Research notes and communications management objectives in mergers and acquisitions

A taxonomy of managerial goals in mergers and acquisitions is developed through a cluster analysis of data from interviews with merger and acquisition practitioners. These clusters of objectives overlap with some objectives cited for mergers and acquisitions in the academic literature, but the correspondence is not complete. Further analysis shows that different types of mergers and acquisitions are characterized by different managerial objectives. The implications of this research for the development of a contingency model of the relationship between managerial objectives and mergers and acquisitions are discussed.     

The Relationship Between Unsystematic Security Returns and Earnings Forecast Errors*

This paper extends the Australian evidence on the information content of earnings announcements by considering both the sign and magnitude of unexpected earnings for a sample of 120 firms in the period 1964–1972, and a further 117 firms for 1972–1980. Results at both the portfolio level and the individual security level are highly significant and are consistent with those documented in both the United States and New Zealand.     

Beyond cash-additive risk measures: when changing the numéraire fails

We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on cash-additive risk measures, for which the eligible asset is a risk-free bond, on the grounds that the general case can be reduced to the cash-additive case by a change of numéraire. However, discounting does not work in all financially relevant situations, especially when the eligible asset is a defaultable bond. In this paper, we fill this gap by allowing general eligible assets. We provide a variety of finiteness and continuity results for the corresponding risk measures and apply them to risk measures based on value-at-risk and tail value-at-risk on L ^p spaces, as well as to shortfall risk measures on Orlicz spaces. We pay special attention to the property of cash subadditivity, which has been recently proposed as an alternative to cash additivity to deal with defaultable bonds. For important examples, we provide characterizations of cash subadditivity and show that when the eligible asset is a defaultable bond, cash subadditivity is the exception rather than the rule. Finally, we consider the situation where the eligible asset is not liquidly traded and the pricing rule is no longer linear. We establish when the resulting risk measures are quasiconvex and show that cash subadditivity is only compatible with continuous pricing rules.     

Uneasy Alliances: Tradition and ICT Transformation in the Value Chain

Information and Communication Technology-enabled transformation in modern organizations continues to attract managerial and academic attention. One of the less explored aspects of this kind of initiative is the impact of organizational transformations on the culture of employees and the impact of the diverse workforce cultures on transformation initiatives. Set against the backdrop of acculturation theory, this paper examines the delicate balance between aggressively modernizing the competitive profile of the firm on one hand and nurturing the firm's various organizational cultures and historical traditions on the other. We contribute to the literature by presenting a case of a large, high-profile firm that experienced the problems of disaggregated cultures arising from small business amalgamation when attempting to transform its value chain operation.     

Translational benchmark risk analysis

Translational development – in the sense of translating a mature methodology from one area of application to another, evolving area – is discussed for the use of benchmark doses in quantitative risk assessment. Illustrations are presented with traditional applications of the benchmark paradigm in biology and toxicology, and also with risk endpoints that differ from traditional toxicological archetypes. It is seen that the benchmark approach can apply to a diverse spectrum of risk management settings. This suggests a promising future for this important risk‐analytic tool. Extensions of the method to a wider variety of applications represent a significant opportunity for enhancing environmental, biomedical, industrial, and socio‐economic risk assessments.     

Reject inference in consumer credit scoring with nonignorable missing data

We generalize an empirical likelihood approach to deal with missing data to a model of consumer credit scoring. An application to recent consumer credit data shows that our procedure yields parameter estimates which are significantly different (both statistically and economically) from the case where customers who were refused credit are ignored. This has obvious implications for commercial banks as it shows that refused customers should not be ignored when developing scorecards for the retail business. We also show that forecasts of defaults derived from the method proposed in this paper improve upon the standard ones when refused customers do not enter the estimation data set.     

On Indexing Commercial Real Estate Properties and Portfolios

Commercial real estate indices play an important role in performance evaluation and overall investment strategy. However, the issue of how representative they are of the returns on portfolios of commercial properties is an open issue. Our study addresses this topic by analyzing a sample of 12,427 repeat sales transactions between Q4 2000 and Q2 2011. We find that the aggregate real estate indices (Moody’s REAL CPPI) do a good job of tracking real returns when portfolios of more than 20 properties are considered. At this level, tracking is somewhat less effective than our benchmark of the S&P500 and its component stocks. Compared to the average root mean squared deviation (RMSD) from one asset, randomly selected portfolios with 20 assets reduce the RMSD by 75 % for the S&P500 compared to 66 % for the aggregate index. These results suggest that the aggregate indices can be effective in hedging and evaluating the performance of direct real estate investment. We further find that tracking at the property type level provides little benefit over using an aggregate index. However, indexing using a property type and location matched index provides lower tracking error for any level of diversification.