Research articles for the 2021-04-02

210 errores en valoraciones de empresas (210 Errors in Valuations of Companies)
Fernandez, Pablo
Spanish Abstract: Este documento contiene 210 errores cometidos en distintas valoraciones de empresas.La mayor parte de las valoraciones proceden de arbitrajes, procesos judiciales, compras y ventas de empresas a los que el autor ha tenido acceso. Casi todos los nombres de personas, empresas y ciudades se han modificado.Los errores se clasifican en 7 categorías: 1) Errores acerca de la tasa de descuento y del riesgo de la empresa; 2) Errores al calcular o prever los flujos esperados; 3) Errores al calcular el valor terminal; 4) Inconsistencias y errores conceptuales; 5) Errores al interpretar la valoración; 6) Errores al interpretar la contabilidad; y 7) Errores de organización.English Abstract: This paper contains a collection and classification of 210 errors seen in company valuations performed by financial analysts, investment banks and financial consultants.The author had access to most of the valuations referred to in this paper in his capacity as a consultant in company acquisitions, sales, mergers, and arbitrage processes.We classify the errors in seven main categories: 1) Errors in the discount rate calculation and concerning the riskiness of the company; 2) Errors when calculating or forecasting the expected cash flows; 3) Errors in the calculation of the residual value; 4) Inconsistencies and conceptual errors; 5) Errors when interpreting the valuation; 6) Errors when interpreting financial reports; and 7) Organizational errors.

A Comprehensive Approach to the Capital Requirements Based on EVA
Golbabaei, Ali,Botshekan, Mahmoud
We propose a holistic approach to balance sheet management to show how banks can meet both regulatory capital (proposed under Basel III) and shareholders’ wealth simultaneously. Using the consolidated balance sheet, this work outlines a methodology for mapping between targeted credit risks based capital ratio and economic value added by which banks can predict their optimal balance sheet. The results of this study are as follows. First, using an ex-ante approach, we predict the optimized balance sheet in each year from the previous year's data. By imposing the restriction of a maximum of 5% possible changes in the balance sheet items compared to the real changes, we could make an optimized balance sheet in which we predict more EVA with the same capital ratio compared to the real performance in each year. Second, in the ex-post approach, we use the optimized balance sheet items predicted by the ex-ante approach and assume that if this optimized balance sheet is used by the bank in practice, how much more EVA will be gained. The results show that in this approach (the ex-post approach), we could generate more EVA. It means that if the bank had used this optimized balance sheet in practice, it could have made more EVA. Robustness tests also support our main results when we impose more restrictions on the analysis.

A Study on Awareness & Behavior of Individual Investors Towards Various Investment Avenues With Reference to Mehsana District
Pawar, Dr. Hukmaram
Investment is systematic plan of investors to part their money at appropriate place to earn and safe the same for future contingencies. Investment is a purchase of a financial product or other items of value with an expectation of favorable future returns. The risk and returns available of each of these investment avenues differ from one avenue to another. There are, many investment avenues are available in the Indian market where some are marketable and liquid while others are non marketable and some of them are highly risky while others are almost risk less. The investors have to choose Proper Avenue depending upon his specific need, risk preference, and return expected.

Broadband Internet and Stock Market Participation
Zhou, Yang,Lu, Weijie,Niu, Geng
This paper examines the effect of broadband Internet on household stock market participation. By exploiting the expansion of broadband in the U.S. from 1999 to 2008, we find that the availability of broadband in a household’s zip code significantly increases the likelihood of stockholding and the share of wealth invested in stocks. Moreover, this effect operates through a higher tendency to follow the stock market, indicating that broadband access reduces the information cost associated with stockholding. The effect of broadband access concentrates among people with high socioeconomic status. Our study speaks to the role of technology development in household finance.

Factors Determining the Success of Car-Sharing Service in Bangkok, Thailand
Elango, Dinesh,Sukumaltakun, Songphon
Car-Sharing service is the service that is available in various countries. It is believed to be environmentally-friendly as it helps reduce the number of cars in traffic. The service also offers an economical mode of transportation to the customers as the customer does not need to own a private car. Thus, this study aims to find out the factors that impact on the intention to use car-sharing service among office workers in Bangkok, as they are the group that will commute daily in-and-out of Bangkok. The qualitative data collection using a focus group interview method is selected as it provides in-depth details from the potential users, while new ideas from the discussion maybe generated as well. The literature reviews are from various researches from countries where the service is currently available. Seven factors were identified to be tested with the focus groups, namely, environmentally-friendly image, lower fixed-cost, cheaper traveling cost, availability of parking station, connectivity to public transportation, travel pattern, and number and type of cars available. The finding is that an environmentally-friendly image does not have a clear impact on the intention to use the service, and the service is not currently perceived as environmentally-friendly. While both the fixed-cost and traveling cost is lower for using car-sharing service, the cost is not the top factor when commuters consider using the service. Availability of parking station and connectivity to public transportation are the two main factors that significantly impact the intention to use. Varieties on the type of cars available could increase the chance of usage as it can fit into the specific purpose of usage which is deemed by the interviewees to suit the nature of the car-sharing service. Traveling pattern has a different impact on the intention to use based on the aspects of pattern such as the number of passengers, etc.

