Analysing the wealth effects of UK divestitures: An examination of domestic and international sales

Here we analyse divestiture announcement effects for UK multinational corporations accounting for the location of the unit sold. We find some bias in market reactions with larger abnormal returns for UK divestitures when compared to overseas sales. US sales generate larger returns than those in Continental Europe or the Asia-Pacific region. We analyse the determinants of abnormal returns using accounting and transaction data, supplemented with country specific data for overseas sales. Abnormal returns for UK sales are explained by financial characteristics of the selling firm but the size of the transaction relative to the firm is the most significant factor in overseas divestitures.     

Is operational hedging a substitute for or a complement to financial hedging?

This paper investigates operational hedging by firms and how operational hedging is related to financial hedging by using a sample of 424 firm observations, which consist of 212 operationally hedged firms (firms with foreign sales) and a size- and industry-matched sample of 212 non-operationally hedged firms (firms with export sales). We find that non-operationally hedged firms use more financial hedging, relative to their levels of foreign currency exposure, as measured by the amount of export sales. On the other hand, though operationally hedged firms have more currency exposure, their usage of financial derivatives becomes much smaller than that of exporting firms. These results can explain why some global firms use very limited amount of financial derivatives for hedging purpose despite much higher levels of currency risk exposure. We also show that hedging increases firm value.     

Addressing Financial Inclusion Challenges in Rural Areas from the Financial Services Marketing Employee Emotional Labor Dimension: Evidence from Nigeria

Financial authorities basically regard low financial literacy rate and poor information and communication technology as the major challenges facing financial inclusion drive, particularly among rural dwellers in Nigeria. No study has assessed the cause of low financial inclusion from the financial services marketers’ emotional labor perspective. This quantitative study attempted to close this gap by exploring how emotional labor variables relate to financial services sales performance and job satisfaction among bank marketers. Primary data were collected from 417 bank marketers operating in Edo and Delta States. Partial least squares structural equation modeling was used to test the formulated hypotheses. The outcomes show that surface acting has a significant negative effect on financial service sales outcomes and job satisfaction, while deep acting was found to have a significant positive effect on financial service sales outcomes and job satisfaction among bank marketers.

     

Corporate Reorganizations: Changes in the Intensity of Labor and Capital Expenditures

Using a new measure that indirectly captures a firm's restructuring efforts on the basis of changes in its labor and capital expenditure patterns, this study examines the link between restructuring and financial performance for an international sample of firms during the years 1989–1997. Results show that firms that curbed the growth in labor expense intensity (labor expense relative to sales), regardless of the accompanying changes in sales or in capital expenditure intensity, had significantly higher annual returns (despite having lower profitability) than firms that expanded their labor intensity. Financial market's response to a reduction in labor expense intensity appears to be more favorable if this reduction is accompanied by a reduction in capital expenditure growth when firms face declining sales, and an increase in capital expenditure growth when firm sales are growing.     

An Empirical Analysis of the Effect of Financial Distress on Trade Credit

This paper studies the use of supplier's trade credit by firms in financial distress. Trade credit represents a large portion of firms’ short‐term financing and plays an important role in financial distress. We find that firms in financial distress use a significantly larger amount of trade credit to substitute for alternative sources of financing. Firms that are smaller, with less market power, and with more unique products tend to use more trade credit financing when in distress. We also find that firms that significantly increase their trade payables when in financial distress, experience an additional drop of at least 11% in sales and profitability growth over the previously documented 21% average drop for financially troubled firms.     

Tainted portfolios: How impairment accounting rules restrict security sales

Contrary to claims that fair value accounting exacerbated banks’ securities sales during the recent financial crisis, we present evidence that suggests – if anything – that the current impairment accounting rules served as a deterrent to selling. Specifically, because banks must provide evidence of their ‘intent and ability’ to hold securities with unrealized losses, there are strong incentives to reduce, rather than increase, security sales when market values decline to avoid ‘tainting’ their remaining securities portfolio. Validating this concern, we find that banks incur greater other‐than‐temporary impairment (OTTI) charges when they sell more securities. We then find that banks sell fewer securities when their security portfolios have larger unrealized losses (and thus larger potential impairment charges), and these results are concentrated in banks with homogenous securities portfolios, expert auditors, more experienced managers, and greater regulatory capital slack. Overall, our results suggest that – contrary to critics’ claims – the accounting rules appear to have reduced banks’ propensity to sell their securities during the financial crisis.     

