Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 THE ROLE OF NONAFFILIATED OUTSIDE DIRECTORS IN MONITORING THE FIRM AND THE EFFECT ON SHAREHOLDER WEALTH Stanley Block Texas Christian University Abstract The paper addresses the issue of the importance of independent, outside directors in monitoring the affairs of the firm. There is much debate about whether nonaffiliated directors are more supportive of the shareholder-interest hypothesis or the management entrenchment hypothesis. In this study of 1,026 announcements of the appointment of independent outside directors between 1990-1994, the author finds statistically significant cumulative abnormal returns during the two-day window of the announcement. However, the pattern of returns is nonmonotonic in nature in regard to the outside directors already in place. After a critical mass of outside directors is assembled, the addition of another director is likely to produce little or nothing in the way of positive abnormal returns.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 RATE OF RETURN ON INVESTMENTS: A NEW EVALUATION PROCEDURE Kashi Nath Tiwari Kennesaw State University Abstract This paper introduces a new procedure to evaluate the rate of return by comparing the reinvestment values of asset-prices and asset-earnings for the entire holding-period. During the investment horizon if market rates, on average, remain constant, then the rate of return (ROR) will be zero; if they rise, the ROR will be negative; and if they fall, the ROR will be positive. When market rates rise (fall), then the time-value of the asset-price-paid increases (decreases) by a larger (smaller) magnitude than the asset-earnings-received, thereby making the ROR negative (positive). These results hold true irrespective of whether the holding period is greater than, equal to, or less than duration; further, it is in stark contrast with the conventional-results, where the ROR is dependent on the length of the holding period in relation to duration. Within the purview of the proposed-model, if the bond is held to maturity, then under rising (falling) market rate conditions the ROR will be negative (positive); while in the conventional models, opposite conclusions are drawn such that under rising (falling) market rate conditions, the yield-adjusted ROR will be positive (negative).

