Finance and Financial Management Commons^™

Two Essays On The Effect Of Macroeconomic News On The Stock Market, Ajay Kongera

Theses and Dissertations in Business Administration

This dissertation uses macroeconomic variables. In the first essay I use macroeconomic variables to determine if these variables affect the market's returns and volatilities, and in the second essay I examine whether the 11-month returns can be explained by these variables.

Using macroeconomic variables and forecasts of these variables on a quarterly basis from the Survey of Professional Forecasters, I first develop macroeconomic surprise variables. The macroeconomic surprise variables are then modified by dispersion of forecasts to adjust for surprises from uncertainty. Dispersion adjusted forecast surprises have not been used extensively in the literature. I also use a monetary shock …

Cross-Listing Premium Or Market Timing, Moustafa M. Abu El Fadl

Theses and Dissertations in Business Administration

Previous research documented that soon after companies cross-list; they achieve significant negative post-listing abnormal returns (the post-listing anomaly). The evidence presented in this study shows that companies cross-list based on either a market-timing consideration or a genuine performance consideration. The host market condition is significant in explaining both the sign and the significance of post-listing abnormal returns. On the one hand, the evidence reveals, companies that cross-list in a host market while that host market is "positive" and achieve a significant negative post-listing abnormal returns, those companies time the market, and the post-listing anomaly is explained in the context of …

The Behavior And Choices Of Serial Bidders In M&A Transactions: A Prospect Theory Approach, Ahmed Essam El-Din El-Bakry

Theses and Dissertations in Business Administration

This paper investigates the impact of previous losses incurred by U.S serial bidders on their M&A strategic choices and premiums paid to acquire targets. The Hubris and Overconfidence theories suggest that managers tend to overpay as a result of exaggerating their ability to extract value and manage post-acquisition integration process between the acquiring firm and its target. Managerial overconfidence, which is signaled by conducting several acquisitions within a short time period or by other manager-specific investment attributes, has been shown to contribute to increasing premiums in M&A transactions and subsequent poor post-acquisition performance.

Experimental findings in the area of psychology …

What Drives U.S. Banking Mergers: Misvaluation, Gambling Or Envy?, Wenjia Zhang

Theses and Dissertations in Business Administration

The thesis consists of three essays that examine whether U.S. bank mergers are motivated by market inefficiency and managerial psychology biases. Essay I investigates equity misvaluation as a possible driver for United States banking mergers from the perspective of market inefficiency, and finds that bidders tend to use overvalued equity to buy undervalued targets. Essay II, motivated by the cumulative prospect theory of Tversky and Kahneman (1992), tests whether managerial gambling attitudes are linked with lottery characteristics of target banks (i.e., high skewness, high volatility, and low price). The evidence shows that banking acquisitions are influenced by gambling attitudes rooted …

Corporate Governance And The 2008-09 Financial Crisis, Martin Conyon, William Q. Judge, Michael Useem

Management Faculty Publications

The financial crisis of the late 2000s resulted in enormous costs to the economies of many countries and the fortunes of millions of families, and it challenged a host of our conceptions and theories of corporate governance. The governing boards of many financial-services firms seemed unable to prevent the risky and ill-fated decisions that jeopardized their firms, devastated their investors, and helped precipitate a financial meltdown that morphed into global recession. Company boards were also directly responsible through their compensation committees and consultant advisors for a sharp rise in executive compensation during the 2000s that may have contributed to undue …

Privatization In Theory And Practice: The Issues To Be Considered, Berhanu Mengistu, Yacob Hail-Mariam

School of Public Service Faculty Publications

The concept of privatization is fairly recent. This paper examines the different perspectives of the privatization literature, analyzes and assesses the proposed advantages and disadvantages of privatization as a strategy for providing public goods. The paper concludes by instilling a conceptual framework that should be considered before undertaking a privatization policy.

