Information Technology System Failure and Value of Airlines: A Case Study of Airlines in 2016

Technology is a critical component of a firm’s operations. Technology failures can cause widespread problems in airlines. These failures cause disruptions in flight schedules, cause passengers to be stranded at airports and also increase airline operating costs. The objective of this study is to measure an effect of information technology failures on the firm value of passenger airline companies during the year 2016. In that year, there were cases involving delays and cancellations associated with JetBlue, Southwest, Delta, American, and Virgin America that received significant media coverage. Using the event study methodology, this study finds that the intensity of failures does not seem to affect the firm value as much as the time taken to address it and the presence of other compounding effects. The system failure case provides us with an insight into the effect on market value of airlines especially when they address their issues quickly and efficiently

Implementing the Flipped Classroom in an Undergraduate Corporate Finance Course

This study analyzes flipped mode of instruction in Corporate Finance. In the current environment, with many students in quarantine and greater emphasis on self-study, it is even more relevant to understand how students understand and retain concepts derived from online environment. In this study, performance of students in flipped mode is compared with the performance in traditional lecture-style. In flipped class, students watched a brief video-lecture, took an online assessment quiz prior to attending an interactive discussion-based class session, unlike the traditional lecture style. The results of this study suggest that with flipped mode, most students take greater responsibility of their learning, prefer hands-on learning, achieve more and feel more satisfied with their performance. However, there is no statistical difference in the test scores of students in the flipped classroom as compared to the traditional classroom

Implementing the Flipped Classroom in an Undergraduate Corporate Finance Course

This study analyzes flipped mode of instruction in Corporate Finance. In the current environment, with many students in quarantine and greater emphasis on self-study, it is even more relevant to understand how students understand and retain concepts derived from online environment. In this study, performance of students in flipped mode is compared with the performance in traditional lecture-style. In flipped class, students watched a brief video-lecture, took an online assessment quiz prior to attending an interactive discussion-based class session, unlike the traditional lecture style. The results of this study suggest that with flipped mode, most students take greater responsibility of their learning, prefer hands-on learning, achieve more and feel more satisfied with their performance. However, there is no statistical difference in the test scores of students in the flipped classroom as compared to the traditional classroom

Effect of Weather Delays on Shareholder Value: Evidence from the Airline Industry

Airlines measure service quality based on different factors such as on-time performance, delays and cancellations, mishandled baggage and denied boardings. Among the above factors, recent studies show that long delays and cancellations have a major impact on airlines bottom line not only in terms of current costs but also in terms of loss of future revenue. Finance literature tells us that stock prices reflect the present value of future cash flows. In this paper we use event study methodology to examine how weather delay and cancellations affect current stock market returns for our sample airlines. We find some evidence that airline stocks are adversely affected by weather delays only when the delays are significant and widespread or persistent over a longer period. However the results are not significant and show that currently the stock market is not penalizing airlines for delays and there is no significant loss in the value for these firms

US Airline Stock Market Performance and Change in Investor Behavior over the Great Recession of 2008

We study the relationship of West Texas Intermediate (WTI) crude oil returns and the stock market returns with the US airline stocks before, during and after the 2008 financial crisis. We confirm the positive relationship of the airline stock returns with the overall market and the negative relationship with WTI. However, we find that the crisis led to a structural change in this relationship. Our results differ for low-cost airlines which absorb the oil price shock better as compared to legacy airlines. We also find that there is a difference in the relationship between the airline stock returns and WTI returns when asymmetric WTI returns are considered. Investors punish airline stocks more when there are asymmetric negative WTI returns as compared to asymmetric positive returns. While our results are in line with the existing literature on the overall stock markets, this study is unique because it provides a context for the behavior of airline stocks

Product Life-Cycle: New Products, Quality, Substitutes and Advertising in the Theatrical Movie Markets

In the market for US theatrical movies, there are a set of products (movies), and over time, new products appear and existing products disappear. We develop and estimate a model of the product cycle for movies and the decay of products over time to examine the effect of product quality, production cost, advertising and substitutes on the movie life cycle. Intuitively, new products should have a strong negative effect on the probability of survival of existing movies. The effect, however, is heterogeneously present only for the substitutes from some types (genres). While it is expected that good-quality movies tend to survive longer in theatres and greater level of advertising also has a positive effect, our study finds that these variables slow down the rate of decay in the life cycle of movies, particularly towards the end of the product life cycle

