Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 INTERNAL/EXTERNAL TOP MANAGEMENT SUCCESSION AND FIRM PERFORMANCE Eugene P.H. Furtado University of San Diego Vijay Karan Texas A & M University Abstract We analyze the relationship between the board's choice of an internal promotion or external hire of a top executive and relative corporate performance. The board's choice is predicted using accounting earnings (ROA and EBIT) and stock prices (ROE and Stock Return), in the coincident (year 0) and lagged years (-1 to -3), as measures of performance. The origin of the successor is significantly related only to ROA and EBIT suggesting that boards look at accounting measures more than market measures in evaluating managerial performance. The relationship between poor accounting earnings and outsider appointments is stronger for small firms and the CEO position. Cross-sectional differences in the excess stock returns around the announcement date confirm the value to the firm of outside appointments following poor stock performance.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 IS UNDERPRICING GREATER FOR MIXED OFFERINGS AS COMPARED TO PURE PRIMARY OFFERINGS IN THE OTC MARKET Dev Prasad University of Texas at San Antonio Abstract The existence of "underpricing" has been established by a number of empirical studies in the case of common stock initial public offerings (CSIPOs). The after-market prices of such common stocks have consistently been found to be higher than their corresponding offering prices. However, these papers appear to have concentrated on examining the underpricing in the case of CSIPOs as a whole even though, in practice, there are three types of offerings viz. pure primary offerings, mixed offerings, and pure secondary offerings. This study is motivated by the results of two studies. From the results, it may be inferred that a possibility exists of there being differences in the extent of underpricing for the different types of offerings. This study shows that the level of underpricing is about the same based on one-day excess returns. However, based on one-month excess returns, mixed offerings have a higher level of underpricing as compared to pure primary offerings at a 15% level of significance. It appears that the market does not appear to consider mixed offerings to be substantially more risky than pure primary offerings.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 THE VALUE OF INDIRECT INVESTMENT ADVICE: STOCK RECOMMENDATIONS IN BARRON'S Gary A. Benesh Florida State University Jeffrey A. Clark Florida State University The authors would like to thank Bruce Niendorf for research assistance and David R. Peterson and Pamela P. Peterson for helpful comments. Abstract This paper assesses the value of stock recommendations appearing in Barron's. Single-company recommendations from the Mutual Choice column, where selected mutual fund managers are asked to recommend their favorite stock, are analyzed along with the multiple-company selections appearing in periodic interviews with security analysts and portfolio managers. Return performance is assessed using both market-adjusted holding period returns and a market-model event study paradigm. A relatively large and statistically significant market reaction is found on the date of the publication of these stock selections. However, the assessment of the return performance results subsequent to the publication date are found to be methodology dependent.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 THE INFORMATION CONTENT OF STANDARD & POOR'S COMMON STOCK RANKING CHANGES James Felton Central Michigan University Pu Liu University of Arkansas Douglas Hearth University of Arkansas Authors' Note: We are extremely grateful to Standard & Poor's for providing data for this study. Abstract This study examines the information content of Standard & Poor's common stock ranking changes. Since prior studies find Standard & Poor's common stock rankings provide investors with a measure of risk, a ranking change may signify a change in risk. Common stock ranking changes made by Standard & Poor's may provide investors with a low-cost means of predicting the direction of future market risk. Internal memoranda containing ranking changes from June 1985 through May 1987 were obtained directly from Standard & Poor's. Using a sample of 191 upgrades and 582 downgrades, results indicate that mean portfolio betas change following Standard & Poor's memorandum dates for ranking changes.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 INSTITUTIONAL INVESTMENT ACROSS MARKET ANOMALIES Thomas M. Krueger University of Wisconsin Abstract If a small firm effect exists, one would expect to see a trend towards proportionately greater investment in small firms. Among the most sensitive investors would be institutional investors who are constantly seeking to maximize their portfolio's rankings. This study examines changes in institutional investments on the basis of firm size, price/earnings ratios and Timeliness rankings. Institutional investors, in general, were found to have increased their interest in low price/earnings ratio firms and those with timely rankings, but not small firms. The study of decision making by institutional investment is becoming increasingly important as direct equity ownership declines.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 PROSPECT THEORY IN THE COMMERCIAL BANKING INDUSTRY Hazel J. Johnson University of Louisville Abstract This study examines Kahneman and Tversky's prospect theory in the commercial banking industry. Prospect theory predicts increased risk-taking behavior in the presence of below-target outcomes. Fishburn redefined risk (commonly measured as dispersion about the mean outcome) as the integral of a function that is based on distance below target outcome. This study uses rates of return and the primary capital ratios of 142 U.S. commercial banks over the period 1970 through 1989 to test whether distance from target is related to dispersion about the mean and to test alternative target mechanisms. Cross-sectional medians of return ts, return on equity, and primary capital ratio are used as target outcomes. Distance from target is defined as the difference between individual bank median and target outcome. The correlation between standard deviation of individual bank measures and distance from target is measured using Kendall's tau. Below target, the results confirm Fishburn's measure of risk and prospect theory and suggest that rates of return may be the operative target outcomes. The below-target results also suggest possible regional and size differences. Above target, distance from target is generally found to not be associated with the degree of dispersion about the mean.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 DETERMINANTS OF THE COMPETITIVE POSITION OF INTERMEDIARY-LESSORS I. Keong Chew University Of Kentucky William T. Baldwin Transylvania University J.C. Thompson Eastern Kentucky University Abstract It has been argued that the investment tax credit (ITC) is the primary reason for the emergence and survival of financial intermediaries as lessors. This paper examines why intermediary-lessors continue to exist despite the repeal of this credit by the 1986 Tax Reform Act. Four factors unrelated to the ITC are shown to impact the competitive position of the intermediary-lessor. The results of the analysis indicate the conditions under which these intermediary-lessors would prevail in equilibrium.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 HAVE INDIVIDUAL INVESTORS GROWN MORE SENTIMENTAL? Francis E. Laatsch Bowling Green State University Christopher J. Contino Bowling Green State University Abstract This paper extends Lee, Shleifer, and Thaler's [4] recent inquiry into the role of investor sentiment in closed end fund discounts and small stock returns. Data from the years 1988 through 1990 fail to confirm LST's result that discounts and small stocks are less strongly related in more recent periods. On the other hand, this study casts doubt on Lee, Shleifer, and Thaler's argument that investor sentiment is an important common element in closed end fund discounts. Discounts over the period studied herein do not exhibit the high level of correlation Lee, Shleifer, and Thaler found. In fact, several funds exhibit significant negative correlations in discounts.

Journal of Financial and Strategic Decisions Volume 7, Number 1   Spring 1994 PRE-LISTING PRICING EFFICIENCY AND STOCK PRICE REACTION TO LISTING: SOME ADDITIONAL EVIDENCE Zahid Iqbal Texas Southern University Shekar Shetty University Of South Dakota At Rapid City The authors are grateful to an anonymous referee of this journal for helpful comments. Abstract Prior empirical studies provide evidence that stock price reactions to listing are more favorable for stocks that have higher prospects for listing gains. These studies focus on the listing gains of liquidity and informational value. Our study examines another dimension of listing gain, namely, improved pricing efficiency. We hypothesize that low efficiency stocks in the pre-listing period would earn higher abnormal returns than high efficiency stocks. Contrary to the predictable hypothesis, our empirical findings indicate that high efficiency stocks show favorable reactions to listing, while low efficiency stocks show no reactions.

Copyright © 2000 JFSD All Rights Reserved