Finance and Financial Management Commons^™

Ryanair Holdings, Nicole Blake Tran, Jamie Perkinson, Caron Sinnenberg, Lionel Tarcia, Jeffrey S. Harrison

Robins Case Network

The crass Irish CEO of Ryanair presides over a modern miracle. Ryanair, with its ridiculously low prices and poor reputation for service, has become one of Europe’s largest and most successful airlines. Employees pay for their own training, flights are cancelled if they won’t be full enough to be profitable, and the concept of “no frills” is heartily embraced. However, some new competitors have come on the scene, and Ryanair may be forced to improve its service and reputation to keep up.

Investcorp, Jeremy Kappes, Haynes King, Jamie Mattioli, Prasad Vaze, Timothy Kyle Benusa, Sam Gottwald, Thomas Arnold, Jeffrey S. Harrison

Robins Case Network

Investcorp is a publicly traded global alternative asset management company headquartered in Manama, Bahrain. It manages a huge hedge fund, along with other assets. The case describes Investcorp’s history, investment strategies, and major competitors. The company has a highly aggressive growth strategy, but it is also facing the retirement of its CEO.

Salesforce.Com, Sean Bielawski, Charles Kempe, Austin Mcdaniel, Adam Tate, Jeffrey S. Harrison

Robins Case Network

Innovation! One of the most innovative companies, and also one of the best companies to work for, is losing money. This case traces the meteoric rise of the number one customer relationship management service provider against huge rivals such as Microsoft and Oracle. Detail regarding their highly innovative Scrum system is provided, along with detail regarding their marketing approach. How can Salesforce.com regain profitability while continuing to grow in a highly competitive industry?

One-Step Bond Pricing, Tom Arnold

Finance Faculty Publications

This paper re-works the traditional formula for pricing a bond with a present value annuity and a single discounted cash flow into a "one-step' bond pricing formula. The new derivation allows for a clear presentation of the relationship between a bond's coupon yield and its yield to maturity and a quick means for pricing a bond.

A Model To Support It Infrastructure Planning And The Allocation Of It Governance Authority, Steven M. Thompson, Peter Ekman, Daniel Selby, Jonathan W. Whitaker

Management Faculty Publications

Information technology (IT) requires a significant investment, involving up to 10.5% of revenue for some firms. Managers responsible for aligning IT investments with their firm's strategy seek to minimize technology costs, while ensuring that the IT infrastructure can accommodate increasing utilization, new software applications, and modifications to existing software applications. It becomes more challenging to align IT infrastructure and IT investments with firm strategy when firms operate in multiple geographic markets, because the firm faces different competitive positions and unique challenges in each market.

We discussed these challenges with IT executives at four Forbes Global 2000 firms headquartered in Northern …

How Large Are The Benefits Of Emerging Market Equities?, C. Mitchell Conover, Gerald R. Jensen, Robert R. Johnson

Finance Faculty Publications

We perform a comprehensive evaluation of the benefits of emerging market equities by extending previous research in four fundamental ways. The contribution of this study is that it 1) evaluates a more complete sample; 2) examines performance measures that account for asymmetric return distributions; 3) separates emerging markets by region; and 4) considers the influence that the market environment has on the benefits of emerging market investments. Our results suggest that previous research has understated the benefits associated with investing in emerging markets. We find that broad emerging market indices have relatively low downside risk, which results in Sortino ratios …

Releasing Information In Xbrl: Does It Improve Information Asymmetry For Early U.S. Adopters?, Marshall A. Geiger, David S. North, Daniel D. Selby

Accounting Faculty Publications

Information released in XBRL is intended to improve the quality and accessibility of SEC filings, leading to less information asymmetry in the equity market. Research findings on the effects of XBRL on information asymmetry in the US., however, are mixed. Kim et al. (2012) reports that XBRL reduces information asymmetry while Blankespoor et al. (2012) reports that XBRL increases information asymmetry. In contrast to these prior studies, we report that the answer as to whether XBRL affects information asymmetry is matter of firm size. In this study we examine shifts in two measures of information asymmetry for early adopters of …

The Effect Of State Corporate Income Tax Rate Cuts On Job Creation, Xiaobing Shuai, Christine Chmura