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 AN ANALYSIS OF VARIATIONS IN CAPITAL ASSET UTILIZATION Kwang S. Lee Indiana State University Robert J. Hartl University of Southern Indiana Jong C. Rhim University of Southern Indiana INTRODUCTION This paper analyzes variations in the utilization rate of capital assets and examines the cost consequences that are often associated with increases in capital asset utilization. A generalized model is developed to measure the incremental costs of increases in capital asset utilization. The proposed model is easily adaptable for sensitivity analysis because it reduces to special forms under certain restrictive assumptions concerning planning horizon, acquisition costs, and salvage values. Further research may examine the relationship between leverage and capital asset utilization rate.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 THE INFLUENCE OF U.S. JOINT VENTURES IN ASIA ON SHAREHOLDER WEALTH Andry Irwanto Oklahoma State University Daniel E. Vetter Central Michigan University John R. Wingender Oklahoma State University INTRODUCTION U.S. direct investment in Asia has almost doubled from 1990 to 1995. U.S. investment in China alone has increased sixfold during this period. Further, today about $1 in every $5 invested abroad by U.S. investors is invested in Asia (Department of Commerce, 1996). Obviously, Asia is more and more becoming an attractive target for U.S. investors. The predominant method for U.S. business to enter Asia is through the joint venture. Motives for joint ventures are presented by Harrigan (1985), Hennert (1988) and Taggert and McDermott (1993). A few studies have examined the wealth effects of U.S. joint ventures in specific countries of Asia (Lee and Wyatt (1990), Hu, Chan and Shieh (1992), and Chung, Koford and Lee (1993)). Nevertheless, there is still some uncertainty about the overall effect of U.S. joint ventures in Asia on U.S. shareholders. Given the significant growth of U.S. direct investment in Asia, the purpose of this paper is to reexamine the issue of U.S. joint ventures in Asia and measure their overall impact on shareholder wealth. This study extends earlier research by examining a considerable sample of joint ventures over a long time period.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 THE LEAD-LAG RELATIONSHIP BETWEEN THE OPTION AND STOCK MARKETS PRIOR TO SUBSTANTIAL EARNINGS SURPRISES AND THE EFFECT OF SECURITIES REGULATION C. Mitchell Conover Northern Illinois University David R. Peterson Florida State University Abstract This study investigates the lead-lag relationship between the option and stock markets for 17 trading-days prior to substantial earnings surprises, using the Berkeley options data base, changes in put-call parity, and a control option methodology. Before the passage of the Insider Trading Sanctions Act (ITSA) in 1984, the options market leads the stock market prior to negative surprises but that the stock market leads prior to positive surprises. After the passage of ITSA there is no leading role for either market under positive or negative surprises. These results may suggest important roles for institutional factors, such as short sale constraints, and the intensity of securities regulation.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 INSTITUTIONAL SHAREHOLDERS AND DIVIDENDS Ki C. Han Suffolk University Suk Hun Lee Loyola University of Chicago David Y. Suk Rider University Suk acknowledges the summer research fellowship from Rider University. Abstract The agency-cost-based hypothesis predicts that dividend payout is inversely related to the degree of institutional ownership. By contrast, under the tax-based hypothesis, dividend payout is predicted to be positively associated with institutional ownership. Using the Tobit analysis, we examine the relationship between institutional ownership and corporate dividend policy. Results show that dividend payout is positively related to institutional ownership, thus supporting the tax-based hypothesis. This result suggests a certain type of "dividend clientele," that is, institutions' preference for dividends.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 ASSET PROTECTION TRUSTS: EVALUATING NEW OPPORTUNITIES UNDER 1997 LEGISLATION Ralph Switzer Colorado State University Sharla Vega Colorado State University Sean Von Loh Colorado State University Abstract Offshore asset protection trusts (APTs) are an important planning tool in protecting and managing accumulated wealth. These trusts, if properly drafted, can effectively protect assets from being attached by a creditor or a plaintiff following a successful court judgment. The use of offshore APTs has become very popular as the result of increasing litigation and the resulting awards within the court system within the United States. For those who wish to protect their assets but are wary of placing their trust in foreign jurisdictions, Alaska and Delaware enacted trust legislation in 1997 allowing asset protection trusts in their states without the cost and complexity usually associated with the offshore structure. Alaska and Delaware trust law is distinguishable from other U.S. trust law in that Alaska and Delaware will enforce spendthrift provisions in respect of a settlor who is a discretionary beneficiary of a self-settled trust. This means that settlors may maintain some access to their assets while still insulating the assets from creditors and having the assets deemed removed from their estates for estate tax purposes.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 LAST YEAR'S WINNERS AS THIS YEAR'S PICKS: AN ANALYSIS OF RECENT HINDSIGHT AS A MUTUAL FUND TRADING RULE? John B. White Georgia Southern University Morgan P. Miles Georgia Southern University Abstract Financial theory has long postulated that financial markets are efficient in the semi-strong form [1]. This hypothesis suggests that market prices reflect all publicly held information. The result of semi-strong efficiency is that an investor cannot earn returns in excess of market returns without a greater risk. Furthermore, after adjusting for risk, there is no systematic method to "beat the market." However, numerous studies suggest that historical information does provide a guide for successful current investing. This study proposes a simple trading rule that does seem to "beat the market" and does so without increasing risk.

Journal of Financial and Strategic Decisions Volume 12, Number 1   Spring 1999 THE REWARDS FOR ENVIRONMENTAL CONSCIENTIOUSNESS IN THE U.S. CAPITAL MARKETS Miwaka Yamashita The Tokio Marine and Fire Insurance Co., Ltd. Swapan Sen Christopher Newport University Mark C. Roberts Michigan Technological University Abstract Do capital markets reward companies for their environmental policies, goals and activities or their efforts at reducing the release of toxic substances? This paper examines the relationship between environmental conscientiousness scores and stock returns. It appears that the US capital markets have only weakly rewarded environmentally conscientious companies. However, companies with the worst environmental conscientiousness scores have shown lower average performance.

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