Search results
1 – 10 of over 2000Kwangmin Park and SooCheong (Shawn) Jang
The purpose of this paper is to provide an understanding of the effects of advertising based on economic cycles. To comprehend advertising effects in the restaurant industry from…
Abstract
Purpose
The purpose of this paper is to provide an understanding of the effects of advertising based on economic cycles. To comprehend advertising effects in the restaurant industry from an economic cycle perspective, this study investigated both short- and long-run advertising effects under periods of economic contraction and expansion and compared those effects between the two economic periods.
Design/methodology/approach
The data were collected from the COMPUSTAT database for the restaurant industry (SIC 5,812) from 1979 to 2010. To estimate the economic cycles, the 2005 year-based real gross domestic product (GDP) was used from the Bureau of Economic Analysis. Also, all variables were depreciated by the value of the US dollar in 2005. For estimation, a single equation error correction model was used to examine the short-term and long-term effects of advertising.
Findings
The results of this study indicated that both the short- and long-term effects of advertising on sales growth were more obvious in contraction periods than in expansion periods. However, the short-run effects of advertising on brand equity did not significantly differ between expansion and contraction periods. Further, the long-term effects of advertising on brand equity were greater in expansion periods than in contraction periods. The findings suggest that restaurant firms should not reduce their advertising budgets during periods of economic contraction to take advantage of superior sales growth outcomes during these periods.
Practical implications
The results of this study provide restaurant managers with useful practical implications. During economic contraction periods, restaurant managers should not reduce advertising budgets to take an ascendant position in terms of sales growth. Though the net positive effect at year t + 1 of contraction periods was smaller than that of expansion periods for sales growth, this is temporal and the long-run positive effect on sales growth spreads into future periods. Thus, a counter-cyclical advertising strategy could compensate for reduced sales from weak customer demands during economic contraction periods.
Originality/value
There have been many empirical studies on the advertising effect in the literature. However, this study examined whether the effects of advertising differ between economic expansion and contraction periods. This specificity is helpful for industrial practitioners as well as academic researchers.
Details
Keywords
This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two…
Abstract
Purpose
This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER).
Design/methodology/approach
A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies.
Findings
The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion.
Research limitations/implications
These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction.
Practical implications
These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance.
Social implications
This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction.
Originality/value
Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.
Details
Keywords
Steven J. Cochran and Iqbal Mansur
This study examines the durations of US stock market cycle expansions and contractions for the presence of seasonality. Specifically, it is determined whether the distributional…
Abstract
This study examines the durations of US stock market cycle expansions and contractions for the presence of seasonality. Specifically, it is determined whether the distributional characteristics (i.e., location and dispersion) of the durations of market expansions and contractions are dependent on the time of the year the market phase begins or ends. The duration data are obtained from a stock market chronology of monthly peak and trough dates for the period May 1835 through July 1998 and nonparametric rank‐based tests are used to test for the presence of seasonality. In order to provide some evidence on robustness with respect to the sample data, results are obtained for the entire sample period as well as for various sub‐periods. When the data are aggregated on a quarterly basis, the evidence suggests that seasonal structures are present in stock market cycle durations. These seasonals are related primarily to shifts in location over the course of the year and to when a market expansion or contraction begins. However, when the duration data are aggregated on a bi‐annual basis, support for seasonality is much more limited.
Details
Keywords
Victor Fang, A.S.M. Sohel Azad, Jonathan A. Batten and Chien-Ting Lin
This study examines the response of Australian interest rate swap spreads to the arrival of macroeconomic news information during the economic expansion and contraction periods…
Abstract
This study examines the response of Australian interest rate swap spreads to the arrival of macroeconomic news information during the economic expansion and contraction periods. We find that the impact of news announcements on swap spread change differs and largely depends on the state of the economy. The unexpected inflation rate is the only news released that has significant impact on swap spreads across all maturities during contractions and remains the important news announcement throughout the business cycles, while the unanticipated unemployment rate tends to be more relevant to 10-year swap and the unanticipated change in money supply tends to be more relevant to 4- and 7-year swaps during expansions. We also find shocks from these news surprises appear to have significant impact on the conditional volatility of the swap spread change during both economic phases. The macroeconomic shocks in general are negatively related to the conditional volatility of the swap spread change, suggesting that the newsworthy announcements tend to reduce uncertainty on the news announcement days in the swap market during expansion and contraction periods.
