European Union Enlargement Announcement and Corporate Valuations

This study explores the effects of the European Union accession announcement on the valuations of companies in the prospective member states. I examine firm level data from ten countries which joined the EU in May 2004. My analysis reveals that the announcement of these countries’ future EU membership in November 2001 significantly increased the Tobin’s Q ratios of their publicly traded firms several years before formal membership was granted. This increase in firm value can likely be attributed to a reduced cost of capital and/or an expected increase in growth opportunities and cash flows, resulting from the announcement of their countries’ inclusion in the EU.     

User-Driven Prioritisation Process (UDPP) from advanced experimental to pre-operational validation environment

When the European Air Traffic Management Network (EATMN) approaches its capacity limits at certain airports, generating increasingly costly delays to flights and for passengers, reducing the impacts on airlines and passengers will be essential. There are two ways to address such increases in delay and costs. One is to strive to augment the capacity to reduce both delays and costs. The other one, adopted in this paper, is to reduce the impact of the delay on airlines and passengers.The User Driven Prioritisation Process (UDPP) provides airlines with additional flexibility in planning within constrained situations where delays are allocated, beyond the current slot swapping process already implemented by the EUROCONTROL Network Manager (NM).The paper presents recent validation results. It summarizes earlier results in a simplified EATMN with one constraint and several AUs showing that UDPP could reduce the impact of that delays on AUs' direct operational costs by 58% on average, and improves passengers’ connections. The paper then describes a parallel validation activity including several trials with SWISS. It focuses on the most recent validation results in a pre-operational environment close to SWISS Operations Control Centre (OCC). The results revealed overall operational benefit up to 65% improvement for the airline; and an initial impact assessment on the EATMN -although limited to one UDPP in the EATMN and one airline using it- shows promising results for the on-going integration closer to operations.While limited due to the simplified network context, these results are encouraging to undertake more complete network impact studies as well as to move forward to environments that are more realistic, bridging towards deployment.     

Concentrated ownership and corporate performance revisited: The case of shipping

This paper addresses the issue of ownership structure and corporate performance. It employs a sample of 107 internationally listed shipping firms (about 60% of the total) and examines their financial data and ownership concentration for the year 2009. Ownership is treated as an endogenous variable and GMM estimation is used incorporating the significant advance provided by Lewbel (1997). Empirical results suggest that concentrated ownership is positively and strongly associated with better firm performance in the shipping industry. Furthermore, this paper offers evidence on ownership concentration and shows that despite the different corporate governance settings, ownership structures are quite similar in shipping.     

Cost of capital and valuation in the public and private sectors: Tax,risk and debt capacity

Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the public sector. We show how to transform the after-tax private sector cost of capital into its pre-tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity and low risk. We show that, in circumstances where an asset has identical public and private sector valuation in the absence of taxes, the tax induced difference in valuation is identical to the change in government tax receipts that results from having the asset owned by the private rather than the public sector. We provide some examples of distortions that result from failure to adjust for changes in tax revenues, and show how to effect such adjustment.     

Industry policy,investor sentiment,and cross-industry capital flow: Evidence from Chinese listed companies’ cross-industry M&As

This study investigates how the government’s industry policies affect investor sentiment, and whether the influenced investor sentiment guides corporate capital flow in the real economy. By examining a sample of cross-industry mergers and acquisitions (M&As) of Chinese listed companies, we find that industry policies promulgated by the government have a significant asymmetric influence on investor sentiment. Furthermore, investor sentiment under the exogenous shock of industry policies has a significant real effect on companies’ cross-industry M&A behavior, generating cross-industry capital flow. Additional analyses reveal that this effect arises because the acquirer depends on equity financing and has incentive to cater to investor sentiment. Our findings help clarify the effect of public policies on the stock market, theoretically, from the company’s micro-level perspective, as well as the mechanism by which stock market volatility transmits to the real economy.     

Portfolio performance manipulation in collateralized loan obligations

We examine the discretionary activities that CLO managers engage in to pass monthly overcollateralization (OC) tests. These tests require a CLO's loan portfolio value, scaled by the CLO notes’ principal balance, to be above a certain threshold. Using CLOs’ granular disclosures, we develop model-free estimates for discretionary loan fair valuation and transaction-based proxies for strategic loan trading. We find a positive association between these discretionary activities and the probability of avoiding an OC test violation. This association varies predictably with junior noteholders’ influence and CLO market conditions. Strategic trading—but not discretionary fair valuation—relates to worse future CLO performance.     

Can environmental attributes influence protected area designation? A case study valuing preferences for springs in Grand Canyon National Park

Springs in Grand Canyon National Park (GRCA) provide water to over 6 million visitors per year. In addition to use value for visitors, springs have cultural value to indigenous peoples and provide critical habitat for plants and animals. Finally, base flow to the Colorado River is dependent upon springs and they also provide an important water source for backcountry recreation. Climate change, uranium mining, and increased groundwater pumping threaten the continued viability of Grand Canyon springs. Springs protection is at the forefront of proposed national policy to protect the area of the aquifers contributing to springs of the Grand Canyon outside of the designated boundaries of the national park. To date very little research on the non-market values of springs has been conducted, and no research has estimated non-market values of springs within Grand Canyon National Park using a Choice Experiment (CE). We conduct a nationwide online Choice Experiment to determine willingness to pay (WTP) to protect backcountry springs and attributes including; accessibility, suitability as a back country water source, suitability as habitat for species of concern, aesthetics, and significance to Indigenous Nations. We estimate a Bayesian mixed logit, and find an average willingness to pay of $32.60 per household for a spring with the presence of all five attributes. The habitat attribute produces the highest WTP of $14.80. We find WTP of $4.50 for springs with cultural significance. Results from our study could be instrumental in designation of the Grand Canyon National Heritage Monument. In addition, our results indicate that careful consideration of watershed services on public lands is essential for efficient decision-making regarding protection of public lands.     

The impact of brand health on customer equity

This paper aims at studying the interactions between brand and customer assets over the long-term. Through the application of a new behavioural measure called the brand health index (BHI) we examine the impact of brand health on customer equity, and its mediating impact on the advertising-customer equity relationship. Three services industries, department stores, airlines, and banking, were studied from 2001 to 2012. The results show that brand health has a positive impact on customer equity, although the magnitude of the BHI impact varies across different industries. Moreover it was demonstrated that brand health mediates the impact of advertising on customer equity.     

Goodwill valuations certified by independent experts: Bigger and cleaner impairments?

If firms disclose the use of independent valuation experts to assess the magnitude of goodwill impairments, should investors rationally condition their values on that disclosure? This research shows that firms that disclose the use of an independent valuation expert are more likely to report a higher impairment charge in an impairment year but, critically, after controlling for other determinants, the disclosing firms are less likely to have impairments in following years. Thus, when the use of an independent expert is disclosed, while it is rational for investors to downgrade firm value on the basis of the disclosed (higher) impairment charge in that year, there is simultaneously a reduced need to add an additional discount to anticipate further (strategically) delayed impairment charges. The investors need to consider the likely multi-period time series properties of impairments, and firms may benefit from using an expert if in anticipation of future related impairments, investors significantly reduce the discount applied.