The Free Cash Flow Anomaly Revisited: Finnish Evidence

Abstract:  This paper examines the performance of an investment strategy based on free cash flows using financial statement data of Finnish companies during the period 1992-2002. The analysis in this paper is motivated by the so-called free cash flow anomaly previously documented e.g. in Hackel, Livnat and Rai (2000) . Using annual financial statement information, we identify large-capitalization companies with positive free cash flows, low free cash flow multiples, and low financial leverage. Since a portfolio of these companies is found to consistently outperform the market index, our results suggest that the free cash flow anomaly also exists in the Finnish stock market.     

Corporate Rights to Free Speech?

Although the courts have ruled that companies are legal persons, they have not yet made clear the extent to which political free speech for corporations is limited by the strictures legitimately placed upon corporate commercial speech. I explore the question of whether or not companies can properly be said to have the right to civil free speech or whether corporate speech is always de facto commercial speech not subject to the same sorts of legal protections as is the right to civil free speech. In the absence of clearly defined legal precedent, I emphasize moral reasons for determining the appropriate limits of corporate civil free speech. Appealing to arguments typically used to justify individual rights to civil free speech, I examine the extent to which this sort of justification may or may not be legitimately extended to corporations. I conclude that corporate rights to civil free speech must be restricted because granting rights of free speech to institutions may, in practice, undermine the moral rationale and practical feasibility of guaranteeing rights of civil free speech to individuals. Furthermore, I argue that granting corporations full rights to civil free speech will undercut attempts to develop good moral character in corporate institutions by undermining the efforts of watchdog organizations.     

Pricing Barrier Options with Time–Dependent Coefficients

We consider the problem of pricing derivative securities which involve a barrier clause. We give general techniques to calculate, or estimate accurately, barrier option prices, using methods for estimating diffusion process boundary hitting times. The solution gives a simple, easy–to–use, method for calculating barrier option prices.     

OPTIMAL INVESTMENT OF A LIFE INTEREST

We consider the problem of a trustee faced with investing a sum of money, the interest from which will be received by one party (the life-tenant) during his lifetime while the capital will go to another party (the survivor) on the death of the life-tenant. We assume mat there are n + 1 assets in which the trustee may invest— n risky assets of geometric Brownian motion type and one nonrisky asset. Under assumptions as to the utility functions of the two parties, we find the collection of Pareto optimal investment strategies for the trustee together with the corresponding payoffs. We do this by optimizing the payoff of the Lagrangian for the problem. We go on to present the Nash optimal solution for the trustee.     

When a Loser Gains: Free Riding in the Innovation of Network Goods

We consider duopolists innovating and producing a good subject to network externalities. If successful in R&D, a firm sells both the old product and the new one. The new product increases the utility of its user; it also generates a higher network externality than does the old product. A firm which fails to innovate nevertheless profits from the success of the rival: the network effect raises the value of the old product it still produces. A firm free-rides on the innovative efforts of another firm, reducing the incentives of any firm to innovate.     

边界管理人员特征对企业间两层次信任的影响--来自中国家电分销渠道的实证分析

边界管理人员是企业间关系营销的界面,对企业间关系的发展具有重要影响。从施信方特征、受信方特征和双方的互动特征三个方面选取代表性变量,通过构建一个结构方程模型,以家电分销渠道中的分销商为样本,检验了边界管理人员特征对企业间人际信任和企业间信任的影响。     

MODELS OF BANKING INSTABILITY: A PARTIAL REVIEW OF THE LITERATURE

Abstract. This paper critically examines the theoretical literature on banking instability that has followed Diamond and Dybvig (1983). It explores the extent to which it (a) explains banking instability within a theoretical context in which financial intermediaries improve on unintermediated markets, and (b) justifies government involvement in the financial intermediation industry. It suggests that the literature has yet to provide a satisfactory theoretical basis for banking instability as such since the intermediaries which arise from it are peculiar mutual funds that bear little resemblance to real-world banks. In addition, the paper challenges the widespread belief that this literature provides a sound foundation for government involvement in the industry. It suggests that arguments for government intervention are open to objection on various grounds, the most important one being that they are inconsistent with the existence of properly motivated financial intermediation in these models.     

Investing in Socially Responsible Companies is a must for Public Pension Funds – Because there is no Better Alternative

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporations long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a companys long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to socially responsible investing (SRI) and when applied to corporations, it is termed socially responsible corporate conduct (SRCC). We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients, i.e. pension funds, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.     

缩小农村集体建设用地隐形交易市场的途径分析——基于利益主体博弈的角度

旨在探讨农村集体建设用地进行私下交易形成隐形交易市场的原因,提出缩小这种隐形交易市场规模的途径。研究结果表明,随着用地企业风险偏好和地下交易超常收益的增加,以及地下交易惩罚和信用损失的降低,用地企业的地下交易空间将会扩大,而随着地方政府的风险偏好、积极监督成本和监督不力收益的增加,以及用地企业地下交易给地方政府造成潜在损失和积极监督收益的减少,地方政府的监督空间将会缩小,用地企业地下交易行为就会扩大。缩小这种隐形交易市场规模的途径就是推行农村集体建设用地自由流转。