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Article
Publication date: 7 August 2017

Rexford Abaidoo

This study aims to examine short- and long-run effects of specific macroeconomic conditions on risk premium estimates on lending.

Abstract

Purpose

This study aims to examine short- and long-run effects of specific macroeconomic conditions on risk premium estimates on lending.

Design/methodology/approach

Empirical estimates are based on error correction and autoregressive distributed lag models.

Findings

The results suggest that, in the short run, inflation expectations, recession expectations and actual inflationary conditions tend to have a significant impact on risk premium estimates; in the long run, however, only inflation expectations and recession expectations are significant in risk premium estimates on lending.

Originality/value

This study examines how specific conditions of uncertainty and expectations influence variability in risk premium estimates on lending in the US economy.

Article
Publication date: 5 January 2021

Huy Will Nguyen, Zhu Zhu, Young Hoon Jung and Dong Shin Kim

What determines the level of acquisition premium? This paper aims to investigate the effect of acquirers’ social capital as reflected through their network position (structural…

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Abstract

Purpose

What determines the level of acquisition premium? This paper aims to investigate the effect of acquirers’ social capital as reflected through their network position (structural holes and network density) on the level of acquisition premiums.

Design/methodology/approach

This study predicts acquisition premiums using a panel data set of 324 mergers and acquisition (M&A) transactions including 161 unique acquirers over a 21-year timeframe. M&A and alliance information are obtained from the securities data company platinum database; firm financial data are obtained from the COMPUSTAT database.

Findings

The results show that alliance network social capital provides acquiring firms with information benefits, thus, reducing the acquisition premium. However, such information benefits are also contingent on target valuation uncertainty and acquirers’ structure exploitation tendency.

Practical implications

Different types of network structures provide different social capital influences: managers should be aware of their advantages and pitfalls when engaging in M&As. The findings suggest that firms should pay close attention to social capital when making decisions regarding acquisition premiums.

Originality/value

Past research has indicated that acquiring firms tend to overestimate the value of target firms. Still, little attention has been paid to organizational-level social capital in analyzing the determinants of acquisition premiums. This study offers insight into the effect of network structure on M&A acquisition premiums.

Details

Competitiveness Review: An International Business Journal , vol. 32 no. 2
Type: Research Article
ISSN: 1059-5422

Keywords

Book part
Publication date: 28 September 2020

Thomas C. Chiang

This chapter examines changes in US monetary policy uncertainty (ΔMPU) and fiscal policy uncertainty (ΔFPU) on stock returns while controlling for downside risk, lagged dividend…

Abstract

This chapter examines changes in US monetary policy uncertainty (ΔMPU) and fiscal policy uncertainty (ΔFPU) on stock returns while controlling for downside risk, lagged dividend yield, and time series patterns. Testing G7 markets consistently shows that both ΔMPU and ΔFPU have significant negative impacts on stock returns. Evidence shows that any downside risk, ΔMPU or ΔFPU in US market will soon be transmitted to G6 industrial markets and the impacts are extended to two months. These risk and uncertainty premiums should be priced in the stocks of the major industrial markets.

Details

Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

Keywords

Article
Publication date: 10 December 2020

Thomas C. Chiang

Recent empirical studies by Antonakakis, Chatziantoniou and Filis (2013), Brogaard and Detzel (2015) and Christou et al. (2017) present evidence, which supports the notion that a…

Abstract

Purpose

Recent empirical studies by Antonakakis, Chatziantoniou and Filis (2013), Brogaard and Detzel (2015) and Christou et al. (2017) present evidence, which supports the notion that a rise in economic policy uncertainty (EPU) will lead to a decline in stock prices. The purpose of this paper is to examine US categorical policy uncertainty on stock returns while controlling for implied volatility and downside risk. In addition to the domestic impacts of policy uncertainty, this paper also presents evidence that changes in US policy uncertainty promptly propagates to the global stock markets.

Design/methodology/approach

This study uses a GED-GARCH (1, 1) model to estimate changes of uncertainties in US monetary, fiscal and trade policies on stock returns for the sample period of January 1990–December 2018. Robustness test is conducted by using different set of data and modeling techniques.

Findings

This paper contributes to the literature in several aspects. First, testing of US aggregate data while controlling for downside risk and implied volatility, consistently, shows that responses of stock prices to US policy uncertainty changes, not only display a negative effect in the current period but also have at least a one-month time-lag. The evidence supports the uncertainty premium hypothesis. Second, extending the test to global data reveals that US policy uncertainty changes have a negative impact on markets in Europe, China and Japan. Third, testing the data in sectoral stock markets mainly displays statistically significant results with a negative sign. Fourth, the evidence consistently shows that changes in policy uncertainty present an inverse relation to the stock returns, regardless of whether uncertainty is moving upward or downward.

Research limitations/implications

The current research is limited to the markets in the USA, eurozone, China and Japan. This study can be extended to additional countries, such as emerging markets.