School of Professional and Continuing Studies Faculty Publications

This paper compares the employment growth of states that enacted corporate income tax rate cuts in the past 23 years with those making no changes. Overall employment comparisons from 1990 to 2012 suggest that a reduction in the corporate income tax rate is associated with faster job creation. The states that cut corporate income tax rates started with slower employment growth than the states that made no changes. However, the growth gaps between the two groups of states disappeared in about five years after the tax cuts were made. Regression results confirm the observation that lower corporate tax rates have …

An Easy Method To Introduce Mirr Into Introductory Finance Classes, Tom Arnold, Terry D. Nixon

Finance Faculty Publications

In this paper, the modified internal rate of return (MIRR) is demonstrated to be a holding period return calculation that is not dependent on knowing a project's internal rate of return (IRR) nor the process for finding the IRR. Further, the MIRR calculation can be directly connected to the calculation of the profitability index (PI) and the net present value (NPV) if project cash flows are discounted using a firm's weighted average cost of capital. This connection to the PI and NPV allows for an intuitively appealing presentation of the MIRR calculation.

Sony Corporation: Reinventing Itself To Rediscover The Technological Edge, Chatterji Dheeman, Hayes Schildwachter, Jeffrey S. Harrison

Robins Case Network

Sony is a global conglomerate with a wide variety of businesses in its portfolio, but a heavy emphasis on electronics and related products. Due to a number of setbacks such as the earthquake in Japan and a weak global economy, the firm has experienced sales declines and negative earnings in recent years. In early 2012 the company announced a major restructuring and new strategy to regain its edge. However, Sony has an uphill battle.

Do External Financial Statement Auditors Sufficiently Adjust Their Audit Plans For Automated-Control Deficiencies?, Daniel D. Selby

Accounting Faculty Publications

Shelton (1999) found that experience, based on rank, mitigates the influence of less-than diagnostic evidence in going concern assessments. But, numerous studies (e.g., Abdolmohammadi and Wright 1987) question the external validity of studies that use rank to determine experience. I suspect that specialized domain experience is a better measure because all auditor ranks do not have procedural knowledge in going concern decisions but many auditors may have procedural knowledge in audit planning (AICPA 2008) and automated controls (Hunton et al. 2004). I investigate whether external financial statement auditors (henceforth auditors) sufficiently adjust their audit plans for material-automated-control-weaknesses. I determine the …

Extending The Arnold-Eisemann Algorithm For Pro Forma Circularity With A Specific Mix Of New Debt And New Equity, Tom Arnold

Finance Faculty Publications

Arnold and Eisemann (2008) developed an algorithm that calculates the value of long-term debt when long-term debt is considered the "plug" or "slack" term within a pro forma analysis. In this paper, the algorithm is presented in a slightly different form and adjusted for the use of a target mix of new debt and new stock.

Using Real World Applications To Policy And Everyday Life To Teach Money And Banking, Dean D. Croushore

Economics Faculty Publications

Teaching a course in money and banking can be simultaneously challenging and easy. It is challenging because teaching the course well often requires a fair amount of institutional knowledge, which an instructor may not have acquired in graduate school. However, it is easy because the course can be geared to the coverage of current events, so economic data releases and the state of the economy help the instructor develop a new course every semester and produce an interesting lecture every day.

There are many different ways to teach a course on money and banking. At most schools, the only prerequisite …

Maintaining A Flexible Payout Policy In A Mature Industry: The Case Of Crown Cork And Seal In The Connelly Era, James Ang, Tom Arnold, C. Mitchell Conover, Carol Lancaster

Finance Faculty Publications

As related in these pages, the history of Crown Cork and Seal (hereafter known as “Crown”) provides us with a case of a company that stopped paying dividends but establish a disciplined share repurchase policy and did so for all the right reasons. Under family ownership in the 1950s, Crown lost market share and was on the brink of bankruptcy when its largest shareholder, John Connelly, was elected chairman of the board in 1957. Under John Connelly’s leadership, the firm restructured its operations and began a payout policy based solely on stock repurchases. During the Connelly era, the firm did …

Real Options Analysis And The Assumptions Of Corporate Finance: A Non-Technical Review, Tom Arnold, Richard L. Shockley Jr.

Finance Faculty Publications

This paper provides a non-technical presentation of the theoretical foundations of corporate financial decision making and the net present value (NPV) rule. Our objective is to show that the concepts of value and value creation arise from a single, unified framework that is firmly rooted in neoclassical microeconomic theory. This, in turn, allow us to demonstrate that the corporate valuation approach generically known as real options analysis is perfectly justifiable - without further qualification - in any situation when investors want managers to maximize NPV.

