Majority and Minority Ownership of Publicly-Traded Firms: A Test of the Value of Control Using Market Multiples

Publicly-traded companies that are controlled by other publicly-traded companies provide a unique setting in which to test whether the market values of majority and minority ownership interests are proportionate to their ownership percentages. Test results indicate that the value of subsidiary net assets and net income are greater to majority shareholders than to minority shareholders. However, comparison of asset and income valuation with a sample of diffusely-held firms indicates that this valuation asymmetry is not due to a wealth transfer from the minority to the majority owners but to a discounting of the portion of the subsidiary owned by the minority shareholders.     

A Performance Comparison Between Cross-Sectional Stochastic Dominance and Traditional Event Study Methodologies

In this study, the performance of cross-sectional stochastic dominance (SD), first proposed by Falk and Levy (FL) (1989), is compared with three traditional event study methodologies: the Mean Adjusted model, the Market Adjusted model, and the Market and Risk Adjusted Returns model. The comparison technique we use is a simulations approach similar to that of Brown and Warner (BW) (1980). BW show that the Mean Adjusted and Market Adjusted Returns models perform as well as the more sophisticated Market and Risk Adjusted Returns model. FL, however, provide a very compelling argument against the three traditional event study methodologies. The problem, they note, is not the theoretical need for risk adjustment; it is the definition and measurement of risk. FL assert that the observed abnormal returns (or lack thereof) may be due to omitted variables, a market proxy effect, or other specification errors in implementing the traditional event study methodologies.The present research finds that SD analysis without the bootstrap method for statistical testing is not very useful at any level of abnormal return. However, when the bootstrap method of statistical testing is employed, SD is found to perform as well as, and sometimes better than, the three traditional models in detecting simulated abnormal performance at all test levels. The results are consistent with FL\'s assertion that the improved performance may result from the SD methodology being free from the specification errors inherent in the three traditional event study models.     

INTERNATIONAL INVESTORS' EXPOSURE TO RISK IN EMERGING MARKETS

We examine the empirical differences in emerging market betas (β's) taken across four major currencies (U.S. dollar, British sterling, Japanese yen, and German mark) where the β's are either mean-variance or mean-lower partial moment β's. The mean variance β's are found to be statistically similar to lower partial moment β's in most cases, which suggests they are robust to nonnormality in the data. The difference between the two β's has become less significant in recent years as emerging markets have become more stable. Furthermore, evidence is presented that β's obtained from both risk measures and calculated from returns denominated in different currencies have the same ordinal association. This shows the primacy of local risk over foreign exchange risk. We conclude that international investors can continue to use the mean-variance β in assessing risk in emerging markets, although investors should not give it a conventional equilibrium interpretation.     

Nieuwe Ontwikkelingen In Het Stelsel Der Regionale Jaarrekeningen

N.a.v. een voordracht. gehouden voor de Economische Faculteitsvereniging te Groningen op 8 maart 1960. Gaarne dank ik de heer M. P. Polhuis voor de bij de samenstelling van dit artikel geboden hulp.