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.     

Corporate asset purchases and sales: Theory and evidence

Purchases and sales of operating assets by firms generated $162 billion for shareholders over the past 20 years. This contrasts sharply with the evidence on mergers. This paper characterizes the behavior of value-maximizing firms, which could grow organically, purchase existing assets, or sell assets. The approach yields an endogenous selection model that links asset purchases and sales to fundamental properties of the firm. Empirical tests confirm the predictions of the model. In particular, return on assets and size strongly predict when firms purchase or sell assets, and the transaction size covaries with the value of capital employed by the firm. These findings indicate that corporate asset purchases and sales are consistent with efficient investment decisions.     

Government asset sales,economic nationalism,and acquirer wealth effects

We analyze acquirer wealth effects using a comprehensive sample of government asset sale announcements in 123 countries around the world in 1984–2009. Overall, we find positive abnormal returns to acquirers of state-owned assets. Returns are greater when the acquirer is domestic, when the sale occurs in a developing nation, and when the acquirer itself is not a former state-owned enterprise. Buyers of bailed-out firms experience average abnormal returns of 3.16%, compared to 0.70% for all other government sales. Our results suggest that the market favors acquirers that benefit from divesting governments driven by economic nationalism rather than sale revenue maximization.     

Optimum consumption and portfolio rules with money as an asset

This article generalizes Merton's optimum consumption and portfolio rules in continuous time by introducing money as a capital asset and allowing for uncertain inflation. Assuming that prices are log-normally distributed, a three-funds theorem is derived and the introduction of money is shown not to change the form of the standard inflation-adjusted CAPM but to change the market price of risk. The individual's consumption-portfolio problem is completely solved under uncertain inflation if his utility function is iso-elastic in its arguments. Comparative statics are used to assess the influence of changes in exogenous parameters on the individual's optimal rules.     

Value creation from asset sales: New evidence from bond and stock markets

This paper examines the influence of capital structure change on the value creation from asset sales. We find significant positive equity and debt excess returns are concentrated in the subsample of highly leveraged firms that use the proceeds to retire debt. Low leverage firms display no consistent significant excess equity or bond returns. The existent literature has focused on efficiency redistribution, increase in focus, and access to capital for investment as the primary drivers of value creation from asset sales and agency costs as a major factor that mitigates this value creation. The evidence presented in this paper suggests that the primary driver of value creation is from capital structure change for highly leveraged firms.     

The profitability of carry trades

The uncovered interest parity (UIP) condition suggests that carry trades whereby investors borrow in the low interest rate currency and invest in the high interest rate currency should not result in excess profits over the long run. In this paper, we test the significance of the conventional empirical failure of UIP condition. Using the four bilateral pound parities we fail to detect significant excess carry trade profits for the yen, euro and swiss franc–pound parities. The only parity for which the carry trade consistently makes excess profits is the dollar–pound parity. This result is somewhat surprising as this is the currency pair with the lowest interest rate differential. We are extremely grateful for the anonymous referee’s comments on this paper.     

Profiting from government stakes in a command economy: Evidence from Chinese asset sales

We examine the market response to an unexpected announcement of the sale of government-owned shares in China. In contrast to earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect from the policy's cancellation. We suggest that this results from the absence of a Chinese political transition to accompany economic reforms, so that the benefits of political ties outweigh the efficiency costs of government shareholdings. Companies managed by former government officials have positive abnormal returns, suggesting that personal ties can substitute for government ownership as a source of connections.     

Price determinants of Aboriginal art, and its role as an alternative asset class

This paper analyzes auction results for over 4000 paintings by Australian Aboriginal artists to investigate determinants of prices in the Aboriginal art market. This is the first financial study of an indigenous art market, and hedonic, repeat sales and hybrid regression analyses find it shares price determinants with traditional art markets (with price premia attached to artist name, death, painting size, leading auction house, and winter sale). However, Aboriginal art’s unique features significantly affect prices, particularly works that use traditional Aboriginal media and those with reputation-affirming traits. An Aboriginal Art Index provides 6.6% annual return (standard deviation 17.9%), which is comparable to traditional asset classes and superior on a risk-adjusted basis. Returns to Aboriginal art are negatively correlated with returns from other assets, and so it adds value to a diversified investment portfolio.     

