Billion In Market Capitalization Research Articles

Determinants of Financial Efficiency and Performance in Big-Cap Chain Hotels

Chain hotels with $1 billion in market capitalization not only contribute to employment creation and indirectly become a driving force in the regeneration of local economies but also play an essential role in recovering local economies with their high revenue per available room (RevPAR) values. Besides, the financial stability of these hotel chains directly influences the popularity of destinations, resulting in an influx of tourists to nearby regions, which in turn generates an economic contribution to the overall development of the tourism industry. Therefore, the aim of this paper is to determine the financial factors that are affecting the RevPAR (RPR), their role in the industry, and the validity of the agency cost theory of nine chain hotels that have at least $1 billion in market capital listed in U.S. stock markets over the period 2013–2022. The results show that, in contrast to the debt service coverage ratio, receivables turnover ratio, and book value per share variables, the day sales outstanding ratio and current ratio have a negative impact on chain hotels' RevPAR.

Weathering the crash: Do customer-company relationships pay off during economic crises?

The online version contains supplementary material available at 10.1007/s11747-023-00947-1.

China’s CEO Pay Reform: An Analysis of the Financial Impact on Central State-Owned Enterprises (CSOEs)

China’s Central State-Owned Enterprises (CSOEs) are considered to be inefficient with major agency problems where the interests of management and shareholders are poorly aligned. Rather than making decisions that make the CSOE more profitable and to help grow the economy, management will choose to solve government problems such as social stability and low employment (retain redundant workers). As China grows its socialist market economy and lists its stocks on markets in New York and London, it has become increasingly more important to reduce agency problems to better align the interests of management and shareholders. At long last, China’s CEO pay reform is passed to reform executive compensation at CSOEs. This reform is driven by President Xi and the Central Politburo of the Communist Party of China. Using an event study methodology, we find CSOEs, on average, experience a 3.05 percent increase in market capitalization from China’s CEO pay reform. In dollar terms, the mean market capitalization increase was $89 million, and cumulatively, the twenty-four CSOEs in our sample gained $2.136 billion in market capitalization. We conclude that China’s CEO pay reform was highly successful, and the gains were a result of lower executive compensation expenses without increased perk consumption and tunneling activities.

The effect of controlling person's illegalities on stock price returns: Evidence from Elman neural network model.

Controlling persons are the ultimate decision-makers of listed companies. Their illegalities have impacts on investors’ wealth, firm development, and capital market’s quality. Against this backdrop, we provide a quantitative analysis of the short-term stock price reaction to the criminal detention announcements of controlling persons throughout 2007–2019. We applied the Elman neural network (ENN) model into the classical event study methodology and demonstrated that the combination of them helps to improve the estimation accuracy of the stock price reaction. The results show that the stock price has a significant negative reaction to the criminal detention announcements of listed companies’ controlling persons on the announcement day, and the average reaction level is -6.67%. Additionally, the crisis communication measures of the firms could diminish the negative impact of such mandatory disclosure information on their stock price, but the effect is limited. Finally, the 31 companies in our sample cause a total loss of RMB 21.1 billion in market capitalization on the announcement day alone. The above results indicate that the impact of listed companies’ controlling persons on the capital market is tremendous, although the number of this group is small. Our work enriches the listed companies’ illegalities research and provides a reference for investors’ investment choices and follow-up decision making of regulatory authorities. It also provides some guidance for most of the researchers to further explore the application of data mining techniques in nonlinear problems.

An activist investor’s successful corporate governance and strategic management impacts: An updated L Brands case study

The key research aim of this paper is to analyze whether an activist investor’s recommendations for financial, corporate governance, and strategic management performances were successful or not. This paper updates the initial case study of the activist investor, Barington Capital Group, in analyzing the performance of a public company, L Brands, which had lost $20 billion in market capitalization in the last three years prior to the public letter from Barington to the L Brands CEO in March 2019. This updated case study analyzes whether Barington’s initial recommendations worked as operational guidelines for improving L Brands’ financial, corporate governance, and strategic management performances. From its financial analysis, Barington recommended either an initial public offering of the superior performing Bath & Body Works brand or a spinoff of the weak performing Victoria’s Secret brand. From its corporate governance and strategic management analysis, Barington recommended that L Brands improve the composition of its board of directors whose deficiencies in director independence, industry experience, and diversity hindered its ability to effectively oversee and advise strategic management. It is important to note that this paper was prepared exclusively with public information.