Paul M. Klekner (B), Roger R. Schnorbus

Robins School of Business White Paper Series, 1980-2022

This is a fictitious case study, including the name of the restaurant and the people involved.

Paul Klekner graduated first in his class from the Culinary Institute of America (CIA) in 1998; his fellow students named him the chef most likely to succeed in the future. After graduation, he and his wife, Sarah, moved back to his home in Richmond, Virginia where he was employed as a chef at several restaurants including Bottega and Old Original Bookbinders. In 2003, he decided to open his own restaurant, Rogerios, in the Tobacco Row section of Richmond. With an inheritance of $300,000 he …

The Timeliness Of Accounting Disclosures In International Security Markets, C. Mitchell Conover, Robert E. Miller, Andrew Szakmary

Finance Faculty Publications

In this study, we examine financial reporting lags, the incidence of late filing, and the relationship between reporting lags, firm performance and the degree of capital market scrutiny. We use a large sample of firms spanning 22 countries over an eleven-year period. A focal point of our analysis is whether the incidence of late filing, and the relations between reporting days and other variables, differ systematically between common and code law countries. Relative to U.S. firms, we report that the time taken and allowed for filing is usually longer in other countries and that the statutory requirement is more frequently …

Debt Financing Does Not Create Circularity Within Pro Forma Analysis, Tom Arnold, Peter C. Eisemann

Finance Faculty Publications

Using debt to finance a firm's external financing need within a pro forma analysis can lead to "circularity" when finding the appropriate value for debt. The circularity incorrectly implies that there is no direct solution for finding the value of debt. In this paper, a direct solution for the value of debt is found; thereby showing that circularity need not exist. Further, the technique is demonstrated to be more accurate than the "additional funds needed" (AFN) approach featured in many texts.

An Examination Of Value Line’S Long-Term Projection, Andrew Szakmary, C. Mitchell Conover, Carol Lancaster

Finance Faculty Publications

Unlike previous papers, which have focused on the timeliness ranks, we examine Value Line’s 3–5 year projections for stock returns, earnings, sales and related measures. We find that Value Line’s stock return and earnings forecasts exhibit large positive bias, although their sales predictions do not. For stock returns, Value Line’s projections lack predictive power; for other variables predictive power may exist to some degree. Our findings suggest the spectacular past performance of the timeliness indicator reflects either close alignment with other known anomalies or data mining, and that investors and researchers should use Value Line’s long-term projections with caution.

Duration Measures For Corporate Project Valuation, Tom Arnold, David S. North

Finance Faculty Publications

Sensitivity analysis is a very common exercise performed with the forecasting of project cash flows. In this paper, a duration-type measure is generated that provides a single number for the assessment of project cash flows relative to changes in the discount rate (or adjusted for changes in a particular cash flow model parameter). The calculation is no more difficult than the duration measures that already exist for bonds. Yet, the calculation provides valuable insight that many times is lost when performing sensitivity analysis. Further, at a minimum, the measure provides a gauge for the consequences of mis-specifiying the discount rate …

A Simplified Approach To Understanding The Kalman Filter Technique, Tom Arnold, Mark J. Bertus, Jonathan Godbey

Finance Faculty Publications

The Kalman filter is a time series estimation algorithm that is applied extensively in the field of engineering and recently (relative to engineering) in the field of finance and economics. However, presentations of the technique are somewhat intimidating despite the relative ease of generating the algorithm. This article presents the Kalman filter in a simplified manner and produces an example of an application of the algorithm in Excel. This scaled-down version of the Kalman filter can be introduced in the (advanced) undergraduate classroom as well as the graduate classroom.

An International Comparison Of Student Perceptions Of Earnings Management: Evidence Of Effects Of National Origin Between Mexico And The United States, Marshall A. Geiger, Carmen Quirvan, Alejandro Hazera

Accounting Faculty Publications

Manipulating reported earnings is a temptation faced by accountants and financial professionals around the world. Manipulating, or “managing,” one’s accounting earnings takes a variety of forms and includes not only the avoidance of prescribed accounting rules but also the practice of selectively choosing accounting estimates or timing operating decisions to move reported earnings toward a desired goal. Prior research reveals wide disagreement regarding the perceived ethical acceptability of this practice. This study investigates whether national origin influences perceptions of earnings management. Participants from the United States and Mexico evaluated thirteen vignettes describing various earnings management practices (Merchant and Rockness 1994). …

Brink's Entry Into China 2007, Roger R. Schnorbus, Littleton M. Maxwell

Robins School of Business White Paper Series, 1980-2022

This case was prepared from various referenced sources and was developed solely for classroom discussion; the case is not intended to serve as an endorsement, source of primary data or an illustration of either effective or ineffective handling of a business situation.