Did Board Configuration Matter? The Case Of Us Subprime Lenders, Maureen I. Muller-Kahle, Krista B. Lewellyn

Management Faculty Publications

Research Question/Issue: The origins of the global financial crisis have been attributed to the combination of a housing price bubble and innovative financial instruments, as well as the lack of restraint by corporate executives and boards to engage in excessive risk-taking. The rise in subprime lending between 1997 and 2005 played a crucial role in inflating the housing price bubble. We take a unique dataset of US financial institutions heavily engaged in subprime lending and ask the following research question: Did board configuration play a role in determining whether a financial institution specialized in subprime lending?

Research Findings/Insights: We use …

Analyst Following, Capital Market Pressure, And Real Activity Manipulation, Melanie Maureen Rose

Theses and Dissertations in Business Administration

I investigate the impact of analyst following on real activity manipulation. Because analysts follow firms and serve as information intermediaries, analyst following should reduce earnings management through real activity manipulation. However, given the negative ramifications of missing analysts' earnings forecasts, the fact that analysts are watching and issuing forecasts might actually create capital market pressures as managers try to ensure that they do not miss earnings targets. Because managers can engage in earnings management through real activities manipulation and accrual manipulation, I control for accrual manipulation in examining the relationship between analyst following and real activity manipulation. I find that …

Delayed-Bang Approach Towards More Sustainable Critical Infrastructure Risk Management, C. Ariel Pinto, Michael K. Mcshane, Abhishek S. Pathak

Finance Faculty Publications

This article describes the Delayed Bang Approach for determining the value of risk management alternatives in critical infrastructure security. The discussion includes (1) the need for sustainable risk management (2) the importance of time valuation in evaluating competing loss prevention and loss reduction alternatives, (3) the convergence of deterministic engineering economics, survivability analysis, and probabilistic analysis, and (4) hypothetical examples of the Delayed-Bang Approach and significance towards more sustainable risk management.

Two Essays On Investor Sentiment And The Profitability Of Contrarian And Momentum Strategies, Changmei Zhang

Theses and Dissertations in Business Administration

This dissertation, by employing different trading strategies, addresses the trading profitability issue in a broad scope of different markets.

In the equity market, I construct a group of BUY-SELL portfolios based on prior stock returns, and find that contrarian and momentum strategies are both significantly profitable. Investor sentiment, in addition to firm-specific risks, provides behavioral explanations to the profitability. Three popular sentiment measures are used for the purpose of study: two reduced-formed sentiment indexes that are constructed by Baker and Wurgler (2006) and the survey-based University of Michigan Consumer Sentiment Index. Several interesting findings are revealed: (1) extreme sentiment levels …

A Re-Examination Of Stock Repurchase In Usa, Hua Yang

Theses and Dissertations in Business Administration

Since the adoption of U.S. Securities and Exchange Commission (SEC) Rule 10b-18 Safe Harbor for Issuer Repurchases in 1982, stock repurchases have been growing explosively. Extant literature has shed some light on the motivation behind companies' repurchase activities. The most popular beliefs include signaling undervaluation (Dann 1981, Vermaele 1981, Comment and Jarrell 1991), reducing free cash flow (Guay and Harford 2000, Jagannathan, Stephens and Weisbach 2000, Grullon and Michaely 2004), raising leverage ratio (Hovakimian, Opler and Titman 2001) and increasing earnings (Bens, Nagar, Skinner and Wong 2003).

Motivated by Stephens and Weisbach's (1998) research which found that companies on average …

Three Essays On Cross-Listing, Liu Wang

Theses and Dissertations in Business Administration

This dissertation examines the role of cross-listing in shaping corporate earnings quality, stock price informativeness, and firm valuation, as well as its impact on a listing firm's home country information asymmetry and stock misvaluation.

