Average Market Value Research Articles

The impact of the Food Safety and Modernization Act on firm value

Purpose – The purpose of this paper is to determine the impact of the passage and signing of P.L. 111-353, the Food Safety Modernization Act (FSMA), on the market value of agribusiness firms. Design/methodology/approach – The authors conduct an event study of the shareholder value effects of FSMA. The short-window analyses estimate the three-, five-, and seven-day market responses to three key event dates: passage by the House, passage by the Senate, and the signing of FSMA by President Obama. The long-window analyses examine a time period that encompasses the three informational events, as well as the 30 months after the signing of FSMA. To control for the effects of market-wide fluctuations, the authors use two alternative models of the returns generating process to calculate abnormal returns, the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor model. Findings – The short-window analyses show no evidence of a significant reaction to the passage of FSMA by the House or the Senate, but evidence of a significant negative reaction to the signing of FSMA by President Obama. The long window results which span the of passage by House, passage by the Senate and signing by the President indicate a decline in the average market value of agribusiness firms on the order of – 10 percent over the period. Additionally, the authors find some evidence that this effect is not evenly spread out across different types of agribusiness firms (wholesale, grocery, and processing). Originality/value – The study is the first to examine the impact of P.L.111-353 on the market value of agribusiness firms.

Opting for a Controlled-Firm Majority Independent Directors Exemption to NYSE or NASDAQ Listing Requirements: Much Ado about Nothing?

The behavior of controlled-firms that opt out of the requirement that the majority of their Board members be independent is contrasted against controlled-firms who conformed to requirement in the ten year period 2005-2014. The Boards and management structure of these exempt and non-exempt controlled firms are remarkably similar. We find exempt firms have on average smaller market values, but use more debt, hold less cash, make larger investments in intangible assets, spend more on R&D, and have a more efficient workforce that grows slower than non-exempt controlled firms. This pattern of behaviors is more consistent with a stewardship hypothesis. We find strong evidence that investors substantially increase the Q ratios of family and founder-controlled firms. We find weak evidence that obtaining a controlled-firm exemption reduces Q values, but these reductions are small compared with the reductions in Q values associated with adopting take-over barriers. We conclude the fear that many large firms seem to have over seeking an exemption may not be well founded.

East to west – The optimal tilt angle and orientation of photovoltaic panels from an electricity system perspective

The integration of photovoltaic as a fluctuating renewable energy source has raised concerns about additional costs for the electricity system due to the variable nature of power output leading to more frequent and steeper ramping of conventional power plants and the need for backup capacity. One way to reduce those costs can be the variation of installation angles of PV panels at different locations to smoothen out the total production from PV in the whole system. To a certain extent steeper tilt angles can shift the production from summer months to winter months and the variation of the azimuth from east to west can partly shift production during the day increasing the production in morning or afternoon hours. However, for fixed mounted PV panels, there is one angle combination that maximizes the total output of the PV panel throughout the year and each deviation from this angle combination results in losses of total output. This paper evaluates the trade-off between annual energy losses and possible electricity generation cost reductions through adapting PV installation angles for the current electricity system and for potentially higher PV penetration levels in the future. A theoretical explanation why the annual maximum output of a PV system is not always the optimal solution from a system perspective is presented. To assess the effects of deviations from output maximizing angles at present, the wholesale market value of PV for various tilt angles and orientations in 23 regions of Austria and Germany using historic data on solar radiation and hourly electricity prices is calculated. For the analysis of future system states with potentially high shares of PV in the market, a linear optimization model representing the German and Austrian electricity wholesale market is applied. Furthermore the article provides additional insights on the market value of PV and CO2 emission reduction potential at high PV penetration levels from the model.Both, the historic analyses and the model results for Austria and Germany suggest that at present PV penetration levels, the angle combination that maximizes the output of a PV system also provides the highest spot market value and consequently minimal total system costs. For higher shares of PV in the system the model suggests deviations from those angle combinations to be optimal. For additional PV capacity of up to 40GW (72GW in total) a slight shift to easterly orientated PV modules is observed. For very high penetration levels of more than additional 100GW optimal deviation angles deviate strongly from the output maximizing angles and the model shows optimal angles to be up to 20° steeper and orientations from east to west. However, the impact on total electricity generation costs is very low even for extremely high shares of PV in the system (<1% change in total costs). It is also found that despite of optimized installation angles, the average market value of electricity production from PV drops significantly from 41€/MWh at the base year 2012 to below 24€/MWh for additional 40GW which has strong implications for the competitiveness of PV in the future. Marginal CO2 emission reductions however decline slower than the market values as PV cuts into production from coal power plants.

