26 research outputs found

    Examining the determinants of abnormal return volatility during seasoned equity offerings

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    Over the past few decades, firms in major international markets, including Australia, the United Kingdom, Hong Kong, the United States and Canada, have displayed a growing preference for equity financing through seasoned equity offerings (SEOs) in place of debt financing. Notably, the Australian market is among those that have experienced the most prolific issuances of SEOs because of the quick turnaround time, the freedom to choose the amount of capital to be raised and the control over the issuance price of SEOs. These benefits are some of the many reasons that SEOs have been favoured by firms as the primary mechanism for raising capital, particularly during periods of economic disruption. Given that the popularity of SEOs has increased exponentially among Australian Securities Exchange (ASX) listed firms, it is imperative that these firms also consider the effects of their SEO decision on their shareholders, from the perspective of return volatility. Return volatility is important to shareholders for it is among the most widely used metric to assess investment risk. During SEO announcements, the level of shareholder trading activity typically increases, which may transform normal levels of return volatility into abnormal levels. The increase in abnormal return volatility increases risk and may have negative consequences on a shareholder’s portfolio. Very few studies have examined the relationship between seasoned equity offerings (SEOs) and abnormal return volatility, which presents a research gap. Specifically, firms are unaware about the SEO types that induce abnormal return volatility and therefore will be unable to decide on the most appropriate type. To date, a firm’s main consideration is to choose an SEO type that will help it satisfy their capital needs, and thus, it disregards the likely impact of this decision on its existing shareholders. Hence, this thesis seeks to address this gap in the literature by providing a framework to help firms make SEO decisions that are more considerate to their shareholders. To achieve this goal, an event study methodology is employed to verify the presence of abnormal return volatility within ASX 200 firms in 1998–2020, by using multiple proxies. Overall, this thesis demonstrates that the SEO type and the sector in which a firm operates will both have a significant effect on abnormal return volatility during SEO announcements, which needs to be addressed. It highlights that some SEO types are more appropriate to use in general but may not necessarily be as appropriate specifically during economic disruption periods

    Corporate Finance

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    This book comprises 19 papers published in the Special Issue entitled “Corporate Finance”, focused on capital structure (Kedzior et al., 2020; Ntoung et al., 2020; Vintilă et al., 2019), dividend policy (Dragotă and Delcea, 2019; Pinto and Rastogi, 2019) and open-market share repurchase announcements (Ding et al., 2020), risk management (Chen et al., 2020; Nguyen Thanh, 2019; Štefko et al., 2020), financial reporting (Fossung et al., 2020), corporate brand and innovation (Barros et al., 2020; Błach et al., 2020), and corporate governance (Aluchna and Kuszewski, 2020; Dragotă et al.,2020; Gruszczyński, 2020; Kjærland et al., 2020; Koji et al., 2020; Lukason and Camacho-Miñano, 2020; Rashid Khan et al., 2020). It covers a broad range of companies worldwide (Cameroon, China, Estonia, India, Japan, Norway, Poland, Romania, Slovakia, Spain, United States, Vietnam), as well as various industries (heat supply, high-tech, manufacturing)

    The Asset Growth Anomaly and the Acquisition Puzzle

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    PURPOSE OF THE STUDY The purpose of my study is to increase present knowledge of a strong and stable stock market anomaly, the asset growth effect and its connection to post-deal acquirer returns. More specifically, focusing on investability, I reveal how the anomaly has changed along the years and assess whether it still offers an opportunity for investors. I then use the anomaly to search for an answer to the acquisition puzzle by matching post-deal acquirer returns to returns of non-acquirers based on asset growth. DATA AND METHODOLOGY I use data on US companies from the merged CRSP-Compustat database from the years 1982 to 2017. I gather acquisition data from the SDC database, and data on Fama French coefficients and the risk-free rate from Kenneth French’s website. I then construct a total of 54 calendar-time portfolios based on asset growth and acquisition activity, including asset growth-decile portfolios for the basis of my analysis and taking into account lags in information disclosure. I use a zero-investment CME portfolio to capture the asset growth-effect and analyse its connection to the market and the value and size effects. I then use asset-growth matched non-acquirer control portfolios to analyse whether I can explain post-deal acquirer returns based on the asset growth effect. I also construct an “acquisition risk factor” AMNA to further analyse the connections and differences between the two phenomena. RESULTS I find a significant and strong asset growth effect in the US market, which produces annual returns of 11.6% over the total sample period. I find that the effect is stronger than either the value or the size effect combined. I also find that the effect’s high returns cannot be explained by common risk factors or a propensity for crashing. Second, I find that asset growth, to a very high extent, explains poor post-deal acquirer returns, but that I cannot exclude the possibility for differences between the two phenomena. Interestingly, I also find that the effect has vanished during the 2010s, but that the connection between asset growth and acquirer returns has persisted, with acquirers performing better than previously. My analysis suggests that this vanishing would be due to the high-liquidity and low-yield market of the last decade, which has allowed companies to more easily meet their required rates of return on investment. The better scalability of modern tech giants may also be to blame for the anomaly’s disappearance