The first essay addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle. In contrast with the widespread belief that domestic investors are better informed than foreign investors, this study indicates that foreign investors actually possess more value-relevant, firm-specific information in an emerging market such as China, where information transparency and investor protection are relatively weak. …

Risk And System-Of-Systems: Toward A Unified Concept, C. Ariel Pinto, Michael K. Mcshane, Rani Kady

Engineering Management & Systems Engineering Faculty Publications

The scope of this paper is the survey of both fundamental and most recent publications in system-of-systems, business and insurance, as well as risk analysis, modeling, and management for the purpose of better describing the concept of risk in recognition of emergence and complexity which characterizes many systems within the concern of engineering and business managers. The ultimate goal is to provide engineering and business managers the necessary perspective on the concept of risk and in its management for the next generation of sustainable systems - including various descriptions of risk and discussion of the relevance of properties of system-of-systems …

Product Market Competition And Corporate Mergers And Acquisitions, Yen-Chih Liu

Theses and Dissertations in Business Administration

Conventional models assume competition improves corporate efficiency as firms strive to outperform competitors. In the context of agency models, the link between competition and managerial behavior becomes fuzzy. Hart (1983) and Schmidt (1997) posit that competition reduces managerial slack. Scharfstein (1988) argues that competition might increase managerial shirking. Recent studies on the relation between managerial compensation and competition further document conflicting evidence. In this study, I examine the effect of product market competition on corporate mergers and acquisitions. My initial results suggest that the definition of competition is critical in evaluating corporate mergers and acquisitions. Using three new dimensions (product …

Risky Asset Substitution In The Insurance Industry: An Historical Example, Brenda Wells, Karen Epermanis, Larry A. Cox, Michael Mcshane

Finance Faculty Publications

In the 1980s, life insurers sold guaranteed investment contracts (GICs) to pension plan sponsors, then backed these contracts with portfolios heavily weighted with higher risk assets such as common stocks and junk bonds. Ultimately this caused considerable loss, and history has repeated itself in many respects in recent years via holdings of equities and mortgage-backed securities. We evaluate the risky asset substitution in the life insurance industry from an historical perspective to determine if organizational form or other factors might be rationale for managerial decisions to engage in asset substitution. We find evidence that stock insurer managers are more likely …

Asian Corporate Governance Or Corporate Governance In Asia?, Shaomin Li, Anil Nair

Management Faculty Publications

Corporate governance has become an important issue for Chinese and Indian firms as they increasingly interact with regulators and investors from developed markets. For instance, tapping into global capital markets to raise funds to finance their domestic and international growth requires firms from China and India to demonstrate strong corporate governance credentials, so that investors do not discount their stock (LaPorta, Lopez-de-Silanes, Shleifer, & Vishny, 2000). The swift action of Chinese and Indian authorities in response to recent corporate scandals – such as the one at Satyam Computers – reveals that even governments in emerging countries such as China and …

Performance Of Funds Of Hedge Funds, Hung Duong

Theses and Dissertations in Business Administration

The studies of hedge fund performance are hindered by the lack of quality returns data and the complicated nature of hedge fund returns. This study contributes to the literature in three ways. First, I reinvestigate the performance of hedge funds from different aspects. Second, I develop a new framework to evaluate fund of hedge funds managers' skills. Finally, I exam the performance persistence of funds of hedge funds by using various performance measures.

In the first study, I find that the annual survivorship and backfilled biases for funds of hedge funds are 0.66% and 0.21%, respectively, during the period 1994-2004. …

Ex Post Valuation Correction And Motives Of Merger And Acquisition Decisions, Hien T. Nguyen

Theses and Dissertations in Business Administration

This study seeks to decipher the motives of mergers and acquisitions and identify the source of value creation or destruction. The existing literature on corporate mergers and acquisitions generally agrees on four primary motives of merger and acquisition decisions: (1) market timing, (2) response to industry shocks, (3) agency cost and hubris, and (4) synergy. In studying the motives behind acquisition decisions, prior studies have used incomparable methodologies and measures, which often lead to inconclusive debates. In this study, we address the possibility that there could be multiple motives behind a merger. Instead of using a multitude of methodologies to …

Two Essays On Ipo Earnings Management, Yong Sun

Theses and Dissertations in Business Administration

This dissertation includes two essays that study initial public offerings (IPO) earnings management. The first essay examines the underwriter's certification and monitoring roles in IPO earnings management; the second essay explores the relation between IPO earnings management and post-IPO institutional ownership.

