R&D project announcements and the impact of ownership structure

This paper examines the stock market reaction to research and development (R&D) announcements made by listed UK companies. R&D projects on average are found to be associated with significant positive abnormal returns. However, the level of these abnormal returns varies significantly with the ownership structure of the firm. In particular, it is found that the level of abnormal returns are significantly lower for companies with large institutional investors. This negative relationship may be associated with short-term pressures on the performance of institutional investors

Joint venture investments and the market value of the firm

The impact of Joint Venture announcements on the market value of UK listed companies is examined. Based on a sample of 158 announcements of either joint venture formation or joint venture activities, significant positive market-adjusted abnormal returns of 0.5% on the announcement date are observed. Cross-sectional analysis reveals that abnormal returns are significantly lower when undertaken by large companies, or where the project is located in Asia. On the other hand, market-adjusted returns are found to be significantly higher when the project is large compared to the size of the company undertaking the investment, and where the project is either domestic or located within the European Union

FRS 12: an inter-industry study of its impact on share prices

This paper assesses the impact of the publication of FRS No. 12, 'Provisions, Contingent Liabilities and Contingent Assets' in 1998 on the share prices of UK companies. Although the standard affects all UK companies (restricting "big bath" provisions), it specifically requires extractive firms to make provisions for abandonment costs at the outset of the project. This additional requirement may cause FRS 12 to have a larger impact on companies in extractive industries compared to other companies. Using event study methodology, we find a positive share price impact on the release of FRS 12 for both extractive and other affected firms, although the abnormal returns are substantially lower for extractive firms. This suggests that, while investors welcomed the increased disclosure requirements, the mandatory requirements set by FRS 12 may be onerous for extractive firms. The abnormal returns were significantly lower for those firms reporting significantly increased provisions after the introduction of the new standard, consistent with the new provision requirements being costly for the companies most directly affected

Empirical evidence on the determinants of the stock market reaction to product and market diversification announcements

The announcement of product and market diversification projects lead to significant abnormal returns of 1.1%. However, the gains are higher for new products than for new markets, and for companies with high price-earnings ratios and low (or zero) dividend yields

Rethinking bank business models: the role of intangibles

<p>Purpose: This paper provides a new way of rethinking banking models by using qualitative research on intangibles. This is required because the banking sector has been transformed significantly by the changing environment over the past two decades. The 2007-2009 financial crisis also added to concerns about existing bank business models.</p> <p>Design/Methodology approach: Using qualitative data collected from interviews with bank managers and analysts in the UK, this paper develops a grounded theory of bank intangibles.</p> <p>Findings: The model reveals how intangibles and tangible/financial resources interact in the bank value creation process, how they actively respond to environmental changes, how bank intangibles are understood by external observers such as analysts, and how bankers and analysts differ in their views.</p> <p>Research implications: Grounded theory provides the means to further develop bank models as business models and theoretical models. This provides the means to think beyond conventional finance constructs and to relate bank models to a wider theoretical literature concerning intellectual capital, organisational and social systems theory, and ‘performativity’.</p> <p>Practical implications: Such development of bank models and of a systems perspective is critical to the understanding of banks by bankers, by observers and for their ‘critical and reflexive performativity’. It also has implications for systemic risk and bank regulation.</p> <p>Social implications: Improvement in bank models and their use in open and transparent processes are key means to improve public accountability of banks.</p> <p>Originality: The paper reveals the core role of intellectual capital (IC) in banks, in markets, and in developing theory and research at firm and system levels. </p&gt

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

Required Rates of Return for Corporate Investment Appraisal in the Presence of Growth Opportunities

Traditional methods of estimating required rates of return overstate hurdle rates in the presence of growth opportunities. We attempt to quantify this effect by developing a simple model which: (i) identifies those companies that have valuable growth opportunities; (ii) splits the value of shares into 'assets-in-place' and 'growth opportunities'; and (iii) splits the equity β into β for 'assets-in-place' and 'growth opportunities'. We find growth opportunities for UK companies over the 1990–2004 period to average 33% of equity value. Incorporating the effect of growth opportunities, the average cost of capital for investment purposes falls by 1.1 percentage points