study is to review and synthesize the growing volume of audit committee literature in the post-SOX era. While summarizing the post-SOX literature, this study also focuses on selected pre-SOX studies to compare the research issues and findings of pre- and post-SOX literature and to show how governance reforms shape the literature’s domain. The extant audit committee literature reflects an enormous body of knowledge. Pre-SOX literature documents that …

The Impact Of Mergers And Acquisition Premiums On Financial Performance, Barbara M. Tarasovich

WCBT Faculty Publications

The purpose of this paper was to examine why so many M&A (Mergers and Acquisitions) continue to take place at steep premiums in spite of lower returns to shareholders. The pharmaceutical and biotechnology industries present a unique opportunity to investigate the financial impact on acquiring companies and of acquisition premiums. This paper empirically examines if post-merger financial performance is correlated to acquisition premiums. The paper analyzes M&A in the pharmaceutical and biotechnology industries with effective dates between January 1, 1998, and December 31, 2005 The analysis showed that acquisition premiums are positively related to long term under performance of the …

Resolution Of Bad Loan Problem: Bank-Level Evidence From A Low-Income Country, Abu S. Amin, Lucy Chernykh, Mahmood Osman Imam

WCBT Faculty Publications

How do banks resolve a severe bad loan problem in a capital-constrained, low income country when a government bailout is not an option? We address this question by examining new evidence of a sharp decline in bad loan ratios in a panel of domestic banks in Bangladesh. On the aggregate level, the share of nonperforming loans in this market has dropped six fold, from above 41% in 1999 to below 7% in 2010. Notably, this dramatic improvement did not involve the creation of any centralized asset management facilities but relied on the bank management and governance reforms. We find that …

Trapped Cash: When Is A Dollar Not Worth A Dollar?, Russell Engel, Bridget Lyons

WCBT Faculty Publications

During 2013 the concept of “trapped cash” garnered heightened attention as reports of Dell, Apple and other firms holding massive cash levels outside the US surfaced. So called “trapped cash” refers to cash and liquid investments held by subsidiaries located outside the United States. Firms with overseas subsidiaries located in jurisdictions where the tax rate is lower than the rates in the US can reduce taxes by attributing profits to foreign locales. But bringing the cash back to the US subjects the funds to the US corporate tax rate, less credit for foreign income taxes paid.

The House Ways and …