Do dividends matter more in declining markets?

We find dividends do matter to shareholders, but more in declining markets than advancing ones. Dividend-paying stocks outperform non-dividend-paying stocks by 1 to 2% more per month in declining markets than in advancing markets. These results are economically and statistically significant and robust to many risk adjustments and across industries. In addition, we find an asymmetric response to dividend changes based on market conditions: dividend increases matter more in declining markets than advancing ones. Tests indicate that results are not due to more profitable firms and appear not to be caused either by free cash flow or signaling explanations. We also find that it is the existence of dividends, and not the dividend yield, that drives returns' asymmetric behavior relative to market movements.     

Life Sciences Roundtable: Strategy and Financing

In light of the challenges facing the pharmaceutical industry, a distinguished group of pharma executives and strategic and financial advisers discusses the following corporate decisions:

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The estimation of Gini coefficients from grouped data: Upper and Lower Bounds

The conventional method of estimating the Gini coefficient (e.g., for an income distribution) from grouped data on a continuous variable is known to be an underestimate. This note provides a distribution free upper bound, using information about class boundaries.     

Mean estimation bias in least squares estimation of autoregressive processes

Estimation of the parameters of an autoregressive process with a mean that is a function of time is considered. Approximate expressions for the bias of the least squares estimator of the autoregressive parameters that is due to estimating the unknown mean function are derived. For the case of a mean function that is a polynomial in time, a reparameterization that isolates the bias is given. Using the approximate expressions, a method of modifying the least squares estimator is proposed. A Monte Carlo study of the second-order autoregressive process is presented. The Monte Carlo results agree well with the approximate theory and, generally speaking, the modified least squares estimators performed better than the least squares estimator. For the second-order process we also considered the empirical properties of the estimated generalized least squares estimator of the mean function and the error made in predicting the process one, two and three periods in the future.     

JUST SAY NO TO WALL STREET: PUTTING A STOP TO THE EARNINGS GAME

CEOs are in a bind with Wall Street. Managers up and down the hierarchy work hard at putting together plans and budgets for the next year only to discover that the bottom line falls far short of Wall Street's expectations. CEOs and CFOs are therefore left in a difficult situation; they can stretch to try to meet Wall Street's projections or prepare to suffer the consequences if they fail.
All too often, top managers react by suggesting or even mandating that middle- and lower-level managers redo their forecasts and budgets to get them in line with external expectations. In some cases, managers simply acquiesce to increasingly unrealistic analyst forecasts and adopt them as the basis for setting organizational goals and developing internal budgets. But either approach sets up the firm and its managers for failure if external expectations are impossible to meet.
Using the recent experiences of Enron and Nortel, the authors illustrate the dangers of conforming to market pressures for unrealistic growth targets. They emphasize that an overvalued stock, by encouraging overpriced acquisitions and other value-destroying forms of overinvestment, can be as damaging to the long-run health of a company as an undervalued stock. Ending the "expectations game" requires that CEOs reclaim the initiative in setting expectations and forecasts so that stocks can trade at close to their intrinsic value. Managers must make their organizations more transparent to investors; they must promise only those results they have a legitimate prospect of delivering and be willing to inform the market when they believe their stock to be overvalued.     

Entrepreneurship as foresight: A complex social network perspective on organisational foresight

This paper addresses the relationship between foresight and entrepreneurship. It characterises the foresight inherent in entrepreneurial activity as situated within particular discourses, or communities of practice (CoPs) in a range of structures. The argument is based on the use of complexity theory (CT) to provide insight into the dynamics of entrepreneurial activity. Complexity theories of entrepreneurship are grounded in empirical studies of entrepreneurial action. A multilevel model (MM) characterising emergent structures within the entrepreneurial domain is presented as an extension of existing CT, with entrepreneurship characterised as the practice of foresight relating to that structure. The model is grounded in two case studies of entrepreneurial ventures in high velocity business environments, airline services, and sound system accessories. An empirical model—EROS—Experiments, Reflexivity, Organising Domains, and Sensitivity—is developed to reflect entrepreneurial processes at the level of the individual, the firm, and inter-firm connections—and the interactions between them. The notion of the CoP is used to deepen the analyses, examining how the layers of the MM are constituted through the foresight inherent in entrepreneurial activity over time. As well as presenting a coherent theoretical understanding of the entrepreneurial landscape, there are practical implications for policy-makers and educators wishing to improve entrepreneurial foresight.     

Sustaining entrepreneurial business: A complexity perspective on processes that produce emergent practice

This article examines the management practices in an entrepreneurial small firm which sustain the business. Using a longitudinal qualitative case study, four general processes are identified (experimentation, reflexivity, organising and sensing), that together provide a mechanism to sustain the enterprise. The analysis draws on concepts from entrepreneurship and complexity science. We suggest that an entrepreneur’s awareness of the role of these parallel processes will facilitate their approaches to sustaining and developing enterprises. We also suggest that these processes operate in parallel at multiple levels, including the self, the business and inter-firm networks. This finding contributes to a general theory of entrepreneurship. A number of areas for further research are discussed arising from this result.     

Investigating the effects of computer mediated interruptions: An analysis of task characteristics and interruption frequency on financial performance

Financial and accounting tasks require high levels of concentration as well as cognitive capacity. Today, advanced technology can help facilitate the effective and efficient completion of such tasks. At the same time, however, these same technologies can interrupt work flow and create work-related stress, thus having a deleterious effect on task performance. These interruptions can be characterized across a number of different dimensions, including frequency, complexity, duration, and relevance to the primary task, to name a few. This study examines the effects of interruption frequency, task complexity, and individual characteristics on cognitive load and subsequent decision-making performance on financial tasks. As hypothesized, the results indicate the significant influence of interruption frequency and order of task complexity on cognitive load which influences performance. This research has implications on the design and use of information systems by accounting professionals in order to reduce potential negative effects.     

The effects of local labour market conditions on welfare programme participation

A fractional imputation method is applied to Iowa administrative data to deal with a problem of missing data. The effects of local labour market conditions and mobility of household heads on Family Investment Program (FIP) participation are evaluated. Results show that mobility increases the opportunity for employment and decreases the FIP participation rate for low-income families. An increase in predicted unemployment rates decreases labour force participation and increases programme participation; an increase in unpredicted unemployment rates increases labour force participation and decreases programme participation. Overall, the effects are relatively larger in rural areas than in nonrural areas in Iowa.     

A discriminant analysis of factors affecting the employment of urban youth

While the issue of youth unemployment has received a great deal of attention by policy makers, there has been little empirical research on factors which affect the demand for young workers at the micro level of actual labour market settings. This paper offers some evidence on entry level wages, unskilled job characteristics, and recruitment practices as factors affecting the employment of urban youth. A bivariate discriminant analysis is applied to survey data on employers located in five, centralized urban labour markets and shown that firm size, turnover, number of unskilled job slots, school referrals and employee–friend referrals are significant, differentiating factors between firms who have young workers on their payroll and firms who do not employ youth. These differentiating factors are related to the structure of youth labour markets.