Implications of Public Corruption for Local Firms: Evidence from Corporate Debt Maturity
Hassan, M. Kabir,Karim, Md. Sydul,Kozlowski, Steven
Using political corruption conviction data from the U.S. Department of Justice, we examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. Our results support the demand-side story and indicate that firms located in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, we find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. Our findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, and placebo analyses corroborate our findings. Altogether, our results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials.

No Hedge Funds, No Cry
Estrada, Javier
Hedge funds raise capital largely from institutional investors. Small individual investors may feel left out but probably do not realize what a blessing that really is. Simple strategies way within their reach have outperformed hedge funds in terms of return and risk-adjusted return over the last 10, 15, and 20 years. Worse still, neither hedge funds really provide investors with returns uncorrelated to stocks nor do they protect portfolios from losses, at least as well as gold does, in turbulent times.

Ownership Structure and Earnings Management: Empirical Evidence from Listed Pharmaceuticals and Chemical Firms of Bangladesh
Hossain, Dewan Azmal
Objective - This study aims to examine the relationship between ownership structure (determined by institutional and foreign ownership) and earnings management in the context of Bangladeshi Pharmaceuticals and Chemical firms.Methodology â€" Out of 32 listed firms, this study examined 29 firms from the pharmaceuticals and chemical industry of Bangladesh from 2014 to 2018. Three firms are omitted as they got listed in 2018 and 2019 respectively. This study uses discretionary working capital accrual to measure earnings management that is the dependent variable. Ordinary least square regression analysis is conducted to assess the result of this study. Institutional and foreign ownership are independent variables. ROA, size, cash flow from operation, and leverage are control variables.Findings â€" It is found that institutional ownership is negatively related to earnings management and foreign ownership is positively related to earnings management but none of them are statistically significant indicating institutional and foreign ownership do not help in resolving or reducing the earnings management problems in the context of Bangladeshi pharmaceuticals and chemical firms.Novelty â€" Previous studies in Bangladesh deal only with the techniques of earnings management. To my knowledge, it is the first study that tries to assess the relationship of ownership structure defined by institutional and foreign shareholdings with earnings management in the context of Bangladeshi pharmaceuticals and chemical firms. These two ownership patterns are selected because they are supposed to increase the quality of financial information and also because in Bangladesh state and general shareholders are too dispersed to monitor the governance issues. The practical implications of this study is that investors should not consider institutional and foreign ownership percentage as a determining factor of good governance when considering investment decisions rather should look for other firm-specific factors as institutional and foreign shareholders are found to be inactive in increasing the quality of financial information in the context of Bangladesh. Policymakers should identify why institutional and foreign shareholders are not active and should revise the governance mechanisms accordingly.

Performance Evaluation of Bankruptcy Prediction Models: An Orientation Super-efficiency DEA-based Framework
Mousavi, Mohammad Mahdi,Ouenniche, Jamal,Xu, Bing
Prediction of corporate failure is one of the major activities in auditing firms risks and uncertainties. The design of reliable models to predict bankruptcy is crucial for many decision-making processes. Although a large number of models have been designed to predict bankruptcy, the relative performance evaluation of competing prediction models remains an exercise that is unidimensional in nature, which often leads to reporting conflicting results. In this research, we overcome this methodological issue by proposing an orientation-free super-efficiency data envelopment analysis model as a multi-criteria assessment framework. Furthermore, we perform an exhaustive comparative analysis of the most popular bankruptcy modelling frameworks for UK data including our own models. In addition, we address two important research questions; namely, do some modelling frameworks perform better than others by design? and to what extent the choice and/or the design of explanatory variables and their nature affect the performance of modelling frameworks?, and report on our findings.

