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Utilizing firms in the S&P 500, we study whether greater transparency in the reporting of other comprehensive income (OCI) items, as mandated by ASU 2011-05, resulted in a reduction in information asymmetry, a change in the value relevance of this information, or a change in hedging practice. Our results show that while transparent reporting reduced information asymmetry, firms that engage in cash flow hedging do have greater information asymmetry than their counterparts that do not hedge. We find evidence that investors penalize firm value for greater volatility of OCI relative to net income volatility when reported transparently. When permitted, managers were able to mitigate the negative impact by reporting OCI only in the Statement of Shareholders' Equity. We conclude that managers' concerns regarding potential confusion surrounding OCI volatility following more prominent reporting led to changes in hedging behavior. After transparent reporting, we find a reduced likelihood of foreign currency cash flow (FXCF) hedges and a reduced level of FXCF hedging among firms experiencing the greatest volatility of unrealized hedging gains and losses. [ABSTRACT FROM AUTHOR]

The probability density function of enterprise values may be more precise and useful in the cases of corporate investment, financing, or transactions. Although the quantile regression analysis can generate a set of models for a series of quantiles, it cannot generate the probability density function of the dependent variable. Therefore, this paper proposes a novel method of employing prediction results of the quantile neural networks to build probability density functions with which we can effectively assess enterprise values. Empirical evidence reveals that the estimated cumulative lognormal distribution curves of the price-to-book value ratio (PBR) and the data are well matched. In addition, the corporate market value is equal to the PBR multiplied by the corporate stockholders equity. Thus, the corporate market value is also a lognormal distribution. PBR distributions of building and construction industries are more tilted to the left, implying that enterprise values of building and construction industries are lower than those of other industries with the same stockholders equity and return on equity. [ABSTRACT FROM AUTHOR]

The corporate governance literature has shown that firms with better governance exhibit higher abnormal returns. In this paper, we examine the effect of cash flow concentration and excess control on equity pricing in France, a country with relatively weak protection for investors. Using hand-collected data on publicly-listed French firms over the period from 2002 to 2011, we find that firms, in which controlling shareholders hold a major proportion of cash flow rights, have higher market performance. Cash flow concentration is a useful monitoring tool for firms to address agency problems. In contrast, a higher level of discrepancy between the control and cash-flow rights of the ultimate controlling shareholders is associated with lower market performance. Control-ownership wedge increases the incentive of the controlling shareholders to act corruptly or unethically. These findings support both incentives hypothesis arising from the cash flow concentration and the expropriation effects arising from the excess control rights. These findings have strong implications for market participants and portfolio investment. [ABSTRACT FROM AUTHOR]

Stock-based compensation (SBC) reduces the value of shareholder equity, ceteris paribus, and is a significant and growing expense for many firms. Despite its valuation implications and its growing importance, anecdotal evidence suggests that market participants ignore SBC in valuation. We first find that firms with higher SBC exhibit both higher valuation ratios and lower returns, suggesting overvaluation. This pattern is stronger for firms with larger analyst coverage, implying that the sell-side optimism is an important driver of the overvaluation. We then examine how financial analysts treat SBC in their valuation models. We find that analysts exclude more expenses in their street earnings forecasts and provide more optimistically biased target prices for firms with higher SBC. A hand-collected sample of analyst reports indicates that analysts who ignore SBC in valuation derive optimistically biased price targets, whereas analysts who treat SBC as an expense are unbiased on average. Together, our evidence indicates that market participants' failure to account for stock-based compensation as an expense leads to the overvaluation of equity. [ABSTRACT FROM AUTHOR]

We provide a sufficient condition on the production function under which eventually the most patient household owns the entire capital stock in every Ramsey equilibrium, called the turnpike property. This generalizes the result in the literature which establishes the turnpike property using the capital income monotonicity condition. We then provide an example of a Ramsey equilibrium in which the most patient household reaches a no capital position infinitely often. This is a strong refutation of the turnpike property on Ramsey equilibria. We also show that the constructed Ramsey equilibrium is inefficient in terms of the aggregate consumption stream that it provides. [ABSTRACT FROM AUTHOR]