Reduction of Crop Diversity Does Not Drive Insecticide Use

Reduction of crop diversity, on farm and landscape levels, has been suggested as a factor that leads to lower biodiversity in agricultural systems, and thus makes them more prone to pest damage. To determine whether the relationship between increase of corn production and reduction of crop diversity and the proportion of cropland treated with insecticide found previously in the Midwestern states is universally applicable, we applied spatial panel model analysis to USDA Agricultural Census data for 1997, 2002, 2007, and 2012 using county-level data for the entire continental USA. The 7 Midwestern states and the remaining 41 states were analyzed separately. Simpson’s diversity index was used as the metric for crop diversity. We also examined the effect of temperature, the proportion of all cropland that is corn and average crop market value as additional predictor variables. The results show that expansion of corn production, together with the market value of crop products, and accumulated amount of heat could be key factors driving the increase of acres treated with insecticide. This phenomenon is observed in the entire continental USA, indicating that it was not a reduction of crop diversity in general, but specifically the predominance of corn that is likely driving increased insecticide use in the Midwestern states in recent years.

Financial Losses in the Tanning Sector Due to Singeing of Slaughtered Goats in Bauchi Central Abattoir of Bauchi State, Nigeria

Goats are major source of skin or hide for the tannery industry, but in Nigeria, such source is lost due to singeing of slaughtered goats. A study was carried out in Bauchi Central Abattoir where large number of goats is slaughtered for consumption to evaluate the financial loss due to singeing. In all, 12, 429 singed and unsinged slaughtered goats were handled at the Bauchi central abattoir over a period of 4 months (February – May, 2015) in order to determine the financial losses in both Naira and US dollars equivalent to the goat’s skin vendors and tanners. Singed unflayed and unsinged flayed slaughtered goats were counted and the average market value in Naira of an adult goat’s skin was determined using the prevailing market price in Bauchi metropolis. The result indicated that 25.2 % (3, 132/12, 429) of the slaughtered goats were singed using vehicle discarded tyres and the market value of the singed skin amounted tone million two hundred and fifty two thousand eight hundred naira (₦1, 252, 800.00k) (using the average current market price of ₦400 per medium/big size goat’s skin) and US dollar equivalent of $6, 391. 84 (at N196/US $). The public health importance of using vehicle discarded tyres in singeing slaughtered goats meant for public consumption needs to be investigated.

ACCOUNTING PECULIARITIES OF THE STATE-OWNED LAND IN LITHUANIA

The paper presents accounting peculiarities of one of the most important State-owned property groups - the State-owned land. The financial reports submitted by the National Land Service under the Ministry of Agriculture and State Enterprise (SE) Center of Registers are not unanimous. According to the State Control, it was determined in the Ministry of Agriculture that the National Land Service indicated the improperly calculated fair value of the State-owned land (the coefficient of change in the value of one hectare was applied). It was indicated in the audit report that the method for determination of the land’s fair value used at present is unsuitable because it does not show the changes in possible values of all the land, cannot guarantee the objective determination of the land’s fair value, and does not satisfy the requirements of the clause 42 of the 12th Standard of Accounting and Financial Accountability in Public Sector. The State Control considers that the value of land lots would be determined more precisely according to the data of the map of land’s values, which are used by SE Center of Registers to determine average market value. According to the date of the SE Center of Registers, from total 2548,1 thousand ha of the State-owned land present in the beginning of the year 2012, only 1079,0 thousand ha, or 42,3 percent of the State-owned land was registered in the Register of Real Estate (35,6 percent in the beginning of the year 2011), and this misrepresents the data about financial situation of the State-owned land. The problem of determination of the fair value of State-owed property is stressed in the works of the Lithuanian scientists. The real value of the State-owned land was calculated by assessing the different land areas prices in each municipality. The analyzed volume of non-registered State-owned land and their assessment in fair value would allow showing the real and correct financial value of the State-owned land. Objective of the article is to analyze the accounting aspects of the State-owned land and to present the calculations of fair value of the State-owned land for the year 2013. DOI: http://dx.doi.org/10.5755/j01.em.18.4.5799

