Stock Options and Firm Performance: New Evidence from the French Market

This study investigates the effect of stock option‐based compensation on the short‐term and long‐term performance of French companies. To the best of our knowledge, we provide the first empirical evidence describing the market reaction following initiations and renewals of Employee Stock Option (ESO) plans in France. We find that the French market reacts positively to initiations of ESO plans but does not consider their renewal as relevant information. Our results on the long‐term effect of ESO plans suggest that neither the size nor the value of the grants affect the firm's accounting and market performance. Similarly, corporate performance prior to the grant has no explanatory power of the size or value of the grant. This implies that, over our sample period, the relationship between option‐based compensation and corporate performance in France was inexistent, regardless of the direction considered.     

Exploring the determinants of anti-mafia entrepreneurial behaviour: an empirical study on southern Italian SMEs

This study analyses organized crime from an economic perspective and highlights the crucial role of extortion in mafia activities. From an economic viewpoint, we debate the conditions that lead companies to resist mafia extortion. To study the reactions of firms to extortion, we adopt an institutional perspective and consider the contribution of different theories in the socially responsible behaviour and organized crime literature, in an attempt to understand this complex entrepreneurial behaviour better. A sample of 116 southern Italian SMEs, whose entrepreneurs have publicly opposed mafia extortion, was selected. By adopting a matched-pair design, anti-mafia firms were subsequently matched against a control sample. Determinants of anti-mafia behaviour were investigated by using both unconditional and conditional logistic regression models, in order to regress the anti-mafia choice on a set of economic, demographic, governance, and control variables. The results show that both financial and governance variables are significant determinants of anti-mafia entrepreneurial behaviour (AEB), whereas demographic variables are not relevant.     

Robust outlier detection for Asia–Pacific stock index returns

Outliers can lead to model misspecifications, poor forecasts and invalid inferences. Their identification and correction is therefore an important objective of financial modeling.This paper introduces a simple method to detect outliers in a financial series. It uses an AR(1)–GARCH(1,1) model to calculate interval forecasts for one-step ahead returns that are then compared to realized returns to determine whether or not we are in the presence of an aberrant observation. The GARCH model, however, is only used as a filter and the identification algorithm remains robust to model misspecifications.The efficiency of this outlier-correction technique is first tested with a simulation study, before being applied to five Asian stock market returns to identify the outlying observations. After an analysis of these extreme fluctuations, the out-of-sample forecasting performance of our outlier-corrected model is then compared to the classical forecasts of a GARCH model in which no account is taken of outliers.     

International taxation and intrafirm pricing in transnational corporate groups

Since early this century, with the introduction of direct taxes on income or profits by most developed capitalist states, tax authorities have been concerned to prevent manipulation of transfer prices between related firms, especially within transnational corporate groups (TNCs). By the 1930s most states had introduced a broad power to adjust such prices to conform with the “arm's length” criterion, since it was felt that either the application of national taxes directly to foreign parent or subsidiary companies, or taxation on a unitary or consolidated basis, would exacerbate overlapping or double taxation. However, both theory and a detailed examination of practice show that the arm's length criterion cannot in most cases be applied on the basis of “market” prices, since the raison d'être of an integrated firm is economies of scale and scope and generation of synergy profits. Microeconomic methods also can only identify these, but provide no basis for their allocation. Criteria for allocation of the costs and profits of an integrated TNC must have a political dimension: for the firm, it entails issues of strategy, and for the states, the control of oligopolistic powers over investment and allocation of the benefits of international economic integration. The tax authorities of the main OECD countries have developed close administrative co-operation through which these issues can be bargained on an ad hoc basis; but these bureaucratic and secretive methods lack the important element of legitimation. Formula apportionment based on unitary or consolidated accounts has been attacked as Utopian in the absence of a political basis for international agreement on principles or procedures. However, unitary taxation is now accepted (up to the water's edge) for U.S. state taxation, and either a unitary or consolidated basis is likely to become necessary in Europe: while formula allocation of fixed or overhead costs and a bargained division of profits has become the international practice. Still lacking are legitimating procedures and criteria.     

Stock market dynamics in a regime-switching asymmetric power GARCH model

This paper analyzes the dynamics of Asian stock index returns through a Regime-Switching Asymmetric Power GARCH model (RS-APGARCH). The model confirms some stylized facts already discussed in former studies but also highlights interesting new characteristics of stock market returns and volatilities. Mainly, it improves the traditional regime-switching GARCH models by including an asymmetric response to news and, above all, by allowing the power transformations of the heteroskedasticity equations to be estimated directly from the data. Several mixture models are compared where a first-order Markov process governs the switching between regimes.     

Book Notes COPO No. 3 2009 by Lucia A. Reisch

Book Note

Book Notes COPO No. 3 2009 by Lucia A. Reisch