Does short selling affect a firm's financial constraints?

Using a sample of Chinese A-share listed firms from 2007‐2017, we examine the impact of short sales on a firm's financial constraints. We develop three conceptual frameworks, the negative information effect, the undervaluation effect, and the deterrent effect, based on the prevailing theories and conduct an in-depth empirical analysis using the difference-in-differences, propensity score matching, and instrumental variable methods. Our findings suggest that: (1) Short sales generally worsen a firm's financial constraints by reducing its ability of raising cheap and overvalued external capital. (2) A shortable firm's financial constraints deteriorate more seriously in the case of higher credit risk or information asymmetry. (3) When a firm becomes shortable, its negative media coverage increases, external financing cost rises, and the amount of new external financing decreases. (4) The adverse impact of short sales on financial constraints is more pronounced for inefficient state-owned firms and mainly concentrates in the short term. Collectively, these results support the underlying logic of the negative information effect. However, further analysis shows that: (1) The deterrent effect also exists but is much weaker than the negative information effect. (2) The strength of the two effects will “wan and wax” with time or circumstances. Thus, the deterrent effect may outweigh the negative information effect by easing a firm's financial constraints in some cases, such as in the long term after short sales deregulation and when short sales magnitude is low or the managers are more sensitive to the decline of stock price. Our paper provides new insights into the impact of shorts sales on financial constraints, revealing some unique Chinese features compared to the US market and offering valuable lessons to other emerging markets.     

Can third-party online sales disclosure help reduce earnings management? Evidence from China

Alternative data plays an increasingly important role in investment and commodities market analysis. This study empirically investigates the effect on earnings management of disclosure of third-party online sales as a type of alternative data. We show that earnings management is reduced with the public disclosure of a firm’s third-party online sales data in a well-known Chinese financial database. Our results are robust to a series of endogeneity corrections and robustness checks. We also find that the negative association between third-party online sales disclosure and earnings management is more pronounced in firms with an opaque external information environment, weaker corporate governance, a higher proportion of online sales relative to total sales, and when sales are more likely to be the target of manipulation. Our results indicate that third-party online sales disclosure reduces earnings management by decreasing its benefits and increasing the risk of its detection. Our findings yield important implications for regulators and policy makers.     

The Integration Of Financial Services in Europe

Abstract

Changes over the last few decades in managing risk and investing money have been so radical that we can only describe them as being huge disruptions, maybe even revolutions. The boundaries that used to exist between the different financial activities have disappeared. Although things have accelerated rapidly over the last few decades, we should keep in mind that these developments are by no means new. The pawnbrokers and foreign exchange dealers of the Middle Ages, whose professions were separate and clearly identifiable, have seen their activities completely integrated into so-called universal banking services. More recently, merchant banks in France, who used to be the subject of specific regulation, have disappeared as separate legal entities. In the insurance field, it was barely 30 years ago, that some large businesses insured only against fire risks and others only casualty risks. The distinction between life and non-life, which is still maintained in the regulations, makes little sense in the everyday reality of insurance groups who transact these two activities together.

However, when we talk of the integration of financial services, we have in mind an even more recent phenomenon. Financial integration incorporates two developments, known in French as bancassurance and assurfinance. Today, under extremely diverse legal guises but following the same economic logic, banks sell insurance products and insurance networks sell banking products.

This movement can only be understood initially as the result of a need to diversify. Each one of these two large categories of financial intermediaries borrowed something from the other in order to increase its product range or bolster the know-how of its networks. It was simply about making sales organizations more cost effective by having them sell products outside of their traditional skills area, at more or less marginal cost. Today the expansion of offerings is done, approved, and even expounded on by theorists. And so now the next question is whether we should go further—turning our attention from distribution to manufacturing. This is where the current debate on the integration of financial services lies. Bluntly, if we allow banks to sell insurance policies and insurers to sell consumer credit, should we allow a joint organization to design such products and distribute them down both channels at the same time? More subtly, we might ask ourselves whether we should be exercising more specific control over these financial conglomerates that, while maintaining a formal legal separation between banking and insurance, constitute in fact a single decision-making center.

