Market capitalization

About: Market capitalization is a research topic. Over the lifetime, 3583 publications have been published within this topic receiving 77288 citations. The topic is also known as: market cap & market value.

Learning from High-Tech Deals

Abstract: MA then we studied the transaction activity of each group--some 5,000 deals in all. Our analysis established that while the average merger or acquisition destroys value for the acquirer, deals carried out by companies that undertake them strategically and often actually do create value. Our analysis of alliances produced similar results. (1) How then do top performers manage their transactions? For a deeper look at this question, we used 30 case studies and interviews with 30 senior practitioners--including chief executive officers, chief financial officers, business-development executives, senior investment bankers, and academics--to augment our research. Although there is no single best way to carry out these transactions, our study does suggest that there are patterns and principles that separate top performers from the pack. In high tech, you must be good at transactions For two reasons, the stars of high technology consider deal making to be as inevitable and perennial as product development or marketing. First, the pace of technological change in the industry, as seen during both the boom and the recent slowdown, is extraordinary and thus forces companies to manage their assets aggressively. In 1993, for example, the typical company in the high-tech top 100 (as measured by market value) stayed there for seven years; by the end of the decade, the average tenure had dropped to three years. At the peak of the Internet market, in 1998 and 1999, 32 of the top 100 companies fell off the list. A similar turnover in market leadership continues today. In markets that move more rapidly than most companies can, many players--laggards and leaders alike--become fodder for deals. In 1982, for example, few would have imagined that industry leader Digital Equipment would one day be acquired by Compaq Computer, which was founded that same year. Second, high technology is a "winner-takes-all" industry. Just 2 percent of the companies in the software sector, for instance, have contributed 63 percent of the appreciation in market capitalization since 1989 (Exhibit 1). Transactions and consolidations can often fill holes in a product line, open new markets, and create new capabilities in less time than it would take to build businesses internally. Such moves may be prerequisites to achieving a dominant position--the best assurance of survival. So it is no coincidence that most "gold-standard" companies in our survey--those averaging more than 39 percent annual growth in total returns to shareholders since 1989--undertake almost twice as many acquisitions and form up to ten times as many alliances as do their competitors (Exhibit 2, on the next page). The sheer volume of deals gold-standard companies undertake has made them as good as they are at extracting value from these transactions. Like good surgeons, the best are the busiest, and the busiest are often the best. …

Stock market dispersion and business cycles

Abstract: Do stock market movements predict business cycles? Opinions differ Focusing on the link between movements in the Standard and Poor's (S&P) 500 and the economy, Fisher and Merton (1984, p 72) find that "stock price changes are the best single variable predictor of the business cycle" And Barro (1988, p 1) concludes that "considering how difficult it is to make accurate macroeconomic forecasts, the explanatory power of the stock market is outstanding" Other economists are not so impressed Samuelson (1966) aptly sums up the opposing view: "The stock market has predicted nine of the last five recessions" More recently, Stock and Watson (1988) find the forecasting ability of aggregate stock market indices to be uneven and they exclude them from their new index of leading economic indicators This article looks at another way to analyze stock price data that can help forecast business cycles This kind of analysis is motivated by Black (1987, p 113-114) who argued that the behavior of an industry's stock price can be used to forecast the industry's subsequent investment expenditures Increases in an industry's stock price are generally followed by an increase in that industry's expenditures on plant and equipment If stock prices are increasing in some industries but declining in others, it suggests that in subsequent years capital and labor will have to be reallocated from the contracting industries to the expanding ones While beneficial in the long run, this reallocation of resources imposes short-run costs, that is, temporary declines in real activity as the resources move across industries The greater the divergence in the fortunes of different industries, the more resources must be moved, and so the larger will be the resulting unemployment and fall in output As Black suggests, stock market data provide a way of measuring the extent of this divergence, or dispersion, in industry fortunes In a well-functioning stock market, stock prices represent the discounted sum of present and expected future industry profits As stock market participants forecast the contraction of some industries and the expansion of others, the price of stocks in the contracting industries will fall, while stock prices in the expanding industries will rise The greater the predicted difference in the industries' prospects, the greater will be the dispersion in these industries' stock prices Thus, an increase in the dispersion of stock prices should be followed by an increase in unemployment and a decline in real economic activity

