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Article
Publication date: 31 December 1999

Theron R. Nelson, Thomas Potter and Harold H. Wilde

Surveys of senior real estate executives have previously indicated that real estate represents approximately 25 per cent of corporate worth. These surveys, however, relied…

Abstract

Surveys of senior real estate executives have previously indicated that real estate represents approximately 25 per cent of corporate worth. These surveys, however, relied on self reported estimates of current real estate value. This study uses objective data to investigate the proportionate value that real estate represents on corporate balance sheets. The findings indicate that, when buildings are adjusted for inflation, real estate represents about 40 per cent of total corporate assets. Since corporate worth may also be measured in market value terms, several indexes were constructed to measure the proportion of firm market value represented by real estate assets. With buildings inflation adjusted, real estate represents about 80 per cent of firm market value. Although firm size does have an impact on all the ratios computed in this study, the impact is fairly modest in virtually all cases

Details

Journal of Corporate Real Estate, vol. 2 no. 1
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 9 November 2015

Li Sun, Grace Johnson and Fuad Rahman

– The purpose of this study is to examine the association between the financial expertise of the chief financial officer (CFO) and concerns about corporate governance.

Abstract

Purpose

The purpose of this study is to examine the association between the financial expertise of the chief financial officer (CFO) and concerns about corporate governance.

Design/methodology/approach

Consistent with prior research, the authors used four variables, including certified public accountant (CPA) certification, Master of Business Administration degree, age of CFO and length of CFO tenure, to measure CFO’s financial expertise. The authors hypothesize a negative association between CFO expertise and concerns about corporate governance.

Findings

Regression analysis revealed that the CPA certification is negatively associated with governance concerns at a significant level. The results suggest that stakeholders show less concerns about a company’s corporate governance mechanism when the CFO has a CPA certification. In particular, the results support the recommendation by the American Institute of Certified Public Accountants that a CFO of a public firm should have a CPA certification.

Originality/value

The study is important in the following ways. First, the study delivers new evidence on the link between CFO financial expertise and corporate governance. This contributes to the CFO financial expertise literature and the corporate governance literature. Second, according to Standard and Poor’s, equity index investing has grown more popular over the past 30 years. The study delivers useful information to index investors who invest in S & P SmallCap 600 Index. Third, regulators have put a large amount of resources to discover ways to strengthen firms’ corporate governance. Thus, the results should be of interest to policy makers who design and implement guidelines on corporate governance mechanisms.

Details

International Journal of Law and Management, vol. 57 no. 6
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 12 October 2012

Gonul Colak

The purpose of this paper is to investigate the initial public offerings (IPOs) of the firms that are eventually included in one of the S&P 400, the S&P 500, or the S&P 600

Abstract

Purpose

The purpose of this paper is to investigate the initial public offerings (IPOs) of the firms that are eventually included in one of the S&P 400, the S&P 500, or the S&P 600 Indices. Do these firms have very different IPO features than the rest of the IPOs?

Design/methodology/approach

The control sample is formed of IPOs that are not included in the corresponding index, and the IPOs that end up in each S&P index are compared to this control sample. Logistic regressions are utilized to estimate the odds of inclusion into one of these indices.

Findings

The author finds that the IPO features, such as underpricing, offer price, underwriter's reputation, venture capital presence, and so on, are found to be substantially different for the index samples. The index firms are found to be “superstars” that deliver extremely high long‐run returns between their IPO date and their index inclusion date. The above results suggest that the quality of index firms has a persistent component to it that can be detected even during the IPO process. After estimating the determinants of the index inclusion, the author discovers that factors implying lower asymmetric information about firm's business (such as, the firm being a spinoff, or being certified by a venture capitalist or a prestigious underwriter, etc.) increase its odds of inclusion.

Originality/value

The paper proposes and tests two new hypotheses related to inclusion into an S&P index. Discoveries made in this paper can help someone recognize which IPOs could become “superstars” that end up in an S&P index.

Details

Managerial Finance, vol. 38 no. 12
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 13 April 2015

Hyungkee Young Baek and Philip L Fazio

Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of…

Abstract

Purpose

Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation.

Design/methodology/approach

The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables.

Findings

For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs.

Practical implications

Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies.

Originality/value

S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

Details

Journal of Family Business Management, vol. 5 no. 1
Type: Research Article
ISSN: 2043-6238

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Article
Publication date: 11 May 2015

Susana Yu, Gwendolyn Webb and Kishore Tandon

Prior research on additions to the S & P 500 and the smaller MidCap 400 and SmallCap 600 indexes reach different conclusions regarding the key variables that…

Abstract

Purpose

Prior research on additions to the S & P 500 and the smaller MidCap 400 and SmallCap 600 indexes reach different conclusions regarding the key variables that explain the cross-section of announcement period abnormal returns. Most notable in this regard is that liquidity measures, long thought to be of importance, do not appear to explain abnormal returns of the S & P 500 when other factors are controlled for. By contrast, they do appear to matter for additions to the smaller stock indexes. To explore this difference, the purpose of this paper is to analyze the abnormal returns upon announcement that a stock will be added to the Nasdaq-100 Index in a cross-sectional manner, controlling for several possible alternative factors.