Performance Evaluation of Conventional and Islamic Banks in Bangladesh
Ullah, Mohammad Hedayet,Kamruzzaman, A. S. M.,Rahman, S.M.
This study aims to evaluate the financial performances of Conventional banks and Islamic banks operating in Bangladesh and compare the financial performance based on some selected variables. The study has used panel data from the period 2010 to 2018 published in the annual reports of these banks and the Bangladesh Bank. The study had a sample of 10 commercial banks consisting of 5 Conventional and 5 Islamic banks. This study has chosen a common set of 7 balance sheet variables to test the performance of both groups of banks and used the OLS regression method and the correlogram to measure the relationships and the contributions of these variables on the profitability of both groups of banks. The study results reveal that balances with other banks, money at call, investment in securities, total loans, borrowings from other banks, and total deposits had significant contributions to operating profits of the group of conventional banks. On the other hand balances with other banks, investment in securities, and total deposits had significant contributions to operating profits of the group of Islamic banks.

The Rise of Reddit: How Social Media Affects Retail Investors and Short-sellers’ Roles in Price Discovery
Hu, Danqi,Jones, Charles M.,Zhang, Valerie,Zhang, Xiaoyan
Using data from social media platform Reddit from 2020 and 2021, we examine how stock prices, retail trading and short-selling are inter-connected with social media activity. More Reddit traffic, more positive tones, more disagreement and higher connectedness at Reddit lead to higher returns, higher retail order flow, and lower shorting flows on the next trading day. The information content of the social activity variables is different from that of retail order flows and shorting flows, and they are each a significant predictor for future returns. Interestingly, when there is higher traffic, more positive tone, more disagreement and higher connectedness on Reddit, the shorting flows become even more informative and predict even lower future returns. A closer look at Robinhood 50 stocks shows that these stocks are more affected by social media activity. Positive retail order flows predict even higher future returns for these stocks, while heavy shorting flows in these stocks also more significantly predict low future returns.

U.S. Department of Energy National Carbon Capture Center, Supporting Technology Scale-up and International Collaboration
Morton, Frank,Corser, Michele,Anthony, Justin
Sponsored by the U.S. Department of Energy (DOE) and operated and managed by Southern Company, the National Carbon Capture Center (NCCC) is a cornerstone of U.S. innovation in advancing the development of technologies to reduce greenhouse gas emissions. Bridging the gap between laboratory research and large-scale demonstrations, the center works to accelerate the development of carbon capture technologies from natural gas- and coal-based power plants. The facility evaluates next-generation carbon dioxide (COâ‚‚) reduction processes from third-party developers, focusing on the early-stage development of the most promising, cost-effective technologies for future commercial deployment. Since its creation in 2009, the NCCC has performed more than 115,000 hours of technology testing. Through pilot testing of more than 60 technologies, the center has directly participated in the reduction of the projected cost of carbon capture from fossil power generation by approximately one-third. As the demand for post-combustion COâ‚‚ capture options grows, work in this area continues to reduce the cost of carbon capture and bring new technologies closer to the marketplace. Evaluation of developing second-generation and transformational carbon capture technologies using actual flue gas under industrial conditions provides critical information on material and process suitability for scale-up to commercial applications.The center has broadened its research scope to expand testing of carbon capture technologies for natural gas power generation in addition to its existing coal-fueled testing capability. Integration of the new natural gas flue gas equipment with the existing infrastructure will allow each carbon capture project to receive either natural gas or coal flue gas independently of other projects.In addition, current and future testing at the NCCC will support research and development (R&D) of CO2 utilization technologies that will efficiently, economically, and cleanly transform COâ‚‚ into value-added products. As its focus broadens to negative carbon concepts, the center is also extending its research to help advance direct air capture (DAC) technologies.Because reduction of COâ‚‚ emissions is an international issue, the NCCC provides worldwide technology development leadership â€" it co-founded the International Test Center Network, a global coalition focused on research, development, and deployment of carbon capture, use, and storage (CCUS). Formed in 2012 in collaboration with DOE’s Office of Fossil Energy, the ITCN facilitates knowledge-sharing among carbon capture test facilities around the world to accelerate the commercial deployment of carbon capture technologies. The ITCN now has 14 test facilities that are members. The NCCC has also been active in establishing test collaborations with international groups. The facility has successfully tested technologies from seven different countries. In addition to the important work of developing cost-effective technologies, many other aspects of successful commercial deployment must be mastered. Establishing relationships to secure funding, gaining management support, meeting test goals, and satisfying legal requirements of both the international organization and the NCCC are significant achievements and forms a strong basis for future partnerships for larger-scale development. Oil and gas companies have joined the NCCC and have a strong international presence which will support international collaboration worldwide. Unanticipated benefits to the NCCC’s international collaboration have emerged in addition to establishing relationships that could form the basis for partnerships for scale-up of technology. These benefits include (1) adding value to CCUS technologies by meeting requirements of international markets, (2) increasing the value of input into studies, roadmaps and policy development by including international perspective, (3) attenuation of inconsistent support of CCUS R&D among individual countries, and (4) encouragement of passionate participants in CCUS R&D to stay in the field by expanding interest from new, international funders. The NCCC hopes to build on the international relationships that have been established to contribute to the important step of moving from early-stage R&D projects to a commercial product.In conclusion, the NCCC has demonstrated its ability to bring on board and manage a multitude of projects to develop the most promising technologies for clean, efficient fossil-fuel energy production with ultra-low COâ‚‚ emissions. Operations at the center have resulted in significant scale-ups, process enhancements, and technological breakthroughs. The NCCC is also providing international leadership to promote the level of readiness for carbon capture technologies. This paper will detail the center’s capabilities, role in supporting international collaboration, and future plans.

