Strategic orientation,organisational structure,and the associated effects on performance

The paper presents an investigation of the structural characteristics of firms' strategic orientation (as conceptualised by Miles and Snow (1978)). The associated relationships to profitability and perceived market share are studied in financial services firms, specifically in credit unions. The author finds that most firms have a mixed structural form, with fewer firms being either highly structured or lowly structured. Defenders are more likely than expected to be of mixed structural form and less likely to be highly structured. Prospectors are more likely than expected to be highly structured. Analysers are more likely than expected to be highly structured. Reactors show little variation from the expected distribution. No interaction of structure and strategy is evident on either share or profits. The results do indicate that strategic orientation has an influence on perceived market share, but not profitability. Reactors are shown to have significantly smaller market shares than the Prospectors, Analysers, and Defenders. Also, Defenders are shown to have smaller shares than Prospectors. On the other hand, structural form is shown to have an influence on profitability. The less structured firms are shown to be more profitable than either the highly structured or mixed structure firms. It appears, at least in this sample, that organisational structure is more relevant to profitability, while organisational strategy is more relevant to market share.     

The effects of normalization on end-user query errors: An experimental evaluation

As a result of the shortage of professional programmers to extract timely information from databases, end-users are increasingly developing their own database queries. Because end-user querying is error-prone, characterizing the sources of query errors and using that knowledge to improve the effectiveness of end-user query development can improve the quality of information used for decision making. This paper reports the results of an experiment that investigated the effect of normalization level on query errors. The results show that query errors vary with the normalization level of the database structure and confirm previous findings about query errors increasing with task complexity. End-users querying a first normal form data structure make fewer errors than end-users querying an unnormalized data structure or a third normal form data structure. Furthermore, end-users querying a third normal form data structure make fewer errors than end-users querying an unnormalized data structure.     

Auditor Reputation Building

This paper reports the results of an experimental economics study designed to examine reputation building by information verifiers (auditors). The results identify boundary conditions to reputation formation and supply insight into auditors' incentives to form reputations. Reputations form in all sessions of treatments that supply nearly immediate rewards to participants who adopt reputation equilibrium strategies. In contrast, reputations form in less than half of the sessions of a treatment where participants have to maintain reputation equilibrium strategies for number of periods before the market rewards their effort. The results suggest the immediacy of rewards for adopting reputation strategies is a critical determinant of reputation formation.     

Further evidence of the effects of normalization on end-user query errors: an experimental evaluation

The proliferation of Windows-based programs for PCs, together with the requirement of many business managers for faster responses to their information needs, has led many business end-users to create, maintain, and query their own databases. These individuals use the output of these queries as the basis for operational, tactical, and strategic decisions. To maximize the benefit of end-users' time, querying these databases must be as efficient as possible. Of even greater importance, the effectiveness of managers' decision-making is directly related to the quality of the information extracted. Because end-user querying is error prone, characterizing the sources of query errors and using that knowledge to improve the effectiveness of end-user query development can improve the quality of information available for decision-making.IS professionals typically design databases in third normal form. End-user databases designed with the help of IS professionals are also likely to be in third normal form. Although third normal form is better for data capture, prior research indicates third normal form is not necessarily the most appropriate normal form for querying. This paper reports the results of an in-depth experiment into the effects of normalization level on the efficiency and effectiveness of end-user querying. The results confirm earlier findings that end-users querying first normal form data structures were both more efficient and more effective than those querying third normal form data structures. This research extends prior research by examining the specific areas where first normal end-users outperform third normal form end-users. In particular, the experiment revealed that first normal form end-users made significantly fewer errors in relation to attribute selection, table selection, and row restriction.     

Regulatory Arbitrage and Cross‐Border Bank Acquisitions

We study how differences in bank regulation influence cross‐border bank acquisition flows and share price reactions to cross‐border deal announcements. Using a sample of 7,297 domestic and 916 majority cross‐border deals announced between 1995 and 2012, we find evidence of a form of “regulatory arbitrage” whereby acquisition flows involve acquirers from countries with stronger regulations than their targets. Target and aggregate abnormal returns around deal announcements are positive and larger when acquirers come from more restrictive bank regulatory environments. We interpret this evidence as more consistent with a benign form of regulatory arbitrage than a potentially destructive one.     

