Belgian Intragroup Relations and the Determinants of Corporate Liquid Reserves

The determinants of liquid reserves are investigated for a sample of 1038 large Belgian non‐financial firms in the 1992–94 period. The results confirm the hypothesis that the terms of payment of intragroup claims can be adjusted to the firm's liquidity needs, thereby reducing the need for liquid reserves. Furthermore, the results confirm the transaction motive for holding liquid reserves, but only partially confirm the precautionary motive. Finally, the results indicate that liquid reserves play a significant role in the financing of new investments, as predicted by the pecking order model of Myers and Majluf (1984).     

Scope of Auditors' Liability,Audit Quality,and Capital Investment

One of the fundamental issues in the discussion of auditors' liability is to whom auditors should be held liable for ordinary negligence under common law. Three judicial viewpoints prevail: the restrictive privity approach, the more liberal Restatement approach, and the most liberal foreseeability approach. To compare these three approaches from an efficiency perspective, this paper develops a model that features an owner-managed firm, an independent auditor, a continuum of unrelated lenders, and an impartial court. Double effort-incentive problems appear for the firm and the auditor. The firm has an additional incentive problem due to the sequential nature of its borrowing. This paper shows that the effort-incentive problem and the sequential borrowing problem of the firm render unambiguous improvements in audit effort/quality, capital investment, and social welfare as the judicial approach governing the scope of auditors' liability becomes more conservative.     

Asset Allocation and Selectivity of Asian Mutual Funds During Financial Crisis

This paper evaluates the ability of US-based Asian mutual fund managers in coping with the 1997 Asian financial crisis. We find that the actively managed mutual funds under-perform with respect to the market portfolio by 1.71% in average monthly return. Such poor performance is caused by fund managers' relative weakness in country selection as well as in stock picking. Fund managers are also found to be more skillful in picking the correct market when the market is going up than going down. Our results are consistent with the literature that asset allocation in Asian mutual funds is a dominating factor relative to selectivity in explaining fund returns during the financial crisis. In addition, there exists a negative relation between asset allocation ability and selectivity of fund managers.     

Best Practices in Corporate Governance: What Two Decades of Research Reveals

This report addresses two key questions for today's top executives: Do acquisitions create value for acquirers? And under what circumstances have acquisitions created the most value for acquiring shareholders?
The authors' analysis of over 1,500 completed deals by non-financial companies in the United States over the past 12 years shows that, at announcement, acquirers' shareholders suffer small losses, on average, in the short term around the initial deal announcement. Over longer intervals, such as one or two years following the announcement of the transaction, acquirers tend to slightly outperform industry peers.
The average or median market response hides tremendous variability in how the market has reacted to individual deals, however. This article provides evidence that the "right" M&A transaction can create substantial value for acquirers. One-quarter of the transactions lead to market-adjusted gains in excess of 5% for the acquirer and oneeighth of the transactions lead to gains in excess of 10% in the short term. However, some deals have also destroyed substantial shareholder value.
Financing structure is a key driver of the stock market reaction. Stock-financed transactions, on average, have a negative stock market reaction, while cash-financed transactions have benefited acquirers in both the short term as well as the long term.
Acquisitions of private companies or assets and units of public companies have consistently generated higher returns for acquirers than purchases of public companies.
Moreover, EPS dilution is not a major driver of how the stock market reacts to a deal. Although "accretive" deals perform slightly better than "dilutive" ones in the short and long run, the difference is small and not statistically significant. Over the long run, acquiring shareholders have benefited the most from deals within the same industry and that avoid targets with relatively optimistic earnings growth projections.     

Housing Inventory Change and the Role of Existing Structures, 1961–1985

This paper makes two contributions. First, an internally consistent annual data set is constructed for the housing-units identity. For the 1961–85 period, data are computed for completions, mobile home placements, the change in households, the change in vacancies, and, residually, net other additions (non-new construction additions less losses). Our computed net other additions data for 1974 to 1980 are shown to be comparable to those implicit in the Annual Housing Survey data. Second, evidence is provided that net other additions play a major role in the short-run equilibration of the demand and supply for housing units. Our evidence suggests that, on average, a surge in household formations is half satisfied by reduced losses or non-new construction additions during the concurrent year.     

A hedonic price model for private properties in Hong Kong

A hedonic model is used to explore the effects of locational, structural, and neighborhood attributes on the price structure of private condominiums in Hong Kong. The regression results and the elasticities of housing attributes obtained from the Box-Cox analysis indicate that the valuation of a property is sensitive to changes in housing traits. Home buyers are rational and are willing (unwilling) to pay for desirable (undesirable) housing attributes and that the valuation of a property is market-driven in Hong Kong.