Showing papers in "International Journal of Managerial Finance in 2007"
TL;DR: In this paper, the authors provide empirical evidence on the effects of working capital management on the profitability of a sample of small and medium-sized Spanish firms and demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding.
Abstract: Purpose – The object of the research presented in this paper is to provide empirical evidence on the effects of working capital management on the profitability of a sample of small and medium‐sized Spanish firms.Design/methodology/approach – The authors have collected a panel of 8,872 small to medium‐sized enterprises (SMEs) covering the period 1996‐2002. The authors tested the effects of working capital management on SME profitability using the panel data methodology.Findings – The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firm's profitability.Originality/value – This work contributes to the literature in two ways. First, no previous such evidence exists for the case of SMEs. Second, unlike previous studies, in the current work robust test have been conducted for the possible presence of e...
632 citations
TL;DR: The most important factors influencing dividend policy are the level of current and expected future earnings, the stability of earnings, and the pattern of past dividends, according to survey results as mentioned in this paper.
Abstract: Purpose – The purpose of this research is to analyze survey results on the perception of dividends by managers of dividend‐paying firms listed on the Toronto Stock Exchange (TSX).Design/methodology/approach – Managers from a sample of 291 dividend‐paying TSX‐listed Canadian firms were surveyed about their views on dividends.Findings – The most important factors influencing dividend policy are the level of current and expected future earnings, the stability of earnings, and the pattern of past dividends. Despite dramatic differences in the level of ownership concentration between Canadian and US firms, their corresponding managers' views on the determinants of dividends are similar. Canadian managers believe that dividend policy affects firm value but express little agreement with the theory of a residual dividend policy. They express strong support for the signaling and lifecycle explanations for paying dividends, but not for the bird‐in‐the‐hand, tax‐preference and dividend clientele, agency cost, or cat...
115 citations
TL;DR: Altho et al. as mentioned in this paper report on the systematic translation and content validation method used to produce the Brazilian Portuguese version of the Duke Special Survey on Corporate Policy by Graham and Harvey.
Abstract: Purpose – The purpose of this paper is to report on the systematic translation and content validation method used to produce the Brazilian Portuguese version of the Duke Special Survey on Corporate Policy by Graham and HarveyDesign/methodology/approach – In accordance with the requirements for cross‐cultural application of surveys, the paper accounts for obvious differences in language, culture, and the institutional setting and employ well‐known techniques from the field of psychology, such as the use of backtranslation, to ensure faithfulness to the original survey A panel of experts served as judges in evaluating the clarity of language and the practical pertinence and theoretical dimensions of the questionnaire Coefficients of content validity for each item and for the instrument as a whole are reportedFindings – The results illustrate how a questionnaire designed for one country should be rigorously translated and validated prior to use in another countryResearch limitations/implications – Altho
55 citations
TL;DR: A review of 49 finance journals shows that 63.3 percent published at least one survey article during the period 1985-2005 and the most common topic area for published surveys was financial management.
Abstract: Purpose – The purpose of this research is to analyze both survey and non‐survey data to draw conclusions about the status of survey‐based research in finance.Design/methodology/approach – The paper surveys editors from 15 core and 35 non‐core finance journals to learn their views about specific issues involving survey research and reviews 49 finance journals over the period 1985‐2005 to identify and classify published survey research.Findings – Editors indicate that survey‐based manuscripts typically go through the same review process as other manuscripts. They view the chief strengths of surveys as producing data unavailable from other sources and suggesting new avenues for future research. The major weaknesses of surveys are the difficulty of generalizing the results and non‐response bias. A review of 49 finance journals shows that 63.3 percent published at least one survey article during this period. The most common topic area for published surveys was financial management.Research limitations/implicat...
34 citations
TL;DR: In this paper, the authors study the extent to which various price and earnings momentum measures can be used to enhance portfolio performance by better timing entry into value stocks and isolating those growth stocks that still have some period to run.
Abstract: Purpose – The purpose of this research is to study the extent to which various price and earnings momentum measures can be used to enhance portfolio performance by better timing entry into value stocks (and isolating those growth stocks that still have some period to run).Design/methodology/approach – The paper uses the traditional methodology of ranking stocks on the basis of certain value and momentum measures (e.g. book‐to‐market, market return over some prior period), forming portfolios based on these rankings which are held for a specific period of time. The portfolios are formed on the basis of a single measure of multiple measures and the returns and associated p‐values are calculated with the objective of determining how these portfolios perform relative to a benchmark portfolio composed of all the companies in the universe. The analysis is conducted on a database consisting of approximately 8,000 companies drawn from 15 European countries over the period from January 1989 to May 2004.Findings – I...