A Modified 'Square Root' Process for Determining the Value of the Option to (Dis)invest

Abstract:   We determine optimal investment criteria for a capital project whose cash flows evolve in terms of a 'modified square root' process. The modified square root process has properties similar to the Cox, Ingersoll and Ross (1985) 'square root' process but in addition, encompasses the possibility of negative cash flows. Although closed form solutions for the valuation equations implied by the modified square root process are the exception rather than the rule we are able to show that analytic solutions, in the form of infinite power series expansions, will always exist. Furthermore, we also show that when a prescribed set of regularity conditions is satisfied, these power series expansions converge to closed form valuation functions. The optimality criteria for capital investment decisions are then simplified considerably.     

“囚徒困境”困扰两大餐饮巨头

陷入"囚徒困境"的两大餐饮餐巨头,只能一而再再而三地实行各种优惠策略而不是联盟。     

An Improved Approach to Computing Implied Volatility

A well‐known problem in finance is the absence of a closed form solution for volatility in common option pricing models. Several approaches have been developed to provide closed form approximations to volatility. This paper examines Chance's (1993, 1996) model, Corrado and Miller's (1996) model and Bharadia, Christofides and Salkin's (1996) model for approximating implied volatility. We develop a simplified extension of Chance's model that has greater accuracy than previous models. Our tests indicate dramatically improved results.     

Volatility forecasting of crude oil futures market: Which structural change-based HAR models have better performance?

The paper focuses on the smooth and sharp structural changes in crude oil futures volatility and singles out the flexible Fourier form (FFF) and the modified ICSS algorithm to detect them, respectively, so as to explore whether different structural change-based HAR models exhibit significantly better performance for crude oil return volatility forecasting than traditional HAR-type models. The empirical results indicate that, on the one hand, crude oil market displays a strong evidence of breaks, and the incorporation of trigonometric terms can account for the structural changes in crude oil return volatility. On the other hand, the flexible Fourier form (FFF) based HAR-type models and the Structural Breakpoints (SB) based HAR-type models yield superior forecasting performance than traditional HAR-type models. Meanwhile, the forecasting results and economic performance of the former usually outperform the latter, particularly for the short- and medium-term forecasts.     

City formation with complex landscapes

Using simulation methods I explore some of the properties of the new economic geography model using a complex landscape. I introduce landscape complexity by allowing the existence of limited pathways that can be traversed at a lower cost than most other paths. I also introduce a river that may be crossed at limited points and may be used to transport goods. I find that adding complexity substantially alters how many cities form and where they form. Compared with a simple landscape, complex landscapes produce a distribution of city sizes that more closely resemble the actual distribution of city sizes.     

Optimal Contracts in a Continuous-Time Delegated Portfolio Management Problem

This article studies the contracting problem between an individualinvestor and a professional portfolio manager in a continuous-timeprincipal-agent framework. Optimal contracts are obtained inclosed form. These contracts are of a symmetric form and suggestthat a portfolio manager should receive a fixed fee, a fractionof the total assets under management, plus a bonus or a penaltydepending upon the portfolio's excess return relative to a benchmarkportfolio. The appropriate benchmark portfolio is an activeindex that contains risky assets where the number of sharesinvested in each asset can vary over time, rather than a passiveindex in which the number of shares invested in each asset remainsconstant over time.     

Does Corporate Governance Matter in the Contractual Form of Fund Management Companies in China?

ABSTRACT

Operating under a regulatory environment with weak enforcement of investor protection, the contractual form of fund management companies (FMCs) in China’s emerging fund industry presents some complex governance issues in addition to the conventional agency problems of modern public corporations. Using 288 firm-year observations covering more than 98 percent of FMCs in China, this article presents the first systematic study on whether the quality of corporate governance mechanisms affects the performance of the contractual form of FMCs. Our results suggest that FMCs with good corporate governance do matter in generating favorable performance for fund investors in China.     

Business environment and the incorporation decision

Using firm-level data from 52 countries we investigate how a country’s institutions and business environment affect firm’s organizational choices and what impact the organizational form has on access to finance and growth. We find that businesses are more likely to choose the corporate form in countries with developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes and efficient bankruptcy processes. Corporations report fewer financing, legal and regulatory obstacles than unincorporated firms and this advantage is greater in countries with more developed institutions and favourable business environments. We do find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions.     

A flow-based corporate credit model

The main purpose of this paper is to develop a flow-based corporate credit model. This model can concurrently and endogenously generate a firm’s multi-period probabilities of liquidity crunch and expected liquidity shortfalls. This study builds a state-dependent internal liquidity model that incorporates both systematic and idiosyncratic shocks into corporate internal liquidity dynamics. The flow-based credit model differs from structural form credit models in that it considers a flow-based insolvency rather than a stock-based one, and has a potential to capture short-term credit information. Additionally, it differs from both reduced form and traditional accounting-based bankruptcy prediction models in that it is able to provide multi-period expected liquidity shortfalls endogenously.     