Short- and Long-Term Effects of Innovations on Enterprise Market Value: A Case of the Tourism Industry

Innovations seem crucial for contemporary enterprises willing to achieve the objective of increasing firm’s value. The aim of this paper is to examine, both conceptually and empirically, the relationship between innovations and tourism enterprises’ market value. Tourism sector was taken into consideration in order to fulfill the existing research gap. This focused paper was based on relevant market data. Event study and calendar time portfolio approaches were chosen to test investors’ responses to innovation announcements. Six tourism companies listed on the Main Market of Warsaw Stock Exchange were examined within the six years research period and 34 innovation announcements were identified. Polish Press Agency database and Warsaw Stock Exchange databases were used to collect data. Results indicate that innovations affected positively investors’ valuation of tourism enterprises. The average event day market value change equaled 0.63% and differed considerably from the one-year one of 3.02% meaning that investors adjust their initial reaction over time. Initially investors reacted mostly to marketing, distributional and external relations innovations while within one-year period they attributed the most value to marketing and external relations ones.

Estimating the Market Value of the Building Sites for Homogeneous Areas

The estimated market value of a building site can be determined from several practical reasons. Amongst the various cases, it may be required to determine the market value of the building site aggregated into homogeneous areas, as occurs in the estimates carried out for tax purposes, in the assessments related to the construction of public facilities or infrastructure and urban regeneration interventions related to whole degraded environments. The process outlined in this paper is instrumental to these goals. The method uses an indirect approach to estimate, based on a combination of planning parameters and characteristics of the area that contribute to the formation of market values of building sites. It does not provide a point estimate, relative to assets specifically identified, but produces average market values of the building sites to separate homogeneous areas, for intended use and for building ratio.

Evaluating the impact of third-party price reporting and other drivers on residential photovoltaic price estimates

AimPolicy-makers typically track the rapidly evolving U.S. residential photovoltaic (PV) market by relying on price data reported by PV installers/integrators to incentive programs. Recent years have witnessed a shift toward third-party-owned (TPO) business models, in which the absence of a cash purchase price obscures data interpretation. Appraisals—often based on estimates of the average fair market value across a diverse fleet of systems—are one way TPO prices are reported. ScopeThis study investigates residential PV system price drivers to improve the accuracy, consistency, and relevance of PV price-tracking efforts. Our econometric approach evaluates system price drivers using California Solar Initiative data, controlling for system, installer, and geographic variables. ConclusionsWe find that reported prices for confirmed appraised systems are $1.13/W higher than non-appraised systems and do not respond to hypothesized price drivers. For non-appraised systems, we find preliminary evidence of market distortions based on the impact of the incentive level, module cost and household income on reported price. Further, unspecified installer heterogeneity—possibly due to differences in products, cost structure or reporting practices—is a substantial price driver. Using estimates, we develop a price model to approximate non-appraised system prices.

Human Capital Loss in Corporate Bankruptcy

This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

Human Capital Loss in Corporate Bankruptcy

This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

Investigating the Effect of the Utilization of Microcredit on Hardcore Poor Clients Household Income and Assets

The objective of this study is to examine how Amanah Ikhtiar Malaysia (AIM)’s clients have been using the microcredit received and the effect of microcredit utilization on household income and asset. To obtain the above mentioned objectives, this study employed a cross sectional stratified random sampling method. Based on the literature review, it was found that there is a lack of studies to find out how AIM’s hardcore poor clients were utilizing the microcredit they received. In addition, there is a paucity of literature which examines the effect of usage of loan on household income and asset. Findings of this study show that a relatively high percentage of old respondents used credit in trading activities and they engaged in self-employed production, trade and service activities more than new clients. Average monthly household income and market value of total household assets were also found to be higher for the respondents who used credit in income generating activities. Therefore, this study proposes that AIM should focus on the usage of credit in income generating activities by its clients. It is also recommended that AIM should review and re-structure the existing policies to increase the employment rate and income generating opportunities of client’s household members. This can be done by providing appropriate training, diversifying the loan program and offering loan for non-income generating activities.

