Finance and Financial Management Commons^™

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.

The Effect Of Long-Term Capital Gains And Dividend Tax Rate On The Performance Of Market Indexes Based On Market Capitalization, Jason Wheaton

Theses

Through recent political history there is a common theme about taxes that is presented often: That small businesses are affected differently than larger companies. Though in political parlance small business is different than a small cap company, studying the effects of taxes on small cap companies can help discern if taxation does affect companies differently based on size. The study of the literature provides a background of critical elements such as Gross Domestic Product (GDP), interest rates and inflation, as well as factors such as fiscal policy and informational uncertainty that have an effect on stock prices. Through regression analysis …

Fair Value Measurements, Nathan Hatch Cannon

2013

This dissertation consists of two empirical studies that investigate fair value measurement issues currently facing the accounting profession--one from the perspective of the auditor, and the other from the perspective of the financial statement user. The results of each study are described below.

This first study examines experienced auditors' descriptions of specific client experiences in which auditing fair value measurements (FVMs) was particularly challenging. Based on a field survey of high-level engagement team personnel from several large firms, we identify a number of key issues currently facing the profession in auditing FVMs. First, when asked about challenges faced in auditing …

Essays On Institutional Trading Behavior With Conflicts Of Interest And Information Sharing, Hyoseok Hwang

LSU Doctoral Dissertations

This dissertation explores a controversial issue of institutional trading behavior with conflicts of interest and information sharing. Using firms sued for alleged financial misreporting, the first essay examines whether analyst-affiliated institutions reduce the portfolio weights of sued firms prior to their analysts releasing the information through downgrade revisions – trading huddles. Empirical evidence is consistent with this behavior, particularly among the institutions with investment banking operations but without underwriting relationships with sued firms. Institutions with underwriting relationships only reduce portfolio weights significantly when their analysts are the first to provide downgrades during the class period, which is a proxy for …

The Impact Of Participatory Notes On The Indian Rupee Exchange Rate, Rohan Kothari

CMC Senior Theses

Since 1992, India has grown as a global player in the finance world. In spite of its success, India has not been able to rid itself of potentially harmful practices. One such practice is the issuing of Participatory Notes (PN) to foreign investors, so that they can anonymously purchase securities or derivatives listed on the Indian Stock Exchanges. This instrument came into public view when it accounted for approximately 50% of all foreign portfolio assets in India. Since then, the laws regarding PNs have evolved to become a more transparent version of the old rules. Although PN levels are not …

Expert: Reasons For Debt Partly Cultural, Aldemaro Romero Jr.

Publications and Research

No abstract provided.

Fair Value Of Liabilities: The Financial Economics Perspective, David F. Babbel, Jeremy Gold, Craig B. Merrill

Faculty Publications

In this paper we present the fundamental approaches of financial economics to valuation. Three methods are demonstrated by which financial economists account for risk. We illustrate how these methods relate to one another and how they can be applied in the valuation of risky corporate bonds, guaranteed investment contracts (GICs) with and without interest rate contingencies, and whole life insurance. Next, we discuss how these models treat orthogonal risks, such as the kind often covered by insurance contracts. Demand side and supply side diversification are treated, and liquidity risk is then considered. We conclude with a summary of the benefits …

Further Evidence On The Ability Of Fifo And Lifo Earnings To Predict Operating Cash Flows: An Industry Specific Analysis, Brock Murdoch, Bruce Dehning, Paul Krause

Accounting Faculty Articles and Research

The continuing convergence of U.S. GAAP with International Accounting Standards has brought into question the future use of the LIFO inventory method in the U.S. Since the Financial Accounting Standards Board (2010) has stipulated that earnings should aid investors and creditors in their quest to forecast future cash flows to the enterprise, this research examines whether FIFO earnings or LIFO earnings is preferable, for this purpose, as an aid to ex ante operating cash flow itself,over a three-year forecast horizon. We conclude that ex ante operating cash flows are quite useful in forecasting operating cash flows across industries for up …