Ron Rokosz, the President of Brink's International was both pleased and distressed as he reviewed the financial results of International operations for fiscal 2006. Revenue had increased by 14% to $1,568.6M, driven by strong gains in both EMEA (Europe, Middle East, Africa) and LA (Latin America). In addition, operating profit in International was up by 68%. (Exhibit 1) …

A Simple Model Of Interest Rate Term Structure, Tom Arnold

Finance Faculty Publications

Without much technical expertise, a yield curve model is presented that is very dynamic and can be easily programmed in Excel for classroom presentation or for assignments. By using the output of the model to have students find embedded rates within the yield curve, a discussion of how bond traders speculate on interest rates emerges very easily. Further, the model output can also be used for numerous exercises including the pricing of strips or for evaluating the positions of an entire bond portfolio. Within the exercises, the dynamic nature of the model can be exploited to provide sensitivity analysis.

The Effectiveness Of Insider Trading Regulation: International Evidence, Art Durnev, Amrita S. Nain

Finance Faculty Publications

There is a long standing debate in the finance and law literatures about the need for insider trading regulation. Some scholars and practitioners argue that insider trading restrictions should be revoked because insider trading allows private information to be quickly incorporated into stock prices, thereby leading to more informationally efficient stock prices (Carlton and Fischel (1983); Dye (1984)). For example, Milton Friedman, laureate of the Nobel Memorial Prize in Economics, said: “You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public …

Implied Binomial Trees In Excel Without Vba, Tom Arnold, Timothy Falcon Crack, Adam Schwartz

Finance Faculty Publications

We implement a Rubinstein-type (1994) implied binomial tree using an Excel spreadsheet, but without using VBA (Visual Basic Application). We demonstrate both the optimization needed to generate implied ending risk-neutral probabilities from a set of actual option prices and the backwards recursion needed to solve for the entire implied tree. By using only standard Excel spreadsheet functions, and not resorting to VBA, this complicated option pricing technique is now immediately transparent to academics, students, and practitioners alike. The intuition gained from our simple spreadsheet can be applied directly to the estimation of more complicated implied trees using more advanced software. …

The Relationship Between The Value Effect And Industry Affiliation, John C. Banko, C. Mitchell Conover, Gerald R. Jensen

Finance Faculty Publications

We examine industry affiliation and the relationship between stock returns and book‐to‐market equity (the value effect). The robustness of the value effect is supported as a significant value premium is shown to exist in 15 of 21 industries. Both industry and firm‐level value effects are identified; however, the firm‐level effect is the more prominent of the two. Further, the value effect is shown to be strongest in value industries and weakest in growth industries. Finally, we show evidence consistent with the claim that the value premium is due to investors requiring higher returns from firms in distressed conditions.

Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon

Finance Faculty Publications

The subject of capital budgeting generally encompasses a significant percentage of any beginning finance course with net present value (NPV) often receiving the most attention. Even after this substantial time allotment, critical assumptions and comparisons of the different techniques (such as payback period, discounted payback period, NPV and IRR) are frequently glossed over due to time constraints. Consequently, the goal of this paper is to present these non-NPV techniques in a manner that allows the beginning finance student to expeditiously see the intuition, inherent assumptions, and any connection with the more popular NPV calculation. A small portion of this paper …

Applying Altman's Z-Score In The Classroom, Tom Arnold, John H. Earl Jr.

Finance Faculty Publications

Altman's Z-score is introduced in an Excel framework to produce a quick calculation of the Z-score with actual financial data available through the Internet. The lesson plan developed is easily introduced with topics covering ratio analysis, financial risk, bond rating changes, and bankruptcy. Given the wide use of the Z-score in practice to evaluate credit risk (or bankruptcy risk), the lesson plan produces a skill set that is very marketable.

Getting More Out Of Two Asset Portfolios, Tom Arnold, Terry D. Nixon

Finance Faculty Publications

Two-asset portfolio mathematics is a fixture in many introductory finance and investment courses. However, the actual development of the efficient frontier and capital market line are generally left to a heuristic discussion with diagrams. In this article, the mathematics for calculating these attributes of two-asset portfolios are introduced in a framework intended for the undergraduate classroom.