Search results

1 – 10 of over 58000
Article
Publication date: 5 October 2012

Loukia Evripidou

The purpose of the current study was first to identify the motives for mergers, and second to examine the effect of mergers on the systematic risk of bidder firms in the…

2806

Abstract

Purpose

The purpose of the current study was first to identify the motives for mergers, and second to examine the effect of mergers on the systematic risk of bidder firms in the airline industry.

Design/methodology/approach

To evaluate the effect of mergers in the systematic risk, two different market models are estimated for each company in the sample, one with pre‐merger data and one with post‐merger data. Then the results obtained from the two data sets are compared so as to identify possible differences.

Findings

The study has identified three diving motives behind the merges, namely cost efficiency, economies of scale, and market power. All of these motives are expected to affect the new firm's earnings stream and in turn affect its systematic risk. With the use of the market model the individual merger results are mixed and in line with the relevant literature. Nonetheless, the average results showed a decrease in the post‐merger systematic risk.

Research limitations/implications

A reduced post‐merger systematic risk indicates a success in achieving management objectives. Mergers can generate synergetic gains from increasing cost efficiencies and/or scale economies and can also increase shareholders value through the reduction in the new firm's cost of capital. However, to have a more valid perspective a larger number of mergers should be included in the sample together with alternative calculation of systematic risk to test the robustness of the results.

Originality/value

Taking into account the current economic hardship this paper addresses the issue of shareholders wealth maximization through mergers.

Details

International Journal of Organizational Analysis, vol. 20 no. 4
Type: Research Article
ISSN: 1934-8835

Keywords

Article
Publication date: 21 September 2017

Yaojie Zhang and Benshan Shi

The purpose of this paper is to alleviate the moral hazard problem created by deposit insurance and therefore develop a deposit insurance pricing model explicitly…

Abstract

Purpose

The purpose of this paper is to alleviate the moral hazard problem created by deposit insurance and therefore develop a deposit insurance pricing model explicitly considering systematic risk.

Design/methodology/approach

Using the market model, the authors introduce the systematic risk component consisting of market risk and beta risk. A closed-form solution for the authors’ pricing model is derived based on the option pricing framework.

Findings

Compared with the authors’, the pricing model that ignores systematic risk underestimates deposit insurance premium, and cannot cover the excessive loss created by systematic risk. To examine the effect of the systematic risk component on the deposit insurance premiums estimated by the authors’ model, this paper also provides empirical evidence from China by regression analysis. The results demonstrate that, in addition to the individual failure risk, the systematic risk component is properly priced and explicitly reflected in the authors’ model.

Research limitations/implications

More risk factors such as liquidity risk should be introduced in the pricing of deposit insurance.

Practical implications

Deposit insurance premiums estimated by the authors’ model can alleviate the moral hazard problem that banks have an incentive to take on excessive systematic risk, because substantial higher insurance premiums would be charged in doing so.

Originality/value

Applying the option pricing theory and market model, this paper develops a deposit insurance pricing model with explicit consideration of systematic risk. The systematic risk component contains not only the market volatility but also the sensitivity of market risk.

Details

China Finance Review International, vol. 7 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 11 November 2014

Tarek Ibrahim Eldomiaty, Ola Atia, Ahmad Badawy and Hassan Hafez

The literature on the relation between dividends and stock risks include mixed results. The related studies have reached either insignificant, or positive, or negative…

1421

Abstract

Purpose

The literature on the relation between dividends and stock risks include mixed results. The related studies have reached either insignificant, or positive, or negative results. The authors offer a mathematical structure that addresses potential mutual benefits of dividends signaling under conditions of stock risks (systematic and unsystematic). The mathematical structure demonstrates explicitly a case of risk transfer. The purpose of this paper is to examine the potential benefits to firms and stockholders when financial managers adjust dividends per share (DPS) using percentage change in the explanatory power of systematic and unsystematic risks. This perspective is derived from a practical consideration that dividends are part of stock returns that can be adjusted to take stock risks into account.