Reits And Stock Market Cointegration, Jessie E. Felix

Open Access Theses & Dissertations

Real Estate is popular among investors looking for attractive total returns, predictable price movements, and low correlations to the general equity markets. The financial crisis of 2007 led by real estate mortgage defaults led to a universal bear market, and a credit freeze which impacted REITs ability to raise capital. REITs long viewed perception as a distinct asset class was questioned as a result. Research analyzing REITs long run trends find evidence of an existing long run relationship between REITs, and the S&P. This paper employs the same cointegration framework of prior studies using a longer sample period, and favors …

Investigations Into The Underpricing Of Seasoned Equity Offerings And The Cost Of Equity, Anh Duc Ngo

Open Access Theses & Dissertations

This dissertation consists of three separate but related essays investigating new determinants of the underpricing of seasoned equity offering (SEOs). It also examines new mechanisms and channels that affect the pricing of SEOs. The first essay examines the impacts of earnings smoothing on SEO underpricing. It aims to investigate whether earnings smoothing can add value to firms by reducing the degree of SEO underpricing. The findings show that smoothing earnings performance resulting from discretionary accruals is negatively related to SEO underpricing and improve earnings informativeness. This essay contributes specifically to the current literature on earnings smoothing by demonstrating that high …

Insider Trading Restrictions And Top Executive Compensation, David J. Denis, Jin Xu

Purdue CIBER Working Papers

The use of equity incentives is significantly greater in countries with stronger insider trading restrictions, and these higher incentives are associated with higher total pay. These findings are robust to alternative definitions of insider trading restrictions and enforcement, and to panel regressions with country fixed effects. We also find significant increases in top executive pay and the use of equity-based incentives in the period immediately following the initial enforcement of insider trading laws. We conclude that insider trading laws are one channel through which cross-country differences in pay practices can be explained.

Investor Sentiment In The Stock Market, Bayram Veli Salur

Open Access Theses

Classical finance theories neglect the impact of investor sentiment on stock returns. These theories assume that investors are rational and make decisions in a way that maximizes their wealth. However, a vast amount of research shows that investors' decisions are affected by their psychological biases and feelings. These findings suggest that investor sentiment may have an impact on stock returns. This hypothesis is the main motivation of this study. First, this study examines whether there is correlation among investor sentiment indicators, and whether sentiment indicators have an impact on stock returns in the US and other countries. Second, this study …

Three Essays On Local Government Debt, Robert Greer

Theses and Dissertations--Public Policy and Administration

The local government tax-exempt debt market is a growing, and complex, sector of public finance. As local governments turn to debt financing the factors that contribute to interest costs of that debt have become important considerations for local government officials and politicians. Governance at the local level involves a network of overlapping governments some of which share a tax base. This system of overlapping governments that share a tax base are subject to externalities that arise from taxation, expenditures, and debt. These externalities are usually analyzed in terms of tax or expenditure reactions, but there are implications for local government …

Legislating Stock Prices, Lauren Cohen, Karl B. Diether, Christopher Malloy

Faculty Publications

We demonstrate that legislation has a simple, yet previously undetected, impact on stock prices. Exploiting the voting record of legislators whose constituents are the affected industries, we show that the votes of these “interested” legislators capture important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Industries that we classify as beneficiaries of legislation experience significantly more positive earnings surprises and positive analyst revisions in the months following passage of the bill, as well as significantly higher future sales and …

Planning Prompts As A Means Of Increasing Preventive Screening Rates, Katherine L. Milkman, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

In the U.S., 18,800 lives could be saved annually if those advised to obtain colorectal screenings based on national guidelines complied (Zauber et al., 2012). Subtle suggestions embedded in a decision-making environment can change people's choices (Thaler and Sunstein, 2008). Past research has shown that prompting people to form plans about where and when they will complete an intended behavior increases engagement in activities ranging from voting to vaccination (Gollwitzer and Sheeran, 2006; Milkman et al., 2011; Nickerson and Rogers, 2010). When plans are formed, they link intended behaviors with a concrete future moment and course of action, creating cues …

Financial Literacy, Financial Education And Economic Outcomes, Justine S. Hastings, Brigitte C. Madrian, William L. Skimmyhorn

Faculty Publications

In this article we review the literature on financial literacy, financial education, and consumer financial outcomes. We consider how financial literacy is measured in the current literature, and examine how well the existing literature addresses whether financial education improves financial literacy or personal financial outcomes. We discuss the extent to which a competitive market provides incentives for firms to educate consumers or offer products that facilitate informed choice. We review the literature on alternative policies to improve financial outcomes, and compare the evidence to evidence on the efficacy and cost of financial education. Finally, we discuss directions for future research.

