London Business School

About: London Business School is a education organization based out in London, England, United Kingdom. It is known for research contribution in the topics: Portfolio & Equity (finance). The organization has 1138 authors who have published 5118 publications receiving 437980 citations. The organization is also known as: LBS.

Founding Conditions and the Survival of New Firms

Abstract: We analyze the effects of founding conditions on the survival of new firms. Based on arguments from several theoretical perspectives, namely economics, organizational ecology, and the resource-based view of the firm, we develop hypotheses that relate the survival of firms to the conditions confronted by firms at each moment and to those prevailing at the time of founding. We develop an empirical model that allows the effects of founding conditions to be transitory and estimate how long such effects last. The results of estimating such a model indicate that founding effects are important determinants of exit rates. Moreover, in most cases, their effect on survival seems to persist with little attenuation for several years following the founding of the firm. Overall, our findings suggest that there is no absolute superiority of any of the aforementioned theoretical perspectives over the others, and there are important elements in all of them to explain the survival of firms. Copyright © 2009 John Wiley & Sons, Ltd.

Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund

Abstract: This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF). In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairman.

The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts' Perceptions and Shifting Institutional Logics

Abstract: We explore the impact of corporate social responsibility (CSR) ratings on sell-side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that, over time, the emergence of a stakeholder focus shifts the analysts' perceptions of CSR. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that, in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, analysts progressively assess these firms more optimistically over time. Furthermore, we find that analysts of highest status are the first to shift the relation between CSR ratings and investment recommendation optimism.

Capital structure and its determinants in the UK - a decompositional analysis

Abstract: Prior research on capital structure by Rajan and Zingales (1995) suggests that the level of gearing in UK companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. However, as argued by Harris and Raviv (1991), ‘The interpretation of results must be tempered by an awareness of the difficulties involved in measuring both leverage and the explanatory variables of interest’. In this study the focus is on the difficulties of measuring gearing, and the sensitivity of Rajan and Zingales' results to variations in gearing measures are tested. Based on an analysis of the capital structure of 822 UK companies, Rajan and Zingales' results are found to be highly definitional-dependent. The determinants of gearing appear to vary significantly, depending upon which component of debt is being analysed. In particular, significant differences are found in the determinants of long- and short-term forms of debt. Given that trade credit and eq...

Household Risk Management and Optimal Mortgage Choice

Abstract: The portfolio of the typical American household is quite unlike the diversie ed portfolio of liquid assets discussed in e nance textbooks. The major asset in the portfolio is a house, a relatively illiquid asset with an uncertain capital value. The value of the house generally exceeds the net worth of the household, which e nances its homeownership through a mortgage contract to create a leveraged position in residential real estate. Other e nancial assets and liabilities are typically far less important than the house and its associated mortgage contract. The importance of housing in household wealth is illustrated in Figure I. This e gure plots the fraction of household assets in housing and in equities against the wealth percentile of the household. Poor households appear at the left of the e gure, and wealthy households at the right. Data come from the 1989 and 1998 Survey of Consumer Finances. The e gure shows that middle-class American families (from roughly the fortieth to the eightieth percentile of the wealth distribution) have more than half their assets in the form of housing. Even after the expansion of equity ownership during the 1990s, equities are of negligible importance for these households. 1