Financial Management 

About: Financial Management is an academic journal published by Wiley-Blackwell. The journal publishes majorly in the area(s): Stock (geology) & Equity (finance). It has an ISSN identifier of 0046-3892. Over the lifetime, 1739 publications have been published receiving 97005 citations. The journal is also known as: FM.

The Effects of Board Composition and Direct Incentives on Firm Performance

Abstract: This paper attempts to measure difference in firm performance caused by broad composition and ownership structure. These two variables are intended to measure the direct incentives and monitoring faced by top management. We also control for a number of otheк variables that are likely to be correlated with corporate performance. We do so to improve the precision of our estimates, as well as to eliminate much of the omitted-variable bias that has undoubtedly affected previous studies of board composition.

Capital Structure Decisions: Which Factors Are Reliably Important?

Abstract: This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market-to-book assets ratio (−), tangibility (+), profits (−), log of assets (+), and expected inflation (+). In addition, we find that dividend-paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market-to-book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade-off theory of capital structure.

A Simple Approximation of Tobin's q

Abstract: This paper develops a simple formula for approximating Tobin's q. The formula requires only basic financial and accounting information. Results of a series of regressions comparing our approximate q values with those obtained via Lindenberg and Ross' (1981) more theoretically correct model indicate that at least 96.6% of the variability of Tobin's q is explained by approximate q.

Why Has IPO Underpricing Changed Over Time

Abstract: In the 1980s, the average first-day return on initial public offerings (IPOs) was 7%. The average first-day return doubled to almost 15% during 1990-1998, before jumping to 65% during the internet bubble years of 1999-2000 and then reverting to 12% during 2001-2003. We attribute much of the higher underpricing during the bubble period to a changing issuer objective function. We argue that in the later periods there was less focus on maximizing IPO proceeds due to an increased emphasis on research coverage. Furthermore, allocations of hot IPOs to the personal brokerage accounts of issuing firm executives created an incentive to seek rather than avoid underwriters with a reputation for severe underpricing. What explains the severe underpricing of initial public offerings in 1999-2000, when the average first-day return of 65% exceeded any level previously seen before? In this article, we address this and the related question of why IPO underpricing doubled from 7% during 1980-1989 to almost 15% during 1990-1998 before reverting to 12% during the post-bubble period of 20012003. Our goal is to explain low-frequency movements in underpricing (or first-day returns) that occur less often than hot and cold issue markets. We examine three hypotheses for the change in underpricing: 1) the changing risk composition hypothesis, 2) the realignment of incentives hypothesis, and 3) a new hypothesis, the changing issuer objective function hypothesis. The changing issuer objective function hypothesis has two components, the spinning hypothesis and the analyst lust hypothesis. The changing risk composition hypothesis, introduced by Ritter (1984), assumes that riskier IPOs will be underpriced by more than less-risky IPOs. This prediction follows from models where underpricing arises as an equilibrium condition to induce investors to participate in the IPO market. If the proportion of IPOs that represent risky stocks increases, there should be greater average underpricing. Risk can reflect either technological or valuation uncertainty. Although there have been some changes in the characteristics of firms going public, these changes are found to be too minor to explain much of the variation in underpricing over time if there is a stationary risk-return relation. The realignment of incentives and the changing issuer objective function hypotheses both