Une nouvelle formalisation de la dynamique du système des prix du marché action (A New Formalization of the Dynamics of the Market Price System of the Equity Market)
Parent, Léo
French abstract: Le présent papier formalise un nouveau modèle de dynamique du système des prix du marché action, capable de saisir un large spectre de phénomènes renseignés par la littérature académique financière. Le modèle s’attache particulièrement à rendre compte de trois faits empiriques majeurs, généralement absents des macro-modèles financiers : les queues de distribution parétiennes des rendements, la propension du marché à la poursuite de tendances, et le changement de régime de volatilités lors des périodes de matérialisation du risque systémique. Prenant comme point de départ la relation du CAPM adaptée à une approche factorielle, le modèle incorpore ensuite l’effet momentum, pour le consacrer comme phénomène financier de première importance. Sur la base de données empiriques, une théorie de la dynamique des variances factorielles est ensuite introduite, théorie dans laquelle les valeurs d’attraction des variances dépendent d’un paramètre de tendance du portefeuille de marché. L’articulation de cette théorie avec l’effet momentum permet de déduire un modèle de krachs boursiers semi-endogènes, évènements durant lesquels les relations de dépendances entre actifs se voient profondément modifiées. Un compte-rendu des résultats obtenus à l’issue d’une série de simulations basées sur le modèle proposé vient enfin clôturer ce papier.English abstract: The present paper formalizes a new model of the dynamics of the stock market price system, able of capturing a wide spectrum of phenomena informed by the financial academic literature. The model particularly accounting three major empirical facts generally absent from financial macro-models: the Paretian distribution tails of returns, the market's propensity to pursue trends, and the change in the volatility regime during periods of systemic risk materialization. Taking as a starting point the relation of the CAPM adapted to a factorial approach, the model then incorporates the momentum effect, to establish it as a major financial phenomenon. Based on empirical data, a theory of the dynamics of factorial variances is then introduced, in which the attraction values of the variances depend on a trend parameter of the market portfolio. The articulation of this theory with the momentum effect makes it possible to deduce a model of semi-endogenous stock market crashes, events during which the relationships of dependence between assets are profoundly modified. A report on the results obtained from a series of simulations based on the proposed model finally concludes this paper.

Volatility Interactions Across Indian and Chinese Stock Markets
Islam, Khalid Ul,Hussain, Sartaj
Volatility is an important component in risk return analysis of financial assets. It imparts liquidity to the financial system and also serves as an information source for rational decision making. Since the latter half of the 20th century, volatility in stock returns has been found to be time varying and exhibiting patterns and therefore, various models have been developed to capture such dynamic properties of volatility. The introduction of Autoregressive Conditional Heteroscedasticity (ARCH) models by Engle in 1982 has led to a better understanding of the behaviour of stock market volatility than the traditional measures including standard deviation. The present study attempts to model various aspects including clustering, leverage effect and spillover effect of stock market volatility in Indian and Chinese stock markets during 2001-2016 using daily time-series data with Generalised Autoregressive Conditional Heteroscedasticity (GARCH) models. Volatility has been seen to be highly persistent in both the markets. The T-GARCH model has been applied in order to assess the presence of information asymmetry that bad news impacts volatility more than good news. Our results reveal that both Indian and Chinese stock markets’ volatility shows time varying behaviour. The theoretical reasoning of the asymmetric impact of news that bad news affects volatility more than good news has been confirmed in both markets. Furthermore, the spillover effect of volatility across the two markets has been tested using the T-GARCH-X model. The results show unidirectional spillover effect of volatility from Chinese stock market to the Indian stock market. This implies that shocks from Chinese stock market impact conditional volatility in the Indian stock markets only but not vice-versa.

