A fuzzy-based approach to residual income equity valuation

The decision of whether to buy, hold or sell equities depends on whether the current price reflects the stock’s intrinsic or fundamental value. The residual income valuation model expresses this fundamental value as a function of current book value of equity plus the sum of discounted expected residual income. Although past and present income and book value information is readily available to investors, values taken by essential parameters in this model are unknown ex ante, particularly the cost of equity or discount rate and future residual income. Any point estimate of equities’ fundamental value according to the model may therefore conceal considerable variation around the estimate, even in the presence of minor perturbations in the model’s inputs. In this paper, we introduce a fuzzy-based approach which reflects the imprecision inherent in certain parameters in equity valuation. We extend the limited prior fuzzy-based literature on investment analysis by introducing the concept of fuzzy fundamental equity value, initially on an illustrative example. To further demonstrate this fuzzy representation, illustrative financial statement data for individual UK companies are considered, with fuzzy fundamental equity values evaluated over progressive forecast horizons. Our series of illustrative applications (which encompasses the standard crisp approach) make the inherent uncertainty involved in estimating equity value immediately apparent.     

Constraints on Loan Sales and the Price of Liquidity

In the syndicated loan market, borrowers and syndicate arrangers sometimes employ contractual restrictions that influence a loan’s liquidity. We analyze two types of constraints on loan resales: (1) prior consent constraints implemented by the borrower or the syndicate’s lead arranger and (2) a minimum denomination requirement for loan sales. We hypothesize that constraints could be mechanisms for fostering relationships and/or facilitating the resolution of financial distress and find some support for each notion. We find that resale constraints are more likely when borrowers are small and have relatively poor credit ratings. We also find that loans with any type of constraint have higher all-in-spreads and are more likely to be secured than unconstrained loans and that the marginal cost of constraining liquidity is relatively high.

Litigation Patterns in Automobile Bodily Injury Claims 1977–1997: Effects of Time and Tort Reforms

This study uses data from the Insurance Research Council to investigate changes in the use of attorneys and in the filing of legal claims to resolve automobile third‐party bodily injury claims between 1977 and 1997. We find results consistent with the general public perception that the use of attorneys and the filing of legal claims have increased over the study period. In addition, we find evidence that tort reforms enacted by the states have slowed the rates of increase in the use of attorneys and in the filing of legal claims to resolve automobile insurance claim disputes.     

Incentives and invention in universities

We show that universities in the United States that provide stronger royalty incentives to faculty scientists generate greater license income, controlling for university characteristics. We use pre‐sample data on university patenting to control for the potential endogeneity of royalty shares. Faculty responds to royalties both in the form of cash and research lab support, indicating both pecuniary and intrinsic research motivations. The impact of incentives is larger in private than in public universities, and we provide new survey evidence on the organization and objectives of university licensing offices to explain this difference. Royalty incentives work both by raising faculty effort and sorting scientists across universities. The primary impact of incentives is to increase the quality rather than the quantity of inventions.     

“Every today was a tomorrow”: An integral method for indexing the social mediation of preferred futures

The visions we hold of the future, whether they are of utopias or dystopias, are not simply a matter of personal imagination. Our conceptions of the future are mediated to us as much as they are privately created by us. To this point, futures studies have not developed an integrative and broad-based framework for considering the social mediation of futures. Understanding how social mediation impacts on our futures visioning requires an interpretive framework that can cope with the multilayered nature of futures visions, the worldviews that are associated with them and a theory of mediation that can be applied within such a context of ‘depth’. Using theory-building methodology, the current paper attempts this task by describing a theory of social mediation that builds on the integral futures framework. An application of the framework explores the relationship between various scenarios of health care futures, their associated worldviews and the mediational factors that influence our visions of future health care systems.     