This paper examines the market response of the reverse stock splits by using the effective date to trace the abnormal returns after reverse splits over the period of 1981 to 2010:3. The findings show that the short-term behavior of the abnormal returns on the effective date is negative and highly significant for all firms. The abnormal returns on the effective month are negative and highly significant. As expected, the cumulative abnormal returns are negative and significant at 10 % level over the period of +1 to +12 months. However, the cumulative abnormal returns from month +13 to month +36 are significantly positive. Our findings also support that institutional investors show confidence by increasing mean holdings of reverse splits of large capital stocks. [ABSTRACT FROM AUTHOR]

U.S. banks hold significantly more equity capital than required by their regulators. We test competing hypotheses regarding the reasons for this “excess” capital, using an innovative partial adjustment approach that allows estimated BHC-specific capital targets and adjustment speeds to vary with firm-specific characteristics. We apply the model to annual panel data for publicly traded U.S. bank holding companies (BHCs) from 1992 through 2006, an extended period of increasing bank capital that ended just before the subprime credit crisis of 2007–2008. The evidence suggests that BHCs actively managed their capital ratios (as opposed to passively allowing capital to build up via retained earnings), set target capital levels substantially above well-capitalized regulatory minima, and (especially poorly capitalized BHCs) made rapid adjustments toward their targets. [ABSTRACT FROM AUTHOR]

This paper studies a one-sector optimal growth model with linear utility in which the production function is only required to be increasing and upper semicontinuous. The model also allows for a general form of irreversible investment. We show that every optimal capital path is strictly monotone until it reaches a steady state; further, it either converges to zero, or reaches a positive steady state in finite time and possibly jumps among different steady states afterwards. We establish conditions for extinction (convergence to zero), survival (boundedness away from zero), and the existence of a critical capital stock below which extinction is possible and above which survival is ensured. These conditions generalize those known for the case of S-shaped production functions. We also show that as the discount factor approaches one, optimal paths converge to a small neighborhood of the capital stock that maximizes sustainable consumption. [ABSTRACT FROM AUTHOR]

We address three issues regarding the relationship between political party affiliation and returns in the equities markets, as measured by the NYSE Composite Index and its sub-indexes. First, we find a tendency for returns to be greater during Democratic presidential administrations; however, this result is statistically insignificant. Second, we conclude that returns during the last two years of presidential administrations are greater than during the first two years. Third, we examine the relationship between the majority party in each house of Congress and equity returns. We raise the possibility that party affiliation of Congress is a factor in explaining returns. [ABSTRACT FROM AUTHOR]

In this article, the author investigates the relative importance of firm and market effects on the profitability of a sample of independent, unquoted British firms over the period 1991-1993. Specifically, the purpose is to isolate the effects of internal governance, given that the typical firm is closely held in terms of its shareholdings and has a high degree of owner control. The findings suggest that there is no short-run growth-profit trade-off. In fact growth and profits move in parallel. Further, there is a significant degree of profits persistence.

Contractualism conceives of firm-stakeholder relations as cooperative schemes for mutual benefit. In essence, contractualism holds that these schemes, as well as the normative principles that guide and constrain them, are ultimately ratified by the consent and endorsement of those subject to them. This paper explores the empirical validity of a contractualist perspective on firm-stakeholder relations. It first develops a typology of firm-stakeholder contracting problems. It subsequently confronts this typology with empirical data collected in an interview study of concrete stakeholder management practices, involving in-depth research interviews with forty-four managers working in the Dutch financial services industry. The findings of this theory-building study suggest that there are limits to the applicability of the contract model in the context of stakeholder management, and that disregarding either the model or its limitations may lead to highly ineffective firm-stakeholder relations. [ABSTRACT FROM AUTHOR]

Value creation has long been hailed as the major objective of business firms by many management researchers. Some authors state that a firm must create value for its shareholders; some insist that value must be created not just for shareholders but also for all stakeholders. However, most discussions of value creation do not address an important question: "For whom the value is created?" The purpose of this paper is to take a first step to fill this void and propose a model of value creation along three dimensions: financial, nonfinancial, and time. It is hoped that the model will contribute to a better understanding of how strategic and operational decisions of managers may create value for some stakeholders while destroying it for others. [ABSTRACT FROM AUTHOR]