In the first essay, we investigate the certification role played by underwriters. We hypothesize that there is a negative relation between IPO earnings management and underwriter reputation and that there is a positive relation between underwriter reputation and firm operating performance. In addition, underwriters continue providing monitoring to the firms they take public. Using a sample of IPOs, we …

Costly Arbitrage And The Lead-Lag Structure Between Value And Glamour Stocks, Meng Li

Theses and Dissertations in Business Administration

Motivated by the findings of Lo and Mackinlay (1990) that size premium can be partially attributed to the lead-lag relation between the returns of large stocks and those of small stocks, in this thesis we hypothesize that a possible lead-lag structure between value and glamour returns can partially explain the value premium anomaly.

The thesis consists of three chapters. Chapter I documents a pronounced lead-lag structure between value and glamour stocks: the glamour stocks lead value stocks in terms of both mean returns and residual volatilities, suggesting that value stocks delay in price adjustment to new information. To further explore …

Real Estate Mutual Funds: A Style Analysis, Crystal Lin, Kenneth Yung

Finance Faculty Publications

We find that the characteristics of real estate related securities are different from those of the general common equities. To help investors understand better the products offered by real estate mutual funds, we develop style descriptors that are specifically created for real estate related securities. Among the universe of real estate securities, we find real estate funds tilt toward large stocks and favor growth moderately over value. Growth managers outperform value mangers in this sector by 1.51% to 2.30% per year. However, there is evidence of shifts in the investment style among the funds. Our results help investors in evaluating …

Two Essays On Corporate Spin-Offs, Yingchou Lin

Theses and Dissertations in Business Administration

This dissertation investigates two possible sources that contribute to the gains of corporate spin-offs. In the first essay, I investigate the relation between the value created by corporate spin-offs and the misvaluations of the parent firms and their spun-off divisions. I argue that spin-offs could create value even though the efficiency of the firm remains unchanged. Corporate spin-offs could be driven by the desire to correct the undervaluation of the parent firm or the spun-off unit. Thus, the gains of spin-offs should be highly correlated with the degree of misvaluation. By examining a 263 corporate spinoffs sample in the period …

Two Essays On Lead-Lag Patterns Between Trading Volume And Stock Return In China Stock Markets, Xiaotian Zhu

Theses and Dissertations in Business Administration

This dissertation systematically investigate the lead-lag relations between the trading volume and stock return patterns in China A share and B share markets through two streams of behavioral postulations. In the first part, we summarize all the potential lead-lag patterns between trading volume and stock returns and link them to the corresponding behavioral explanations. In particular, Lee and Swaminathan's (2000) Momentum Life Cycle theory best explains the strong negative relations between lagged trading volume and subsequent return in China A share market. The strong positive relations between lagged market return and subsequent trading volume found in both China's B share …

The Effect Of Survey-Based Sentiment Measures On The Predictability And Volatility Of Stock Returns Conditioned On The Payout Yield And Issue Yield, Darryl Philip Samsell

Theses and Dissertations in Business Administration

Survey-based sentiment indexes from the American Association of Individual Investors, Investors' Intelligence, and the Yale University International Center for Finance show strong in-sample monthly return predictability and are strong factors in explaining the cross-sectional variation in monthly returns and in explaining the excess volatility in returns beyond that explained by cash flow fundamentals proxied by the payout yield and the issue yield from Boudoukh, et al. (2007). These finding are robust to the use of numerous methods of sentiment variable computation. Sentiment is a more significant factor during the period from January 1997 to December 2005 when U.S. stock valuations …