This article sets out to portray what is perhaps not the state of the law, but at least the state of the art, on this topic in the European Union. In the first part, it will show that while sales integration is an undeniable fact, with the customer seeing fewer and fewer differences, it still remains that banks and insurance carriers are separate entities from a legal perspective and that the European Union remains totally committed to controlling financial conglomerates. In practice, integration of financial services takes different forms. In part two, we examine cases involving problems between entities doing the same job, and cooperation between design facilities without any apparent desire to go further. In the long run, this integration will succeed only if it receives the public?s approval. Part three addresses what consumers and investors want. We observe that after decades of exposure to specialized networks, consumers are not necessarily as enthusiastic as proponents of integration would have hoped. As adult consumers, they are not prepared to buy just any financial service anywhere they can, and they still largely place their trust in the brands they know.     

Separating the Age Effect from a Repeat Sales Index: Land and Structure Decomposition

Since real estate is heterogeneous and not all its quality attributes are observable, the repeat sales model pioneered by Bailey et al. (1963) has become one of the standard methods to estimate a constant-quality price index. The model, however, fails to adjust for depreciation, as age and time between sales have an exact linear relationship. This paper proposes a new method to estimate an age-adjusted repeat sales index by decomposing property value into land and structure components. As depreciation is more relevant to the structure than land, the property’s depreciation rate should depend on the relative size of land and structure. The larger the land component, the lower the depreciation rate of the property. This new method is applied to property transactions in Hong Kong and Tokyo. Hong Kong is shown to have a higher depreciation rate based on a fixed structure-to-property value ratio, while the resulting age adjustment is larger in Tokyo because its land value has shrunken over time.     

Compliance Costs of Corporate Income Taxation in Singapore

This study is the second in a series of studies investigating tax compliance costs incurred by public-listed companies. We found evidence of a size effect which is a predominant finding of similar studies. The size effect was more pronounced when absolute measures of costs were used than when a relative measure, cost/sales turnover, was used. Additional evidence was found of limited success relating to the IRAS's moves to simplify the tax system. Specifically, only large companies with sales turnover exceeding $500m benefited and considerably reduced their overall compliance costs. Most of the decrease was a result of the computational component of compliance costs. This resulted in the gap in absolute costs narrowing between Group 3 and any of the other categories of companies. There was also greater reliance on external professionals, the smaller the company. Views elicited indicate that more could be done to increase accessibility to IRAS publications for Group 1 and Group 2 companies.     

The use of a bankruptcy forecasting model to analyze corporate behavior in Israel

Most models used in predicting business failure actually rank the firms involved according to the probability of their financial distress Such ranking may also be used to explain patterns of corporate behavior and economic developments, as is shown in this paper Israeli manufacturing corporations are ranked here according to a multivanate index of risk based on five financial ratios that have been shown to successfully predict financial distress three years prior to the actual failure. Greater use of supplier credit and recourse to more than one bank are significantly linked to a higher degree of risk as measured by the index Extension of customer credit is conversely related to this risk status of the firm, while there does not seem to be a clear and significant relationship between such status and the growth in sales.     

Leverage and preemptive selling of financial institutions

In our model, financial firms’ leverage choices and asset sales impose negative externalities on other financial firms. This means that individual firms cannot determine their optimal capitalizations in isolation, but have to take the aggregate financial sector characteristics into account. In particular, they become more aggressive when their peers are more conservative. Furthermore, financial firms over-consume liquidity in equilibrium. For some parameter regions, small parameter changes can induce large differences in the equilibrium allocation of risk. Historical experience is not necessarily a good guide as to whether the prevailing equilibrium is fragile or not.     

The truth will set you free: the perception of South African financial advisors regarding clients' truthfulness when sharing information

There is a need for better financial advice. Financial advisors are not able to give accurate financial advice if clients are not completely truthful. This paper aims to analyse the perceptions of financial advisors regarding client truthfulness when disclosing sensitive financial information. Providing sensitive information, for example income, expenses, level of debt, and medical information, could create feelings of discomfort or embarrassment for both the financial advisor and client. A total of 364 useable questionnaires were returned via an online link sent through a community network email to all members of the industry standard-setting organisation in South Africa. Financial advisors perceive their clients to be more untruthful about sensitive topics such as debt, expenses, and knowledge about their finances. Debt, medical history, and their knowledge about their finances were found to be indicators of embarrassment. The financial advisors indicated their optimism regarding clients' untruthfulness, which is that they need time to build the trust relationship and will subsequently open up. This specific result suggests that the advisors are open to building long-term relationships with clients that can last several years.