Practical implications

This paper provides a model that uses categorical policy uncertainty approach to explain stock price changes. The parametric estimates provide insightful information in advising investors for making portfolio decision.

Social implications

The estimated coefficients of changes in monetary policy uncertainty, fiscal policy uncertainty and trade policy uncertainty are informative in assisting policymakers to formulate effective financial policies.

Originality/value

This study extends the existing risk premium model in several directions. First, it separates the financial risk factors from the EPU innovations; second, instead of using EPU, this study investigates the effects from monetary policy, fiscal policy and trade policy uncertainties; third, in additional to an examination of the effects of US categorical policy uncertainties on its own markets, this study also investigates the spillover effects to global major markets; fourth, besides the aggregate stock markets, this study estimates the effects of US policy uncertainty innovations on the sectoral stock returns.

Details

The Journal of Risk Finance, vol. 21 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 19 June 2019

Nicholas Dew and Stuart Read

Tucked in the back of Venkataraman’s 1997 work on the distinctive domain of entrepreneurship (DDE) lies a pointer to a question each individual must face when choosing to start a…

Abstract

Tucked in the back of Venkataraman’s 1997 work on the distinctive domain of entrepreneurship (DDE) lies a pointer to a question each individual must face when choosing to start a new venture; “is entrepreneurship worth it?” Inventorying costs associated with risk, uncertainty, and illiquidity against surpluses from financial and psychological factors unique to entrepreneurship, Venkataraman tempts readers to tally entrepreneurial returns. The authors summarize and integrate an academic study of these various cost and return components over the past 20 years using Venkataraman’s original framework. The authors find the answer to the question of “is entrepreneurship worth it?” varies with time. Researcher’s answer to the question has shifted from an early view that entrepreneurs sacrifice financial gain in exchange for soft psychological benefits to a more positive view that entrepreneurs are rewarded both financially and psychologically for the unique costs borne in the DDE. But the rewards are not immediate. In entrepreneur time, break-even emerges by gradually overcoming an initial deficit. As surpluses accrue, returns to entrepreneurs likely eventually exceed those of their wage-earning peers.

Article
Publication date: 29 September 2023

Salma Mokdadi and Zied Saadaoui

This paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.

Abstract

Purpose

This paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.

Design/methodology/approach

This study uses 5,223 firm-quarter observations on German-listed firms spanning 2010:Q1–2021:Q4. This study regresses the cost of debt financing on the geopolitical risk, accounting quality and other control variables. Information asymmetry is measured using the performance-matched Jones-model discretionary accrual and the stock bid-ask spread. It uses interaction terms to check if information asymmetry moderates the impact of geopolitical uncertainty on the cost of debts and control for the moderating role of business risk. For the sake of robustness check, it uses long-term cost of debt and bond spread as alternative dependent variables. In addition, this study executes instrumental variables regression and propension score matching to control for potential endogeneity problems.

Findings

Estimation results show that geopolitical uncertainty exerts a positive impact on the cost of debt. This impact is found to be more important on the cost of long-term debts. Information asymmetry is found to exacerbate the positive impact of geopolitical risk on the cost of debt. These results are robust to the change of the dependent variable and to the mitigation of potential endogeneity. At high levels of information asymmetry, this impact is more important for firms belonging to “Transportation”, “Automobiles and auto parts”, “Chemicals”, “Industrial and commercial services”, “Software and IT services” and “Industrial goods” business sectors.

Research limitations/implications

Geopolitical uncertainty should be seriously considered when setting strategies for corporate financial management in Germany and similar economies that are directly exposed to geopolitical risks. Corporate managers should design a comprehensive set of corporate policies to improve their transparency and accountability during increasing uncertainty. Policymakers are required to implement innovative monetary and fiscal policies that take into consideration the heterogeneous impact of geopolitical uncertainty and information transparency in order to contain their incidence on German business sectors.

Originality/value

Despite its relevance to corporate financing conditions, little is known about the impact of geopolitical uncertainty on the cost of debt financing. To the best of the authors’ knowledge, there is still no empirical evidence on how information asymmetry between creditors and borrowing firms shapes the impact of geopolitical uncertainty on the cost of debt. This paper tries to fill this gap by interacting two measures of information asymmetry with geopolitical uncertainty. In contrast with previous studies, this study shows that the impact of geopolitical uncertainty on the cost of debt is non-linear and heterogeneous. The results show that the impact of geopolitical uncertainty does not exert the same impact on the cost of debt instruments with different maturities. This impact is found to be heterogeneous across business sectors and to depend on the level of information asymmetry.

