Corporate Finance Commons^™

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 …

Corporate Revenue Miscalculations & The Impact On Stakeholders, Karen Cascini, Alan L. Delfavero, Ryan Bezner

WCBT Faculty Publications

Corporate earnings restatements are regarded as one of the most significant issues in accounting today. While there are various factors that can influence profitability, revenue is the key contributor to a business’ net income. During the 2000s, a multitude of domestic and multinational corporations faced significant issues with their revenue recognition practices. Although the investing public might regard any revenue restatement as laden with possible fraud, this is not always the case. Multinational firms face dual accounting systems, such as U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Currently, similarities and differences between the accounting systems …

Ethical Implications Of Friendly Takeovers: A Financial Manager’S Story, Barbara Tarasovich

WCBT Faculty Publications

Case study in which Bernadette was heading the corporate acquisitions team. It was important for Bernadette to be certain that there was no unethical behavior on the part of the project and management team responsible for the acquisition and integration of these companies. The pressures to achieve synergies can often result in people problems, cultural value, and ethical differences that impede the smooth integration of companies. For each acquisition, Bernadette needed to ensure that the newly acquired assets were secure. In addition, she had to ensure that the acquired companies were not employing inappropriate accounting practices in order to inflate …

Corporate Revenue Miscalculations & The Impact On Stakeholders, Karen Cascini, Alan Delfavero, Ryan Bezner

WCBT Faculty Publications

Corporate earnings restatements are regarded as one of the most significant issues in accounting today. While there are various factors that can influence corporate earnings, revenue is the key contributor to a business’ net income. During the 2000s, a multitude of domestic and multinational corporations faced significant issues with their revenue recognition practices. Although the investing public might regard any revenue restatement as laden with possible fraud, this is not always the case. Multinational firms face dual accounting systems, such as U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Consequently, similarities and differences among accounting systems, …

Teaching Note On The Treatment Of Noncontrolling Interests In Financial Analysis, Cost Of Capital And Valuation: A Case Study Of Verizon Communications, Bridget Lyons

WCBT Faculty Publications

A noncontrolling interest (NCI) arises when a firm fully consolidates subsidiaries that are not wholly owned by the parent. The existence of a noncontrolling interest complicates financial analysis and valuation. Failure to appropriately consider the NCI may lead to errors in equity valuation and share price since the NCI impacts equity value and implied share price of the parent firm. Return on equity calculations must be carefully constructed as there are several net income and equity values reported. Finally, the NCI can impact the weighted average cost of capital. Verizon Communications was selected as a case study based on the …

Credit Risk Dynamics In Response To Changes In The Federal Funds Target: The Implication For Firm Short-Term Debt, Kwamie Dunbar, Abu S. Amin

WCBT Faculty Publications

The recent credit crisis has raised a number of interesting questions regarding the role of the Federal Reserve Bank and the effectiveness of its expected and unexpected interventions in financial markets, especiallyduring the crisis, given its mandate. This paper reviews and evaluates the impact of expected and unexpected changes in the federal funds rate target on credit risk premia. The paper's main innovation is the use of an ACH-VAR (autoregressive conditional hazard VAR) model to generate the Fed's expected and unexpected monetary policy shocks which are then used to determine the effects of a Federal Reserve policy change on counterparty …

Integrating A New Business Into The Financial Planning Process, Barbara M. Tarasovich

WCBT Faculty Publications

A new Controller in this case was recently hired by Unilever, a global 200 consumer products organization, to integrate a newly acquired business into Unilever’s financial planning process. The newly acquired organization was a publically held company and had its own existing financial processes and procedures. Financial planning and reporting are major company activities and finance and accounting professionals are expected to “get it right.” The purpose of this case study is to get students to think about the difficulties and challenges of revamping existing financial processes and procedures and alert them to areas where other financial professionals have encountered …

Persistence And Survival In Entrepreneurship: The Case Of The Wave Energy Conversion Corporation Of America, Giles Jackson, Randy Boxx

New England Journal of Entrepreneurship

Many entrepreneurial firms risk falling into a cash flow “Valley of Death”—the stage of a young firm’s life when seed funding is running dry but the firm has yet to secure sufficient additional funding to carry it through to product commercialization.This is particularly true in the nascent cleantech sector, where investments are often complex and capital intensive. Drawing on an in-depth interview with seasoned entrepreneur Brian Cunningham, CEO of the Wave Energy Conversion Corporation of America, this article explores the role of persistence in entrepreneurship, distinguishing between “calculated” and “blind” persistence.

