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The purpose of this paper is to determine if there is a significant difference in the investment risks between small-cap manufacturers that heavily depend on one or a few buyers, referred to as “dependent-buyers,” and small-cap manufacturers that have a more diversified customer base. If there is a significant difference both statistically and economically, then investors need to be aware of the dependent-buyer effect in their security selection and portfolio construction efforts.

Using large samples of firm-level data from 2000 through 2011, the authors employ standard risk estimation modeling to compute βs, idiosyncratic risks, and total risks of both dependent-buyer firms and firms with a more diversified customer base.

The authors find that the βs, idiosyncratic risks, and total risks of dependent-buyer firms are much greater than that of firms not in dependent relationships. These differences are both statistically and economically significant.

Buyer-supplier relationships can change quickly, and so a firm that has a diversified base in one period, for example, could be a dependent-buyer in the next period. Much depends on the reporting accuracy of firms and the ability of the securities exchange commission (SEC) to track the relationships.

First, the risk of individual small-cap stocks is likely to be greater than perceived from macro-level data, leading to the need for more securities if idiosyncratic risk is to be eliminated. Second, small-cap investors have the opportunity to enhance portfolio construction efficiency by referencing data published by the SEC. Third, most investors interested in small-cap manufacturing stocks should find it prudent to allocate a large percentage of their small-cap investments to an index fund. While this may sacrifice higher returns, it also reduces the probability of experiencing an unpleasant small-stock effect.

This is the first study to show that the difference in investment risks between small-cap manufacturers that depend on one or a few firms for their outputs and small-cap manufacturers that have a well-diversified customer base is statistically and economically significant, information that should be valuable to investors in their security selection and portfolio construction efforts.

Recently all major stock exchanges issued a requirement that listed companies have 100 percent independence on audit committees of the board of directors but now the focus has turned to compensation committees. Does 100 percent independence on compensation committees make a difference in firm performance? The paper aims to discuss these issues.

Only 1 percent of the S & P 1,500 firms are not in compliance with the new 100 percent independence requirement for compensation committees. This presents an opportunity to examine characteristics of these firms and if this noncompliance may harm firm performance. Industry-adjusted ROA and Tobin’s Q measures are collected as well as firm size, debt ratios, and the presence of a classified board.

Findings are as follows: S & P 500 firms with lower levels of debt, have classified board, but do not perform significantly worse than firms in compliance in the same industry; mid-cap firms with debt levels similar to complying firms, have classified boards, and perform significantly worse, and lastly, small-cap firms with lower levels of debt, have classified boards, and perform significantly worse.

Results imply that non-complying mid-cap and small-cap firms may be protecting under-performing management through maintaining classified boards, low levels of debt to avoid scrutiny of the debt markets, and less objectivity (i.e. overall and committee independence) on boards.

Existing corporate governance literature provides evidence that overall board independence may promote shareholder wealth maximization. The latest focus regarding independence has recently been on compensation committees. Should independence on compensation committees matter to shareholders? It is appears that noncompliance should matter in the case of small- and mid-cap firms.

The purpose of this paper is to examine intra‐industry contagion and the following apparent violations of the efficient market hypothesis around large one‐day price decline events in individual stocks.

The paper examines daily stock returns around one‐day price declines of 10 percent or more for event stocks and their rivals. Using techniques similar to those used in Bremer and Sweeney and Cox and Peterson, the paper includes event stocks whose prices are at least $10 per share prior to the event to reduce the possible price reversal induced by bid‐ask price bounce. As is typical for the literature, the stock daily abnormal return (AR) is calculated as the difference between the actual daily stock return and the estimated stock return based on the market model estimated over a 200‐trading‐day pre‐event period [−220, −21]. Cumulative abnormal returns (CARs) for each stock are formed by aggregating the individual daily stock ARs. Denoting the large price decline event day as day 0, we examine the ARs of 41 trading days [−20,+20], the CARs for the [+1,+3] period, and the CARs for the [+4,+20] period. Cross‐sectional average ARs and CARs are calculated and tested for statistical significance. Furthermore, the paper examines whether the post‐event abnormal stock returns for the event firm and its rivals can be explained by prior event firm and industry variables.