Accounting “Boot Camp”

This study examines the effectiveness of a program designed to set appropriate student expectations and motivate students to put forth the necessary effort to succeed in intermediate accounting and other upper-division accounting courses. At a mid-sized public university in the Western US many students enrolled in Intermediate Accounting I (their first upper-division course) struggle with the rigor and academic demands of this course, resulting in failure rates of 30–45%. In many cases, students new to upper-division courses appear to lack a commitment to, or awareness of, the effort needed for success in the accounting program. The faculty implemented an accounting “Boot Camp” to prepare new accounting majors for the expectations of the program. This paper details the implementation of the Boot Camp and reviews its effectiveness by comparing the performance of attendees with the performance of non-attendees. After controlling for other contributing factors, the evidence suggests that attendees outperform their non-attending peers in Intermediate Accounting I. This relatively low-cost intervention should be attractive to faculty concerned about the common problem of students failing and then retaking intermediate accounting.     

Comprehending Comprehensive Income

Comprehensive income (CI) contains a mixture of realised, unrealised, temporary, persistent and recyclable elements. How, when and where these elements should be reported in income and equity have been issues intensively debated (and changed) by international regulators over the last 20 years. This article traces the major threads of the debate and places changes within the context of empirical academic research. Our contention is that the recent IAS 1 (AASB 101) Presentation of Financial Statements, effective 1 July 2012, has benefited from past academic research that focused on the value relevance from disaggregation and presentation of unrealised other comprehensive income (OCI). We conclude by outlining the equity posting and recycling to profit or loss (P&L) issues and assert that, because of the inconsistent nature and complexity of OCI, it would benefit from further research.     

The Option and Decision to Repurchase Stock

Open‐market repurchase programs provide firms with the flexibility to manage the cash and risk aspects of their operations. We examine at which stage cash and risk matter in the typical stages of a repurchase program: announcement, implementation, and withdrawal. Cash and risk considerations appear to matter only at the implementation stage, and partially negate the traditional signaling effect around program announcement.     

The use of favors by emerging market managers: Facilitator or inhibitor of international expansion?

This article explores the use of favors by emerging market managers, the impact of using favors on their firms’ growth, legitimacy, and reputation in a variety of business environments, and how the use of favors affects firms’ paths to international expansion. We discuss the concept of favors, and to illustrate the process of favors, we look at culturally rooted examples of their use by managers from the BRIC countries of Brazil, Russia, India, and China. Utilizing neo-institutional theory, we create a typology of four types of environments in which managers and firms from emerging markets conduct business with various relational entities (e.g., governments, customers, suppliers, competitors, alliance partners). We posit that the use of favors by managers compensates for the relatively weak legitimacy of formal institutions in emerging market environments, with favors illustrating the resulting reliance upon informal cultural-cognitive institutions. We develop propositions regarding the impact of the use of favors on the organizational outcomes of growth, legitimacy, and reputation of emerging market firms doing business in each of the four environments. This leads to further propositions regarding how the use of favors can influence their firms’ internationalization growth paths. We conclude that the impact of favors on international growth paths results from the fit or non-fit of their use with the level of legitimacy of the formal institutional environment of the focal relational entity in various business transactions.     

Personal Word of Mouth,Virtual Word of Mouth,and Innovation Use

The authors examine the impact of word‐of‐mouth communication on innovation use. Hypotheses are developed linking both personal and virtual word of mouth (vWOM) directly to innovation use. The authors also examine the mediating role of two additional variables that link word of mouth and innovation use. Existing research suggests that personal word of mouth (pWOM) indirectly influences intensity of innovation use through its impact on consumer perceptions of the size of local adopter population. In addition, both personal and virtual word‐of‐mouth influence should be positively associated with consumer perceptions of the availability of complementary products, which prior studies have linked to variety of innovation use. The authors test these hypotheses using data collected from 247 Japanese adopters of new‐generation portable gaming devices. Findings indicate that both personal and virtual word of mouth are directly related with variety of innovation use, which is in turn related with intensity of use. In addition, pWOM is positively related with both intensity of use and variety of use through its impact on consumer perceptions of (1) the perceived size of the local adopter population and (2) the availability of complementary products. In contrast, through these same two paths, vWOM is negatively related with both intensity of use and variety of use.