Design/methodology/approach

The paper utilizes the specifications of the two-stage (simultaneous) regression and partial adjustment model. The sample includes quarterly data for firms listed in the Dow Jones Industrial Average and NASDAQ for the period December 31, 1989-March 31, 2011.

Findings

The authors have reached general results based on hypotheses developed from related literature. The results show that: first, benefits of risk transfer can be realized. That is, firms as well as stockholders achieve benefits when the DPS are adjusted using percentage change in the explanatory power of systematic risk only; second, dividend growth rates are affected positively by changes in systematic risks; third, the highest stock returns in the market are reached with sharp decreases in dividend growth rates; fourth, in the highest returns quartile, firm size and time do not matter but the industry type does; and fifth, the associations between dividend growth rates, systematic, unsystematic risks, and stock returns are intrinsically nonlinear.

Originality/value

The study contributes to the literature in terms of first, providing practical insights on the financial strategies that help in the use of dividends to convey the right signals to stockholders, and second, empirically show the potential benefits of adjusting dividends growth rates according to systematic and unsystematic stock risks in a unified mathematical structure that adds to the current literature.

Details

Journal of Economic and Administrative Sciences, vol. 30 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Content available
Article
Publication date: 4 January 2022

Gregor Dorfleitner and Johannes Grebler

This paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP…

Abstract

Purpose

This paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP) and systematic risk when diverse regions of the world are considered, and what the respective drivers for this relationship are. Furthermore, it tests the robustness to alternative measures for CSP and systematic risk.

Design/methodology/approach

This study focuses on the impact of corporate social responsibility on systematic firm risk in an international sample. The authors measure CSP emerging from a company's social responsibility efforts by utilizing a CSP rating framework that covers a variety of dimensions. The instrumental variable approach is applied to mitigate endogeneity and identify causal relationships.

Findings

The impact of overall CSP on systematic risk is most distinct for North American firms and, in descending order, weaker in Europe, Asia–Pacific and Japan. Risk mitigation applies across all four regions. However, the magnitude of impact differs. While the most critical drivers in North America and Japan include product responsibility, Europe is affected most by the employees category and Asia–Pacific by environmental innovation.

Practical implications

The findings help firms to control their cost of equity and investors may identify low-risk stocks by considering certain aspects of CSP.

Originality/value

This study distinguishes itself from previous literature addressing the connection between systematic risk and CSP by focusing on regional differences in an international sample, using the very transparent CSP measures of Asset4, identifying underlying impact drivers, and testing for robustness to alternative measures of systematic risk.

Details

The Journal of Risk Finance, vol. 23 no. 1
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 27 September 2021

Stephen Gray, Jason Hall, Grant Pollard and Damien Cannavan

In the context of public-private partnerships (PPPs), it has been argued that the standard valuation framework produces a paradox whereby government appears to be made…

Abstract

Purpose

In the context of public-private partnerships (PPPs), it has been argued that the standard valuation framework produces a paradox whereby government appears to be made better off by taking on more systematic risk. This has led to a range of approaches being applied in practice, none of which are consistent with the standard valuation approach. The purpose of this paper is to demonstrate that these approaches are flawed and unnecessary.

Design/methodology/approach

The authors step through the proposed alternative valuation approaches and demonstrate their inconsistencies and illogical outcomes, using theory, logic and mathematical proof.

Findings

In this paper, the authors demonstrate that the proposed (alternative) approaches suffer from internal inconsistencies and produce illogical outcomes in some cases. The authors also show that there is no problem with the current accepted theory and that the apparent paradox is not the result of a deficiency in the current theory but is rather caused by its misapplication in practice. In particular, the authors show that the systematic risk of cash flows is frequently mis-estimated, and the correction of this error solves the apparent paradox.

Practical implications

Over the past 20 years, PPP activity around the globe amounts to many billions of dollars. Decisions on major infrastructure funding are of enormous social and economic importance.

Originality/value

To the best of the authors’ knowledge, this study is the first to demonstrate the flaws and internal inconsistencies with proposed valuation framework alternatives for the purposes of evaluating PPPs.