On average, after an event, the event stock experiences a positive three‐day AR (S&P 600 stocks) followed by a 17‐day negative AR (both S&P 500 and 600 stocks). Moreover, for that 17‐day period: the rivals' stocks outperform the event firms' stocks and the event firms' returns are statistically significantly related to prior variables. The paper also finds statistically significant relationships between the prior variables and the rivals' post‐event stock returns. It provides an intra‐industry effects explanation for these results.

The paper offers insights into abnormal stock returns, for the event firm and its rivals, following the event firm's large one‐day stock price drop.

The purpose of this paper is to examine whether marketing alliances create value for shareholders, and whether the results are robust across different business cycles.

Using standard event study methodology, abnormal returns (AR) were computed for 402 firms which formed marketing alliances in a 12‐month period covering three business time periods, namely bull, bear and post 9/11 periods. ANOVA and regression analyses were performed on cumulative abnormal returns (CAR).

Significant and positive AR were found on announcement day for firms forming marketing alliances. When the sample is segmented by market capitalization, small cap firms were found to stand to benefit the most, particularly when partnering with a large firm. During the bear market period, marketing alliances tend to benefit small cap firms and firms with low profitability, whereas during the bull market period, marketing alliances benefit firms with low asset utilization.

Results are limited by the accuracy of the models used to measure AR.

The results seem to suggest that smaller partners tend to benefit more from marketing alliance, and the effect changes with business cycle.

The paper analyses how the benefits of forming a marketing alliance are shared between partnering firms and how the different phases of business cycle influence the distribution of benefits.

The authors examine the industrywise investment preferences of foreign portfolio investors (FPIs), domestic institutional investors (DIIs) and retail investors in the Indian context. They also investigate the factors influencing their preferences.

Using the quarterly shareholdings and returns data of the Indian market from March 31, 2009 to March 31, 2018, the authors employ analysis of variance to study investors' preferences and a random effect panel data model to examine the factors that influence these preferences.

FPIs hold proportionally more stocks in service-oriented industries and large-cap firms, DIIs hold proportionally large numbers of shares in paper industries and retail investors hold proportionally more shares in chemicals and textiles. FPIs prefer stocks with a high export-to-sales ratio and firms registered on a foreign stock market. Domestic investors, especially retail investors, prefer small-cap stocks and firms whose operations require local knowledge. In addition, industry heterogeneity determines investment decisions. Firm-specific and macroeconomic factors that influence investment decisions differ across industries. Finally, government policies and reforms also play a key role in attracting investors.

Policymakers can identify the key variables that influence investment, which can help direct and regulate investment in India and similar emerging markets.

This study fills a research gap by addressing how industry-level heterogeneity affects investors' preferences in terms of the industrywise preferences of different types of investors and the factors that influence their preferences.

This paper aims at exploring the extent and determinants of intellectual capital disclosure (ICD) in India.

Content of annual reports of 200 firms classified on their market capitalization is analysed using search terms to find out the extent and nature of disclosure. The period of study is 2010-11 and 2013-14. Paired t-test is used to see if there is any significant change in the level of disclosure between two time periods. The various determinants and their impacts are captured using a regression equation.

The analysis showed evidence that market capitalization, ownership and age of the firms are the major determinants of ICD in India. Performance, size and type of industry mattered only for large-cap firms. Disclosure levels are seen to increase with market capitalization. Human capital and external capital is highly reported by all categories of firms. The overall disclosure by all categories has significantly increased, whereas that of human capital and external capital has increased significantly only in small-cap and mid-cap firms.

This paper looks at size, market and performance-related variables and their impact on the extent of disclosure. It takes representative firms from three indices based on their market capitalization and evaluates them, thus making results and findings reliable. This is the first paper which takes a large cross section sample from across 12 sectors and also performs a longitudinal analysis. This paper is of interest to managers of firms who can affect the policies of their firms in making robust changes in disclosure practices.

