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Drawing on agency theory and transaction cost analysis, this study investigates the impact of refranchising and buybacks of downstream retail units by franchising firms on shareholder value (i.e., stock returns). It further evaluates the contingency role of firm and industry factors in shaping this impact. An event study analysis over the years 2001-2020 confirms that both refranchising and buybacks positively affect stock returns. However, notable impact differences emerge between the two types of strategic decisions. For refranchising, firms with lower royalty rates, smaller returns-on-assets (ROA), and higher trade credit provided generate higher stock returns. Whereas, for buybacks, firms with higher royalty rates derive more value in stock markets. Analysis further shows that investors judge refranchising (buybacks) less (more) favorably in munificent industries, but industry dynamism has no effect on the stock returns generated from these moves. Together, the study offers important implications for franchising theory and retail practice in marketing., Author(s): Anna Sadovnikova [sup.1] , Manish Kacker [sup.2] , Saurabh Mishra [sup.3] Author Affiliations: (1) grid.260185.8, 0000 0004 0484 1579, Leon Hess Business School, Monmouth University, , 400 Cedar Avenue, [...]

The U.S. Navy is cutting its higher education funding according to the fiscal 2022 budget request released on May 28, 2021, which includes cuts in the U.S. Naval Academy (USNA), [...]

I. INTRODUCTION The Tax Cuts and Jobs Act (TCJA) was one of the largest tax reforms in the history of the United States. US companies benefit from several elements of [...], We analyze the effects of the major US tax reform of 2017 on European firms. Although foreign firms that are active in the respective country should be directly affected, other foreign firms could also be indirectly affected through competition. With an event study design, we analyze stock market returns in Europe around key dates in the legislative process leading to the Tax Cuts and Jobs Act. We find positive market returns for the European firms that are active in the United States. Moreover, our results suggest an indirect effect through competition. European firms that face strong competition from US firms in their domestic markets exhibit significantly lower returns. Keywords: US tax reform, stock returns, event study, cross-border effects, international competition JEL Codes: G12, G14, H25

The United States Department of Defense (DoD) is always looking for better, theoretically justifiable, and quantitatively rigorous analytical methods for capital budgeting and portfolio optimization. Specific interest lies in how [...]

Abstract. We document that stocks that experience sudden increases in idiosyncratic volatility underperform otherwise similar stocks in the future, and we propose that this phenomenon can be explained by the [...]

Numerous studies argue that the market risk premium is associated with expected economic conditions and show that proxies for expected business conditions indeed predict aggregate market returns. By directly estimating short- and long-run expected economic growth, we show that short-run expected economic growth is negatively related to future returns, whereas long-run expected economic growth is positively related to aggregate market returns. In addition, our findings indicate that the risk premium has both high- and low-frequency fluctuations and highlight the importance of distinguishing short- and long-run economic growth in macro-asset pricing models. History: Accepted by Neng Wang, finance. Funding: Q. Liu acknowledges support from the National Natural Science Foundation of China [Grant 71502004], W. Wu acknowledges support from the National Natural Science Foundation of China [Grant 71373043], and L. Tao acknowledges support from the National Natural Science Foundation of China [Grant 71301158] and the University of International Business and Economics [Grant XK2014114]. Keywords: business condition * expected stock return * business cycle * long run * short run, 1. Introduction The relation between the market risk premium and expected business conditions has been a question of long-standing interest to financial economists. Numerous studies (e.g., Chen et al. 1986, [...]

There is an increasing attention in information systems to be able to predict outcomes using search frequency on popular portals. This growing literature focuses on revealing demand patterns of individual assets (e.g., products, stocks, services). However, users typically search many different assets together (e.g., correlated searches) and leave a digital footprint, which can help provide insights on the behaviors of a group of assets. Furthermore, such group behavior can be used to predict outcomes (e.g., demand, stock returns) in the future. We analyze the underlying behavior of distinct subnetworks formed by correlated user searches for multiple items in the stock market and use such information for return prediction. Using cosearch data for stocks from Yahoo! Finance, we find 50-79 search clusters representing 230-349 stocks among Russell 3000 stocks at different time periods. These clusters reveal interesting habitats where the returns of stocks within a cluster tend to comove after controlling for known determinants of comovement. When a stock enters (departs) a cluster, the focal stock return comoves (detaches) with the cluster returns. Thus, search cluster-based habitats reveal aggregate investment preferences and are more granular than fundamental-based habitats. We find that search-based habitats can also improve return predictability of related stocks. History: Accepted by Chris Forman, information systems. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2016.2470. Keywords: online search * correlated search * user attention * network analysis * comovement * investment habitats * stock returns, 1. Introduction Online search on information technology (IT) platforms, such as Google, Yahoo!, and Bing, has attracted significant attention among information systems (IS) researchers because it has implications for economic [...]

