Company investment announcements and the market value of the firm

This paper examines the stock market reaction to 402 company investment announcements made by UK companies during the 1991-1996 period. The market-adjusted abnormal returns are generally positive but small. Investment announcements are classified according to functional categories, and we find the level of abnormal returns to vary according to the type of capital investment being announced. In particular, we find the market to react more favourably to investments that 'create' future investment opportunities, than to investments which can be categorized as 'exercising' investment opportunities. The market reaction also varies with firm size, with large companies tending to experience smaller responses to announcements than do smaller firms. Chung et al. (1998) reported that the quality of a company's investment opportunities is the primary determinant of market reactions to capital expenditure decisions. The findings presented here lend some support to a role for investment opportunities in market valuations. Project size is also found to have a significant positive impact on the level of abnormal returns

The Impact of Large-scale Employee Share Ownership Plans on Labour Productivity: The Case of Eircom

Large-scale Employee Share Ownership Plans (ESOPs) have been a distinctive characteristic of Irish public enterprise reform, with shareholdings of 14.9 per cent being allocated to employees as part of firm restructuring and privatisation programmes. This paper presents a case study analysis of a large-scale ESOP in Eircom, Ireland’s former national telecommunications operator. We identify changes in labour productivity during the eight years before and after the establishment of the company’s ESOP and use a framework based on Pierce et al. (2001, 1991) to explore the role played by the ESOP. The ESOP was found to play a key role in enabling firm-level reform through concession bargaining and changes in employee relations, and thereby indirectly affecting labour productivity. However, despite the substantial shareholding and influence of the ESOP, we find it has failed to create a sense of psychological ownership among employees, and thereby further impact on productivit

Can Employee Share-Ownership Improve Employee Attitudes and Behaviour?

Purpose: To examine the outcomes of a substantial broad-based employee share-ownership scheme for employee attitudes and behaviour in a privatised firm. Methodology: Results are based on a survey of 711 employees in Eircom, an Irish telecommunications firm, which is 35 percent employee-owned. Findings: The ESOP has created sizable financial returns and has had extensive influence in firm governance at the strategic level. However, findings show only a limited impact on employee attitudes and behaviour. This is attributed to a failure in creating a sense of employee participation and line of sight between employee performance and reward. Originality: Little research has examined the impact of a large employee shareholding on attitudes and behaviour within a public-quoted firm. The substantial and unparalleled size of the Eircom ESOP presented a unique opportunity to conduct such a study. Policy implications: The aim of employee share-ownership often includes aligning employee objectives with those of other shareholders, and thus improving labour performance. The findings in this study highlight a need to provide employees with a sense of ownership and control. Findings also question the assumption that where employees have a substantial shareholding, they will focus on securing the long-term prospects of the firm

Simulation discounted cash flow valuation for internet companies

Discounted cash flow (DCF) is the most accepted approach for company valuation. It is well grounded in theory and practice. However, the DCF approach, which is commonly used for traditional companies valuation, presents a number of serious weaknesses within the Internet companies’ context. One of these weaknesses is tackling the uncertainty that characterize future cash flows of these companies. Specifically DCF assumes that future cash flow streams are highly predictable. The effects of uncertainty are therefore tackled implicitly by discounting the expected value of the cash flows at a risk-adjusted interest rate. However, under uncertainty, future cash flows of these companies can no longer be characterized by a single value but rather by a range of values of its possible consequences. This paper looks at the way in which uncertainty can be incorporated into the traditional DCF approach so that the latter, which is otherwise conceptually sound, becomes relevant. This is done by recognizing that the DCF input variables are uncertain and will have a probability distribution pertaining to each of them. Thus by utilizing a probability-based valuation model (using Monte Carlo Simulation) it is possible to incorporate uncertainty into the analysis and address the shortcomings of the current model. The MC simulation assigns a range of values in order to cope with uncertainty underlies each key cash flow variable. The process leads to a probability distribution of the valuation criterion used, giving investors a quantitative measure of risk involved

Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development

We examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1,214 condominium developments in Vancouver, Canada built from 1979-1998. We find that increases in both idiosyncratic and systematic risk lead developers to delay new real estate investments. Empirically, a one-standard deviation increase in the return volatility reduces the probability of investment by 13 percent, equivalent to a 9 percent decline in real prices. Increases in the number of potential competitors located near a project negate the negative relationship between idiosyncratic risk and development. These results support models in which competition erodes option values and provide clear evidence for the real options framework over alternatives such as simple risk aversion.

Organizational Differences in Managerial Compensation and Financial Performance

The present study has two general purposes. First, based on the compensation strategy literature, we examine the extent to which organizations facing similar conditions make different managerial compensation decisions regarding base pay, bonus pay, and eligibility for long-term incentives. Second, working from expectancy and agency theory perspectives, we explore the consequences of these decisions for subsequent firm performance as measured by return on assets. Using longitudinal data on approximately 16,000 top and middle level managers and 200 organizations, significant between-organization differences in compensation decisions are found. The smallest organization effects are on the level of base pay. The largest organization effects are on bonus levels and eligibility for long-term incentives. In other words, our results suggest that organizations tend to distinguish themselves through decisions about pay contingency or variability rather than through decisions about the level of base pay. To study consequences, residualized measures (adjusted for employee and job factors) of organization pay level and pay mix are used. Pay level is not associated with organization financial performance. On the other hand, greater contingency of pay in the form of bonuses and long-term incentives is associated with better financial performance

FINANCIAL RISK MANAGEMENT ALTERNATIVES IN A WHOLE-FARM SETTING

Risk programming and simulation methods are used to analyze the opportunity to reduce whole-farm risk in a diversified cash crop farm through reduced leverage and/or adjustments in rental arrangements. These two financial strategies are shown to extend the ability of the farm operator to manage downside risk beyond the singular effects of a diversified farm plan. The analysis indicates that a trade-off occurs between these strategies, but that the reduction of debt has a greater impact on the distributions of net cash flow (before taxes) and outstanding term debt.Agricultural Finance, Risk and Uncertainty,

The Foundation Payout Puzzle

This paper examines public policy toward American philanthropic foundations. We find that the major regulation bearing on foundations -- a mandated minimum endowment payout rate -- has had the effect of repressing foundation giving. Interviews with foundation trustees and presidents point to a number of significant obstacles to proper conceptualization of the payout decision in foundations. In the face of these obstacles, our survey of foundation payout behavior over 25 years reveals that most foundations simply pay out the mandated minimum amount each year, regardless of other relevant considerations. We argue that the minimum rate has gone from being a floor when it was enacted decades ago to a ceiling today. The paper concludes with an exploration of how the payout policy could usefully be reformed.This publication is Hauser Center Working Paper No. 9. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers

Homer Foundation - 2007 Annual Report

Contains mission statement, director's message, program information, financial statements, reports from the distributions and investment committees, grants list, donor information, and list of board members