    The application of IAS 39 reclassifications by global systemically important banks (G-SIBs) since 2008/2009

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    The International Accounting Standard Board (IASB) introduced an amendment to the International Accounting Standard 39 – Financial Instruments: Recognition and Measurement (IAS 39) and to International Financial Reporting Standard 7 – Financial Instruments: Disclosures (IFRS 7) on 13 October 2008. These amendments allowed entities to reclassify non-derivative financial assets from the fair value option to historical cost. The purpose of this study is to explore how Global Systemically Important Banks (G-SIBs) applied the amendment to IAS 39 since 2008/2009. The study is guided by four main objectives in which the first two objectives explores how the G-SIBs applied the reclassifications during the allowed period, 2008/2009 and the period beyond 2009 when the application of the standard should have been stopped. The study further investigates if any G-SIBs used restatements to circumvent the requirements of the IAS 39 that does not allow reclassifications into and out of the ‘designated as at fair value' category. Finally, the study explores the impacts of the reclassifications on the G-SIBs' ROE and total regulatory capital with the aim to determine if G-SIBs reaped any long-term benefits from the reclassifications and whether any traces of earning and capital management exist in the way G-SIBs applied the amendment to IAS 39. To achieve these objectives a comparative case study approach, which is qualitative in nature/scope was used with 10 G-SIBS forming part of the units of the analysis of the study. The study finds that: (i) 70 percent of G-SIBs reclassified assets during 2008/2009; (ii) a significant improvement on the reported net income was observed with a slight improvement on the return on equity and regulatory capital during 2008/2009, while the long-term impacts on ROE and total capital are insignificant; and (iii) G-SIBs did not restate comparative figures to evade the prohibition on reclassifications into and out of the ‘designated as at fair value' category. As far as can be reasonably established, this kind of study has not been published before for G-SIBs. As such, the study contributes by including the analysis of G-SIBs and the long-term implications of applying the amendment to IAS 39 to the current literature, as well as adding another possible type of a restatement to the financial restatements' literature. All these aspects are currently lacking in the existing literature

    Daily Eastern News: November 16, 2001

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    https://thekeep.eiu.edu/den_2001_nov/1011/thumbnail.jp

    Daily Eastern News: November 16, 2001

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    https://thekeep.eiu.edu/den_2001_nov/1011/thumbnail.jp

    Essays on Executive Compensation and Managerial Entrenchment.

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    This thesis is comprised of three empirical studies on CEO pay and CEO turnover in the USA. It specifically examines the effects of the market for corporate control and governance on CEO turnover and CEO pay, and the effect of risk of dismissal on CEO pay. Using data on CEO pay, CEO turnover and acquisitions in the US, we analyze the risk of CEO turnover in the period 1992-2010 and the effect of market for corporate control on turnover probability. 31% of the CEOs in the sample are replaced in this period, either for performance related reasons or following takeovers. Post Sarbanes-Oxley act of 2002, the performance sensitivity of turnover is stronger and CEOs face a higher dismissal risk, which indicates partial success of governance regulations in mitigating agency problems. Small and more independent boards are associated with higher likelihood of CEO exit. Takeovers act as external force of discipline and increase the probability of turnover for poor performing CEOs by 129%. These results contribute to the debate on the role of governance regulations in enforcing optimal contracting. Next, we examine the impact of acquisitions on the pay of acquiring CEOs to explore whether acquisitions exacerbate the divergence of interest between shareholders and CEOs. To examine systematic agency problems, we further examine if CEOs are rewarded differentially for shareholder wealth-generating (good) and shareholder wealth-destroying (bad) acquisitions. Controlling for firm size, our estimates suggest that CEOs are paid a 3.5-4% premium in post-acquisition pay, which increases the pay of the median CEO of an acquiring firm in the sample by US$ 173,000. Consistent with the earlier studies by Bliss and Rosen (2001), we find no evidence that post-acquisition premium in CEO pay is conditional upon the ex-post wealth-effect of the acquisition, thereby suggesting possible decoupling of pay and performance following acquisition. Further, our results that acquisition premium in CEO pay can be partially attributed to weak corporate governance is in agreement with managerial power and rent-seeking hypotheses. Controlling for post-acquisition survivor bias, we observe a smaller acquisition premium in CEO pay which may suggest that stronger governance exposes CEOs undertaking bad acquisitions to higher risk of turnover. Average CEO Pay has grown significantly in the last two decades but so has the risk of forced turnover. Most explanations for increased CEO compensation focus on market power - the increased competition in the external CEO market, or entrenchment - rent extraction by CEOs from captured boards. We attempt to provide an alternate explanation for the recent growth in CEO pay. We estimate the compensating differentials in CEO pay for increasing risk of dismissal. Our estimates suggest that CEOs are paid 2-4% premium in pay for a percentage point increase in the risk of dismissal, which is manifest in the form of increased cash payments. The compensating differential is higher in the post- Sarbanes Oxley sub-period (2003-2010). The increasing use of risk-free cash payments to compensate for higher turnover risk may lower the performance sensitivity in CEO pay. We highlight this as a possible inadvertent effect of governance regulations