Public Enforcement of Securities Laws: Preliminary Evidence

Abstract: The consequence of economic actors ignoring their legal obligations, such as laws that protect outside investors in firms, is a recurring issue. Recent work in finance examines the relative importance for investor protection of private enforcement on the one hand―via disclosure and lawsuits among contracting parties―and public enforcement on the other―via financial, regulatory and even criminal rules and penalties. Much legal scholarship has seen private enforcement of securities laws as poorly designed, with firms—and hence wronged shareholders—-often bearing the cost of insiders’ errors and disclosure failure. To better investigate the importance of public and private enforcement, we here develop an enforcement variable based on the securities regulators’ staffing levels and budgets. We then examine financial outcomes around the world―such as stock market capitalization, trading volumes and number of domestic firms and IPOs―in light of these measures of public enforcement and find that more intense public enforcement regularly correlates with strong financial outcomes. Moreover, in horse races between our measures of public enforcement and the usual measures of private enforcement, public enforcement is typically at least as important as private enforcement in explaining important financial market outcomes around the world. Hence, we caution against using the current explanations that rely on the strength of private enforcement to the exclusion of public enforcement in making public policy around the world. We conclude by speculating why public enforcement may well prove to be as, or more, important than private enforcement in explaining world-wide financial outcomes. Public Enforcement of Securities Law: Preliminary Evidence Howell E. Jackson & Mark J. Roe Introduction 1 I. Public and Private Enforcement? 4 A. Private Remedies 4 B. Public Enforcement 6 C. Measuring Public Enforcement: Staffing and Budgets 7 II. Results 12 A. Public Enforcement and Market Size 12 B Prior Public Enforcement Measures 14 C Limitations to Prior Public Enforcement Indices 15 D. Staffing and Budgets vs. Prior Public Enforcement Measures 16 E. Financial Variables Associated with Dispersed Ownership 18 F. Limits to Both Private and Public Enforcement: Intermediate Financial Variables 21 G. The Direction of Causality? 22 H. Legal Origin and Regulatory Intensity 23 III. Discussion 25 A. Channels from Public Enforcement to Financial Outcomes 25 B. The Potential Importance of Public Enforcement 26 C. Developing Better Measures of Public Enforcement 27 D. Public Enforcement and Private Enforcement 28 Conclusion 28 Figure 1: Securities Regulators per Million of Population 32 Figure 2: Securities Budgets per Billion of U.S. Dollars of GDP 32 Figure 3: Civil versus Common Law Staffing 33 Figure 4: Civil versus Common Law Budgets 33 Table 1: Securities Enforcement Variables 10 Table 2: Summary Statistics on Public Enforcement Variables 11 Table 3: Pair-wise Correlation Matrix for Key Variables 12 Table 4: New Enforcement Variables and the Size of Capital Markets 13 Table 5: Reformulation of LLS Regressions on Public Enforcement 17 Table 6: Reformulation of Other LLS Regressions 18 Table 9: Regressions with LLS Dependent Variables Associated with Private Control 20 Table 10: Regressions with New World Bank Indices as Dependent Variables 21 Table 7: Public Enforcement and Common Law Origins 23 Table 8: Nested Regressions: Dependent Variable as 2004 Market Capitalization to GDP 25 Public Enforcement of Securities Laws: Preliminary Evidence Howell E. Jackson & Mark J. Roe

Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data*

Abstract: This paper provides the first systematic evidence on compensation for executives of firms listed in China???s emerging stock market (currently the eighth largest of the world with market capitalization of over $550 billion). Specifically, using comprehensive financial and accounting data on China???s listed firms from 1998 to 2002 (data modeled after Compustat and CRSP in the U.S.), augmented by unique data on executive compensation, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. The size of the estimated sensitivities imply that a 1000 RMB increase in shareholder value yields a 0.020 RMB to 0.053 RMB increase in annual cash compensation, whereas the size of the estimated elasticities suggest that a 10 percent increase in shareholder value results in 3.7 to 4.0 percent increase in annual cash compensation for top executives. The estimated sensitivities and elasticities of cash compensation for top executives in China???s listed firms are greater than what has been reported for Japan and the U.S. However, we also find that state ownership of China???s listed firms is weakening executive pay-performance link and thus possibly making China???s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for the ???shareholding experiment??? to fully succeed in transforming China???s emerging listed firms to efficient modernized corporations and for the overall successful economic transition of China. Finally, we find that sales growth is significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive.

Is stock market sensitive to foreign capital inflows and economic growth? Evidence from Pakistan

Abstract: Purpose – The purpose of this study is to investigate the impact of foreign capital inflows and economic growth on stock market capitalization in Pakistan by using the annual time series data from the period of 1976 to 2011. Design/methodology/approach – The autoregressive distributed lag bound testing cointegration approach, the error correction model and the rolling window estimation procedures have been performed to analyze the long run, short run and behavior of coefficients, respectively. Findings – Results indicate that foreign direct investment (FDI), workers’ remittances and economic growth have significant positive relationship with the stock market capitalization in long run as well as in short run. Results of the dynamic ordinary least square and the fully modified ordinary least square suggest that the initial results of long-run coefficients are robust. Results of variance decomposition test show the bidirectional causal relationship of FDI and economic growth with stock market capitalization...