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.

Determinants of Revenue Reporting Practices for Internet Firms

Abstract: The financial press and accounting regulators (e.g., the SEC and FASB) have expressed concern about pressures on Internet firms to report high levels of revenue. This study verifies the association between market capitalization and revenue, and examines economic factors that potentially influence Internet company managers' decisions to adopt allegedly aggressive revenue recognition policies. Specifically, we examine factors hypothesized to influence reporting of advertising barter revenue and grossed-up sales levels. We begin by providing descriptive evidence on the use of barter and grossed-up revenue across Internet sectors. While common in some sectors, we find that use of these accounting policies is not pervasive overall. We limit our empirical analyses to Internet companies that have the opportunity to report grossed-up or advertising barter revenue. Our cross-sectional predictions are based on both external and internal incentives to maximize revenues as well as constraints that may limit management's discretion. We predict that the following factors increase the likelihood that a firm will report grossed-up and/or barter revenue: shorter time before needing additional external financing, more active individual investor interest in the firm's stock, more active pursuit of growth via acquisitions, and greater use of stock options in employee compensation. We also posit that barter transactions might be an inexpensive way for firms to evaluate the viability of future marketing or content alliances with potential partners. Finally, we predict constraints on management discretion to be related to the reputation/quality of the firm's auditor and underwriter, and the extent of management ownership. We find that firms with greater cash burn rates and higher levels of activity on Motley Fool message boards are consistently associated with barter and grossed-up revenue reporting. This suggests that the pressure to seek external funding and the extent of active individual investor interest in a firm influence Internet managers' use of allegedly aggressive revenue reporting practices. In addition, it appears that firms reporting barter revenue are more likely to enter into marketing and content alliances, suggesting the potential for future alliances may be another motivation for managers to enter into barter transactions.

CEO Compensation: Trends, Market Changes, and Regulation

Abstract: (ProQuest: ... denotes formulae omitted.) Compensation figures for the top managers of large firms are on the news frequently. Newspapers report the salaries, the bonuses, and the profits from selling stock options of the highest paid executives, often under headlines suggesting excessive levels of pay or a very weak relation of pay to the performance of the firms.1 Especially after the fraud scandals at Enron and other important corporations around the world, executive performance and pay have been carefully scrutinized by the public. Academic economists, however, have long ago recognized the importance of understanding the issues involved in determining executive pay and have been studying them for decades. In short, the main economic problem behind executive compensation design is that firm owners need to align the incentives of the executives to their own interests-typically to maximize firm value. To achieve this alignment, the compensation of the manager is usually made contingent on the performance of the firm. While in the largest firms executive compensation typically represents a small fraction of the total firm value, the decisions that a top executive makes can be potentially important for firm performance. Therefore, the way in which the dependence of compensation on firm performance is structured can have a significant impact on the added value that the executive brings to the firm. There is by now a large body of academic studies that document practices in executive pay and study the optimal design of compensation contracts. Some of the most important and recent findings in the literature are summarized in this article. In Section 1, I present the various instruments commonly used to compensate executives and the main empirical regularities about executive pay. Over the last two decades, the average pay of a chief executive officer (CEO) working in one of the 500 largest firms in the United States has increased six-fold. This increase has occurred simultaneously with a change in the composition of pay of these CEOs, moving away from salary and increasingly toward performance-based compensation in the form of stock grants and stock option grants. This shift has resulted in a clear increase in the sensitivity of the total pay of CEOs to the performance of their firms. Although the increase in the level and the sensitivity are most likely related, I separate the discussion into two sections for a more detailed exposition of the evidence and a discussion of possible explanations. In Section 2, I summarize how the level of pay has evolved since 1936. Then I briefly review some of the explanations in the academic literature for the sharp increase in the last two decades. I focus on a recent strand of the literature that has built on ideas from the classic papers of Lucas (1978) and Rosen (1981, 1982) that model firms' competition for the scarce talent of managers. These studies argue that the sharp increase in firm size and value of the last decades could be important to explain the six-fold increase in the level of CEO pay over the same period. In Section 3, I focus on how the pay of CEOs depends on their performance. I introduce several measures of sensitivity of the CEO's pay to the results of the firm that are widely used in the literature. The empirical studies provide a wide range of estimates for sensitivity, but there is consensus about two facts: an increase in sensitivity over the last two decades and a negative relation of sensitivity with firm size (as measured by market capitalization value). I discuss some of the recent explanations for these regularities. Many of the explanations are based on studying the interaction between the manager and the owners of the firm as a moral hazard problem. In the model, shareholders minimize the cost of bringing the (risk averse) CEO to exert an unobservable effort that improves the results of the firm. This analysis is typically performed in partial equilibrium and aims to describe the form of optimal compensation contracts, i. …

Stock Market and Economic Growth: The Nigerian Experience

Abstract: The study examined stock market-economic growth nexus in the Nigerian economy. It specifically investigates the effects and the causal relationship between the two variables in Nigeria. This was with the view to providing empirical evidence for stock market operation to stimulate economic growth with maximising the welfare of the people. The study employed annual time series data from 1981 to 2008 collected from various issues of Central Bank of Nigeria’s Statistical Bulletin and Annual Report and statement of Account of Nigeria Stock Exchange 2009 edition. An Error Correction Mechanism (ECM) Model was adopted in the analyses of the interaction between stock market and economic growth. The granger causality pairwise test was conducted in determining the causal relationship among the variables. The empirical results showed that, there was unidirectional causality between stock market and economic growth, which ran from economic growth (GDP) to stock market (MCAP) at 5 percent significant level., stock market has negative effect on economic growth in the short run but positive effect in the long run with (t=1.6, P>0.05) and (t = 4.6, P<0.05) respectively. However, the effect was statistically significant at 5% level of significance only in the long run. The study concludes that, the Nigerian stock market is no exception to other developing countries which are working towards reforming and deepening their financial systems through the expansion of its stock markets in order to improve their ability to mobilize resources and efficiently allocate them to the most productive sectors of the economy so as to enhance economic growth. Keywords: Market Capitalization, Total Value of Transactions, Total New Issues, Gross Domestic Product and Bank Total Asset

Outperformance Certificates: analysis, pricing, interpretation, and performance

Abstract: In this paper we introduce a new financial product named Outperformance Certificates. We study the €43 billion sample by examining 1,507 issues of the certificates outstanding in August 2005 issued by banks in Europe. We present formulas to price the certificates and empirically examine the profits in the primary market for issuing the certificates. We find that issuance of the certificates is profitable for the issuers in our sample. Issuers sell the certificate at prices 3–5 % above the fair value based upon the components of the underlying assets. We also find that the dividend yields and ex-dividend dates play an important role in the profitability of the certificates. The underlying securities tend to have high dividend yield and large market capitalization. We also find the certificates tend to mature soon after the ex-dividend dates of the underlying assets.