The value of tradeability

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeability, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers.     

Conceptualising online banking service value

A conceptual framework for perceived value of online banking services is developed. The nature of four value dimensions is explored in the context of online banking services. In two empirical studies the relative importance of each value dimension is measured and the findings indicate that the temporal and spatial dimensions are perceived as more important than traditional dimensions based on outcome and process elements. Sub-dimensions of technical, functional, temporal, and spatial service value are also identified. It is suggested that temporal and spatial flexibility is only one aspect of temporal and spatial value. The paper extends prior research on e-services by conceptualising online banking service value as a multidimensional and hierarchical construct and separating each value dimension into sub-dimensions. It suggests a holistic perspective of service value and a dynamic nature of value dimensions: although the separate value dimensions involve different aspects of the service value, as a whole they fulfil the same need. The paper contributes to marketing research and practice with its approach to how value can be conceptualised for bank services. Explanations for the dynamics of the value dimensions are proposed.     

Customer value propositions in business markets

Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources. The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers' efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don't care about in the least. Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor's? But without a detailed understanding of the customer's requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer. Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.     

Dividends,research and development expenditures,and the value relevance of book value for UK loss-making firms

We extend prior research on the value relevance of accounting information for loss-making firms by allowing the coefficient of book value to vary across three distinct set of loss-making firm observations in our valuation model. Our key findings are, first, that book value is a less important determinant of equity value for either high R&D-intensive firms or dividend-paying firms, relative to firms with low R&D-intensity and zero dividends. Prior literature suggests that book value is a strong indicator of firm value for loss-making firms. This reasoning stems from book value's role as: (i) a proxy for the value of the possibility of abandoning or adapting the firms' net assets; and/or (ii) a proxy for expected future normal earnings. Our work suggests that this prior literature does not fully capture the valuation role of book value for loss-making firms. Second, we also find that dividends are value relevant, but generally only when the valuation role of book value is contextualised by allowing its coefficient to vary across high R&D-intensive firms, and dividend-paying, loss-making firms.     

Corporate governance and the value of cash holdings

We investigate how corporate governance impacts firm value by comparing the value and use of cash holdings in poorly and well-governed firms. We show that governance has a substantial impact on value through its impact on cash: $1.00 of cash in a poorly governed firm is valued at only $0.42 to $0.88. Good governance approximately doubles this value. Furthermore, we show that firms with poor corporate governance dissipate cash quickly in ways that significantly reduce operating performance. This negative impact of large cash holdings on future operating performance is cancelled out if the firm is well governed.     

Does disaggregation of fair value information increase the value relevance of the fair value hierarchy?

In response to pressures from Congress, the SEC and investors, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurement. ASU 2010-06 mandates that firms provide disaggregated fair value information by class of financial instruments under each level of the fair value hierarchy. Using financial statements of publicly traded banks for the first quarters of 2009 and 2010, this study examines whether providing class-level information increases the value relevance of the fair value hierarchy. In support of our hypothesis, we find that fair value relevance increases under ASU 2010-06.     

Fair value and audit fees

This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms’ exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.     

The investment value of the value premium

Value investment strategies are premised on research that value stocks outperform growth stocks. However, the research findings are dependent on the portfolio classification method that is used to sort stocks using the attributes of size and book-to-market ratios. Different stock markets contain different distributions of stocks, and in many markets, illiquidity concerns combined with a lack of investment scale, effectively create barriers to practical portfolio formations that align with the research. This study conducts a case study on one such market (Australia) and demonstrates that different methods of portfolio formation lead to different conclusions. For example, previous studies in Australia find evidence of the value premium only being present in the largest stocks, in contrast to the results from the US market. However, we find a value premium that is systematic across all size categories and generally increases inversely with size. Further, we find the well-documented size premium largely disappears once portfolios are formed that better represent feasible investment sets and once ‘penny dreadfuls’ are removed. Finally, asset pricing tests support the existence of a value premium in Australian stock returns when a more appropriate portfolio formation method is employed.     

