An Investigation of the Impact of Interest Rates and Interest Rate Volatility on Australian Financial Sector Stock Return Distributions

Abstract:   This paper extends the existing literature by analysing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multivariate GARCH‐M model is used to analyse the impact of deregulation on the financial institutions sector. It was found that there is a consistent inter‐temporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks – effectively increasing the required rate of return and explaining the continued rationalisation of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre‐deregulation period to negative in the post‐deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.     

Learning to Build a Car: An Empirical Investigation of Organizational Learning

abstract    This study provides a longitudinal empirical examination of the basic elements of Nonaka's (1994 ) dynamic theory of organizational knowledge creation. First, the data illustrate the notion that knowledge creation in organizations proceeds through an intertwined four-phase process: (1) socialization (tacit knowledge amplification); (2) externalization (tacit knowledge is transformed into explicit knowledge); (3) combination (explicit knowledge amplification); and (4) internalization (explicit knowledge is transformed into tacit knowledge). Second, the study extends Nonaka's theory by comparing the relative amount of intra-organizational knowledge transfer occurring during periods of product redesign with the amount of knowledge transfer occurring during steady-state periods. The questionnaire data suggest that the overall level of knowledge transfer is higher during periods of product redesign than it is during the steady state, whereas the interview data indicate that there were more mentions of knowledge transfer during the steady state. Third, the data suggest that there may be benefit in adding tacit error correction as a fifth phase in the learning cycle. This phase is characterized by a dual emphasis on externalization and internalization. Implications of these findings are discussed.     

Identifying individual differences: An algorithm with application to Phineas Gage

In many research contexts it is useful to group experimental subjects into behavioral “types.” Usually, this is done by pre-specifying a set of candidate decision-making heuristics and assigning each subject to a heuristic in that set. Such approaches might perform poorly when applied to subjects with prefrontal cortex damage, because it can be hard to know what cognitive heuristics such subjects might use. We suggest that the Houser, Keane and McCabe (HKM) robust classification algorithm can be a useful tool in these cases. An important advantage of this classification approach is that it does not require one to specify either the nature or number of subjects' heuristics in advance. Rather, both the number and nature of the heuristics are discerned directly from the data. To illustrate the HKM approach, we draw inferences about heuristics used by subjects in the well-known gambling task [Bechara, A., Damasio, A.R., Damasio, H., Anderson, S., 1994. Insensitivity to future consequences following damage to human prefrontal cortex. Cognition 50, 7–12].     

Firm responses to secondary stakeholder action

In this paper, we explore the conditions under which secondary stakeholder groups are likely to elicit positive firm responses. To this end, we build upon and advance Mitchell, Agle, and Wood's (1997) stakeholder saliency and identification framework by defining saliency in terms of actions, not perceptions, and by proposing that power, legitimacy, and urgency arise out of the nature of stakeholder–request–firm triplets. To test this framework, we build a unique dataset of over 600 secondary stakeholder actions within the United States, all concerning environmental issues over the period 1971–2003. Copyright © 2006 John Wiley & Sons, Ltd.     

The fiscal sociology of Gino Borgatta: Pareto, extra-economic redistribution and economic growth

The purpose of this study is to establish the extent to whichBorgatta's early fiscal sociology is consistent with, and differentfrom, Vilfredo Pareto's critical views on fiscal theory. Particularemphasis is given to the treatment of the relationship between‘extra-economic’ redistribution, achieved throughfiscal measures, and economic growth. Since evidence of Pareto'sinfluence is much weaker in Borgatta's more mature studies,the ‘definitive’ Paretian fiscal sociology thatemerged in his early ‘Lo Studio Scientifico dei FenomeniFinanziari’ is investigated for possible indications ofwhy Borgatta did not subsequently develop fiscal studies furtheralong Paretian lines.     

Explaining qualifications in audit reports using a support vector machine methodology

The verification of whether the financial statements of a firm represent its actual position is of major importance for auditors, who should provide a qualified report if they conclude that the financial statements fail to meet this requirement. This paper implements support vector machines (SVMs) to develop models that may support auditors in this task. Linear and non‐linear models are developed and their performance is analysed using training samples of different size and out‐of‐sample/out‐of‐time data. The results show that all SVM models are capable of distinguishing between qualified and unqualified financial statements with satisfactory accuracy. The performance of the models over time is also explored. Copyright © 2005 John Wiley & Sons, Ltd.     

Tax management strategies with multiple risky assets

We study the consumption-portfolio problem in a setting with capital gain taxes and multiple risky stocks to understand how short selling influences portfolio choice with a shorting-the-box restriction. Our analysis uncovers a novel trading flexibility strategy whereby, to minimize future tax-induced trading costs, the investor optimally shorts one of the stocks (or equivalently, buys put options) even when no stock has an embedded gain. Alternatively, an imperfect form of shorting the box can reduce aggregate equity exposure ex post. Given these two short selling strategies, it is common for an unconstrained investor to short some equity while a constrained investor holds a positive investment in all stocks. With no shorting, the benefit of trading separately in multiple stocks is not economically significant.     

THE VALUE ADDED BY BANK ACQUISITIONS: LESSONS FROM WELLS FARGO'S ACQUISITION OF FIRST INTERSTATE

Wells Fargo's recent acquisition of First Interstate Bancorp represents one of the relatively uncommon cases in which the economic values of both the acquiring and acquired banks increased sharply upon announcement of the deal. The transaction is also one of the few cases where the bidder in a major bank acquisition chose purchase instead of pooling accounting–despite the fact that the deal was openly hostile and that Wells Fargo had to fight off a competing bid from First Bank Systems.
Based on the stock market's reaction to this merger battle, as well as the results of their study of 153 bank mergers over the period 1985–1991, the authors argue that the most promising mergers are those presenting large opportunities to reduce costs by eliminating redundant operations. The stock market is much less responsive to other merger rationales such as diversification or entry into new markets in pursuit of growth.
The Wells case also suggests that a preoccupation with the accounting treatment of a merger is a mistake if it becomes the primary reason for turning down a deal that creates economic value, or if it prevents the bidder from choosing the lowest-cost method of financing the deal. Throughout the bidding contest for First Interstate, the stock market responded positively to the success of Wells Fargo's efforts, even though purchase accounting would have a large adverse impact on reported earnings.
But if the stock market does not appear to care about the accounting treatment of a merger, the method of financing does appear to matter to investors. In general, acquisitions financed with cash are viewed more favorably by the market than stockfunded transactions. The evidence also suggests, however, that acquiring firms can reduce the negative impact of stock deals by making conditional offers (those in which the number of shares depends on the stock price performance of the acquirer) and by combining such offers with stock repurchase programs.     

Freedom and international marketing: Janis Joplin's candidacy as patron of the field

The role of international marketing in society as perceived by the public is under attack. The discipline has progressively been linked to exploitation, increases in poverty, and special interests. The appeal of the discipline has declined, academics have switched fields, and its domain has shrunk severely from its heyday in the 1970s. This article presents a call for a new breadth of thinking in the discipline. The concept of freedom offers international marketing a key change agent in times of global adjustment. © 2005 Wiley Periodicals, Inc.