Testing weak form efficiency on the Toronto Stock Exchange

In order to test for weak form efficiency in the market a vast pool of individual stocks must be analyzed rather than a stock market index. In this paper, a model-based bootstrap is used to generate a series of simulated trials and a modified chart pattern recognition algorithm is applied to all stocks listed on the Toronto Stock Exchange (TSX). The number of patterns detected in the original price series is compared with the number of patterns found in the simulated series. By simulating the price path specific time dependencies present in real data are eliminated, making price changes purely random. Patterns, if consistently identified, carry information which adds value to the investment process, however, this informativeness does not guarantee profitability. Conclusions are drawn on the relative efficiency of some sectors of the economy. Although the null hypothesis of weak form efficiency on the TSX cannot be rejected, some sectors of the Canadian economy appear to be less efficient than others. In addition, pattern frequencies appear to be negatively dependent on the two moments of return distributions, variance and kurtosis.     

Dividends, Share Repurchases, and the Substitution Hypothesis

We show that repurchases have not only became an important form of payout for U.S. corporations, but also that firms finance their share repurchases with funds that otherwise would have been used to increase dividends. We find that young firms have a higher propensity to pay cash through repurchases than they did in the past and that repurchases have become the preferred form of initiating a cash payout. Although large, established firms have generally not cut their dividends, they also show a higher propensity to pay out cash through repurchases. These findings indicate that firms have gradually substituted repurchases for dividends. Our results also suggest that before 1983, regulatory constraints inhibited firms from aggressively repurchasing shares.     

A simplified portfolio analysis of the long-run demand for money in Australia

The paper derives the form of a money demand equation when money is explicitly considered as one element of a limited set of financial assets. The results from estimation of the portfolio model are compared with those from the typical single equation form and are superior in a number of respects. In contrast with the traditional model the impact equations of the portfolio model provide no evidence of serial correlation or parameter instability. Systems estimation provides for a much faster speed of adjustment than is in evidence with the traditional model. Estimation by ridge regression procedures to accomodate collinearity among the regressors further enhances this speed of adjustment.     

Do earnings reported under IFRS tell us more about future earnings and cash flows?

We contribute to the debate about the relative benefits and costs of International Financial Reporting Standards (IFRS) adoption by examining whether earnings persistence and the association between current accounting earnings and future cash flows differ for firms reporting under IFRS versus firms reporting under United States Generally Accepted Accounting Principles (U.S. GAAP) and firms reporting under non-U.S. domestic accounting standards (DAS). Using samples comprised of 58,832 firm-year observations drawn from 33 countries from 2002 through 2008, we find that positive earnings reported under IFRS are no more or less persistent than earnings reported under U.S. GAAP but losses reported under IFRS are less persistent than losses reported under U.S. GAAP. Moreover, we find that earnings reported under IFRS are no more or less persistent and are no more or less associated with future cash flows than earnings reported under non-U.S. DAS. However, we find that earnings reported under U.S. GAAP are more closely associated with future cash flows than earnings reported under IFRS. This is important if a key role of reported earnings is to help investors form expectations about future cash flows. These results should be of interest to academics and standard-setters as they debate the merits of transitioning to IFRS, and to parties who use reported earnings to form expectations about future earnings and cash flows.     

Audit Committees and Managerial Influence on Audit Quality: ‘Voluntary’ versus ‘Mandatory’ Approach to Corporate Governance

This study provides empirical evidence on how managerial influence to reduce audit quality is moderated by a combination of the audit committee (AC) form and compliance with AC best practice guidelines. There is a negative association between managerial ownership and audit fees; however, the association becomes positive when a voluntary AC follows best practices. Furthermore, the results are robust to the exclusion of industries with large frequency in the sample, the consideration of Korean business groups and recessionary times. The results of this study imply that a voluntary approach to corporate governance, which encourages companies to follow best practice guidelines in the form and composition of the AC, is more effective in controlling management than a mandatory approach. This study contributes to policy making aimed at improving AC effectiveness.     

Target abnormal returns associated with acquisition announcements: Payment,acquisition form,and managerial resistance

Abnormal returns earned by target firms at the time of initial acquisition announcements are related to form of payment, degree of resistance, and type of offer. Results indicate that interdependence among these characteristics is important. Previous research suggests that tender-offer targets earn higher abnormal returns than merger targets. After controlling for payment method and degree of resistance, however, the difference in abnormal returns between tender offers and mergers is insignificant. Resisted offers are associated with insignificantly higher returns than unresisted offers. Abnormal returns associated with cash offers are significantly higher than those associated with stock offers.