Weather, Institutional Investors, and Earnings News
Jiang, Danling,Norris, Dylan,Sun, Lin
We examine how weather conditions near a firm’s major institutional investors affect stock market reactions to firms’ earnings announcements. We find that unpleasant weather experienced by institutional investors leads to more delayed market responses to earnings news. Moreover, unpleasant weather of institutional investors is associated with higher earnings announcement premium and lower contemporaneous trading volume. The influence of institutional investors’ weather is robust after controlling for New York City weather, extreme weather conditions, and firm headquarter weather. Additional cross-sectional evidence suggests that the strength of this weather effect is related to institutional investors’ trading behavior.

Weathering State and Local Budget Storms: Fiscal Federalism with an Uncooperative Congress
Gamage, David,Shanske, Darien,Shobe, Gladriel,Thimmesch, Adam B.
Throughout most of 2020, state and local governments faced severe budget crises as a result of the COVID-19 pandemic. Increased demand for state welfare services and rising state expenses related to controlling the spread of COVID-19 stretched state and local budgets to their breaking points. At the same time, layoffs, business closures, and social distancing measures reduced states’ primary sources of tax revenues. The traditional practice of American fiscal federalism would be for the federal government to step in to provide aid during a national emergency of this magnitude because state and local governments lack the monetary and fiscal powers of the federal government. But during the 2020 national emergency, the majority coalition in control of Congress was skeptical of this traditional practice of the federal government, and federal aid was thus limited and insufficient.Although partisan control of Congress and the Presidency switched in early 2021, at the time of this writing it remains unclear whether the federal government will act sufficiently to resolve the currently ongoing state and local budget crises. Regardless, due to heightened partisan polarization and related factors, it seems highly likely that future national emergencies will occur during times in which the federal government is again controlled by a majority coalition skeptical of the federal government’s traditional role of providing aid to state and local governments during downturns.This Article thus proposes a series of innovative state tax reform measures and other related reform proposals for modernizing the states’ outdated tax bases and for crisis-proofing American institutions of fiscal federalism. These proposals were initially designed as reforms meant for mitigating the harmful state and local budget consequences of the COVID-19 pandemic. But a central role of legal academic scholarship should be to develop law-reform solutions for legislatures and for other policymakers, to prepare for possible future emergencies when those solutions may be urgently needed. To that end, this Article elaborates and memorializes proposals initially developed for the 2020 crises, so that these proposals might be further developed to be ready as potential responses for future crises in which the federal government might once again prove unwilling to act sufficiently.

ПРОÐ'ЛЕМИ ТА ПЕРСПЕКТИÐ'И РОЗМІЩЕННЯ ЦІННИХ ПАПЕРІÐ' УКРАЇНСЬКИХ КОМПАНІЙ НА Ð'АРШАÐ'СЬКІЙ ФОНÐ"ОÐ'ІЙ Ð'ІРЖІ ТА ЇЇ АЛЬТЕРНАТИÐ'НИХ МАЙÐ"АНЧИКАХ (The Problems and Prospects of Location of Securities of Ukrainian Companies on the Warsaw Stock Exchange and Its Alternative Venues)
Pozniakova, Olena,Wilgard, M. R.
Ukrainian Abstract: Розглянуто проблеми та перспективи розміщення цінних паперів українських кампаній на Ð'аршавській фондовій біржі. Проаналізовано вимоги до лістингу на Ð'аршавській фондовій біржі. Зацікавленість польських інвесторів у українських компаніях підтверджуÑ"ться наявністю фондового індексу WIG-Ukraine, проаналізовано його структуру. Розглянуто переваги та недоліки розміщення цінних паперів на альтернативному майданчику NewConnect. Запропоновано запровадження проміжного етапу залучення інвестицій за допомогою українського фондового ринку.English Abstract: The problems and prospects of placement of securities of Ukrainian companies were considered on the Warsaw Stock Exchange. The requirements for listing were analyzed on the Warsaw Stock Exchange. The availability of Stock index WIG-Ukraine is confirmed by interested in Ukraine companies by Polish investors and the structure was analyzed. Advantages and disadvantages of location of securities were considered on the alternative venue NewConnect. The intermediate stage of investment attraction was proposed and implemented with the help of the Ukrainian stock market.