The dynamics of US bank profitability

We examine the determinants of profitability for a large sample of US banks over the period 1984–2010. Specifically, we assess the extent to which short-run profits persist, and whether such persistence is affected by changes in regulation and the recent financial crisis. Our findings suggest that the competitive process reduces positions of abnormal profitability, albeit this is not immediate. There is also evidence that changes in regulation enacted during the 1990s affected both the level and persistence of bank profitability. The financial crisis of 2007–2010 appears to have resulted in an increase in the persistence of bank profitability.     

The sales force as an information transfer mechanism for new service development in the Thai insurance industry

New service development (NSD) is becoming increasingly important as the insurance industry in many countries opens up and becomes more competitive. This paper examines how customer views are integrated into the NSD process in the Thai insurance industry. The qualitative research was conducted using in-depth interviews with top officers, sales managers, senior vice-presidents of marketing and actuary managers in a number of leading life insurance and non-life insurance companies. The interviews investigated how NSD works in the Thai industry, focusing on how customer views enter the process. The results showed that the NSD process in Thailand is not oriented towards developing truly innovative products, but there is much NSD for adaptation of products from other markets. Sales agents act as a main information transfer mechanism, bringing in customer views through the sales managers, who play a role in NSD. Lack of cross-functional teamwork can cause failure in developing new products and services.     

The sales learning curve

When a company launches a new product into a new market, the temptation is to immediately ramp up sales force capacity to gain customers as quickly as possible. But hiring a full sales force too early just causes the firm to burn through cash and fail to meet revenue expectations. Before it can sell an innovative product efficiently, the entire organization needs to learn how customers will acquire and use it, a process the authors call the sales learning curve. The concept of a learning curve is well understood in manufacturing. Employees transfer knowledge and experience back and forth between the production line and purchasing, manufacturing, engineering, planning, and operations. The sales learning curve unfolds similarly through the give-and-take between the company--marketing, sales, product support, and product development--and its customers. As customers adopt the product, the firm modifies both the offering and the processes associated with making and selling it. Progress along the manufacturing curve is measured by tracking cost per unit: The more a firm learns about the manufacturing process, the more efficient it becomes, and the lower the unit cost goes. Progress along the sales learning curve is measured in an analogous way: The more a company learns about the sales process, the more efficient it becomes at selling, and the higher the sales yield. As the sales yield increases, the sales learning process unfolds in three distinct phases--initiation, transition, and execution. Each phase requires a different size--and kind--of sales force and represents a different stage in a company's production, marketing, and sales strategies. Adjusting those strategies as the firm progresses along the sales learning curve allows managers to plan resource allocation more accurately, set appropriate expectations, avoid disastrous cash shortfalls, and reduce both the time and money required to turn a profit.     

An examination of gender stereotyping as an explanation for vertical job segregation in public accounting

Theorizing that sex-related stereotypes impede women's progression to leadership positions, this study tests the hypothesis that sex-role stereotypes negatively influence the evaluation of female accountants, thus reducing the upward mobility of women to partnerships in public accounting. Although the pro-male bias in our findings was less than robust, the study revealed instances where male managers devalued female managers who exhibited certain “masculine” leadership styles.     

Endogenous entry/exit as an alternative explanation for the disciplining role of independent analysts

Gu and Xue [2008. The superiority and disciplining role of independent analysts. Journal of Accounting and Economics, this issue, doi:10.1016/j.jacceco.2008.02.002] study the disciplining effect of independent analysts on the accuracy and forecast relevance of the forecasts of non-independent analysts. One of the intriguing results is that while independent analysts issue inferior forecasts, their presence appears to reduce the forecast bias, improve the forecast accuracy and increase the forecast relevance of forecasts issued by non-independent analysts. We explore alternative explanations for the Gu–Xue results. Our evidence of endogenous entry and exit of independent analysts provides a more compelling explanation for the reported results.     

The other side of value: The gross profitability premium

Profitability, measured by gross profits-to-assets, has roughly the same power as book-to-market predicting the cross section of average returns. Profitable firms generate significantly higher returns than unprofitable firms, despite having significantly higher valuation ratios. Controlling for profitability also dramatically increases the performance of value strategies, especially among the largest, most liquid stocks. These results are difficult to reconcile with popular explanations of the value premium, as profitable firms are less prone to distress, have longer cash flow durations, and have lower levels of operating leverage. Controlling for gross profitability explains most earnings related anomalies and a wide range of seemingly unrelated profitable trading strategies.     