Corporate name change and shareholder wealth effect: Empirical evidence in the French Stock Market

This article focuses on the shareholder wealth effect of corporate name changes. Using an event study methodology, we tried to analyse the market reaction following 83 announcements made during the 2004–2007 period by firms listed in ‘ Euronext Paris’. The results show globally a positive impact on stock prices during the event window and in consequence on shareholder wealth. The market reacted, in fact, positively at the announcement day and firm's average market value continued to increase during the post-event period reflecting the economic potential of the operation. Therefore, our findings support ‘The shareholder value maximisation hypothesis’ (Woolridje and Snow) about strategic decision value effect, as the corporate name changes seem to be profitable for shareholders.

On the Relationship Among Partisan Effects, Electoral Probability, and Economic Uncertainty

The literature on the political economy of finance suggests that government partisanship affects financial risk. Systematic risk should increase (decrease) as the chances of a Democrat (Republican) winning an election improve. At the same time, however, economic voting theories highlight that financial risk should affect vote intentions, and thus parties’ electoral prospects. We address this endogeneity problem, which has bedeviled previous work on partisanship and financial markets, by using positive Democratic campaign events as an instrument for the electoral probabilities of the Democratic presidential candidate, Barack Obama, during the 2008 presidential election. We find that a 1-percentage point increase in the probability of the Democratic candidate winning can raise systematic risk on the U.S. stock market by 0.096 percentage points (according to IV estimates). An unadjusted OLS estimation finds a 0.061-percentage points increase on average. The corrected estimates are considerably higher than estimates that do not account for reverse causality. In monetary terms, the difference approximates an average market value of about $4 billion. Thus, there exists a strong reversal effect in which economic uncertainty reduces the probability that the Democratic candidate will win an upcoming election.

Investigating the Effect of the Utilization of Microcredit on Hardcore Poor Clients Household Income and Assets

The objective of this study is to examine how Amanah Ikhtiar Malaysia (AIM)’s clients have been using the microcredit received and the effect of microcredit utilization on household income and asset. To obtain the above mentioned objectives, this study employed a cross sectional stratified random sampling method. Based on the literature review, it was found that there is a lack of studies to find out how AIM’s hardcore poor clients were utilizing the microcredit they received. In addition, there is a paucity of literature which examines the effect of usage of loan on household income and asset. Findings of this study show that a relatively high percentage of old respondents used credit in trading activities and they engaged in self-employed production, trade and service activities more than new clients. Average monthly household income and market value of total household assets were also found to be higher for the respondents who used credit in income generating activities. Therefore, this study proposes that AIM should focus on the usage of credit in income generating activities by its clients. It is also recommended that AIM should review and re-structure the existing policies to increase the employment rate and income generating opportunities of client’s household members. This can be done by providing appropriate training, diversifying the loan program and offering loan for non-income generating activities.

Increasing the Value of Wind with Energy Storage

One economic disincentive to investing in wind generation is that the average market value of wind energy can be lower than that of other generation technologies. This is driven by the exercise of market power by other generators and the fact that the ability of these generators to exercise market power is inversely related to real-time wind availability. We examine the use of energy storage to mitigate this price suppression by shifting wind generation from periods with low prices to periods with higher prices. We show that storage can significantly increase the value of wind generation but the currently high capital cost of storage technologies cannot be justified on the basis of this use. Moreover, we demonstrate that this use of storage can reduce consumer surplus, the profits of other non-wind generators, and social welfare. We also examine the sensitivity of these effects to a number of parameters including storage size, storage efficiency, ownership structure, and market competitiveness—showing that a more-competitive market can make storage significantly more valuable to a wind generator.

