Financial determinants of systematic risk in real estate investment trusts

Financial theory and empirical evidence suggest that a firm's systematic, or market related, risk is related to its financial conditions. This study empirically investigates the financial determinants of systematic risk for Real Estate Investment Trusts (REITs). The study is an examination of sample of 32 REITs for the period 1976–1978. The results indicate that systematic risk varies directly with financial leverage, business risk, and advisor fee. The explanatory power of the relationship between systematic risk and financial variables exceeds that of previous studies wherein firms were pooled across industry groups. The higher explanatory power observed even with limited data suggests that better estimates of coefficients of financial determinants of systematic risk may be obtained through analysis conducted on an industry by industry basis. Furthermore, such industry-specific analysis provides useful results to practicing financial managers in their financial policy considerations. With the knowledge of how the financial decisions affect the firm's systematic risk, a manager may be able to manipulate those variables so as to reduce the systematic risk for his or her firm and thus increase the market value of the firm's securities.     

Behavior of default-risk premiums for corporate bonds and commercial paper

The question addressed in this paper is whether default-risk premiums for short-term and for long-term securities behave differently over time. The question is important because it affects decisions by corporations and state and local governments as to the maturity structure of their debt. It also affects decisions by investors as to the maturity and the type and grade of security in which they invest. Several hypotheses have been advanced about the behavior of default-risk premiums for different maturities. The purpose of this paper is to test these hypotheses empirically with a set of data heretofore unused. In so doing, new insights are gained into the behavior of default-risk premiums for different maturities.     

Single vs simultaneous equation models in capital asset pricing: The role of firm-related variables

An alternative modeling system that more adequately describes the returns-generating process than the usual single equation CAPM is provided in this paper. Firm-related variables are introduced directly into the model using a simultaneous equation system while avoiding the estimation problems of previous attempts. While not empirically testing this system with the single-equation “multi-beta” models, the relationships between the alternative processes are explored.     

Managerial pay and financial performance of small business

The purpose of this study is to examine empirically whether managerial pay of small-firm executives is more closely related to profitability or generation of sales. Conventional economic doctrine supports the hypothesis that chief executives are paid primarily to advance profitability. The contrary hypothesis, given impetus by Baumol [2] and Galbraith [8], asserts a closer relationship between compensation and sales. Previous studies of large corporations have produced conflicting results. Regression analysis of the 78 small firms in this study reveals managers receiving compensation correlating fairly closely with both profitability and sales. The cumulative forces at work in these firms impacting upon managerial pay appear to have wrought a linkage conductive toward motivating managers to be both “bottom line” and marketing oriented.     

Attitudes toward the corporation and the evaluation of social data

A scale is presented to measure attitudes about the social role of corporations, and to test for any association between attitudes and perceptions of the relevance of social data. Attitudes are found to be associated with perceptions of the relevance of social data. The relationship between attitudes and perceptions is also conditioned by the source of the social data.     

Profitability market segmentation: Identifying the heavy users of overdraft checking

Users of overdraft checking, a bank service that allows customers to draft checks in excess of their existing balances up to a predetermined limit, were studied to see if they could be segmented on the basis of utilization rates. A total of 271 overdraft checking customers from among 489 enrollees in the service returned completed questionnaires. All enrollees were customers of a bank in a midwestern city of slightly more than 100,000 inhabitants. Data covering the extent of overdraft usage, utilization of other of the bank's services, and sociodemographic backgrounds were collected. Customer groups varying in overdraft usage intensity and date of enrollment in the service were derived through cluster analysis. Multiple discriminant analysis was used to relate use of other services and background data to group membership. Heavy users, the most profitable bank customers, were younger, had lower incomes, and were better educated than light users. Furthermore, early heavy users tended to be similar in socioeconomic profile to later heavy users. So a re view of the characteristics of the first few intense users would have been helpful in the development of a marketing program to attract additional profitable customers.     

Further evaluation of conglomerate performance

In the early years conglomerates were seen as the financial concept of the future. More recently their economic advantages have been seriously questioned. This article reviews the existing literature on conglomerate performance and extends the investigation through the early seventies. While conglomerates provide investors with less variability from market movements than do nonconglomerate firms, they provide less diversification than closed-end investment companies and mutual funds. Furthermore, risk adjusted performance measures of conglomerates did not differ significantly from those of other firms of portfolios. Thus, conglomerates should be viewed simply as another category of investments that plot along the security market line.     

Using Box-Jenkins techniques in sales forecasting

This study analyzes the form, stability, and accuracy of Box-Jenkins forecasting models developed for 27 sales series. The order of autoregressive, differencing, and moving average factors is shown for each complete model along with “goodness of fit” criteria. Forecasting models are then presented for a reduced data set and accuracy is compared with seasonally adjusted linear regressions. The results suggest that Box-Jenkins models are often unstable, “goodness of fit” criteria are a poor guide to the best forecasting models, log transforms do not improve accuracy, and Box-Jenkins forecasts are usually (but not always) better than projections made with linear regression techniques.     

An application of logit analysis to prediction of merger targets

Logit estimation is applied to predicting the probability that a given firm will be a merger target. Care is taken to account for variation in industry characteristics. The statistical performance of the model and its predictive power in a holdout sample support the approach used.     