This article furthers the argument for a stakeholder theory that integrates into managerial decision-making the relationship between business organizations and the natural environment. The authors review the literature on stakeholder theory and the debate over whom or what should count as a stakeholder. The authors also critique and expand the stakeholder identification and salience model developed by Mitchell and Wood (1997) by reconceptualizing the stakeholder attributes of power, legitimacy, and urgency, as well as by developing a fourth stakeholder attribute: proximity. In this way, the authors provide a stronger basis for arguing for the salience of the natural environment as the primary and primordial stakeholder of the firm. [ABSTRACT FROM AUTHOR]

This investigation is motivated by the lack of scholarship examining the content of what firms are communicating to various stakeholders about their commitment to socially responsible behaviors. To address this query, a qualitative study of the legal, ethical and moral statements available on the websites of Forbes Magazine's top 50 U.S. and top 50 multinational firms of non-U.S. origin were analyzed within the context of stakeholder theory. The results are presented thematically, and the close provides implications for social responsibility among managers of global organizations as well as researchers interested in business ethics. [ABSTRACT FROM AUTHOR]

This paper builds on a debate between Velasquez and Fleming: Do multinational enterprises (MNEs) have ethical obligations to their host countries? Velasquez applies Thomas Hobbes' realism approach in arguing that MNEs have no special moral obligations to host countries: (a) obligations do not exist independently in a "state of nature," (b) MNEs exist in a "state of nature" independent of any sovereign authority or power, (c) therefore, MNEs cannot be compelled toward moral or ethical behavior. Fleming counters that the lack of an international authority to compel morality from MNEs is irrelevant. MNEs are for-profit entities making rational economic decisions based on their perceived self- interest. Since they operate in "the goldfish bowl of international media," MNEs are very aware of the stakeholder model. First, the paper supports Fleming's position: Even if a philosophical case cannot be established for MNEs to act ethically--they still should. Being unethical in any arena, but especially in the international arena, is both bad-for-business and bad business. Applying stakeholder theory, if stakeholders perceive the MNE as unethical (which may or may not be true), the firm will ultimately lose business. Next, the paper applies Fleming's position to transitional economies. As economies shift from one system to another, positive perceptions and stakeholder support are required for success. With so many environmental variables in flux, multinationals must promote a sense of normalcy, of regular ethical habits, of familiarity. Finally, the paper concludes by cautioning a sole reliance on stakeholder analysis especially in turbulent times and recommends areas for further research. [ABSTRACT FROM AUTHOR]

This article focuses on the influence of business school education on an individual. The term, which is a clever play on the stockholder or shareholder labels, has as its key premise the straightforward acknowledgement that there are multiple parties who have a stake in the actions of corporations, not just the share/stockholders. Generally, shareholder interests have priority. It would not be credible to suggest that owner interests typically should queue up with a long line of other equal claimants.

The worldwide growth of franchising has been phenomenal during the past decade. At the same time there has been increased media attention to questionable business practices in franchising. Similar to some trade associations and professions, franchising has sought self-regulation by developing codes of conduct or ethics. This study examines the codes of ethics covering franchising activities in 21 countries. The results reveal that there is considerable variation in the activities/issues covered by the codes. Specifically, the codes cover most stages of the franchising relationship, focus on a narrow set of stakeholders, are short on ethical guidance, and offer few enforcement provisions. The implications of these findings for international franchising and research are discussed. [ABSTRACT FROM AUTHOR]

This study adds to the empirical evidence supporting a significant connection between ethics and profitability by examining the connection between published reports of unethical behaviour by publicly traded U.S. and multinational firms and the performance of their stock. Using reports of unethical behaviour published in the Wall Street Journal from 1989 to 1993, the analysis shows that the actual stock performance for those companies was lower than the expected market adjusted returns. Unethical conduct by firms which is discovered and publicized does impact on the shareholders by lowering the value of their stock for an appreciable period of time. Whatever their views on whether ethical behaviour is profitable, managers should be able to see a definite connection between unethical behaviour and the worth of their firm's stock. Stockholders, the press and regulators should find this information important in pressing for greater corporate and managerial accountability. [ABSTRACT FROM AUTHOR]