We use a new hedge fund data set from a separate account platform to examine (1) how much of hedge fund return smoothing is due to main fund-specific factors, such as managerial reporting discretion and (2) the costs of removing hedge fund share restrictions. These accounts trade pari passu with matching hedge funds but feature third-party reporting and permissive share restrictions. We use these properties to estimate that 33% of reported smoothing is due to managerial reporting methods. The platform's fund-level liquidity is associated with a 1.7% performance reduction on an annual basis. Investor flows chase monthly past performance on the platform but not in the associated funds. History: Accepted by Neng Wang, finance. Keywords: hedge funds * separate accounts * return smoothing * share restrictions, 1. Introduction Hedge funds returns are conspicuous among investment vehicles because their voluntarily reported (typically nonaudited) returns consistently manifest positive serial correlation. Share restrictions, such as lockup periods and redemption [...]

This paper investigates the impact of debt covenant protection on the cross section of equity returns with a firm-level covenant index and four subindices. We find that firms with weaker covenant protection (lower covenant index levels) earn significantly higher risk-adjusted equity returns than do those firms with greater covenant protection. These results are stronger for covenant indices that are related to investments, subsequent financing, and event risk. The difference between high and low covenant index stocks is more pronounced when agency problems between shareholders and debtholders are more severe, suggesting that the covenant effect arises from an inability to control shareholder risk taking. History: Accepted by Wei Jiang, finance. Keywords: debt covenants * cross section of stock returns * covenant factor * agency costs of debt, Galai and Masulis (1976) and Jensen and Meckling (1976) show that leverage gives rise to a shareholder-bondholder conflict, where shareholders have an incentive to take on more risk to increase [...]

This study documents a positive relationship between the option-implied risk -neutral skewness (RNS) of individual stock returns' distribution and future realized stock returns during the period 1996-2012. A strategy that goes long the quintile portfolio with the highest RNS stocks and short the quintile portfolio with the lowest RNS stocks yields a Fama-French-Carhart alpha of 55 basis points per month (t-statistic of 2.47). The significant underperformance of the portfolio with the most negative RNS stocks is driven by those stocks that are also perceived as relatively overpriced according to a series of overvaluation proxies and are too costly or too risky to sell short, thereby hindering the price correction mechanism. Our findings indicate that a highly negative RNS value, when reflecting high hedging demand for options by investors who perceive the underlying stock as relatively overpriced but hard to sell short, is a robust signal of significant future stock underperformance. History: Accepted by Jerome Detemple, finance. Funding: P. S. Stilger gratefully acknowledges financial support from the Economic and Social Research Council [Grant ES/J500094/1]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2015.2379. Keywords: option-implied information * risk-neutral skewness * hedging pressure * overvaluation * short-selling constraints, 1. Introduction This study examines the relationship between the risk-neutral skewness (RNS) of individual stock returns' distribution extracted from option prices, which are inherently forward looking, and future realized stock [...]

This paper identifies an important source of variation in U.S. firms' material information flows: their Form 8-K filing frequency. Exploiting cross-sectional variation in this novel proxy for information intensity, this paper finds that firms with higher information intensity experience lower future returns and lower future volatilities. The marginal return impact is higher at low levels of information intensity and high levels of prior volatility. On average, an information-intensity-based long-short portfolio generates a return spread of 4.3% per year. After adjusting for the Fama-French three factors and the momentum factor, the abnormal return remains 4.4% per year. These novel findings suggest that, because of the dynamic nature of information arrival, the frequency/quantity of information is an important source affecting the information environment and stock returns of public companies. These findings are consistent with the predictions of a broad class of noisy rational expectations equilibrium models and estimation risk models, and they highlight the importance of learning in financial markets with incomplete information. History: Accepted by Neng Wang, finance. Funding: The author gratefully acknowledges the financial support from the Joseph-Armand Bombardier CGS Doctoral Scholarships of Social Sciences and Humanities Research Council of Canada and the 2012 Crowell Prize from PanAgora Asset Management. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2015.2408. Keywords: incomplete information and learning * SEC current report * Form 8-K * information intensity * cross-sectional stock returns, 1. Introduction Information structure is a fundamental building block in noisy rational expectations equilibrium (REE) models (e.g., Grossman and Stiglitz 1980). The central idea underlying these models is that investors [...]

This study provides novel evidence that cash-flow news quantitatively explains the investment effect in the cross section of stock returns. The negative return predictability of asset growth, investment growth, and accruals is evident only through the cash-flow news component of returns. The cash-flow news returns associated with investment-sorted portfolios exhibit a reversal from the preformation period to the postformation period. Such a return reversal is in line with reversals in firm fundamentals and becomes stronger for stocks with higher information uncertainty. Our findings are consistent with the expectational errors hypothesis and fail to support the risk-based explanation for the investment effect. Keywords: investment effect; q-theory; cash-flow news; return decomposition History: Received July 25, 2014; accepted April 19, 2015, by Neng Wang, finance. Published online in Articles in Advance November 23, 2015., 1. Introduction It is well documented that corporate investment is negatively associated with future stock returns, which is referred to as the investment effect or the asset growth effect (Titman [...]