Journal Of Financial And Strategic Decisions

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 Volume 13, Number 2   (Summer 2000) 
A Comprehensive Long-Term Performance Analysis Of Load Vs. No-Load Mutual Funds   James L. Kuhle
Ralph A. Pope
GARCH Models And The Stochastic Process Underlying Exchange Rate Price Changes   Ken Johnston
Elton Scott
Dividend Announcements And The Valuation Effects Of Corporate Divestiture   Heesam Kang
J. David Diltz
Accounts Receivable, Trade Debt and Reorganization   James W. Tucker
William T. Moore
Managerial Compensation And Optimal Corporate Hedging   Steven B. Perfect
Kenneth W. Wiles
Shawn D. Howton
Duration Gap In The Context Of A Bank's Strategic Planning Process   Kristine L. Beck
Elizabeth F. Goldreyer
Louis J. D'Antonio
Downsizing, Capital Intensity, and Labor Productivity   Swapan Sen
Rezeian Farzin
Revisiting The Determinants Of The Corporate Debt Call Option: New Evidence 1987-1996   Patricia J. Robak
Richard J. Kish
Disequilibrium In Asia-Pacific Futures Markets: An Intra-Day Investigation   Mahendra Raj

 

Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

A COMPREHENSIVE LONG-TERM PERFORMANCE
ANALYSIS OF LOAD VS. NO-LOAD MUTUAL FUNDS

James L. Kuhle
California State University, Sacramento

Ralph A. Pope
California State University, Sacramento

The authors would like to gratefully acknowledge Lana Wong, MBA California State University, Sacramento,
for her data gathering and statistical analysis provided in the completion of this research.

Abstract

The debate between no-load and load funds has continued and has become more complicated because of the innovative packaging by mutual fund managers. The purpose of this research is to analyze whether load funds earn a consistently higher rate of return on a long-term basis when compared to no-load funds. This research evaluates the returns of equity load and no-load funds by analyzing the descriptive statistics of a large sample (8,100) of load and no-load funds. Results, summary statistics, and conclusions are drawn from the samples analyzed.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

GARCH MODELS AND THE STOCHASTIC PROCESS
UNDERLYING EXCHANGE RATE PRICE CHANGES

Ken Johnston
Georgia Southern University

Elton Scott
Florida State University

Abstract

This study investigates the extent of the contribution of the original GARCH model to our understanding of the stochastic process underlying exchange rate price changes, and examines if the movement of current research to GARCH type models exclusively is warranted. GARCH(1,1) parameters are calculated on a yearly basis and used to standardize the exchange rate price change data. Frequency distributions and statistical tests indicate that independence still exists after standardization. This indicates that GARCH type models alone are inadequate since all are similar in form, and would have difficulty in accounting for such independence. It could be argued that the poor performance of the GARCH model is due to the models incorrect assumption of a normal distribution. This argument is tested by comparing the GARCH standardized data with mean -variance standardized data, which makes no assumptions about the distributional form. Results of likelihood ratio tests, question the significance of conditional volatility, in explaining exchange rate price changes. Curiously there are cases where GARCH e2(t-1) parameters are significant when tests for first-order heteroskedasticity are not significant; this suggests that the model may be misspecified. Overall, results indicate that although previous research finds that volatility clustering plays a role in determining the stochastic process, it is not the dominate factor. This study questions the contribution of the GARCH type models. We discuss implications of our results.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

DIVIDEND ANNOUNCEMENTS AND THE VALUATION
EFFECTS OF CORPORATE DIVESTITURE

Heesam Kang
University of Texas at Arlington

J. David Diltz
University of Texas at Arlington

Abstract

We examine the returns to 175 divestitures and 21 acquisitions associated with divestiture occurring between 1990 and 1994. Consistent with previous research, we find positive abnormal returns associated with divestiture on and before the announcement date. However, abnormal returns disappear, save for day -1, upon application of a contemporaneous dividend announcement filter. Acquiring firms experience significant positive abnormal returns on average the day prior to announcement. Moreover, acquiring firm wealth effects weaken considerably upon application of a contemporaneous dividend filter. Our research suggests that wealth effects associated with divestitures are sensitive to contemporaneous dividend announcement effects, and studies that fail to employ careful data filtering techniques may produce biased results.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

Accounts Receivable, Trade Debt and Reorganization

James W. Tucker
University of South Carolina at Sumter

William T. Moore
University of South Carolina

Both authors express their appreciation to Ms. Ellen Roueche for excellent assistance in the preparation of this manuscript.