Do Controlling Shareholders Manage the Timing of Information Disclosure When Making a Stock Gift?*

AbstractIn Korea, controlling shareholders in general tend to transfer their shares to their family members or related parties. In this paper, we investigate whether Korean controlling shareholders attempt to influence stock prices by managing the timing of information disclosures when they transfer stocks to related parties as gifts. Because gift taxes are levied based on the average market value of the stock transferred for a certain period known as the valuation period, controlling shareholders may have incentives to depress the stock prices in this period in order to reduce the gift tax. We make a specific conjecture that controlling shareholders may wish to time the disclosure of good news and bad news so that the latter (the former) is released during (outside of) the valuation period for the stock to be transferred. To test this hypothesis we examine the disclosure timing of good and bad news for a sample of 118 gift transactions by 83 firms over the period of 2000–2004. We find that during the valuation period (i.e., the 4‐month period extending over the 2 months before and after the gift transaction) the frequency of good news was considerably lower than in other periods, whereas the frequency of bad news during the valuation period was substantially higher. This result supports the hypothesis that controlling shareholders may delay good news and bring forward bad news in an attempt to influence stock prices during the valuation period. Despite the attempts by controlling shareholders to keep stock prices depressed in the valuation period, we also find that the prices tend to increase after the gift announcement date. We provide some of the potential explanations for the upward price movement subsequent to gift transactions.

Evaluation of a compensation scheme to bring about pastoralist tolerance of lions

Lions ( Panthera leo) are in decline throughout most of their range due to human persecution, largely provoked by depredation on livestock, and there is debate as to the usefulness of financial instruments to mitigate this conflict. Intending to reduce local lion-killing, the Mbirikani Predator Compensation Fund compensates members of Mbirikani Group Ranch for livestock depredation at a flat rate (close to average market value), after the kill has been verified and with penalties imposed for poor husbandry. Despite penalizing claimants, 55% of claims arose because livestock were lost in the bush. Between 1st April 2003 and 31st December 2006, 754 cattle, 80 donkeys and 1844 sheep/goats were killed (2.31% of the total livestock herd each year). Forty-three percent of kills were ascribed to spotted hyaenas ( Crocuta crocuta); leopards ( Panthera pardus) and cheetahs ( Acinonyx jubatus) were blamed for 37% of cases, lions 7%, jackals ( Canis mesomelas) 7% and buffalo ( Syncerus caffer) and elephants ( Loxodonta africana) together 6%. Significantly more attacks took place during months of lower rainfall but the rate of attacks was not related to the density of livestock on the ranch, or the ratio of wild herbivores to domestic stock. There was no correlation between local market prices and the number of claims per month. Despite compensation, at least one lion per year was killed in 2004, 2005 and 2006. We describe some features of large carnivore depredation in the study area and suggest that regional recovery of the lion population may require compensation on a wider scale.

The Heterogeneous Effect of the Passage of the Occupational Safety and Health Act on Stock Returns

I analyze how stock prices reacted to the passage of the Occupational Safety and Health Act (OSHA) of 1970. Previous studies focus on accounting measures or actual OSHA violations, and my work complements the literature by examining how shareholders expected OSHA to affect firm profitability. Returns fell around the OSH bill’s release to the House floor and its eventual passage, and average market value dropped by $1.5 million over the 3 days surrounding House Rules Committee release. Durable manufacturing and mining industries were hardest hit in OSH passage, losing $2.6 million and $5.7 million in average market value, respectively. I also find that larger firms with poorer working conditions sustained more negative returns, and market power, not union density, explains variation in expected profitability. Furthermore, future penalties appear unrelated to shareholder expectations about compliance costs.

The Enforcement of Real Estate Covenants in Homeowners Associations: An Empirical Study

Homeowners in condominiums, cooperative apartments and planned unit developments are all subject to detailed covenant regimes covering matters like external appearance, pets and use of their units. Covenant enforcement can be controversial in these entities, which controlled at least 14.7% of the housing stock in the U.S. This empirical study tests the efficiency of covenants through regression analysis of a Web-based survey of community association enforcement practices. Homeowners association officers, directors and managers on the e-mail list of the Community Associations Institute, a leading trade association for homeowners associations, responded to an online survey asking for information on their enforcement practices. Regression analysis tested the association of (1) homeowners association enforcement practices with per-room value and the number of violations, and (2) property physical characteristics with the level of covenant violations. The results suggest that the less effective the covenants, the lower the average market value of the development. Counterintutitively, there is evidence that the use of private-ordered remedies, such as fines and self-help, adversely affects violations and value. In addition, there is evidence that the higher the percentage of studios and one-bedrooms in a development, the higher the number of violations, possibly reflecting a lower-income, younger and more transient population drawn to these smaller units.