Forecasting And Stress-Testing The Risk-Based Capital Requirements For Revolving Retail Exposures, Kwamie Dunbar

WCBT Working Papers

This paper presents a tractable and empirically sound technique for generating stressed probabilities of default (PDs) which are then used to derive loss rates for the provisioning of a bank’s risk-based capital. This work is in response to the recent regulatory findings attributed to the Supervisory Capital Assessment Program (SCAP) stress tests of 2009 which revealed weaknesses in the existing regulatory and economic capital approaches. The SCAP projected losses of approximately $82.4 Billion in banks’ credit card portfolios for 2010, highlighting the need for better forecasting and stress testing of revolving retail exposures.

This study proposes a timely model that …

The Sarbanes Oxley Act's Contribution To Curtailing Corporate Bribery, Karen Cascini, Alan Delfavero, Mario Mililli

WCBT Faculty Publications

In the wake of corporate scandals occurring in the early 2000s, a need for stricter regulation was deemed necessary by the investors of U.S. public companies. In 2002, the Sarbanes-Oxley Act (SoX) was created. Accordingly, under the rules of SoX, U.S. corporations were faced with increased oversight and also needed to substantially improve their internal controls. As companies began to scrutinize their internal affairs more closely, some businesses detected other forms of criminal activity occurring internally, such as bribery. Those companies and individuals found to have committed bribery have violated the Foreign Corrupt Practices Act of 1977 (FCPA). Throughout this …

A Network Based Theory Of Foreign Market Entry Mode And Post-Entry Performance, Jing'an Tang, Ben S. Liu

WCBT Faculty Publications

Foreign market entry through equity investment has been extensively studied and various theoretical lenses have been used. Most previous research also focuses attention on either the entry mode selection decision or the topic of post-entry performance, but rarely both. We build on existing research by developing a model of foreign market entry and post-entry performance that uses network theory and organizational ecology to provide a fuller explanation of this complex and critical multinational enterprise strategic behaviour. Four pairs of total eight propositions were developed and justified based on extent literature and sound logical reasoning. By focusing on both entry mode …

Corporate Parents, Initial Legitimacy, And Resource Acquisition In Small And Medium Firms: An Empirical Examination, Gregory Murphy, Neil M. Tocher

New England Journal of Entrepreneurship

Small and medium enterprises (SMEs) commonly struggle to acquire needed financial, human, and technological resources. The above being stated, recent scholarly research argues that SMEs that are able to successfully navigate the legitimacy threshold are better able to gather the resources they need to survive and grow. This article provides an empirical test of that claim by examining whether the presence of a corporate parent positively influences SME resource acquisition. Results of the study show that SMEs with corporate parents, when compared to like-sized independent SMEs, have higher credit scores, have more complete management teams, use more computers, and are …

Rivera Custom Cabinetry: Financial Statement Analysis Using Excel, Benoit Boyer, Bridget Lyons

WCBT Faculty Publications

This case illustrates the impact of various business transactions on a firm’s financial statements. The case objective is to highlight how business transactions affect financial statements and to illustrate the links between financial statements and key ratios. The case was developed and piloted as a final project in an introductory accounting class and as an accounting review in a corporate finance course. In each part of the case, students are asked to show the impact of a business transaction on the firm’s balance sheet and income statement. The cash flow statement and financial ratios calculate automatically. Part 1 of the …

The Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting, Karen Cascini, Alan Delfavero

WCBT Faculty Publications

The accounting industry is in a state of continuous change. In the United States, the historical cost principle has traditionally been the foundation of accounting. Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities. However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle. Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value …