Eco-efficiency and firm value

Eco-efficiency refers to a process that seeks to maximize the effectiveness of business processes while minimizing their impacts on the environment. Fundamental to eco-efficiency is adoption of a management philosophy that stimulates the search for environmental improvements that yield parallel economic benefits [President’s Council on Sustainable Development, 1996a. Sustainable America: A New Consensus for Prosperity, Opportunity, and a Healthy Environment. Government Printing Office, Washington DC; President’s Council on Sustainable Development, 1996b. Eco-efficiency: Task Force Report. Government Printing Office, Washington DC; World Business Council for Sustainable Development (WBCSD), 2000. Eco-efficiency: Creating More Value with Less Input. Geneva]. Eco-efficiency is increased by activities that create economic value while continuously reducing ecological impacts and the use of natural resources [DeSimone, L., Popoff, F., 1997. Eco-efficiency: The Business Link To Sustainable Development. MIT Press, Cambridge, MA]. This study empirically examines the proposition that implementation of eco-efficient business strategies is associated with higher firm value. We posit that, firms which adopt eco-efficient business strategies and, as a consequence, achieve reduced costs and increased profits should be more highly valued by the market than similar firms that do not adopt eco-efficient business strategies. Our empirical testing supports this proposition.     

Exploring value creation from corporate-foresight activities

This paper looks at value creation from corporate futures research. Through a literature review, potential value creation is identified. This serves as guidance for an empirical investigation in which value creation is observed and linked to methods and practices. Using data from 20 case studies, three examples of value creation are discussed in detail. In addition, cross-case analysis allowed me to identify four success criteria for corporate foresight activities: (1) foresighters committed to creating value, (2) participation of internal stakeholders, (3) analysis that follows a systemic logic, and (4) methods and processes that are tailored to companies’ needs. The paper concludes with the recommendation to take a dynamic-capabilities perspective on future research into corporate foresight.     

Searching for value relevance of book value and earnings: a case of premium versus discount firms

We examine the premium/discount firm characteristic that fundamentally affects the value relevance of two key accounting line items, earnings and book values. We argue that from the perspective of both the residual income and option-style valuation models, the relative valuation roles of earnings and book values differ fundamentally between firms that trade at a premium vis-à-vis discount to book value. We find that book values play a significantly more important role in equity valuation than earnings when firms trade at a discount. We also find that other known influential conditions, such as the sign of earnings (Collins et al. in Acc Rev 74(1):29–61, 1999) or the relative levels of earnings and book value (Burgstahler and Dichev in Acc Rev 72(2):187–215, 1997), become inconsequential when the premium/discount condition of the firm is controlled for. The discovered relationships between the relative valuation roles of book values and earnings and the discount/premium characteristics of the firm are robust to the effect of time, information environment and the industry of the firm.     

Ambiguity and the value of information revisited

We analyze the value that decision makers place on the acquisition of information that partially or completely resolves uncertainty over the correct distribution of outcomes. We distinguish two sources of ambiguity of a given message service: posterior uncertainty over the correct probability distribution and uncertainty over the message which will be received. Given this distinction, we present a model where attitudes towards the two sources of ambiguity are separated and we study how these attitudes affect the value of information. The analysis clarifies and integrates seemingly contradictory results obtained previously in the literature.     

Managerial entrenchment and the value of dividends

This study examines the effects of takeover defenses on the value implication of dividends. Using the framework of Fama and French in J Finance 53(3): 819–843 (1998), the paper shows that dividends paid by managers with strong managerial power resulting from takeover protection measures are more valued in the stock market. The results are consistent with the hypothesis of the agency costs of free cash flow built on by Jensen in Am Econ Rev 76(2): 323–329 (1986) in the sense that dividends are important to determine firm value by reducing the free cash flow that would otherwise be deployed for private benefits by entrenched managers. This paper also examines whether the incremental value effect of dividends in entrenched firms is attributable to a numerator effect (changes in the future cash flow) or a denominator effect (changes in the discount rate). The empirical results show that the dividend payout of such firms is more positively related to future performance and more negatively related to information risk, which supports both numerator and denominator effects.     

Recent value changes in Western Europe

This article analyses value changes in Western Europe in relation to changes in social institutions. Important institutional changes have been that families have become have become smaller and more fragile and the labour market has become larger and more heterogeneous, especially because of the increase in the number of married women having paid jobs. Finally, globalization has resulted in a double trend of heterogenization and localism. These changes have influenced the values of the population in Western Europe. The overall change is an increase in individualization and a more fragmented value system which means, eg, that there are no clear political cleavages. The value changes can be summarized in three processes: from industrial to green values; from authoritarian values to libertarian values; and from church-oriented to personal religious values. These trends suggest that we are approaching a society with a diversity of lifestyles where many value structures are competing.     