Financing Port Dredging Costs: Taxes Versus User Fees, Wayne K. Talley

Economics Faculty Publications

The article examines the use of user fee and tax programs to finance the cost of port dredging. The article discusses the U.S. Water Resources Development Act, the Harbor Maintenance Trust Fund, the Harbor Maintenance Tax, which is an ad valorem tax on the cargo's value, the Omnibus Budget Reconciliation Act, articles from the General Agreement on Tariffs and Trade, national user fee program proposals by the former U.S. President Bill Clinton administration, Moriarity's Rule, and the Shapley Value Rule.

Divergent Opinions And Value Stock Performance, John A. Doukas

Finance Faculty Publications

Those who believe that capital markets—that is, markets for stocks and bonds—operate efficiently and asset prices fully reflect all publicly available information are engaged in an ongoing debate about the exact interpretation of the “value premium” with those who reject this view. Value premium refers to the superior returns generated by the purchase of value stocks relative to growth, or glamour, stocks. Rationalists, the group believing in market efficiency, argue that because value stocks are fundamentally riskier than growth stocks, the value premium is compensation for bearing risk. Behavioralists, the group arguing that market asset prices don’t reflect all publicly …

Overreaction, Seasonality And Relationship Among Middle East And North Africa National Stock Markets, Yaser A. Al-Kulaib

Theses and Dissertations in Business Administration

This dissertation examines overreaction, seasonality, and relationship among Middle East and North Africa (MENA) stock markets. The dissertation is organized in five chapters. The first chapter is introduction to the dissertation and its importance. The second chapter will discuss the MENA capital market developments in the last few years, examine the human and economic development for countries in MENA, and try to find similarities and differences between them. Then the discussion will shift to an overview of the GCC, Levant, and NA regions. Finally, there will be a discussion about economic reform and development in MENA capital markets.

Then, the …

The Effects Of Local And Global Risk Factors On Industry Stock Returns: Across Country Analysis, Mahdy Farag Elhossiny

Theses and Dissertations in Business Administration

This dissertation studies the local and global sources of risk and industries stock returns across national equity markets. We examine several local and global economic risk factors and ask whether and to what extent these risk factors can explain the variation in the industries' stock returns of five countries, namely Canada, Germany, Japan, the U.K., and the U.S. Specifically, the main objective of this dissertation is to find answers for three main questions: First, whether and to what extent do returns on local industries respond to changes in local macroeconomic risk factors? Second, whether and to what extent do returns …

Valuation Effects Of Earnings Restatements Due To Accounting Irregularities, Tan Xu

Theses and Dissertations in Business Administration

This dissertation studies three financial topics using earnings restatement data. In the first topic, we discriminate between the market efficiency hypothesis and the underreaction hypothesis by examining their predictions on the stock performance of restating firms in the post-announcement period. Three approaches are used, namely, the cumulative abnormal return (CAR), buy-and-hold abnormal return (BHAR), and calendar time portfolio approaches. Consistent with the market efficiency hypothesis, we do not find significant abnormal performance in the post-restatement period. In the second topic, we test the extrapolation model (LSV, 1994) by examining the relationship between stock price reaction to earnings restatement and the …

Essays On Currency Risk Management, Nehad Elsawaf

Theses and Dissertations in Business Administration

In recent years a growing number of corporations have committed considerable resources to risk management, indicating the potential for risk management to protect and increase firm value. One can argue that most prior attempts to directly link the value of the firm to its hedging strategies are rather scant. Moreover, several questions with regards to firms' risk management activities remain unanswered. This study consists of two essays dealing with a series of questions regarding corporate risk management in modern U.S. multinational corporations.

In the first essay we first, test the valuation effects of currency hedging policies of firms around extraordinary …