The purpose of this paper is to examine the interaction between corporate governance and capital structure for small publicly traded firms in Canada.

The authors hand-collect data for all companies listed on the Canadian junior stock exchange and construct measures of corporate governance. The authors focus on a time period when the sample firms were unregulated in their governance choices. Since firms decide simultaneously on the level of corporate governance provisions and capital structure, the authors use simultaneous equation models as well as instrumental variables analysis to address endogeneity.

The authors find that a strong relation exists between small-firm capital structure and corporate governance practices. Firms with low level of collateralizable assets have low leverage and chose better corporate governance provisions. All else equal, the firms with better corporate governance are more likely to issue new equity than debt. Overall the results support theories that predict a link between corporate governance and financing policy, where small-cap firms with low debt capacity incur costly shareholder protection to facilitate access to equity financing.

The authors contribute to prior research by providing the first empirical evidence on the choice and impact of corporate governance on capital structure for junior small- and micro-cap firms.

The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact.

Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables.

The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance.

This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation.

Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies.

This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.

This paper aims to seek answers to a primary question: “How much do divergent leverage factors account for fluctuations in time-varying financial leverage in leading hospitality sub-sectors decomposed by four exclusive sub-portfolios?” In the path of seeking answers, this paper investigated the effects of both firm-specific and macroeconomic indicators to firms’ varying financial leverage in those primary sub-sectors overtime.

In each sub-sector portfolios, firms were sorted based on market-to-book values (Mktbk _it ) with median breakpoint percentiles. For hypothesis testing, this paper constructed panel regression models with firm fixed-effects to layout fluctuant financial leverage phenomenon engaged with a set of 11 leverage factors in each Mktbk _it sorted sub-sector portfolios.

Results exhibited assorted evidences. The bottom line was: firms with different market capitalization rates in each portfolio acted differently in regard to the magnitude of financial leverage across time.

The final sample of 415 firms in four sub-sector portfolios sufficiently embraced financial leverage composition in the hospitality industry across time. However, by reason of lack of data in the other intra-hospitality industries, such as gaming and/or cruise lines, findings did not represent the firms operated in those sub-industries.

This paper departed from the established context of the previous literature in the manner that it expects to add to the literature by demonstrating the core drivers causing the deviations in financial structure in four exclusive, hospitality industry sub-sector portfolios with varying leverage proxies overtime.

Small firms, which represent much of the Silicon Valley region, tend to experience losses due to their small scale, small customer base and lack of diversification. The authors study the impact of accounting conservatism and losses on firm value and as such this study is an appropriate addition to this growing field of financial management.

The authors use methodology developed in prior literature to examine Silicon Valley and non-Silicon Valley firms' and their behavior when facing losses and the factors, which might play a role in their valuation. The authors focus particularly on earnings and accounting conservatism. Accounting conservatism captures how fast firms record losses relative to gains. The faster losses are recognized than gains the more accounting conservatism is exhibited. The authors examine the seemingly unrelated estimation of differences in means for our independent variables of interest across the two samples of Silicon Valley and non-Silicon Valley firms, both earnings and accounting conservatism. The authors use matched sample analysis of these firms based on four digit SIC code, size and date. In robustness, the authors run a more in-depth propensity score matched sample analysis.

The authors document that market values of Silicon Valley firms with accounting losses are affected less by negative earnings than other firms with accounting losses in the United States outside of the Silicon Valley region, noting the “lose big, win bigger” sentiment of Silicon Valley. Additionally, the authors document that accounting conservatism does play a role in influencing valuations of companies with accounting losses both in Silicon Valley and the rest of the United States, marginally more for Silicon Valley firms.

This study would be of interest to fund managers who need to consider smaller firms for inclusion in their portfolios. A lot of small firms have experienced losses ever since going public, especially Silicon Valley start-up firms.