Details
Keywords
Javier Ortiz and Vicente Salas-Fumás
With Spanish Community Innovation Survey data, this paper tests two main hypotheses as explanation of the fall in business innovation output in the Great Recession: the aggregate…
Abstract
Purpose
With Spanish Community Innovation Survey data, this paper tests two main hypotheses as explanation of the fall in business innovation output in the Great Recession: the aggregate demand effect (firms have lower propensity to initiate innovation projects in recession than in contraction from demand-pull and profit expectations effects) and the risk effect (a greater proportion of the initiated projects fail in recessions than in expansions).
Design/methodology/approach
The research methodology consists on first modelling the decision by firms to initiate innovation projects in t or not (probit model), and, second, modelling the outcomes, success or failure in t + 1 of firms that decide to initiate (Heckman model).
Findings
The empirical results support the two hypotheses. They also indicate that the sensitivity of the decision to initiate innovation projects to the aggregate demand is more pronounced among financially constrained firms than among unconstrained ones, while the risk effect appears to be independent of the financial situation of firms.
Research limitations/implications
The results of the research are limited by not being able to follow up individual innovation projects, and by not having available a more representative sample of firms where non-innovators and potential innovators are represented (now is biased toward potential innovators).
Practical implications
The results highlight the importance of macroeconomic stability for sustained business innovation output over time and calls managers’ attention in better management of innovation risk.
Social implications
The results of the paper recommend macroeconomic polies aimed at the stabilization of aggregate demand and smoothing the business cycle, as a way to contribute to the stabilization of the growth of innovation output over time. Monetary and fiscal policies that smooth the business cycle will then have significant effects in the stabilization of innovation output and, in turn, in the reduction of volatility of economic growth over time. Increasing the direct public financial aid to undertake innovation projects in recession periods will not have the same innovation output stabilization effect than the stabilization of the aggregate demand. The reason is that, as the paper points out, the innovation output of financially unconstrained firms is also affected negatively by the contraction of aggregate demand in recession periods.
Originality/value
This paper is the first one to investigate the differences in business innovation outputs in expansions and recessions, separating the aggregate demand and the risk effect that the organisation for economic co-operation and development identifies as main determinants of the fall in innovation output during the Great Recession. The decomposition of firms’ innovation output in the decision to initiate innovation projects and the likelihood that those initiated succeed is also new in the literature.
Details
Keywords
Raymond Cox, Ajit Dayanandan, Han Donker and John R. Nofsinger
Financial analysts have been found to be overconfident. The purpose of this paper is to study the ramifications of that overconfidence on the dispersion of earnings estimates as a…
Abstract
Purpose
Financial analysts have been found to be overconfident. The purpose of this paper is to study the ramifications of that overconfidence on the dispersion of earnings estimates as a predictor of the US business cycle.
Design/methodology/approach
Whether aggregate analyst forecast dispersion contains information about turning points in business cycles, especially downturns, is examined by utilizing the analyst earnings forecast dispersion metric. The primary analysis derives from logit regression and Markov switching models. The analysis controls for sentiment (consumer confidence), output (industrial production), and financial indicators (stock returns and turnover). Analyst data come from Institutional Brokers Estimate System, while the economic data are available at the Federal Reserve Bank of St Louis Economic Data site.
Findings
A rise in the dispersion of analyst forecasts is a significant predictor of turning points in the US business cycle. Financial analyst uncertainty of earnings estimate contains crucial information about the risks of US business cycle turning points. The results are consistent with some analysts becoming overconfident during the expansion period and misjudging the precision of their information, thus over or under weighting various sources of information. This causes the disagreement among analysts measured as dispersion.