Details

Accounting Research Journal, vol. 34 no. 6
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 11 July 2008

Chyi Lin Lee, Jon Robinson and Richard Reed

This paper aims to identify and examine the determinants of downside systematic risk in Australian listed property trusts (LPTs).

1752

Abstract

Purpose

This paper aims to identify and examine the determinants of downside systematic risk in Australian listed property trusts (LPTs).

Design/methodology/approach

Capital asset pricing model (CAPM) and lower partial moment‐CAPM (LPM‐CAPM) are employed to compute both systematic risk and downside systematic risk. The methodology of Patel and Olsen and Chaudhry et al. is adopted to examine the determinants of systematic risk and downside systematic risk.

Findings

The results confirm that systematic risk and downside systematic risk can be individually identified. There is little evidence to support the existence of linkages between systematic risk in Australian LPTs and financial/management structure determinants. On the other hand, downside systematic risk is directly related to the leverage/management structure of a LPT. The results are also robust after controlling for the LPTs' investment characteristics and varying target rates of return.

Practical implications

Investors and real estate analysts should conscious with the higher returns from high leverage and internally managed LPTs. Although there is no evidence that these higher returns are related to higher systematic risk, there could be the compensation for higher downside systematic risk.

Originality/value

This study provides invaluable insights into the management of real estate risk in Australian LPTs with implications for REITs in other countries. Unlike previous studies of systematic risk in REITs or LPTs, this is the first study to assess downside systematic risk and explore the determinants of downside systematic risk in LPTs.

Details

Journal of Property Investment & Finance, vol. 26 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 2 August 2011

Glenn Pederson and Nicholas Sakaimbo

The purpose of this paper is to investigate the relationship between loan default and loss given default (LGD) in an agricultural loan portfolio. The analysis employs a…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between loan default and loss given default (LGD) in an agricultural loan portfolio. The analysis employs a simulation model approach to evaluate the role that systematic and non‐systematic risks play in determining the economic capital requirements under different agricultural economic conditions.

Design/methodology/approach

The authors employ the theoretical approach suggested by Miu and Ozdemir to assess the role of LGD in the banking industry. A Monte Carlo simulation model is developed using Excel and calibrated to an agricultural credit association using historical data. The simulation model is used to evaluate the mark‐up to economic capital that is implied by increasing credit risks due to cyclical changes in farm real estate values.

Findings

The paper demonstrates that historical systematic risks due to the correlation between probability of default (PD) and LGD through the business cycle can result in a significant mark‐up in the economic capital required by an agricultural lender. Using historical land price changes as the driver of systematic risk, the authors show that the correlations between changing PD and land values and between the PD and LGD provide evidence of how sensitive credit risk exposure is to these parameters.

Originality/value

This paper is the first application of the Miu and Ozdemir model of systematic risk to an agricultural lending institution. The model approach can be adapted by farm lenders to evaluate their changing economic capital requirements through an economic cycle in agriculture.

Details

Agricultural Finance Review, vol. 71 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 14 August 2018

SoYeon Jung, Michael Dalbor and Seoki Lee

The purpose of this study is twofold: to investigate the relationship between restaurant firms’ internationalization and systematic risk, and to further examine the…

Abstract

Purpose

The purpose of this study is twofold: to investigate the relationship between restaurant firms’ internationalization and systematic risk, and to further examine the relationship between internationalization and systematic risk based on the type of restaurant firm (i.e. limited-service vs full-service restaurants).

Design/methodology/approach

This study analyzes data from US-based publicly traded restaurant firms by estimating systematic risk based on the Carhart four-factor model and by performing a two-way random-effects model.

Findings

Findings support not only the risk-reduction effect of internationalization on systematic risk but also the moderating effect of the role of restaurant type on the relationship between internationalization and systematic risk. More specifically, the risk-reduction effect of internationalization on systematic risk is greater for limited-service than full-service restaurants.

