Showing papers by "Henri Servaes published in 1999"
TL;DR: In a simple model of capital budgeting in a diversified firm where headquarters has limited power, the authors show that funds are allocated towards the most inefficient divisions and the distortion is greater the more diverse are the investment opportunities of the firm's divisions.
Abstract: In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions The distortion is greater the more diverse are the investment opportunities of the firm's divisions We test these implications on a panel of diversified firms in the US during the period 1979-1993 We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of the investment opportunities across divisions; iii) the discount at which these diversified firms trade is positively related to the extent of the investment mis-allocation and to the diversity of the investment opportunities across divisions
724 citations
TL;DR: In this article, the authors examined the valuation effect of diversification for large samples of firms in Germany, Japan, and the United Kingdom for 1992 and 1994, and found no significant diversification discount in Germany but a significant divergence discount of 10 percent in Japan and 15 percent in the U.K.
Abstract: The valuation effect of diversification is examined for large samples of firms in Germany, Japan, and the United Kingdom for 1992 and 1994. We find no significant diversification discount in Germany, but a significant diversification discount of 10 percent in Japan and 15 percent in the U.K. Concentrated ownership in the hands of insiders enhances the valuation effect of diversification in Germany, but not in Japan or the U.K. For Japan, only firms with strong links to an industrial group have a diversification discount. These findings suggest that international differences in corporate governance affect the impact of diversification on shareholder wealth.
568 citations
TL;DR: The authors found that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in prior year.
Abstract: For a sample of 1163 mutual funds started over the period 1979-1992, we find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in the prior year. In addition, consistent with the presence of scale and scope economies, we find that large families and families that have more experience in opening funds in the past are more likely to open new funds.
193 citations
TL;DR: In this article, the authors investigate the rationale behind the emergence of new funds, both by new families as well as by existing families of funds, and find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in prior year.
Abstract: For a sample of 1163 mutual funds started over the period 1979‐1992, we find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family’s prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in the prior year. In addition, consistent with the presence of scale and scope economies in fund openings, we find that large families and families that have more experience in opening funds in the past are more likely to open new funds. The dramatic growth in mutual funds in recent years has been one of the most significant developments in the financial services industry. Mutual fund organizations wield significant market power in today’s financial markets both in terms of their ability to control large equity stakes in publicly traded corporations and their ability to affect market prices. 1 Despite rapid industry growth both in terms of the total assets under management and the number of fund offerings available to investors, little attention has been devoted to the decision-making process within funds and fund families. In particular, the factors that fund families consider in their decision to open a new fund have not been closely examined. Understanding the new fund opening decision assumes added importance in light of the fact that new funds in existence for less than 1 year (2 years) controlled as much as 6% (25%) of all fund assets in any given year during the 1980s and early 1990s. In this article, we investigate the rationale behind the emergence of new funds, both by new families as well as by existing families of funds. Understanding why new funds get started is useful for all the constituents: (i) academics would be interested since it highlights the industrial organization
149 citations