Exchange‐Traded Fund Introductions and Closed‐End Fund Discounts and Volume

Exchange‐traded funds (ETFs), like closed‐end funds (CEFs), are managed portfolios traded like individual stocks. We hypothesize that the introduction of an ETF in an asset class similar to an existing CEF results in a substitution effect that reduces the value of the CEF's shares relative to that of its underlying assets. Our event studies show that upon the introduction of a similar ETF, CEF discounts widen significantly and relative volume declines significantly. Single‐equation and systems estimation models show that the widening in discounts and reduction in volume are related to returns‐based measures of the substitutability of ETFs for CEFs.     

Canada Generators Limited*

This case depicts an armchair situation involving a newly formed small private Canadian company that has recently begun operations in Western Canada. Of concern to the owners is their understanding that Canadian generally accepted accounting principles (GAAP) are about to be replaced by International Financial Reporting Standards (IFRS) at the end of 2010, and so the statements in their present form will have to be conformed to the new standards if the company decides to go public with a share offering, which is an option it is considering. Other issues facing the company concern the appropriate accounting and reporting requirements that will be required in order to allow the company to secure additional financing and engage in some necessary research and development. This case is suitable for students who have progressed beyond the introductory financial accounting level; it involves adjustments to inventory and capital asset accounts as well as income effects including taxation, and it draws out some of the more important nontransitional differences between GAAP and IFRS.     

A longitudinal examination of intellectual capital reporting in Marks & Spencer annual reports, 1978–2008

This paper examines the intellectual capital content of Marks & Spencer annual reports over a 31 year period from 1978 to 2008 using a content analysis instrument. Motivated by the gap among prior studies in respect of longitudinal samples, the paper also sets out to note the ways in which the annual report has changed over the three decades in response to the supposed change from the assumption that fixed assets and operations were the key driver of value creation to a belief that knowledge and the stock of intellectual assets had become a more powerful explanation of value-added. The paper finds an overall increase in intellectual capital reporting over the 31 years but notes a particular increase in relational capital reporting and a re-ordering of sub-categories over time. Narrative (as opposed to quantitative) reporting has increased and ‘factual’ (as opposed to opinion and judgement) reporting has decreased. The paper concludes that annual report narratives have reflected a wider change in the market for information among investors and other stakeholders. Whilst the exact nature of these market changes was beyond the scope of this paper, it is concluded that changing patterns of ICR reflect the increased complexity of the messages being conveyed in voluntary reporting. The increased reliance on IC in value creation has, we argue, created a need for narrative of less factual certainty and with more ambiguity and circumspection in describing increasingly complex knowledge assets.     

International comparison of returns from conventional,industrial and 52-week high momentum strategies

The performance of industrial and 52-week high momentum strategies is compared to the conventional strategy, using a large sample of stocks drawn from multiple countries covering a quarter of century to 2007. The sample of 51,879 stocks in 51 countries removes the potential for criticism, such as data mining, and provides more generalisable findings and knowledge concerning the robustness and usefulness of return from momentum strategies. Both the industry and 52-week high strategies generate positive returns but neither is greater than the conventional momentum strategy. A new 52-week high industry momentum strategy is examined and it achieves a similar result.     

The real effects of financial constraints: Evidence from a financial crisis

We survey 1,050 Chief Financial Officers (CFOs) in the U.S., Europe, and Asia to directly assess whether their firms are credit constrained during the global financial crisis of 2008. We study whether corporate spending plans differ conditional on this survey-based measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally caused many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents said they canceled or postponed their planned investments. Our results also hold in Europe and Asia, and in many cases are stronger in those economies. Our analysis adds to the portfolio of approaches and knowledge about the impact of credit constraints on real firm behavior.     

Board interlocks and the propensity to be targeted in private equity transactions

We examine how board networks affect change-of-control transactions by investigating whether directors’ deal exposure acquired through board service at different companies affect their current firms’ likelihood of being targeted in a private equity-backed, take-private transaction. In our sample of all US publicly traded firms in 2000–2007, we find that companies which have directors with private equity deal exposure gained from interlocking directorships are approximately 42% more likely to receive private equity offers. The magnitude of this effect varies with the influence of directors on their current boards and the quality of these directors’ previous take-private experience, and it is robust to the most likely classes of alternative explanations—endogenous matching between directors and firms and proactive stacking of board composition by management. The analysis shows that board members and their social networks influence which companies become targets in change-of-control transactions.     

PERFORMANCE REPORTING BY MALAYSIAN LOCAL AUTHORITIES: IDENTIFYING STAKEHOLDER NEEDS

The concept of public accountability promotes the need for a comprehensive set of performance‐related information to satisfy the information needs of a diverse stakeholder interest group. However, literature concerned with the scope of information to be disclosed, and in particular within the context of a developing country, is limited. This paper identifies the information set which stakeholders of Malaysian local authorities consider relevant in the monitoring and assessment of local authority performance. Stakeholders indicated strong interest in performance information that is not traditionally disclosed in the financial statements: non‐financial information particularly performance measurement of outputs, outcomes, efficiency and effectiveness. Disclosures in the Statement of Revenue and Expenditure and forward‐looking information are generally regarded as the most important disclosures. The results of the study also indicate differences amongst stakeholders as to the level of importance that they place on certain items especially items related to internal policies and governance and financial position of the local authorities. The findings will be of significance to policy makers interested in improving the performance reporting of Malaysian public sector entities, particularly local authorities.     

The Long-Horizon Performance of REIT Mergers

We study long-horizon shareholder returns in a comprehensive sample of Real Estate Investment Trust (REIT) mergers, to test whether or not the anomaly of post-merger underperformance observed in conventional firms applies to the case of REITs. Constructing synthetic benchmark portfolios controlling for firm size and for book-to-market value ratio, we find that 60-month buy-and-hold abnormal returns for REIT acquirers are significantly negative at approximately −10%, supporting the position that REIT merger acquirers underperform non-merging REITs in the long run. We find no evidence to challenge previous studies reporting positive announcement period returns for acquirers when the target is privately held, but we do find evidence that these positive returns do not persist. The long term performance of acquiring REITs is approximately the same whether the target is public or private.

Personal acquaintances and salespeople in financial services: Differences between customers and friends

The existence, benefit and management of customer–salesperson relationships in the marketing of financial services are topics of increasing interest. Much of the sales and marketing literature implies that because of time spent together, salespeople and some of their customers develop close relationships that are akin to friendships. Evidence from social psychology confirms that strong relationships are founded in deep knowledge of others gained over long periods after sharing personal information. This paper reports on the results of a study of salespeople's assessments of their personal acquaintance with customers and friends in a financial services setting. The results indicate that salespeople do not classify customers as friends on all the dimensions of personal acquaintance. Furthermore, the nature of personal acquaintance differs between ‘good’ customers (those salespeople enjoy serving), and ‘bad’ (those they do not), with the exception of the personal acquaintance dimensions of interaction frequency and personal disclosure. We discuss the implications for practice and make recommendations for future research.     

Ethics and Ambition

Derrick Bell is one of the US' most forthright and best-known commentators on race and ethics. Bell, now visiting professor at New York University's School of Law, attracted headlines when he became the first tenured African-American professor at Harvard Law School in 1971, only to leave in protest about the lack of African-American women on the faculty. He also resigned as dean of Oregon Law School after the school refused to hire a qualified Asian-American woman. His latest book, Ethical Ambition, applies his thinking on ethics to the world of business.