31 citations
TL;DR: In this paper, a case study of decision making by Australian finance executives in a setting that is representative of a typical business decision was used to identify why decision makers facing choices will prefer a risky alternative.
Abstract: Purpose – When finance managers face decisions, they do not always make clinical evaluations using rational methodology, but systematically depart from utility maximisation. This article addresses biases that are related to risk propensity, and categorises them under five headings: decision makers' characteristics and perception; reference levels; mental accounting and the assumption of mean reversion; the longshot bias or overconfidence; and the desire for immediate gratification. The research reported in the paper seeks to understand the mechanisms of these biases using a study of decision making by Australian finance executives in a setting that is representative of a typical business decision.Design/methodology/approach – This paper uses a case study that was designed to identify why decision makers facing choices will prefer a risky alternative. Data were collected using e‐mail contact and an electronic survey. Respondents (n=67) provided demographic data, and answered questions that probed their att...
28 citations
TL;DR: The authors empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are theoretically linked through the behaviour of feedback traders.
Abstract: Purpose – This paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are theoretically linked through the behaviour of feedback traders.Design/methodology/approach – The SP price falls by a large amount; traded stock volumes are high; and the economy is in a recessionary phase.Research limitations/implications – The results confirm that previous related work showing a link between autocorrelation and volatility is not induced by a mechanical relation.Practical implication...
25 citations
TL;DR: In this paper, the authors examined cycles and common cycles in real estate markets of the UK, Japan, Singapore, Hong Kong and Malaysia using a combination of time domain and frequency domain methods.
Abstract: Purpose – The paper seeks to examine cycles and common cycles in the real estate markets of the UK, Japan, Singapore, Hong Kong and Malaysia using a combination of time domain and frequency domain methods.Design/methodology/approach – The paper identifies the patterns of cyclical movement (if any) in the five public real estate markets, and searches for common cycle characteristics and patterns in international real estate markets. In addition to the time domain analyses, these empirical investigations are further empowered by a frequency domain method that includes spectral and co‐spectral analyses.Findings – International real estate markets are characterized by cyclical behavior that exhibits phenomenal fluctuations. The markets are also pro‐cyclical; they do tend to move together. Furthermore, some differences in the patterns of the common cycles and their lead‐lag linkages are evident.Research limitations/implications – International investors would probably benefit from diversifying real estate stoc...
24 citations
TL;DR: The survey technique can be productively applied to a large number of finance topics but researchers must be careful to incorporate the same degree of rigor used with other research methods as mentioned in this paper.
Abstract: Purpose – To provide an introduction for the special issue on surveys, to give an overview of the survey literature and debate, and to provide direction for future research using the survey method.Design/methodology/approach – Survey of the relevant literature.Findings – The survey technique can be productively applied to a large number of finance topics but researchers must be careful to incorporate the same degree of rigor used with other research methods.Originality/value – Summarizes and ties together the papers included in the special issue and explains the overall contribution of the special issue on surveys.
21 citations
TL;DR: In this article, the authors used a telephone survey to assess the behavior and attitudes of German mutual fund managers and found that the behavior of managers depends heavily on the characteristics of the funds and the characteristic of the fund company, and that factors are identified which influence the short-term performance of fund managers.
Abstract: Purpose – The performance of actively managed mutual funds is largely dependent upon the investment decisions of the fund managers. The purpose of this study is to examine the decision processes in German fund companies and their impact on fund performance.Design/methodology/approach – The paper uses a telephone survey to assess the behavior and attitudes of German mutual fund managers. The design of the survey allows a linkage of fund manager data with information about mutual funds and fund management companies.Findings – The evidence shows firstly, that it is possible to conduct a high quality survey study even though managers know that their answers will be linked to their performance and secondly, that the behavior of managers depends heavily on the characteristics of the funds and the characteristics of the fund company.Research limitations/implications – In the paper, factors are identified which influence the short‐term performance of fund managers. In further studies, one should examine whether t...
21 citations
TL;DR: In this article, the performance of minimum capital risk requirements (MCRR) estimates in an out-of-sample period using the bootstrapping approach was evaluated using the GARCH(p,q) model.