Design/methodology/approach

This paper analyzes abnormal returns upon announcement that a stock will be added to the Nasdaq-100 Index. The authors consider several possible sources of the positive price effects in a multivariate setting that controls simultaneously for measures of liquidity, arbitrage risk, operating performance and investor interest and awareness. The authors then analyze both trading volume and the bid-ask spreads. The authors finally examine analyst and investor interest, focussing on changes in analyst coverage.

Findings

The authors find that only liquidity variables are significant, but that factors representing feedback effects on the firm’s operations and level of managerial effort are not. The authors find that the average bid/ask spreads of stocks added to the Nasdaq-100 index are lower after the addition. The authors also find that the number of analysts following a stock increases significantly after addition, verifying increased analyst interest. Both forms of evidence are consistent with the hypothesis that the additions are associated with enhanced liquidity for the stocks.

Originality/value

The authors conclude that what does happen to a Nasdaq stock when it is announced that it will be added to the Nasdaq-100 Index is that more analysts are drawn to it, and its market liquidity is enhanced. The authors conclude that what does not happen is that there is no evidence of significant effects of enhanced managerial effort or operating performance associated with the inclusion. This difference is noteworthy because it suggests that a certification effect of additions to the S & P indexes associated with S & Ps selection process are unique to it and do not apply to the Nasdaq-100 Index additions based on market cap alone. The results provide indirect evidence on the existence and significance of the certification effect associated with additions to the S & P indexes.

Details

Managerial Finance, vol. 41 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 13 May 2019

Ernest N. Biktimirov and Yuanbin Xu

The purpose of this paper is to examine changes in stock returns, liquidity, institutional ownership, analyst following and investor awareness for companies added to and…

Abstract

Purpose

The purpose of this paper is to examine changes in stock returns, liquidity, institutional ownership, analyst following and investor awareness for companies added to and deleted from the Dow Jones Industrial Average (DJIA) index. Previous studies report conflicting evidence regarding the market reactions to changes in the DJIA index membership.

Design/methodology/approach

This study uses the event-study methodology to calculate abnormal returns and trading volume around the announcement and effective days of DJIA index changes from 1929 to 2015. It also tests for significant changes in liquidity, institutional ownership, analyst following and investor awareness in the 1990–2015 period. Multivariate regressions are used to perform a simultaneous analysis of competing hypotheses.

Findings

This study resolves the mixed results of previous DJIA index papers by documenting different stock price and trading volume reactions over the 1929–2015 period. Focusing on the most recent period, 1990–2015, the study finds that stocks added to (deleted from) the index experience a significant permanent stock price gain (loss). The observed stock price reaction seems to be associated with changes in liquidity proxies thus lending support for the liquidity hypothesis.

Research limitations/implications

Limited data availability for the periods prior to 1990 prevents this study from identifying the exact reasons for different stock price and trading volume reactions across subperiods of the 1929–2015 period.

Originality/value

This study provides the most comprehensive examination of market reactions to changes in the DJIA index and resolves the mixed results of previous studies. A better understanding of market reactions around the DJIA index changes can help both individual and institutional investors with developing effective trading strategies and index managing companies with designing optimal announcement policies.

Details

International Journal of Managerial Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 April 2011

James A. Millar and B. Wade Bowen

As a result of scandals concerning major financial crime in the early twenty‐first century, including accounting and auditing fraud and inappropriate behavior by directors

Abstract

Purpose

As a result of scandals concerning major financial crime in the early twenty‐first century, including accounting and auditing fraud and inappropriate behavior by directors on the boards of US corporations, Congress hurriedly enacted the Sarbanes‐Oxley Act (SOX) in 2002. SOX's major purpose was to restore investor confidence in America's securities markets. Small firms argued that their cost of compliance was very heavy and that their burden was greater than for larger firms, especially the costs related to section 404 of the Act, which dealt with new requirements to obtain independent audit opinions. The authors found no empirical research that supports or denies these claims. Subsequently, in 2007, the Securities and Exchange Commission reduced the Act's new audit requirements for small companies. This paper aims to examine audit fees for large and small firms.

Design/methodology/approach

The study examines actual audit fee data to investigate the increased costs paid by publicly traded companies to independent audit firms for their services due to Sarbanes‐Oxley. The authors use univariate and multivariate statistical methods to compare increases in audit fees paid by samples of 150 large firms and 150 small firms.

Findings

The study finds that both small and large firms incurred increased audit fees due to compliance with Sarbanes‐Oxley, and that small companies did incur larger increases in their cost burden.

Originality/value

The study uses actual audit fee data reported to the Securities and Exchange Commission and controls for other factors that determine audit fees in reaching its conclusions.