Determinants Of Financial Distress Evidence From Kse 100 Index, Malik Rizwan Khurshid

Business Review

Financial distress and its determinants are very important for investors as well as financial institutions; no one can deny its significance. This paper assesses the determinants of financial distress of non financial companies of Karachi Stock exchange from 2003 to 2010. Financial distress in companies was calculated from Z score model. Determinants like current ratio, profitability, efficiency, solvency and leverage were identified. Result shows current ratio, profitability, solvency and leverage are negatively correlated while efficiency is positively correlated.

Interest Rate Sensitivity And Stock Returns, Mohsin R. Khan, Zahid Mahmood

Business Review

This paper investigates the sensitivity of interest rate to stock return of financial institutions traded at Karachi Stock Exchange. Two Index Model of Stone and Bernell(1974) have been used to test the proposition of the present study. Three different portfolios of financial institutions have been examined against sensitivity of actual and unanticipated interest rates. Repo rate/Policy rate instead of t-bill rate is used for the proxy of interest rate. The data is collected from twenty nine financial institutions covering the time period from 2004 to 2011. Unit root test, co integration and error correction mechanism have been checked before proceeding …

An Evidence Of Profitability In Stocks Through The Test Of Logic, Muhammad Ikhlas Khan, Agha Ali Hassan

Business Review

In this world, people do one of two things with dollar, when they earn it. They either save it or consume it. Involuntarily, some of the money people consume is because they must pay tax or spending the dollar on something like food, clothing, or a car. For consumption at a later time, a person saves the dollar by putting it aside.

Relationship Of Single Stock Futures With The Spot Price: Evidence From Karachi Stock Exchange, Nasir Jamal, Ahmad Fraz

Business Review

The study is conducted to investigate the relationship of single stock futures with the spot price in Karachi Stock Exchange. Monthly data of twelve companies which are trading single stock futures have been examined for the period 1 January, 2005 to 31 December, 2010 with total of 72 observations for each company. Descriptive statistics, Unit Root test, Co-integration test, Granger Causality test, Vector Error Correction Model based on ARDL approach, Impulse Response and Variance Decomposition tests are used. The existence of long run relationship was found between the futures and spot prices of all the companies. The Granger Causality test …

Hello, Is Anybody There? Corporate Accessibility For Minority Shareholders As A Signal Of Agency Problems In China, Xiaofeng Zhao

Lingnan Theses

My thesis examines whether corporate accessibility for minority shareholders, defined as the ease with which minority shareholders are able to contact corporate insiders, can be a signal of the severity of a firm’s agency problems. Using Chinese public listed firms as the testing group, I find that accessible firms are associated with less serious agency problems than is the case for non-accessible firms. Specifically, accessible firms tend to be associated with lower agency costs, lower cost of equity, higher firm valuation, and better operating performance. I also find that accessibility can signal agency problems in firms with different ownership and …

The Role Of Credit Ratings On Capital Structure And Its Speed Of Adjustment In Bank-Oriented And Market-Oriented Economies, Michal Wojewodzki

Lingnan Theses

This study investigates both the direct and indirect roles of credit ratings (CR) on the capital structures of 1,513 firms operating in 19 countries with different financial orientations and levels of economic development over the 20-year period (1991-2010).

Until recently, it has been common place to classify countries into capital market-based oriented (MB) and bank-based oriented (BB) in terms of their financial systems’ orientation (Antoniou et al. 2008). Traditionally, in MB economies (Australia, Canada, Hong Kong, South Korea, Mexico, the Netherlands, Sweden, Switzerland, Thailand, the U.K., and the U.S.) having a CR helps firms issue equity or bonds. In contrast, …

The Aftermarket Performance Of Initial Public Offerings, Chiyachantana N. Chiraphol, Theerawat Pinta, Nareerat Taechapiroontong, Anantaporn Wongkham

Research Collection Lee Kong Chian School Of Business

This paper examines the aftermarket performance of initial public offerings (IPOs) and explores the underpricing of IPOs in an Asian emerging equity market using a comprehensive sample of IPOs. Our findings suggest that there exist a significant underpricing. Specifically, new issues have been offered at an average market-adjusted discount of about 20%. The magnitude of IPO underpricing is significantly larger for large firms, older firms and firms with small offering size.