Abstract: Purpose – The paper seeks to explain volatility and risk (VaR) modelling using data from international financial markets, and particularly to evaluate the performance of minimum capital risk requirements (MCRR) estimates in an out‐of‐sample period using the bootstrapping approach.Design/methodology/approach – This paper captures financial time series characteristics by employing the GARCH(p,q) model, and its EGARCH, threshold GARCH (TGARCH), asymmetric component (AGARCH) and component GARCH (CGARCH) extensions. Furthermore, under the bootstrapping approach, the MCRR for long and short positions over five‐day, ten‐day and 15‐day horizon periods is calculated. This paper uses daily data from the USA (Dow Jones, NASDAQ) and European (ASE, Greece; DAX, Germany; FTSE‐100, UK) financial markets.Findings – The results show that higher capital requirements are necessary for a short position since a loss is more likely than for a long position.Research limitations/implications – Future research should examine the ...
TL;DR: In this paper, the authors present a set of procedures designed to establish whether or not pooled estimation is a viable proposition in a given setting, and explore the suitability of alternative estimation methodologies given the results from these test procedures.
Abstract: Purpose – Given the importance of panel datasets in contemporary accounting and managerial finance research, the objective of this paper is to provide practical guidance for researchers who are inexperienced in dealing with panel estimation methodologies.Design/methodology/approach – The paper presents and implements a set of procedures designed to establish whether or not pooled estimation is a viable proposition in a given setting. The paper also explores the suitability of alternative estimation methodologies given the results from these test procedures. To illustrate the key concepts the paper utilises a simple model of the relationship between UK directors' cash compensation and three explanatory variables: accounting earnings; stock returns; and firm growth. This model is used solely for illumination purposes and the paper does not seek to contribute to the compensation literature.Findings – The results demonstrate the potentially misleading inference in panel settings, which can arise from: pooled ...
TL;DR: In this article, the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments is analyzed. But the analysis is based on a simple firm value model similar to Merton's but with the additional feature that the borrower can bring in collateral.
Abstract: Purpose – The purpose of this article is to determine the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments. This analysis is to shed light on the fundamental question whether good or bad borrowers pledge more collateral.Design/methodology/approach – The analysis bases on a simple firm value model similar to Merton's but with the additional feature that the borrower can bring in collateral. This article not only presents the case with perfect information between borrowers and lenders but also regards the consequences arising from asymmetric information.Findings – A bad borrower, who is characterized by higher bankruptcy costs, riskier projects, and a lower contribution to the project value, typically pledges more collateral than a good borrower. These relationships base on the existence of perfect information between borrowers and lenders. If asymmetric information in terms of the project's riskiness or the contribution of the borrower to the proje...
TL;DR: In this article, the authors examined the profitability of currency futures trading rules that assume that spot exchange rates can be adequately modeled as a driftless random walk, and found that an investor who used these trading strategies over the past decade would have enjoyed large cumulative gains, although periods of profit were interrupted by periods of substantial loss.
Abstract: Purpose – Recent research indicates that the random walk hypothesis (RWH) approximately describes the behavior of major dollar exchange rates during the post‐1973 float. The present analysis seeks to examine the profitability of currency futures trading rules that assume that spot exchange rates can be adequately modeled as a driftless random walk.Design/methodology/approach – Two random walk currency futures trading rules are simulated over all available data from the period 1984‐2003. In both cases, the investor buys currencies selling at a discount and sells those selling at a premium, as the RWH implies. The two rules differ only in the way they allocate the hypothetical investor's resources among long and short foreign currency positions.Findings – Results show that an investor who used these trading strategies over the past decade would have enjoyed large cumulative gains, although periods of profit were interrupted by periods of substantial loss.Research limitations/implications – The findings enco...
TL;DR: In this article, the authors investigate the extent to which finance managers in non-financial firms speculate in the currency markets and particularly to investigate the effect of individual owners on such speculation, finding that the extent of speculation is positively related to the size of the firm, to the international involvement of a firm, and to the conservatism of its capital structure.
Abstract: Purpose – To investigate the extent to which finance managers in non‐financial firms speculate in the currency markets and particularly to investigate the effect of individual‐owners on such speculation.Design/methodology/approach – This paper uses survey data in order to analyse the extent of currency speculation in non‐financial firms. It uses survey data and publicly available data in an ordered probit regression analysis in order to analyse the decisive factors behind the extent of currency speculation in non‐financial firms.Findings – Currency speculation is widespread among non‐financial firms and takes the form of selective hedging as well as speculation not related to the underlying business. The extent of speculation is positively related to the size of the firm, to the international involvement of the firm, and to the conservatism of its capital structure. If an individual (often the founder or a descendant of the founder) is the largest shareholder in the firm, the extent of such speculation is...
TL;DR: In this paper, the authors examined changes in daily return volatility associated with open market share repurchases and found that it is the subsequent actual buyback trading activity, not the announcement, that is significantly negatively associated with changes in return volatility.
