Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty

Using longitudinal data for initial public offering (IPO) firms, we examine the role played by structural differences between different types of alliance portfolios in the relationship between IPO firm alliance portfolios and shareholder returns. We show that because of the different signals they send to the capital market, different types of alliance portfolios affect IPO firm performance differently. Namely, financial markets seem to reward firms whose alliance portfolio is diversified across different types of alliances (a portfolio high in functional diversity), but not those who align their alliance partners into multiple functional points in the value chain (a portfolio high in vertical scope). We also examine the signaling role of alliance portfolios under different IPO firm uncertainty conditions. We note that uncertainty about the IPO firm is not limited to pre-IPO quality uncertainty. Investors also face transition uncertainty, post-IPO uncertainty about the ability of the firm to adapt to the new managerial challenges it faces and succeed post-IPO. We find that these two types of uncertainties moderate alliance portfolio effects in different ways. The beneficial effects of alliance portfolios in mitigating liabilities of newness is of greater importance for firms associated with higher quality uncertainty and for those associated with lower transition uncertainty.     

A reexamination of corporate sell-offs of real estate assets

This article reexamines the now generally accepted notion that sell-offs of real estate assets provide positive returns for sellers but not for buyers. Following previous research, we use event study methods, but we modify the conventional market model to permit its residuals (unexpected returns) to be described by a time-varying conditional variance. We also differ from previous work in that our sample contains only sell-offs that can be precisely dated. Although we find substantial evidence of time-varying volatility in the unexpected return series, our economic results confirm the conventional viewpoint.     

Knowledge-Based Simulation for Business Process Redesign

This research focuses on knowledge-based simulation modeling for process redesign. Though the proposed technique can be utilized for ‘starting with a clean slate’, it is particularly well suited for situations where an existing process is already documented, and an attempt is being made to improve or redesign this process. We present a methodology that utilizes the basic process structure (represented in a matrix form), and using a rule-based knowledge acquisition system, interacts with the analyst to construct the process knowledge base. Once all the knowledge has been acquired, the system automatically generates an executable simulation model. Major benefits of this algorithmic approach include (1) reduced model building time, (2) increased analyst productivity, and (3) the assurance that basic process characteristics are not accidentally omitted in the simulation model. To test the validity and applicability of the proposed technique a prototype system has been developed that generates simulation programs in SLAM.© 1997 John Wiley & Sons, Ltd.     

Time variation in the correlation structure of exchange rates: high‐frequency analyses

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the liquidity of the assets. We employed a time‐stamped high‐frequency data set of exchange rates, namely, the US$–deutsche mark and the US$–yen exchange rates, to calibrate the observed time variation in the correlation structure between their returns. We also documented time variation in the liquidity structure of these rates. We then attempted to link the observed correlations with the liquidity via an application of an illiquid trading model first developed by Scholes and Williams (1976). We show that the observed correlation structure is strongly biased by the liquidity and that it is possible to effect at least a partial rectification of the otherwise downward‐biased observed correlation. The rectified sample correlation is, therefore, more appropriate for input into models used for forecasting, option pricing, and other risk management applications. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:127–144, 2001     

An Internet Access Solution: MANET Routing and a Gateway Selection Approach for Disaster Scenarios

After natural and man-made disasters, the telecommunication infrastructure is usually severely damaged, thus hampering communication and rescue services. It is impossible for disaster victims to make use of communication devices such as cellular phones, iPads, or their laptops to make a connection with the outside world (Internet). With infrastructure less and decentralized features, the mobile ad hoc network (MANET) can play an important role in improving communication in post-disaster affected areas. Therefore, the important functionalities of a MANET that allow users to create dynamically configurable wireless networks without fixed infrastructure using common devices such as mobile phones is necessary. This paper reports on the development of new techniques for routing selection and gateway load balancing in MANETs. Network fairness, throughput, and packet delays are measured empirically. The proposed mechanisms can reduce network congestion and consequently improve communication in affected areas.     