The idea of corporate social responsibility is neither new nor radical. The core belief is that business managers, even in their role as managers, have responsibilities to society beyond profit maximization. Managers, in pursuing their primary goal of increasing shareholder value, have social responsibilities in addition to meeting the minimal requirements of the law. Nevertheless, the call for increased social responsibility on the part of business managers remains controversial. At least two major perspectives on social responsibility can be isolated. The classical view, most closely identified with Milton Friedman, suggests that social responsibility is incompatible with a free enterprise economy. By contrast, advocates of increased social responsibility point out the desirability for voluntary (and at times costly) corporate activities which promote society's well being. The purpose of this essay is to briefly describe both the classical and pro-social responsibility perspectives. We suggest that while important differences in assumptions characterize the two distinct views, there is enough overlap and agreement to move the debate beyond the current stalemate. Specifically, we argue that the concept of lifnim mishurat hadin, an innovative and ancient Jewish legal doctrine which is usually translated as "beyond the letter of the law", might serve as a model for modern legal and social thought. We examine talmudic and post-talmudic sources which apply this concept to the area of business ethics, and explore its applicability to the modern situation. Although the business ethics literature rarely refers to Talmudic and rabbinic sources, these texts reflect a sophisticated understanding of business practices and ethical problems. [ABSTRACT FROM AUTHOR]

A critique of Milton Friedman's thesis that corporate executives have a fiduciary responsibility not to pursue socially desirable goals at the expense of profitability. The author argues that even under a libertarian conception of the nature of corporate property, Friedman's thesis does not follow. In particular, an executive's decision to prize "socially responsible behavior" above profit maximization does not necessarily violate the contractual rights of dissenting stockholders. Whether executives have obligations to refrain from such behavior depends entirely on the content of the contract which actually exists between stockholders and executives. After an examination of the body of legal precedent which informs the content of that contract, the author concludes that there are clearly recognizable circumstances in which executives may legitimately pursue corporate altruism at the expense of profits, stockholder protestations notwithstanding. Since this contractual relationship with management is one in which stockholders have voluntarily engaged, libertarians have no grounds for complaining that the behavior of such executives constitutes a form of theft of the stockholders' property. [ABSTRACT FROM AUTHOR]

This article analyzes the effect of accidental deaths involving either a firm's workplace or product on the firm's shareholder equity. Significant and sustained losses were found, reaching a peak of over $50 million per fatality during the second week following an accident. The variation in the cumulative percentage loss to the firms due to the accidents is explained by the number of deaths per accident and the riskiness of the product or workplace-the lower the a priori perceived riskiness, the greater the decline in equity. [ABSTRACT FROM AUTHOR]

This paper explores the link between shareholder lawsuits brought under Rule 10b-5 of the Securities Exchange Act of 1934 and managerial disclosures of prospective information. When the manager's information is such that there is no affirmative duty to disclose under Rule 10b-5, previous research has shown that the manager will withhold his information if it is sufficiently unfavorable and will disclose it otherwise. When the manager's information is such that there exists an affirmative duty to disclose under Rule 10b-5, it is shown here that the manager will release either good news or news that is sufficiently bad. Further, the good news disclosures are expected to be more precise than those that reflect unfavorable information. It is also demonstrated that the probability of a disclosure will increase with both the precision of the manager's information and the variability of his firm's earnings. [ABSTRACT FROM AUTHOR]

This article examines the sensitivity of growth plans with respect to changes in the target capital stocks. An expanded growth model where available capital in each period includes stocks endogenously produced as well as exogenously supplied (or demanded) stocks is used. It considers the sensitivity of optimal programs to changes in the exogenous stocks for two cases. In the first case the results of Brock and Mitra are extended to include an increase in the level of the exogenous stock in some arbitrary period of the planning horizon. In the second case, these same results are shown to hold when the net total of exogenous stocks is redistributed so an increase in one period would be balanced by decreases in other periods.