Abstract: Purpose – The paper seeks to examine changes in daily return volatility associated with open market share repurchases.Design/methodology/approach – Univariate analyses, control sample analyses, and multiple regression analyses are employed to explore relations between daily return volatility and a number of variables.Findings – This study finds evidence that an open market share repurchase firm, by actively buying back its shares when the share price falls, reduces daily return volatility. The results suggest that it is the subsequent actual buyback trading activity, not the announcement, that is significantly negatively associated with changes in daily return volatility. CAPM beta, a measure of systematic risk, decreases only when the firm is in the market actively repurchasing its shares.Originality/value – To the best of the author's knowledge, this study is probably the first to connect changes in daily return volatility to actual buyback trading activities of share repurchase announcing firms. Change...
TL;DR: In this paper, a simultaneous equation approach is used to examine the endogenous relationship between IPO volume and initial returns and analyzes the industry correlation matrix of new issue activity and estimates a fixed-effects model based on industry-leverage.
Abstract: Purpose – The puzzle of hot and cold issue markets has attracted substantial interest in the academic community. The behavior of IPO volume and initial returns over time is well documented. Few studies, however, investigate the dynamic interrelationship between these two variables. This paper aims to fill this gap. In addition, the technological innovations hypothesis of hot issue markets is tested. Welch and Hoffmann‐Burchardi suggest that the clustering of new issues is caused by IPO volume spikes in industries that have recently experienced technological innovations or favorable productivity shocks.Design/methodology/approach – This paper employs a sample of 8,160 initial public offerings filed in the USA between January 1972 and December 2001. A simultaneous equation approach is used to examine the endogenous relationship between IPO volume and initial returns. In addition, the paper analyzes the industry correlation matrix of new issue activity and estimates a fixed‐effects model based on industry‐le...
TL;DR: In this article, the authors assess the pricing of stocks that are traded on both a US stock exchange and a non-US stock exchange to determine whether interaction exists between the two exchanges.
Abstract: Purpose – The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction exists between the two exchanges.Design/methodology/approach – This article identifies extreme price movements of stocks (winners and losers) in the non‐US stock exchanges that also trade as American depository receipts (ADRs) in the US market, and measure the US market response. Also identifies extreme price movements of stocks (winners and losers) in the US stock exchanges that also trade in the non‐US markets, and measure the non‐US market response.Findings – Finds a significant reversal of winners and losers in the US market, which suggests that the US market attempts to correct the pricing in non‐US markets. Also finds that extreme ADR price movements in the US markets are followed by corrections in the non‐US market.Research limitations/implications – Market participants appear to monitor unusual stock price movements that j...
TL;DR: In this paper, the stock price performance of publicly owned railroad companies following severe railroad accidents that resulted in the loss of human lives and/or hazardous material spills was examined and the focus was on legal liability considerations as one of the primary factors that drove a firm's abnormal performance following a given accident.
Abstract: Purpose – The study aims to examine the stock price performance of publicly owned railroad companies following severe railroad accidents that resulted in the loss of human lives and/or hazardous material spills. The focus is on legal liability considerations as one of the primary factors that drives a firm's abnormal performance following a given accident.Design/methodology/approach – This paper employs a sample of 97 railroad accidents that occurred between January 1967 and December 2006 and involved equipment (tracks and/or locomotives) owned by publicly traded US and Canadian railroad companies. The stock price reaction of the affected firms is examined following these disasters and a series of univariate and multivariate tests is used to investigate whether differences in abnormal returns following a given accident can be related to various factors that characterize the affected firm or the accident it was involved in.Findings – The results suggest that legal liability considerations are one of the pr...
TL;DR: In this article, the authors examine fair values provided by the Australian Stock Exchange (ASX) and reported daily in the Australian Financial Review to determine whether they violate fundamental option relationships.
Abstract: Purpose – The paper seeks to examine fair values provided by the Australian Stock Exchange (ASX) and reported daily in the Australian Financial Review to determine whether they violate fundamental option relationships.Design/methodology/approach – Values reported in the Australian Financial Review from 4 January 2005 to 31 March 2005 are examined.Findings – The results document that between 1 and 2 per cent violate the most fundamental option relationships, specifically the requirement for call and put option values to increase as term to expiry increases, and for call (put) option values to increase (decrease) as exercise price decreases. Further, the magnitude of these violations is too large to be explained solely by the bid‐ask spread. They are, nevertheless, consistent with staleness. Further, in nearly 30 per cent of cases these fair values violate the basic put‐call parity relationship. The type of these violations is also consistent with these values being stale.Research limitations/implications –...