Regulatory Monitoring and the Impact of Bank Holding Company Dividend Changes on Equity Returns

This paper examines the impact of announcements of dividend changes by bank holding companies (BHCs) on equity returns. Many empirical studies of dividend behavior reveal positive market responses to dividend increases, which have been interpreted as confirmation of the signalling theory of dividend behavior. These studies typically focus on “large” changes, however. We argue that BHCs allow for a stronger test of signalling theory because regulatory monitors, in effect, “certify” dividend signals. Consequently, even “small” dividend increases should result in positive abnormal equity returns. Using the event study methodology, our results generally confirm this hypothesis for a sample covering the period 1973–1987.     

PRINCIPAL AND AGENCY TRADES BY STOCKBROKERS ARE COMPLEMENTARY: THE WELFARE EFFECTS OF DEREGULATING AGENCY TRADING AND BANNING PRINCIPAL TRADES

This paper models the demand for stockbrokers' services in Australia, consisting of two related services, agency trades and principal trades. The relationship between agency and principal trades is estimated. The results indicate that the two services are complements rather than substitutes. Using unique accounting information, a model of agency and principal trading activities is estimated to determine the welfare effects of (i) deregulating brokerage commissions and (ii) a ban on principal trading by brokers. The results show a sizeable welfare gain to investors (amounting to about 60% of the gross revenue of brokers) stemming from deregulation of the minimum charge for agency trades. The loss in profitability by brokers due to deregulation is also computed and shown to be negligible. The results also show that due to complementarity, a ban on principal trading, even with deregulation of agency trading, can impose an arbitrarily high cost on investors which could, in principle, offset the gains from agency deregulation.     

EFFECTS OF SMALL BUSINESS ACCOUNTING BASES AND ACCOUNTANT SERVICE LEVELS ON LOAN OFFICER DECISIONS

This study examines effects of four combinations of accounting bases and service levels — GAAP and income tax bases, and audit and review service levels — on loan officers' decisions, both separately and in interaction. It examines effects on loan decisions and perceptions of interest rates, default risk, confidence, and usefulness. The interaction of accounting basis and service level significantly affects perceived confidence but does not affect other decisions. Accounting basis and service level separately affect interest rates, default risk, and report usefulness, but do not affect the loan decision.     

Bayesian MCMC Mapping of Quantitative Trait Loci in a Half-sib Design: a Graphical Model Perspective

Graphical models provide a powerful and flexible approach to the analysis of complex problems in genetics. While task-specific software may be extremely efficient for any particular analysis, it is often difficult to adapt to new computational challenges. By viewing these genetic applications in a more general framework, many problems can be handled by essentially the same software. This is advantageous in an area where fast methodological development is essential. Once a method has been fully developed and tested, problem-specific software may then be required. The aim of this paper is to illustrate the potential use of a graphical model approach to genetic analyses by taking a very simple and well-understood problem by way of example.     

Technology Transfer and Learning

Despite the fact that international technology transfer has been widely studied its management still encounters many difficulties. To fully understand the issues that are relevant to the process of transferring production technology, it is necessary to determine the important factors that influence this process. Learning curves are often used as a means of determining the time required to become familiar with a transferred technology. The cases discussed in this paper have all employed learning curves, which were established at the outset of the transfer process and which turned out to be incorrect. As a consequence the envisaged efficiencies were not obtained. This phenomenon is partly due to the fact that when technology is transferred to a relatively inexperienced 'destination company', the curve is established based on the circumstances of the 'source company'. The case study findings lead to the conclusion that to establish a realistic curve a more comprehensive method is required than simply basing anticipated performance on that achieved at the source company.     

Bank and Business Performance Measurement

Given the objective of maximizing the wealth of existing shareholders, this paper discusses some of the issues that arise in attempting to measure the performance of individual businesses within a bank. The paper describes two return measures – return on assets within a business and the return on the 'equity' of an individual business – and discusses the appropriate bench–marks. The paper ends with a discussion of the cost of unused allocated capital and the appropriate performance metric.
(J.E.L.: G30, G31).     

A Cross‐national Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints*

We provide evidence on the impact of tax incentives and financial constraints on corporate R&D expenditure decisions. We contribute to extant research by comparing R&D expenditures in the United States and Canada, thereby exploiting the differences in the two countries' R&D tax credit mechanisms and generally accepted accounting principles. The two tax incentive mechanism designs are consistent with differing views of the degree of financial constraints faced by firms in these economies. Our sample also allows us to explore the effects of capitalizing R&D on Canadian firms. Employing a matched design, we document relations between tax credit incentives and R&D spending consistent with both Canadian and U.S. public companies responding as though they are not financially constrained. We estimate that the Canadian credit system induces, on average, $1.30 of additional R&D spending per dollar of taxes forgone while the U.S. system induces, on average, $2.96 of additional spending. We also find that firms that capitalize R&D costs in Canada spend, on average, 18 percent more on R&D. Collectively, this evidence is important to the ongoing debates in both countries concerning the appropriate design of incentives for R&D and is consistent with the assumptions found in the U.S. tax credit system, but not those found in the Canadian system.     

Liquidity, Labels and Medium-Term Notes

We suggest that the medium-term note market provides an excellent laboratory for exploring the relationships between yield, liquidity, and the label affixed to a financial instrument. Crabbe and Turner (1995) examined the liquidity issue and uncovered the counter-intuitive result that issue size is unrelated to liquidity. Their study failed to examine a potential channel for a liquidity effect, however, in the form of multiple issues from a single, typically large, MTN registration filing. We find evidence that file size is significantly related to yield in a number of instances. Several other proxies for liquidity, such as frequency of issue, are also sometimes significantly related to yields. Contrary to Crabbe and Turner (1995) , we find that labeling a security an MTN can have an impact on its yield. The label "note" also appears to matter for yield in some instances.     

Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures

This article examines the puzzle of why futures prices continue to react to USDA crop reports despite the fact that reports appear to be no longer "newsworthy," that is, provide no better production estimates than private forecasts. The information value of reports is measured in terms of their influence on rational agents' harvest-time corn price expectations, which are uncovered using a Hamilton-type modeling approach. Results show that reports are still "newsworthy," as they would contribute to agents' price expectations if released a day early. Thus futures price reactions, which closely reflect price expectations, are rational and consistent with efficient markets hypothesis.     

Is your vision consistent?: A method for checking, based on scenario concepts

Common sense tells us that the future is an essential element in any strategy. In addition, there is a good deal of literature on scenario planning, which is an important tool in considering the future in terms of strategy. However, in many organizations there is serious resistance to the development of scenarios, and they are not broadly implemented by companies. But even organizations that do not rely heavily on the development of scenarios do, in fact, construct visions to guide their strategies. But it might be asked, what happens when this vision is not consistent with the future? To address this problem, the present article proposes a method for checking the content and consistency of an organization's vision of the future, no matter how it was conceived. The proposed method is grounded on theoretical concepts from the field of future studies, which are described in this article. This study was motivated by the search for developing new ways of improving and using scenario techniques as a method for making strategic decisions. The method was then tested on a company in the field of information technology in order to check its operational feasibility. The test showed that the proposed method is, in fact, operationally feasible and was capable of analyzing the vision of the company being studied, indicating both its shortcomings and points of inconsistency.