Practical implications

The findings of this study can provide restaurant executives with more confidence in pursuing internationalization as part of their risk management strategy, acknowledging that more international operations could mitigate restaurant firms’ systematic risk. More specifically, limited-service restaurants can more significantly enjoy the risk-reduction benefits by increasing their international operations than full-service restaurants based on the findings of this study. Furthermore, risk-averse investors could consider purchasing shares of limited-service multinational restaurants’ stocks to enjoy more risk-reduction benefits.

Originality/value

By focusing on the restaurant industry with consideration for the restaurant type, this study provides more tailored recommendations for implementing internationalization strategies with regard to risk management.

Details

International Journal of Contemporary Hospitality Management, vol. 30 no. 8
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 4 May 2012

Terry Grissom, Lay Cheng Lim and James DeLisle

The purpose of this paper is to investigate the strategy that a turnaround in the USA will portend a turnaround in the UK's economy and property market. For this strategy…

Abstract

Purpose

The purpose of this paper is to investigate the strategy that a turnaround in the USA will portend a turnaround in the UK's economy and property market. For this strategy to operate, it is assumed that the capital and property markets in and between the two nations are highly integrated with endogenous pricing functions.

Design/methodology/approach

Given the endogenous assumptions of the conjectured research statement, tests of integration (or segmentation) between two capital and property markets are conducted. Correlation, tracking error analysis, and a multiple systematic risk factor model are used to test the pricing relationships. The methodological form employs variant macroeconomic variable pricing models (MVM) of alternative combinations of systematic affects operating across and between the national markets.

Findings

Pricing integration is noted between the UK and US capital markets, while the property markets are economically and statistically segmented. Opportunities for arbitrage based on different prices/returns for equivalent risk exposures are statistically observed between the UK and USA. The effect is that systematic pricing between the two markets cannot be addressed solely by diversification options. This infers a potential for arbitrage (statistically, strategically or in practice) is possible, given that systematic risk exposures between the two markets are not equivalently priced across cyclical phases. In this context it is inferred that the probable measure of pricing differences across the two markets is more than a cyclical lag effect.

Originality/value

The paper delineates the degrees of integration/segmentation in the UK and US property and capital markets as a function of systematic risks in changing economic conditions. These differences support the existence of statistical arbitrage and the specification of investment behaviour as a function of differencing pricing expectations. These findings can assist in the formulation of investment and hedging strategies to assist in managing international portfolios subject to cyclical market exposures. This paper contributes to an understanding of and foundation for testing the nature and impact of cycles on property investment performance as a function of pricing changes.

Article
Publication date: 10 July 2007

Mark Brimble and Allan Hodgson

This paper aims to examine the contemporary association between accounting information and a number of measures of systematic (beta) risk that incorporate dynamic market…

2427

Abstract

Purpose

This paper aims to examine the contemporary association between accounting information and a number of measures of systematic (beta) risk that incorporate dynamic market features. The goal is to determine the fundamental accounting drivers of beta and to assess whether their explanatory variable power has changed or declined over time.

Design/methodology/approach

Beta estimates are calculated using adjustments for thin‐trading, central tendency, leverage, and time variance. Accounting risk variables are derived from theoretical foundations and prior empirical research, and classified as operating, financial or growth.

Findings

Results show a strong association between accounting variables (operating and growth) and systematic risk that is consistent over time, but with some industry and size differences and possible country effects. Accounting variables are able to capture dynamic risk shifts and generally are able to outperform naïve M‐GARCH and industry betas in predicting next year's systematic risk.

Practical implications

Internal management and external decision making enable the development of more efficient ex‐post risk measures, isolating actual risk determinants rather than just determining the level of risk, overcoming the problem that conventional ex‐post measures cannot be used for non‐listed entities, initial public offering firms, or those that do not have sufficient trading history, reduces the noise found in traditional risk estimates that rely on historical security returns, and the development of trading and valuation strategies.

Originality/value

This is the first paper that assesses the association between a range of dynamic risk measures and accounting variables and tests whether this long‐run association has changed over time.

Details

Managerial Finance, vol. 33 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

1 – 10 of over 58000