The behavior of economic agents and market performance

This dissertation addresses issues concerning the behavior of firms, which has significant effects on performance. In the first study, we empirically investigate the effect of the reduction in number of firms on price competition in the U.S. macro-brewing industry. The number of macro brewing firms decreased from 766 in 1935 to about 20 today. Major national brewers such as Anheuser Busch, Miller and Coors have continually gained market share. In spite of the reduction in number of competitors, market power remains low. There is evidence in the literature that changes in marketing and production technology have favored large brewers. However, an intense war of attrition has historically kept prices low. As this war wound down in the late 1980s, the number of firms diminished unabated. Many theoretical models of oligopoly behavior suggest that a decrease in number of firms reduces competition and increases price. We use two different techniques and find that price competition remains high even though the number of rivals has fallen. In the second study, we estimate the life cycle of movies in theaters. In this market there is no price competition. The primary form of competition is through product differentiation in the form of product quality, advertising and genre. We find evidence that the longer the duration of movies in theaters, the greater is the probability of death. Secondly, we also observe that a movie with either higher advertising expenditures or better product quality has a better probability of survival. Thirdly, we find that a movie which faces stiffer competition from substitutes is more likely to have a greater decay of sales. In the third study, we investigate the effect of product recalls due to an unintended acceleration problem on the market value of Toyota. We investigate four cases related to unintended acceleration problems. We find evidence of a significant negative effect on the market value of Toyota in the major recall in January 2010. Following this recall, there were Congressional hearings and testimony of the CEO of Toyota. Congress requested the National Highway Traffic Safety Administration (NHTSA) to investigate whether or not the fix recommended by Toyota was sufficient to solve the problem. When the NHTSA study concluded that Toyota had correctly solved the problem, the market value of Toyota substantially increased

Competition and Price Wars in the U.S. Brewing Industry

The behavior of the macro or mass-production segment of the U.S. brewing industry appears to be paradoxical. Since the end of Prohibition in 1934, the number of independent brewer has continuously declined while the major national brewers, such as Anheuser-Busch, Miller, and Coors, have gained market share. In spite of this decline in the number of competitors, profits and market power have remained low in brewing. Iwasaki et al. (2008) explain this result by providing evidence that changes in marketing and production technologies favored larger brewers and forced the industry into a war of attrition, in which only a handful of firms could survive. This led to fierce competition, especially from the 1960s through the mid 1980s. Since the late 1990s, the war appears to have subsided. Thus, the purpose of this study is to determine whether price competition diminished after the mid-1990s. We find evidence that competition has diminished but not enough to substantially increase market power

Valuation Bias and Profit Opportunities in Financial Markets

Recent work by Gokhale et al. (2013) proposes a method for detecting misvalued stocks. This paper applies the method to look for profitable investment opportunities by identifying undervalued stocks. Using data on companies in the S&P 100 over a period of 22 years, we test several specifications of our investment strategy for robustness. We find that investing in undervalued stocks significantly outperforms benchmark indices over time, and that this strategy can lead to risk-adjusted excess returns that are positive and statistically significant

The Effect on Stockholder’s Wealth on Critical Systems Failure and Remedy: The Boeing 787 Case

In this paper we analyze the effect of Boeing Dreamliner 787’s battery problems on stockholder wealth. Using the event study methodology, we show that the recall in January of 2013 initially caused the company’s cumulative abnormal returns to fall by almost 4% in four trading days after the recall. This was followed by an announcement by two major airlines to ground all of the 787 Dreamliner jets. The FAA also ordered all US airlines to ground their 787s and announced an investigation to review all critical systems of 787s. However within four months of the investigation, FAA approved Boeing’s revisions to its 787 design. This caused Boeing’s abnormal returns to rise by almost 2%. On April 24th Boeing reported it’s greater than expected quarterly results which caused its abnormal returns to rise by an additional 3%. The Boeing case provides us an opportunity to study how critical mistakes can change the value of a manufacturer. It also shows how critical it is for the company to redeem itself by quickly addressing a crisis situation