Abstract

The optimal outcome of a firm in bankruptcy is to liquidate if its asset value is greater than its value as a going concern or, alternatively, to reorganize if it is worth more as a going concern. In this study, we identify firm asset and liability characteristics which may determine the likelihood of a firm successfully emerging from bankruptcy. We find two key factors influencing the success of a bankruptcy: the ratio of the firm's accounts receivable to its total debt, and the ratio of its accounts payable to total debt. Controlling for size, the probability of a firm successfully reorganizing is found to be positively related to the ratio of accounts receivable to total debt, and negatively related to the ratio of accounts payable to total debt. The evidence indicates that accounts receivable are a valuable source of cash to pay creditors in bankruptcy, and that trade creditors may be more supportive of liquidation than other creditors even though liquidation eliminates the opportunity to conduct future business with the firm.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

MANAGERIAL COMPENSATION AND
OPTIMAL CORPORATE HEDGING

Steven B. Perfect
Sonat Marketing Company L.P.

Kenneth W. Wiles

Shawn D. Howton
Villanova University

Abstract

This study examines whether the design of managerial compensation contracts affects a firm's hedging policy. More specifically, a recently developed empirical methodology is used to quantify the sensitivity of a firm's value to the interaction of its internal funds and the price changes in exogenous hedgeable risks. This approach permits an examination of the relation between managerial compensation and corporate hedging activities. The results suggest that differences in the risk exposure of the sample firms is related to the levels of stock options and deferred compensation used by the firms.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

DURATION GAP IN THE CONTEXT OF A
BANK'S STRATEGIC PLANNING PROCESS

Kristine L. Beck
University of Denver

Elizabeth F. Goldreyer
University of Denver

Louis J. D'Antonio
University of Denver

Abstract

This paper presents an approach to duration that adds depth and realism to the subject of duration gap, which is usually presented as a “stand alone” issue in much of the banking literature. Duration is an important tool used by managers, but many overly simplified examples are not consistent with operating realities. This study offers a more realistic approach to measuring portfolio duration and duration gap which will enhance the bank's strategic planning process.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

DOWNSIZING, CAPITAL INTENSITY, AND LABOR PRODUCTIVITY

Swapan Sen
Christopher Newport University

Rezeian Farzin
Michigan Technological University

Abstract

Recent studies on corporate downsizing attribute variability in labor employment to business cycle and the process of technological innovation (Caballero & Hammour, 1996), the outsourcing decision by corporations (Sen & Zhu, 1996), the lack of flexibility of workers compensation schemes (Gerhart & Milkovich, 1990), and institutional factors (Nagao, 1995). This paper presents a simple model to study employment variability due to fluctuations in labor productivity. The study of a production function demonstrates that the firm's use of a factor of production is inversely related to the productivity of that factor. Further, the variability of employment of a factor due to its own productivity fluctuations is magnified by the intensity of employment of the other factor of production.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

REVISITING THE DETERMINANTS OF THE CORPORATE
DEBT CALL OPTION: NEW EVIDENCE 1987-1996

Patricia J. Robak
The College of New Jersey

Richard J. Kish
Lehigh University

Abstract

Attaching a call feature to new debt for any reason was the norm for most of the twentieth century. For example, the majority of new bonds issued prior to 1986 contain a call provision. But over the past ten years, we observe that the number of call options on new debt is now a minority component. The intent of this study is to reproduce the work of Kish and Livingston (1992) for the period 1987-1996. The major structural change that occurred in the debt market warrants the reproduction of this study for the recent decade. For the 1977-1986 period, the ratio of callable to non-callable bonds is approximately 4:1, whereas the ratio during the 1987-1996 period approximates 0.5:1. A natural question arises as to why we have observed such a phenomenon in the financial world. Reproducing the study in the same manner offers insight into the reasoning behind a firm's decision to use a call feature on newly issued debt. Our empirical results indicate that the values that were important for the firm's decision making process (the level of interest rates, the debt rating, the probability of default, the number of years to maturity and the firm classification) are still valid in the latter time period tested. Of particular note, we found that the transfer of wealth externality issue as measured by our proxy, GROWTH, impacts the call option decision in the latter decade and not the former decade.
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Journal of Financial and Strategic Decisions
Volume 13, Number 2   Summer 2000

DISEQUILIBRIUM IN ASIA-PACIFIC FUTURES
MARKETS: AN INTRA-DAY INVESTIGATION

Mahendra Raj
Robert Gordon University

The author would like to thank the Singapore International Monetary Exchange
and the Sydney Futures Exchange for providing the data for the study.

Abstract

This paper examines the weak form market efficiency using transactions data. Previous studies have mainly used daily data to investigate whether trading rules can result in abnormal profits with mixed results. This study on the other hand uses trade-by-trade data to apply trading rules such as moving average and filter. Two different futures contracts the Australian All Ordinaries Index traded in Sydney Futures Exchange and the Fuel oil treaded in the Singapore International Monetary Exchange are used. The profitability of the trading rules were tested using a bootstrap methodology. It is found that the simple trading rules used in the study do not generate abnormal profits on tick data suggesting that the markets examined are weak form efficient.
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