Details

The Journal of Risk Finance, vol. 24 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 22 July 2021

Thomas C. Chiang and Xi Chen

This study finds evidence that a stock return is inversely correlated with downside risk, confirming a pattern of risk-aversion behavior. Evidence from testing a stock return's…

Abstract

This study finds evidence that a stock return is inversely correlated with downside risk, confirming a pattern of risk-aversion behavior. Evidence from testing a stock return's response to a change in economic policy uncertainty indicates a significantly negative effect in the Chinese stock market; this conclusion holds true for testing the impacts of changes in fiscal and monetary policy uncertainties. However, the data produce a mixed effect for the change in fiscal policy uncertainty. The evidence produced from examining the geopolitical effect on the stock market strongly supports the presence of an adverse effect on stock market performance.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-80043-870-5

Keywords

Article
Publication date: 19 April 2022

Zhigang Lu and Xuehua Kong

The purpose of this paper is to investigate the opaque inventory information disclosure strategy for an online retailer who sells two substitutable products to customers in two…

Abstract

Purpose

The purpose of this paper is to investigate the opaque inventory information disclosure strategy for an online retailer who sells two substitutable products to customers in two selling periods.

Design/methodology/approach

The authors develop a two-period model where an online retailer sells two substitute products with two inventory composition structures to maximize profits. The authors investigate the optimal inventory disclosure decision from both ex post and ex ante perspectives. Sensitivity analysis is performed to investigate the effects that discount rate, transaction cost and the probability of agreeable inventory situation have on the equilibrium disclosure outcome. The authors also consider risk-averse customers and horizontally differentiated products to highlight the robustness of our results.

Findings

The authors find that the online retailer will choose the opaque information disclosure when attempting to increase revenue and reduce the mismatch of supply and demand in both ex post and ex ante inventory information conditions. Comparing with ex post disclosure strategies, ex ante opaque disclosure is optimal in a larger price region, and the total revenues gap between opaque disclosure and complete disclosure gradually increase as discount rate, transaction cost or the probability of agreeable inventory situation decreases. Furthermore, strategic customers may tend to be risk neutral when faced with opaque inventory information in a two-period sales setting.

Originality/value

This current paper is the first paper to study the online retailer's inventory information disclosure strategy in two selling periods. Moreover, this paper presents the conditions under which the online retailer should share complete or opaque inventory information with customers to maximize the online retailer's total revenues.

Details

Kybernetes, vol. 52 no. 10
Type: Research Article
ISSN: 0368-492X

Keywords

Case study
Publication date: 29 June 2021

Sebastian Prim and Mikael Samuelsson

The case is suitable for strategy or entrepreneurship modules. It is designed to teach students about the importance of implementing formal processes when entering a growth phase…

Abstract

Subject area of the teaching case:

The case is suitable for strategy or entrepreneurship modules. It is designed to teach students about the importance of implementing formal processes when entering a growth phase as well as the complexities, unexpected costs, and benefits that growing a business can bring.

Student level:

The case is aimed at MBA or Master-level students or executive education programmes as part of a strategy or entrepreneurship module.

Brief overview of the teaching case:

Lattice Towers is a South African company in the telecommunications infrastructure sector. They are struggling to generate sufficient cash flow to sustain operations as a result of poor strategic decision-making regarding tower-build site acquisition. To compound matters, the owner has been struggling with health issues related to the stress caused by the crises that Lattice Towers is going through. Recently, however, a multinational publicly listed behemoth in the telecommunications industry, Helios Towers, offered to acquire the company. The acquisition offer seems like a saving grace to the owner; however, Lattice Towers is deeply personal to the him and he would not like to lose the brand. Furthermore, there is a tremendous opportunity for business growth due to the imminent increase in demand for tower infrastructure. But based on the challenging financial position the business currently finds itself in, he might not have the option to keep the business.

Expected learning outcomes:

To develop a decision-making framework and strategy to navigate the business life-cycle stages, from survival to growth

Understand the concepts of uncertainty, risk, and liquidity premiums that apply to entrepreneurship

Understand the stress-related implications for entrepreneurs

Understand the psychological costs and benefits of entrepreneurship

Understand the personal financial implications for entrepreneurship

Details

The Case Writing Centre, University of Cape Town, Graduate School of Business, vol. no.
Type: Case Study
ISSN: 2633-8505
Published by: The Case Writing Centre, University of Cape Town, Graduate School of Business

Keywords

Article
Publication date: 29 October 2020

Richard P. Gregory

The purpose of this study is to examine the bi-directional causality between political uncertainty and the market risk premium in the US.

Abstract

Purpose

The purpose of this study is to examine the bi-directional causality between political uncertainty and the market risk premium in the US.

Design/methodology/approach

I use a theoretical model to motivate signs and then check signs based on a vector autoregression.

Findings

I find that political uncertainty has a small positive, delayed effect on the market risk premium. The market risk premium, on the other hand, has a large permanent, negative effect on political uncertainty.

Originality/value

This is the first research paper to consider the bi-directional effects of political uncertainty on the market risk premium and vice versa. It also finds interesting empirical results.

Details

Managerial Finance, vol. 47 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

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