Product liability and safety: Perspectives from business versus public policy makers

Product liability and the improvement of product safety are major concerns confronting business executives and public policy makers. This article reports the results of a mail survey that explored some of the major issues surrounding product liability and safety. The survey solicited the opinions of manufacturing executives, insurance executives, and state insurance commissions. Analysis of the data involved comparison of the opinions of the three groups of respondents. In general, the respondents agreed that (1) the increased emphasis on safety has caused prices to rise, but products are safer; (2) the salesforce should be used more as a source of information on the safe use of products; (3) a good safety record is a competitive edge for a manufacturing firm; (4) small businesses should not be treated more leniently than large ones in product liability cases; and (5) the CPSC's activities have generally been favorable. In contrast, manufacturing and insurance executives were more negative regarding the application and enforcement of strict liability than were insurance commission respondents.     

Effects of short-sale restrictions

A recently developed simplified portfolio construction scheme is used here to compare empirically the characteristics of optimal equity holdings with and without restrictions on the sale of borrowed securities. Among other results, unrestricted portfolios are found to have less overall risk, and more return per unit of portfolio risk, than positions restricted to long-only holdings.     

Expectancy-value attitude models: An analysis of critical theoretical issues

Expectancy-value models are analyzed in terms of their level of abstraction and the rules governing how beliefs and evaluations combine to produce an attitude. In addition, suggestions are made as to modes of operationalization and methods for assessing the reliability and validity of any representation.     

Importance,elicitation order,and expectancy × value

Considerable confusion surrounds the role of importance in multiattribute attitude models. The present study tests a theoretical proposition as to how attribute importance is manifested in the expectancy-value formulation. Though not unequivocal, the results suggest that order of elicitation may be more valid than structured ratings as an indicant of attribute importance.     

Segmenting U.S. firms for export development

In attempting to aid firms in their exporting efforts, various segmentation approaches have been developed by government agencies and research groups. Each of these segmentation schemes aims at the identification of specific export needs within different groups of firms. The four major approaches suggested in the literature propose to differentiate firms into groups based on the level of international activities, managerial attitudes, size, and service orientation of firms. The research presented in this article investigates these four segmentation approaches by applying them to common data collected from small and medium sized U.S. manufacturing firms and investigating their effectiveness in differentiating among groups of firms. The results indicate that the differentiation of firms according to their level of international activities is the most effective one of the four approaches investigated. Subsequently, various specific needs of exporting firms are presented and a redirection of current export promotion efforts is suggested.     

Venture planning and analysis: An integrated approach to investment evaluation and product pricing

The venture planning and analysis (VPA) system is a quantitative analysis useful for developing pricing policy, projecting financial results, and comparing various investment opportunities. It is an integrated approach to product (investment) evaluation utilizing both marketing and cost information to determine an optimum pricing strategy.A venture plan is developed which covers several years of the anticipated life of the product (venture). The pricing strategy is determined by identifying the relationship between price, volume, and variable cost which yields the greatest positive cash flow. Revenue, variable expense, fixed expense, and engineering expense are input by fiscal year.The VPA system computes interest expense/income and cash flows. Ratios of the venture's quality-marginal investment quality factor and investment quality factor-are displayed, as are matrices which indicate the sensitivity of the venture to changes in the input data. Computer generated plots also help illustrate the cash flow and optimum level of production for each fiscal year of the analysis.     

Capital expenditure decision making in small firms

A number of studies have been conducted to determine the extent to which large firms utilize sophisticated techniques in capital expenditure decision making. This research effort focuses on financial decision making procedures of small firms, exploring the techniques utilized to evaluate investment opportunities, methods employed to adjust for risk, purposes of expenditures and concern for profitability, and the source and cost of funds. In light of the recent debate on the capital shortage issue, small firms were also asked what type of tax reform they deemed most desirable to stimulate capital investments.     

Determining the cost of common equity capital: The direct method

One of the most critical aspects of the corporate capital budgeting process is the determination of a proper “hurdle rate” or “cut-off” rate to employ in the screening of proposed uses of funds. This hurdle rate is now commonly referred to in both industry and the literature of financial management as the cost of capital. General agreement on how to measure the equity component of the cost of capital (i.e., the cost of common equity) has not yet been achieved by either practitioners or theorists. A unique approach that shows considerable promise differs from the abstract mathematical techniques typically used. It involves quizzing directly a sample of the corporation's existing common stockholders as to their dividend and capital gain expectations. Proper interpretation of the responses can provide top corporate management with an estimate of the cost of equity capital, as represented by the returns (expected) by shareholders. Thus, top level management has more complete information from the firm's owners on the returns that are expected from the investment of retained earnings.     

Marketing information system utilization: An application of self-concept theory

The impact of marketing information systems (MIS) has not been substantial and developed systems have not been highly utilized. Borrowing the theory of self-concept from the behavioral sciences, 46 system users' self-images, ideal self-images, and the images of a significant other (one who facilitates usage of the MIS) are measured and related to the image of a heavy user of the information system. The results shed some light on the system usage problem and provide some direction for marketing the MIS to marketing managers/ system users.