Commodity betas with mean reverting output prices

This paper provides a theoretical derivation of commodity beta (stock price sensitivity to commodity price) using a contingent-claim model. The model incorporates operating leverage, financial leverage, costly financial distress, and mean reverting commodity prices; and highlights the important role played by the speed of reversion of the commodity price. It is used to identify theoretically the main determinants of commodity beta. Commodity beta is predicted to be an increasing function of the operating and financial leverage of the firm, and a decreasing function of the company’s tax rate and the level, volatility and speed of reversion of the commodity price. Empirical tests with a sample of gold mining firms provide support for these predictions, particularly the new implications of the model (the effect of the commodity price’s speed of reversion and the company’s tax rate).     

Yield spreads,agency costs and the corporate bond call feature

This paper theoretically compares yields and optimal default policies for callable and non-callable corporate debt. It shows that, contrary to the conventional wisdom, it is possible for the yield spread (callable minus non-callable) to be negative. It also identifies the key determinants of the yield spread. Next, it shows that the optimal default trigger for non-callable debt is higher than the trigger for callable debt, resulting in additional default-related costs. Thus, the use of non-callable debt gives rise to an indirect agency cost of early default, which is the difference in total firm value with callable and non-callable debt. This agency cost provides a rationale for the existence of callable debt. By examining the determinants of the magnitude of this agency cost, the conditions that make callable debt more attractive (to the issuing firm) relative to non-callable debt are identified. This allows certain predictions to be made regarding the likelihood of a call feature in a corporate bond. The model's implications are supported by existing empirical studies.     

Knowledge,firm boundaries,and innovation: Mitigating the incumbent's curse during radical technological change

We explore the relationship between a firm's organization and its ability to face a radical technological change. We suggest that, during such a change, the presence of both in‐house upstream knowledge and downstream market linkages, within a firm's boundary, has its advantages. We test our predictions in the context of the robotics industry where manufacturers of mechanically controlled “brawny” robots, which were valued mainly for their payload capacity, faced the advent of electrically controlled “brainy” robots that emphasized accuracy and repeatability. We find that “preadapted” firms—the ones with prior relevant technological knowledge and with access to internal users of “brainy” robots—were the innovation leaders in the emerging new technology but were laggards in the old technology. Copyright © 2014 John Wiley & Sons, Ltd.     

Valuation of tax loss carryforwards

Tax loss carryforwards (TLC) are a valuable asset because they can potentially reduce a company’s future tax payments. However, there is often a great deal of uncertainty regarding the probability and timing of these tax savings. We propose a contingent-claim model to value this asset. The value is determined primarily by the size of accumulated carryforwards relative to earnings. We show that, for poorly performing firms with large TLC, (1) the realizable (or fair) value of the tax losses can be significantly smaller than the book value, and (2) the tax losses can account for a significant fraction of the company’s equity value. The model is illustrated by calibrating it to a couple of companies with large carryforwards. Finally, we show how the model can be used to compute the marginal tax rate of a company with carryforwards.     

Islamic and Conventional Equity Market Movements During and After the Financial Crisis: Evidence from the Newly Launched MSCI Indices

This paper examines the relationship between the Islamic and conventional equity indices by employing the newly launched MSCI Global Islamic Indices which began in 2008. We argue for the case of cointegration supported by fundamental, category and habitat theories, and against cointegration due to the fundamental difference between Islamic and conventional stocks in terms of debt ratio, accounts receivable and interest bearing securities. We find Islamic and conventional equity markets move together despite fundamental differences and given that market microstructure, dividends, capital gains, taxation and governance systems are different across the markets. Almost simultaneous movement of the permanent and cycle components of Islamic and mainstream equity indices has been supported by the application of the Beveridge Nelson (BN) time series decomposition technique. Theoretically, the volatility of Islamic equities should be lower due to their low leverage ratio. Surprisingly, permanent parts of the Islamic indices appear to be more volatile during the crisis period and less volatile during the post‐crisis period.