     

Indeterminacy and Forecastability

Recent studies document the deteriorating performance of forecasting models during the Great Moderation, which conversely implies that forecastability was higher in the preceding era when the economy was unexpectedly volatile. We explain this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium (DSGE) models. We first analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a sticky‐price DSGE model, we numerically demonstrate that indeterminacy arising from passive monetary policy generates persistent dynamics that lead to superior forecastability. We also point out the possibility that forecastability under indeterminacy deteriorates when the degree of uncertainty about sunspot fluctuations is large.     

Using Financial and Macroeconomic Indicators to Forecast Sales of Large Development and Construction Firms

Sales forecasting is a pivotal component of a corporation’s planning and control activities. Despite the panoply of approaches to sales forecasting, relatively few published studies in forecasting address firm-specific sales forecasting model development for the construction industry. While there is evidence that events in the macroeconomy significantly affect the construction market, most published studies on construction sales forecasts using S-curve models are unable to account for the economic climate. This study proposes an approach that employs financial and macroeconomic indicators to forecast sales of large development and construction corporations. First, by using data for 37 large development and construction firms listed on the construction sector of the Taiwan Stock Exchange between 1997 and 2006, hypothesis tests uncover useful relationships between firm sales and financial and macroeconomic indicators. Second, based on these relationships, a two-stage mathematical modeling procedure is used to develop firm-specific sales forecasting models for three of the sample firms. Finally, out-of-sample forecasting accuracy is evaluated using Theil’s U-statistic and mean absolute percentage error (MAPE).     

Effective Underwriting in the Genetic Testing Era

This paper notes that prior to the availability of genetic test results, conventional life insurance underwriting had produced satisfactory mortality results even though a number of applicants insured at standard or better must have had serious genetic markers. The paper discusses the problems that may affect underwriting when an applicant is aware of a genetic risk factor.

The paper suggests use of pre-genetic testing era underwriting methodology, including medical history and family history, with strict financial underwriting to control antiselection. A set of underwriting rules is provided. The need for a sales organization that can produce a substantial amount of business is cited as necessary for success.

To spread equitably any excess cost on account of insuring persons with genetic markers, a risk pool is suggested. The pool manager would also inform a company of additional applications to other companies by genetically impaired applicants.

The purpose of the proposal is to deflect ill-advised political solutions and, at the same time, to control expenses by ensuring a high ratio of paid-for policies to applications.     

Net Operating Working Capital Behavior: A First Look

Net operating working capital captures multiple dimensions of firms’ adjustments to operating and financial conditions. Sales growth, uncertainty of sales, costly external financing, and financial distress encourage firms to pursue more aggressive working capital strategies. Firms with greater internal financing capacity and superior capital market access employ more conservative working capital policies. Results are robust to unobserved heterogeneity and industry effects. The evidence suggests that operating and financing conditions should be considered when evaluating working capital behavior, not just industry averages. Additionally, industry concentration magnifies the effect of sales growth.     

A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis

We examine investment behavior among exchange-listed Korean manufacturing firms before and after the 1997 financial crisis using firm-level panel data. Starting with the standard Q-theory of investment, we augment it by allowing for a sales accelerator and the possibility of cash constraints, categorizing firms based on their age, size and affiliation to an industrial conglomerate (i.e., chaebol). We find that Tobin’s Q is a robust determinant of investment in a pooled sample for 1992–2001, but that it became more important for small firms and less important for chaebol-affiliated firms after the crisis. Investment by chaebol firms also became more sensitive to the availability of internal cash balances after the crisis. We interpret this as reflecting a shift in the Korean economy to a stronger market orientation after the crisis and to a business climate in which the quality of potential projects became more important relative to capital market imperfections in determining the destination of investment funds.     

The mediating role of happiness on the effect of locomotion and effort on salesperson’s performance and cross-selling: the case of financial insurance

In this study, the authors propose a theoretical framework and show how salespeople’s locomotion orientation and effort increase financial sales outcomes (e.g., performance and cross-selling). We propose that a salesperson’s happiness plays a mediating mechanism in these main effects. The authors collected data from two samples. In Study 1, the authors collected data from financial insurance brokers, which worked as a link between insurance companies and customers. In Study 2, the authors analyzed answers from salespeople working on home improvement and construction products and services. First, the results demonstrate that the salespersons’ locomotion (an orientation toward a behavior), effort, and happiness increased sales performance (main effects). Second, salespersons’ locomotion and effort have an indirect effect through individuals’ happiness on our dependent variables, such as sales performance, product performance and cross-selling. Firms can improve individuals’ locomotion and effort by developing goal setting and goal striving.