Analysis Of Reits And Reit Etfs Cointegration During The Flash Crash., Stoyu Ivanov

Faculty Publications

In this study I revisit the “disintegration hypothesis” of financial assets around a major crisis event. I examine whether the Vanguard Real Estate Investment Trust and iShares Dow Jones US Real Estate Index Fund exchange traded funds disintegrate from the ten largest Real Estate Investment Trusts during the 14:45 Flash Crash on May 6, 2010. I find that six of the ten largest REITs are not cointegrated with the Vanguard Real Estate Investment Trust prior to the Flash Crash and that five of the ten largest REITs are not cointegrated with iShares Dow Jones US Real Estate Index Fund prior …

Analysis Of The Effects Of Pre-Announcement Of S&P 500 Index Changes., Stoyu Ivanov

Faculty Publications

In this study we attempt to answer the question – does the start of pre-announcing of S&P 500 index changes in October 1989 have an effect on the trading pattern of added or deleted firms? We document that prior to October 1989 the excess returns of added or deleted firms follow a white noise process around the event, whereas after the start of pre-announcing the excess returns can be described as nonstationary. This indicates significant excess profits to be captured around the addition or deletion event after S&P started pre-announcing changes in October 1989 but not prior to that date.

Do Neglected Firms Suffer From An Information Deficit?, Kenneth Yung, Hamid Rahman, Qian Sun

Finance Faculty Publications

We study the presence and distribution of private information in neglected firm stocks using a measure of private information first suggested by Roll (1988). Our results suggest that there is no shortage of information on neglected firms for investors and that this private information forms part of the decision set for managerial decisions. Our results indicate a significant negative correlation between the amount of private information and certain important firm characteristics such as market size, cash flow, sales and return on assets. When the impact of private information is analyzed on the investment and payout policies of the neglected firms, …

What Goes Up Must Come Down? Experimental Evidence On Intuitive Forecasting, John Beshears, James J. Choi, Andreas Fuster, David Laibson, Brigitte C. Madrian

Faculty Publications

Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods (‘fast’), while the other subjects see a version with dynamics that unfold over 50 periods (‘slow’). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.

Matching Contributions And Saving Outcomes: A Behavioral Economics Perspective, Brigitte C. Madrian

Faculty Publications

Including a matching contribution increases savings plan participation and contributions, although the impact is less significant than the impact of nonfinancial approaches. Conditional on participation, a higher match rate has only a small effect on savings plan contributions. In contrast, the match threshold has a substantial impact, probably because it serves as a natural reference point when individuals are deciding how much to save and may be viewed as advice from the savings program sponsor on how much to save. Other behavioral approaches to changing savings plan outcomes—including automatic enrollment, simplification, planning aids, reminders, and commitment features—potentially have a much …

An Investigation Into The Volatility And Cointegration Of Emerging European Stock Markets, Anna Golab

Theses: Doctorates and Masters

This dissertation examines the interaction between European Emerging markets including cointegration, volatility, correlation and spillover effects. This study is also concerned with the process of the enlargement of the European Union and how this affects the emerging markets of newcomers. The twelve emerging markets studied are Bulgaria, the Czech Republic, Cyprus, Estonia, Hungry, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia, which are all progressing very rapidly in their reforms and domestic economic stability.

The majority of prior studies on stock market comovements and integration have concentrated on mature developed markets or the advanced emerging markets of the Czech Republic, …

Two Essays On Stock Repurchases-The Post Repurchase Announcement Drift: An Anomaly In Disguise? And Intra Industry Effects Of Ipos On Stock Repurchase Decisions, Thanh Thiet Nguyen

USF Tampa Graduate Theses and Dissertations

We reexamine the stock price drifts following open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms' earnings improvement in the announcement year relative to the prior year. Our results show that only firms that actually repurchase their shares exhibit a positive post-announcement drift. More importantly, we find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. Further analysis indicates that the post-repurchase announcement drift is not a distinct anomaly but the well-documented post-earnings announcement drift in …