Details

Corporate Governance: The international journal of business in society, vol. 11 no. 2
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 1 July 2018

Marek Marciniak and Deborah Drummond Smith

The purpose of this study is to investigate the value investors place on S&P index additions relative to uncertainty surrounding the firm and the market. Investors look…

Abstract

Purpose

The purpose of this study is to investigate the value investors place on S&P index additions relative to uncertainty surrounding the firm and the market. Investors look for reassuring signals or tell-tale signs around uncertainty.

Design/methodology/approach

Variation in the market response to announcements of S&P additions to the 400, 500 and 600 indices is examined against measures of risk factors. Internal risk factors include firm size relative to the index, total firm risk and liquidity, and whether the firm is a brand new index entrant. External risk factors related to market uncertainty are measured by the Chicago Board of Exchange volatility index.

Findings

Firms with lower market capitalization relative to the index, higher total risk, lower trading volume and first-time entrants to any S&P index elicit a positive market reaction compared to firms with less pricing uncertainty. In times of increased market uncertainty, investors tend to place more value on signals from respected institutions such as S&P, and riskier firms benefit more from inclusion in the S&P index. Overall, this study finds that the market overreaction is explained by the degree of uncertainty surrounding the added firms, as well as by the degree of market uncertainty at the time of the announcement.

Originality/value

The findings of this study suggest that investors interpret the prospect of S&P index addition as an opportunity for firms to reduce uncertainty surrounding them, and thus partially hedge their exposure to market uncertainty by joining an index tracked by dozens of index funds. The value of such a hedging strategy rises for riskier firms during market turbulence.

Details

The Journal of Risk Finance, vol. 19 no. 5
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 31 July 2009

Karel Hrazdil

Many papers have argued that there are long‐run downward‐sloping demand curves (LRDDC) for stocks. The purpose of this paper is to analyze this hypothesis using a new…

Abstract

Purpose

Many papers have argued that there are long‐run downward‐sloping demand curves (LRDDC) for stocks. The purpose of this paper is to analyze this hypothesis using a new, unique, and ostensibly information‐free event: the re‐weighting of the Standard & Poor (S&P) 500 index from market based to free‐float based, which involves a significant shift in supply that, under the LRDDC, should result in significant and permanent price movements.

Design/methodology/approach

Event study methodology is used to examine abnormal returns and trading activity around the free‐float weight implementation dates for S&P 500 firms with various investable weight factors.

Findings

As a result of S&P 500 index re‐weighting, affected stocks experience statistically significant excess returns of −1.54 percent during the event week. This return is reversed during the following 30 days as trading volume returns to normal levels. These results are contrary to previous studies that analyze ostensibly informational events and/or different exchanges.

Research limitations/implications

Results of this study indicate that arbitrage appears to be effective in eliminating a long‐term mispricing, which challenges the validity of the LRDDC hypothesis.

Originality/value

This study contributes to the body of literature on the S&P 500 index firms by providing supporting evidence for the price‐pressure hypothesis.

Details

Managerial Finance, vol. 35 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 10 September 2021

Prajwal Eachempati and Praveen Ranjan Srivastava

This study aims to develop two sentiment indices sourced from news stories and corporate disclosures of the firms in the National Stock Exchange NIFTY 50 Index by…

Abstract

Purpose

This study aims to develop two sentiment indices sourced from news stories and corporate disclosures of the firms in the National Stock Exchange NIFTY 50 Index by extracting sentiment polarity. Subsequently, the two indices would be compared for the predictive accuracy of the stock market and stock returns during the post-digitization period 2011–2018. Based on the findings this paper suggests various options for financial strategy.

Design/methodology/approach

The news- and disclosure-based sentiment indices are developed using sentiment polarity extracted from qualitative content from news and corporate disclosures, respectively, using qualitative analysis tool “N-Vivo.” The indices developed are compared for stock market predictability using quantitative regression techniques. Thus, the study is conducted using both qualitative data and tools and quantitative techniques.

Findings

This study shows that the investor is more magnetized to news than towards corporate disclosures though disclosures contain both qualitative as well as quantitative information on the fundamentals of a firm. This study is extended to sectoral indices, and the results show that specific sectoral news impacts sectoral indices intensely over market news. It is found that the market discounts information in disclosures prior to its release. As disclosures in quarterly statements are delayed information input, firms can use voluntary disclosures to reduce the communication gap with investors by using the internet. Managers would do so only when the stock price is undervalued and tend to ignore the market and the shareholder in other cases. Otherwise, disclosure sentiment attracts only long horizon traders.

Practical implications

Finance managers need to improve disclosure dependence on investors by innovative disclosure methodologies irrespective of the ruling market price. In this context, future studies on investor sentiment would be interesting as they need to capture man–machine interactions reflected in market sentiment showing the interplay of human biases with machine-driven decisions. The findings would be useful in developing the financial strategy for protecting firm value.

Originality/value

This study is unique in providing a comparative analysis of sentiment extracted from news and corporate disclosures for explaining the stock market direction and stock returns and contributes to the behavioral finance literature.

Details

Qualitative Research in Financial Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4179

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