The Impact of Macroeconomic Risk on Asset Prices in Ghana, 1997–2002

Abstract: The dwindling nature of overseas development assistance in the early part of the 1990s called for the establishment of capital markets in some African countries, including Ghana, with the view to increasing foreign direct investments and achieving sustainable inflows, growth and development. One important factor which affects the determination of prices and the growth of capital markets is macroeconomic risk which is quite high in developing countries. Following works done on advanced stock markets, this study seeks to investigate the impact of six macroeconomic risk factors on asset pricing in the various industrial classification — financial, manufacturing, food and beverages, distribution and mining under the Ghana Stock Exchange (GSE) for the period January 1997 to December 2002. Using the arbitrage pricing methodology developed by Ross (1976) and Chen et al. (1986) , the study revealed that investors in Ghana considered three main macroeconomic risk factors — short‐term interest rate risk, inflation risk and the term structure of the country's interest rate in the determination of the various industrial asset prices during the period under consideration. Analysis of the risks and returns profile of the industries also shows that financial assets made the best gains on the market. Both general and specific policy recommendations aimed at improving the performance of the GSE are explored.     

Futures and forward price differential and the effect of marking‐to‐market: Australian evidence

The objective of this paper is to examine the effects of marking‐to‐market of futures contracts on the price differential between futures and forward contracts based on the predictions of the Cox, Ingersoll and Ross (1981) (CIR) model. Cox et al ., (1981) derive a series of propositions with respect to the relationship between futures and forward prices and a set of testable implications. These are tested empirically in this paper using Australian data from November 1991 to June 1997. The results provide evidence of the presence of significant futures and forward price differences, where the futures price is consistently below the forward price. Only partial support is found for the Cox et al ., (1981) propositions, implying that the effect of marking‐to‐market is not able to fully account for the price differential. Therefore, it is not possible to rule out the influence of other institutional factors on the futures‐forward price difference.     

ALIGNMENT EXPOSED: HOW CEOS ARE PAID, AND WHAT THEIR SHAREHOLDERS GET FOR IT

This article begins by arguing that, for many companies, there is a significant "disconnect" between how managers are paid and what is actually achieved for shareholders. This paper answers two questions of prime importance to investors: Is there a way to know beforehand whether managers' incentives are well aligned with those of its shareholders? And does such alignment actually make a difference in the returns one is likely to see?
In answering the first question, the author argues that cash bonuses and performance-based equity grants (i.e., grants based on managers' meeting accounting-based operating targets) are likely to provide stronger, more cost-effective incentives than grants of stock or options because the former are generally based on measures over which managers have significantly more control than the stock price. Using this insight, the author develops a method for evaluating compensation structures based on the variability of compensation, the number and type of compensation metrics purportedly driving that variability (including the award of performance shares or options), the stability of those metrics over time, and the apparent level of discretion in the use of those metrics to either fund or distribute bonuses (including equity). All these elements are disclosed to varying degrees in the proxy statements or annual reports of companies.
Using his compensation scores for 140 companies and their return history over the last eight years, the author concludes that "high alignment" companies outperform their "low alignment" peers by more than 5% per year in total shareholder returns. Furthermore, increases in alignment scores by individual companies over time tend to lead to higher total shareholder returns, and degradation of scores lead to lower returns. In short, observable improvements in compensation structure appear to pay off in the form of significant abnormal returns.     

CREATING VALUE WITH MERGERS AND ACQUISITIONS

This report addresses two key questions for today's top executives: Do acquisitions create value for acquirers? And under what circumstances have acquisitions created the most value for acquiring shareholders?
The authors' analysis of over 1,500 completed deals by non-financial companies in the United States over the past 12 years shows that, at announcement, acquirers' shareholders suffer small losses, on average, in the short term around the initial deal announcement. Over longer intervals, such as one or two years following the announcement of the transaction, acquirers tend to slightly outperform industry peers.
The average or median market response hides tremendous variability in how the market has reacted to individual deals, however. This article provides evidence that the "right" M&A transaction can create substantial value for acquirers. One-quarter of the transactions lead to market-adjusted gains in excess of 5% for the acquirer and oneeighth of the transactions lead to gains in excess of 10% in the short term. However, some deals have also destroyed substantial shareholder value.
Financing structure is a key driver of the stock market reaction. Stock-financed transactions, on average, have a negative stock market reaction, while cash-financed transactions have benefited acquirers in both the short term as well as the long term.
Acquisitions of private companies or assets and units of public companies have consistently generated higher returns for acquirers than purchases of public companies.
Moreover, EPS dilution is not a major driver of how the stock market reacts to a deal. Although "accretive" deals perform slightly better than "dilutive" ones in the short and long run, the difference is small and not statistically significant. Over the long run, acquiring shareholders have benefited the most from deals within the same industry and that avoid targets with relatively optimistic earnings growth projections.     

University-Provided Retirement Planning Support and Retiree Financial Satisfaction During Retirement: Differences by Gender, Job Classification, and Planning Behavior

Sound financial planning and financial advice is necessary to achieve retirement income adequacy. The shift from defined benefit to defined contribution pension plans and the recent bankruptcy of Enron Corporation underscore the importance of managing retirement accumulation and liquidation risks. This study analyzes the effectiveness and adequacy of institutional-provided information and advice on employees' retirement planning decisions and their satisfaction with financial resources during retirement. Results suggest that retirement planning should begin earlier in an employee's career and that employer-provided retirement information and advice is a highly valued service. Gender, planning practices, job classification, and age are all significant predictors of satisfaction with financial resources during retirement. Targeting women and union employees with retirement information and advice that focuses on allocating contributions using a balanced portfolio approach should result in significant increases in satisfaction with financial resources during retirement. Regulatory objectives should focus on reducing retirement accumulation and liquidation risks, improving the delivery of professional financial advice to plan participants, and expanding qualified retirement plan choice for all labor force participants. To encourage employer participation in employee retirement planning, employers acting in "good faith" should be federally protected from liability for providing retirement planning information and advice to employees.     

When and how should infant industries be protected?

This paper develops and analyzes a welfare maximizing model of infant industry protection. The domestic infant industry is competitive and experiences dynamic learning effects that are external to firms. The competitive foreign industry is mature and produces a good that is an imperfect substitute for the domestic good. A government planner can protect the infant industry using domestic production subsidies, tariffs, or quotas in order to maximize domestic welfare over time. As protection is not always optimal (although the domestic industry experiences a learning externality), the paper shows how the decision to protect the industry should depend on the industry's learning potential, the shape of the learning curve, and the degree of substitutability between domestic and foreign goods.Assuming some reasonable restrictions on the flexibility over time of the policy instruments, the paper subsequently compares the effectiveness of the different instruments. Given such restrictions, the paper shows that quotas induce higher welfare levels than tariffs. In some cases, the dominance of the quota is so pronounced that it compensates for any amount of government revenue loss related to the administration of the quota (including the case of a voluntary export restraint, where no revenue is collected). In similar cases, the quota may even be preferred to a domestic production subsidy.     

Human resource management,union voice and the use of discipline: an analysis of WIRS3

Three outcomes of personnel practice (rates of discipline, quitting and absence) are analysed. There was no firm association with measures of practices associated with Human Resource Management. By contrast, unionisation was strongly associated with the low use of discipline and low quit rates: union ‘voice’ remains influential in the 1990s.