保险负债的风险价值边际:评估方法及应用

国际会计准则委员会(IASB)正在实施一个关于保险合同的会计项目,其目的在于使保险公司的资产负债表以公允价值来计量。保险负债的公允价值以市场脱手价格为计量基础,可由最优估计价值和风险市场价值边际两部分构成。本文以公允价值的计量理论为基础,提出资本成本法这种风险价值边际的核算方法,并以财产险保单为例探讨该方法的应用。     

Adjustment of valuation inputs and its effect on value relevance of fair value measurement

The fair value accounting standards; i.e., FAS 157, FAS 157-3 and FAS 157-4, specify the circumstances where firms need to adjust valuation inputs to fair value measurements in response to changes in market conditions. Such an adjustment inherently involves substantial management judgment and is accompanied with transfers of assets and liabilities among the different levels of the fair value hierarchy. We study the effect of adjusting valuation inputs to reflect market variations on value relevance of fair value measurements by comparing the value relevance of fair value assets between the banks that make transfers of assets and the banks that make no transfers. Overall, we find a significant increase in value relevance of fair value measurements for banks that transferred assets into/out of the Level 3 category. Our study examines a challenging situation in the application of fair value standards; i.e., determining fair value when there is a change in market conditions. Fair value measurement under such a situation involves substantial management judgment and potential estimate errors and manipulation. Our findings provide useful information for researchers, regulators and accounting professionals to assess the market’s perception of the reliability of fair value information when management exercises substantial discretion in adjusting valuation inputs under changing market conditions.     

Strategy and the art of reinventing value

In "From Value Chain to Value Constellation: Designing Interactive Strategy" (July-August 1993), Richard Normann and Rafael Ramírez argue that successful companies increasingly do not just add value, they reinvent it. The key strategic task is to reconfigure roles and relationships among a constellation of actors--suppliers, business partners, customers--in order to mobilize the creation of value in new forms and by new players. What is so different about this new logic of value? It breaks down the distinction between products and services and combines them into activity-based "offerings" from which customers can create value for themselves. But as potential offerings become more complex, so do the relationships necessary to create them. As a result, a company's strategic task becomes the reconfiguration and integration of its compentencies and customers. Normann and Ramírez provide three illustrations of these new rules of strategy. IKEA has blossomed into the world's largest retailer of home furnishings by redefining the relationships and organizational pratices of the furniture business. Danish pharmacies and their national organization have used the opportunity of health care reform to reconfigure their relationships with customers, doctors, hospitals, drug manufacturers, and with Danish and international health organizations.(ABSTRACT TRUNCATED AT 250 WORDS)     

A note on fair value pricing of mutual funds

Mutual funds claim that they employ fair value pricing to prevent active investors from trading on their beliefs that the funds’ net asset values are stale. Our results support the funds’ assertions. We estimate the returns from the following active strategy: buy international open end mutual funds that do not employ fair value pricing on days that the S&P500 index rises by a large amount, and/or sell them on days that the S&P500 index declines by a large amount. These active strategies significantly outperform pure buy-and-hold strategies. We conclude that international mutual funds should make greater use of fair value pricing.     

A comparison of extreme value theory approaches for determining value at risk

This paper compares a number of different extreme value models for determining the value at risk (VaR) of three LIFFE futures contracts. A semi-nonparametric approach is also proposed, where the tail events are modeled using the generalised Pareto distribution, and normal market conditions are captured by the empirical distribution function. The value at risk estimates from this approach are compared with those of standard nonparametric extreme value tail estimation approaches, with a small sample bias-corrected extreme value approach, and with those calculated from bootstrapping the unconditional density and bootstrapping from a GARCH(1,1) model. The results indicate that, for a holdout sample, the proposed semi-nonparametric extreme value approach yields superior results to other methods, but the small sample tail index technique is also accurate.     

The value of tax shields IS equal to the present value of tax shields

Fernandez [2004b. The value of tax shields is not equal to the present value of tax shields. Journal of Financial Economics 73, 145–165] argues that the present value effect of the tax saving on debt cannot be calculated as simply the present value of the tax shields associated with interest. This contradicts standard results in the literature. It implies that, even though the capital market is complete, value-additivity is violated. As a consequence, adjusted present value formulae of a standard sort cannot be used. Also, Fernandez's argument implies that the value of the tax saving differs from conventional estimates by a considerable amount. We reconcile Fernandez's results with standard valuation formulae for the tax saving from debt. We show that, as one would expect, the value of the debt tax saving is the present value of the tax savings from interest. The apparent violation of value-additivity in the Fernandez paper comes from mixing the Miles and Ezzell and Miller and Modigliani leverage policies.