Originality/value
This is the first study to show that analyst forecast dispersion contributions valuable information to predictions of economic downturns. In addition, that dispersion can be attributed to analyst overconfidence.
Details
Keywords
Khaldoun Khashanah and Linyan Miao
This paper empirically investigates the structural evolution of the US financial systems. It particularly aims to explore if the structure of the financial systems changes when…
Abstract
Purpose
This paper empirically investigates the structural evolution of the US financial systems. It particularly aims to explore if the structure of the financial systems changes when the economy enters a recession.
Design/methodology/approach
The empirical analysis is conducted through the statistical approach of principal components analysis (PCA) and the graph theoretic approach of minimum spanning trees (MSTs).
Findings
The PCA results suggest that the VIX was the dominant factor influencing the financial system prior to the recession; however, the monetary policy represented by the three‐month T‐bill yield became the leading factor in the system during the recession. By analyzing the MSTs, we find evidence that the structure of the financial system during the economic recession is substantially different from that during the period of economic expansion. Moreover, we discover that the financial markets are more integrated during the economic recession. The much stronger integration of the financial system was found to start right before the advent of the recession.
Practical implications
Research findings will help individuals, institutions, regulators, central bankers better understand the market structure under the economic turmoil, so more efficient strategies can be used to minimize the systemic risk.
Originality/value
This study compares the structure of the US financial markets in economic expansion and contraction periods. The structural dynamics of the financial system are explored, focusing on the recent economic recession triggered by the US subprime mortgage crisis. We introduce a new systemic risk measure.
Details
Keywords
Patricia A. Ryan and Sriram V. Villupuram
The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary…
Abstract
Purpose
The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary periods, explain the difference in findings.
Design/methodology/approach
The authors examine changes in the Dow Jones Industrial Average (DJIA) from 1929 to 2019 to evaluate immediate and long-term market reactions after a component change. Using multiple event-study methodologies, the authors examine the full era, the pre- and post-exchange traded fund (ETF) windows and economic cycles using both pre and post-estimation windows.
Findings
In aggregate, DJIA additions do not present an increase in wealth; however, wealth effects are positive during expansions and negative during recessions. Deletions have a negative wealth effect. The authors find weak evidence of an indexing effect. Additions are positive post-1998, and deletions remain negative regardless of era. In the long run, firms added to the DJIA have positive abnormal returns in the second year after inclusion. Deletions in recessionary times have negative returns three years after removal, a signal of longer-term wealth decline for these firms.
Research limitations/implications
The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.
Practical implications
The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.
Originality/value
Prior literature presents limited time series of data points and mixed results and implications. The authors find that the economic cycle is a driving factor that supports predicted signs and amounts of wealth change. Furthermore, the authors see limited ETF impact on DJIA changes and some impact of the choice of estimation period.
Details
Keywords
Anthony R. Wheeler and Ramchand Rampersad
In the present chapter, we explore how employee well-being changes over time, both linear and psychological during periods of economic instability. Moreover, we examine how…
Abstract
In the present chapter, we explore how employee well-being changes over time, both linear and psychological during periods of economic instability. Moreover, we examine how employee job embeddedness (JE) buffers the effects of economic shocks on employee well-being, and how these buffering effects change employee perceptions of time. We theorize that employees with higher levels of JE psychologically experience economic shocks as occurring infrequently with the economically unstable period feeling quick, but employees with lower levels of JE psychologically experience economic shocks as occurring frequently with the economically unstable period feeling slow. Finally, we extend these relationships to account for the spread of employee well-being through social connections, both inside and outside of the work context. Because JE requires strong social connections, we theorize that the links component of embeddedness is responsible for economic shocks and employee well-being crossing over the work/nonwork boundary. We discuss the implications for our theoretical model.
Details