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It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to clarify aspects of these concepts and make the textbooks readers aware of them. In particular, this paper seeks to: (1) clarify the notion that “diversification reduces risk,” (2) provide geometric expositions and algebraic expressions of portfolio benefits in the context of both total risk and market risk, and (3) improve the interpretation of beta.

We examine the relationship between how mutual fund sponsors configure their board(s) of directors and the performance of the funds under a particular board's purview. Fund sponsors utilize either one board to oversee all the funds within a fund family or multiple boards that oversee one fund or a subset of the family's funds. Our results suggest that fund families – that is, sponsors – that use multiple boards have significantly higher objective-adjusted board-level weighted excess returns. But, there are no significant differences in the objective-adjusted board-level weighted excess expenses. These results are consistent with the argument that multiple boards provide superior monitoring.

One important issue international firms must face involves the evaluation and control of credit risk. Many studies dealing with international credit management have focused on the practices used by multinational enterprises. In this study we take a different approach to this topic by analyzing the credit management decisions made by 188 U.S. foreign subsidiaries. We examine many aspects of the foreign subsidiary manager's credit policies including credit standards, credit terms, collection efforts and customer creditworthiness. The results of this study indicate that credit management practices of foreign subsidiaries are similar to those used by parent companies. In addition, the findings show that foreign managers generally use theoretically‐preferred methods when making credit decisions.

Refers to previous research on deciding the balance between equities and bonds in investment portfolios and puts forward a model based on a single period correlation to predict future stock‐bond correlations from past interest and growth rates. Explains the concepts involved and uses 1948‐2000 US data to test it. Shows that the model predicts stock‐bond correlation significantly better than the traditional method of extrapolating from past correlations; and relates this to the theory of loanable funds. Concludes that high interest rates and high growth lead to higher correlations between stocks and bonds and calls for further research.

This qualitative study examines the influence of media development in Iraqi Kurdistan after nearly a decade and a half of donor country-funded professional journalism training in a period following an oil boom and bust, influence of a transnational terror organization, and a recent vote to secede from the rest of Iraq. The study builds out a typology of economic, political, bureaucratic, legal, cultural, and societal capture, and applies it in an analysis of data from in-depth, semi-structured interviews that were conducted in the two largest cities in Iraqi Kurdistan.

After completion of the case study, the students will be able to understand the calculation of cost of individual sources of funds and cost of capital, examine various tools such as economic value added and cash value added analyses which help determining whether a company has added value to its shareholders or not and explore the application of Benford’s law and the Beneish M-score in detecting manipulation of numbers in financial statements.

Nimmy Jacob, a newly recruited research analyst with an equity research firm, was entrusted with tracking the “auto ancillary industry”, specifically “Minda Corporation Ltd” (MIL). MIL was a leading diversified auto components manufacturing companies in India. The company’s share price meteorically rose during February 2021–2022 (Figure 1). The company’s turnover over the past few years had grown at a compounded annual growth rate of 15% during the three preceding years. The company had in the recent past bought a 15% stake in another competitor, Pricol Ltd, for a consideration of INR 400 crores and previously had used joint ventures and acquisitions to scale up its operations. Jacob, apart from the conventional financial analysis, had to ascertain whether all the strategic decisions were adding value to the shareholders’ investments by exploring the various tools available for the same and also calculate the minimum expected rate of return for MIL. Jacob was apprehensive about the financial statements, although the numbers for the company were good. Jacob was skeptical about a high-growth company having the incentive to manipulate its earnings. Manipulations could be in the form of abnormal increase in accruals, inconsistency in expenses and high days of receivables. Therefore, Jacobs used certain analytics/statistical tools to detect any manipulation of numbers in the financial statements of the company and to ascertain apt findings about the company.

This case study is intended for discussion in corporate finance, financial reporting and analysis and financial analytics at Master of Business Administration/undergraduate level.

Teaching notes are available for educators only.

CSS1: Accounting and finance

Going beyond the traditional approach of formal and informal institutions as antecedents of entrepreneurship (directly) and development (indirectly), this paper seeks to explore knowledge institutions as a necessary input for entrepreneurship and the development of societies.

Institutional economics lenses are utilized to observe other factors (e.g. the number of R&D staff and researchers from the public sector) that involve laws and socialization processes, which at the same time create knowledge useful for entrepreneurs and society. These ideas are tested through a sample of 281 observations from 17 autonomous communities and two autonomous cities in Spain. The information coming from the Global Entrepreneurship Monitor (GEM), Ministry of Economics, Industry, and Competitiveness, and INE (Instituto Nacional de Estadística), was analyzed through 3SLS, which is useful for a simultaneous equation strategy.

Knowledge institutions such as the number of R&D staff and researchers from the public sector are found positively associated with entrepreneurship, which is a factor directly and positively linked to economic development across Spanish regions.

The findings help the operationalization of other institutions considered in institutional economics theory and its application to entrepreneurship research. Moreover, the results bring new insights into the knowledge spillover theory of entrepreneurship in the public sector, in which the institutional analysis is implicit.

Tourism, as a system, develops strategies for risk prevention and mitigation. The shock generated by the COVID-19 pandemic is different when compared with previous events because it is more intense and prone to structural changes. Tourists' perceptions condition their behaviour and decisions, with adverse results on travel and tourism consumption; and hygiene and health risks generate a cause-effect relationship on destination specificities.

From globalisation to risk perception and crisis management, in a framework where technology, communication and digital content represent undeniable importance, we are facing circumstances especially conducive to the redesign of the collective future, where the sustainability of tourism is a collective goal, arising from the right balance between the competitiveness of destinations and climate action.

Given the prospects for the next decade, health and hygiene are structural factors to be considered in decision-making processes. Thus, so the proposed approach contributes to the awareness, by the various stakeholders, of its importance and the need to implement methods and processes compatible with more inclusive and responsible tourism.

There is an ongoing debate over the transference of managerial and organizational skills, techniques, values and culture from developed countries to developing countries. We argue there is a false underlying assumption among academics in developed countries that the theoretical template of managerial and organizational attributes in developing countries is similar to what one finds in developed countries. Two key analytical insights are offered. First, we explicitly differentiate organizational, environmental and cultural characteristics of developed and developing countries. Second, we apply Scott’s (1992) natural/ecological level of analysis to create a framework to better carry out organizational analysis in developing countries.