    Intervention or Collaboration?:Rethinking Information and Communication Technologies for Development

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    Over the past decades information system developers and knowledge engineers in ICT projects in wealthy regions of the world have come to realize that technical work can only be successful when situated in a broader organizational context. However, for low-resource environments (or example rural Africa), where contextual embedding is even more demanding given the complexity of these environments, practical, context-oriented methodologies how to "do" information systems engineering are still lacking. This book gives a basic but thorough insight how to develop information systems and services for people in low resource environments, from a socio-technical, information systems engineering perspective, presenting field-validated methods that cover the complete lifecycle of information systems engineering, with emphasis on context analysis, needs assessment, use case and requirements analysis and (business) sustainability analysis. Since technical development does not go without critical reflection, this book also investigates which (tacit) assumptions affect the way technologies are implemented in poor, low-resource environments. Linking collaborative sociotechnical development with theories of complexity and social networks of innovation, this book offers a reflective and critical approach to information and communication technologies for development

    The evolution and dynamics of stocks on the Johannesburg Securities Exchange and their implications for equity investment management

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    [No subject] This thesis explores the dynamics of the Johannesburg Stock Exchange returns to understand how they impact stock prices. The introductory chapter renders a brief overview of financial markets in general and the Johannesburg Securities Exchange (JSE) in particular. The second chapter employs the fractal analysis technique, a method for estimating the Hurst exponent, to examine the JSE indices. The results suggest that the JSE is fractal in nature, implying a long-term predictability property. The results also indicate a logical system of variation of the Hurst exponent by firm size, market characteristics and sector grouping. The third chapter investigates the economic and political events that affect different market sectors and how they are implicated in the structural dynamics of the JSE. It provides some insights into the degree of sensitivity of different market sectors to positive and negative news. The findings demonstrate transient episodes of nonlinearity that can be attributed to economic events and the state of the market. Chapter 4 looks at the evolution of risk measurement and the distribution of returns on the JSE. There is evidence of fat tails and that the Student t-distribution is a better fit for the JSE returns than the Normal distribution. The Gaussian based Value-at-Risk model also proved to be an ineffective risk measurement tool under high market volatility. In Chapter 5 simulations are used to investigate how different agent interactions affect market dynamics. The results show that it is possible for traders to switch between trading strategies and this evolutionary switching of strategies is dependent on the state of the market. Chapter 6 shows the extent to which endogeneity affects price formation. To explore this relationship, the Poisson Hawkes model, which combines exogenous influences with self-excited dynamics, is employed. Evidence suggests that the level of endogeneity has been increasing rapidly over the past decade. This implies that there is an increasing influence of internal dynamics on price formation. The findings also demonstrate that market crashes are caused by endogenous dynamics and exogenous shocks merely act as catalysts. Chapter 7 presents the hybrid adaptive intelligent model for financial time series prediction. Given evidence of non-linearity, heterogeneous agents and the fractal nature of the JSE market, neural networks, fuzzy logic and fractal theory are combined, to obtain a hybrid adaptive intelligent model. The proposed system outperformed traditional models
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