The price of risk and ambiguity in an intertemporal general equilibrium model of asset prices

We consider a version of the intertemporal general equilibrium model of Cox et?al. (Econometrica 53:363–384, 1985) with a single production process and two correlated state variables. It is assumed that only one of them, Y ₂, has shocks correlated with those of the economy’s output rate and, simultaneously, that the representative agent is ambiguous about its stochastic process. This implies that changes in Y ₂ should be hedged and its uncertainty priced, with this price containing risk and ambiguity components. Ambiguity impacts asset pricing through two channels: the price of uncertainty associated with the ambiguous state variable, Y ₂, and the interest rate. With ambiguity, the equilibrium price of uncertainty associated with Y ₂ and the equilibrium interest rate can increase or decrease, depending on: (i) the correlations between the shocks in Y ₂ and those in the output rate and in the other state variable; (ii) the diffusion functions of the stochastic processes for Y ₂ and for the output rate; and (iii) the gradient of the value function with respect to Y ₂. As applications of our generic setting, we deduct the model of Longstaff and Schwartz (J Financ 47:1259–1282, 1992) for interest-rate-sensitive contingent claim pricing and the variance-risk price specification in the option pricing model of Heston (Rev Financ Stud 6:327–343, 1993). Additionally, it is obtained a variance-uncertainty price specification that can be used to obtain a closed-form solution for option pricing with ambiguity about stochastic variance.     

中国资管的历史性机遇

在以"依法治国与资产管理市场改革"为主题的中国财富管理50人论坛第三届年会上,交通银行资产管理中心总裁马续田指出,中国资产管理与全球领先水平差距巨大,必须抓住人民币国际化等历史机遇,稳步迈向国际化、全球化。他说中国资管行业遥望全球巨人中国国内银行理财的发展速度是非常快的,十年时间从零到15万亿人民币,平均每年增长40%。但是与全球的资产管理巨人相比,还有非常大的差距。通过以下几个指标可以看出来。一是AUM的规模。目前中国国内银行最大的资产管理规模两万多亿人民币,相当于三千多亿美元。全球主     

Shaking the tree: an agency-theoretic model of asset pricing

Summary. In this paper, we develop an agency-theoretic extension of the Lucas asset pricing model and examine the resulting asset price dynamics. In the model, an agent of the firm can expand or contract the firms output and dividend payments in response to exogenous shocks, although expansions become increasingly costly for the agent to maintain. Analysis of numerical simulations shows that the time-series of equilibrium asset prices exhibits both significant time-varying conditional heteroskedasticity, and longer memory persistence.We would like to thank Beth Shorish for her patience and guidance during this project, as well as conference participants at the 1998 North American Econometric Society Summer Meetings, Montreal, and the 53rd Econometric Society European Meetings, Berlin for their many useful comments.     

Towards an understanding of profitability analysis within the residual income valuation framework

This paper argues that there is a mis-match between formal theoretical accounting valuation models, and practical approaches to profitability analysis and valuation. In particular, none of the linear information models published to date exhibit an obvious role for profitability analysis. For example, in the standard Ohlson model, earnings and book value apparently summarise all the value relevant information available from the firm's financial statements and there is no apparent need for any further investigation of the accounting numbers beyond these specific line items. The purpose of this paper is to attempt to investigate potential analytical links between formal valuation models and practical profitability analysis. Specifically, we attempt to show how key features of practical profitability analysis might be incorporated into formal valuation models. In this respect there are two particular aspects of valuation practice to which the formal models published to date have paid no attention. First, in practice we often see explicit reference made to the demand side (sales), and supply side (costs) of the business. Second, we often see attempts to benchmark the financial ratios of one firm against the corresponding ratios of firms in the same industry. The purpose of this paper is to attempt to explain why such practices make sense in the context of an attempt to model the principal determinants of firm value within a residual income valuation framework.     

The role of information transparency in the product market: an examination of the sustainability of profitability differences

Review of Accounting Studies - We investigate whether information transparency at the industry level is associated with the sustainability of within-industry differences in profitability. Since...