Name and shame? Evidence from the European Union tax haven blacklist

I study publication of the European Union (EU) tax haven blacklist on December 5, 2017, to examine whether and how the use of recognized tax havens affects firm value. I find that the tax haven naming and shaming by the EU was associated with a negative stock price reaction of firms with tax haven subsidiaries. Overall, publication of the blacklist erased $56 billion in market capitalization among the implicated firms. The largest reaction was for those tax havens, for which it was not foreseeable that they would be included in the blacklist. Retail firms experienced a larger decrease in share price than firms in other industries, which is consistent with a potential consumer backlash. Also more tax-aggressive firms faced more negative returns, which suggests that investors expect firms might be audited or fined for past or overly aggressive tax avoidance. The negative reaction was less pronounced in countries with low levels of investor protection and weakly governed firms with substantial conflicts of interest between principals and shareholders. This is consistent with increased scrutiny and potential for countermeasures associated with the blacklist, which reduce opportunities for managerial wealth diversion.

The Value of Offshore Secrets: Evidence from the Panama Papers

AbstractWe exploit one of the largest data leaks, to date, to study whether and how firms use secret offshore vehicles. From the leaked data, we identify 338 listed firms as users of secret offshore vehicles and document that these vehicles are used to finance corruption, avoid taxes, and expropriate shareholders. Overall, the leak erased $\$$174 billion in market capitalization among implicated firms. Following the increased transparency brought about by the leak, implicated firms experience lower sales from perceptively corrupt countries and avoid less tax. We conservatively estimate that 1 in 7 firms have offshore secrets.Received May 29, 2017; editorial decision December 2, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

The U.S. Needs Conglomerate Merger Legislation

Today the largest U.S. company in terms of market capitalization, Apple, which recently hit the $1 trillion mark, could lawfully merge with the second largest company, Amazon (which has ~$800 billion in market capitalization) and also with other incredibly large firms (e.g., Exxon/Mobil and JP MorganChase), so long as they spun off any significant overlaps. In fact, under current antitrust law, it would theoretically be permissible for a series of mergers to leave the U.S. with at most ten corporations, each owning 10 percent of every industry. Sandeep Vaheesan and I are drafting and proposing legislation that would block these extremely large mergers. The bill we’re constructing would block all mergers by companies larger than clearly specified—but quite large—limits. For example, any firm with more than $10 billion in assets could be prohibited from merging with any other company also exceeding this threshold. We believe that legislation requiring this limitation would have a number of benefits, with virtually no risk of downside consequences for society.

Activist investors and implications for corporate governance: A case study of Barington Capital Group and L Brands

The key research question of this paper is to explore the implications for both financial and corporate governance performances from the emergence of activist investors. This paper uses a dramatic case study of one specific activist investor’s role, Barington Capital Group, in analyzing the performance of a public company, L Brands, which lost $20 billion in market capitalization in the last three years while the U.S. stock market was going up significantly. In conclusion, this activist investor’s approach and recommendations in this case study could be used as operational guidelines by boards of directors and corporate executives for improving both their financial and corporate governance performances. From its financial analysis, Barington recommended either an initial public offering of the superior performing Bath & Body Works brand or a spinoff of the weak performing Victoria’s Secret brand. From its corporate governance analysis, Barington recommended that L Brands improve the composition of its board of directors whose deficiencies in director independence, industry experience, and diversity have hindered its ability to effectively oversee and advise management. Accordingly, the major sections of this paper are financial analysis, operational zeitgeist brand analysis, and corporate governance analysis. It is important to note that this paper was prepared exclusively with public information.

Traditional Approaches for Company Valuation Are Flawed for Valuing In Vivo Gene Therapy Companies.

The era of gene therapy has begun. In recent years, potentially breakthrough datasets and rapidly expanding company pipelines have begun to overshadow the unfulfilled promise characteristic of the gene therapy sector in decades prior. One barometer for progress in the space can be seen in stock markets, where NASDAQ-listed in vivo gene therapy companies we follow have increased from 4 companies with $1.9 billion in market capitalization on January 31, 2014, to 24 companies with $30.5 billion in market capitalization on October 31, 2018. For many in the financial community, a tangible signal for the emergence of the broader gene therapy space is the recent notable mergers and acquisitions activity, a signal that previously heralded the arrival of blockbuster biotechnologies like monoclonal antibodies. Notably, Novartis' $8.7 billion acquisition of in vivo adeno-associated virus 9–based gene therapy player, AveXis, earlier this year has focused many on looking for new investment opportunities in the space, thereby increasing interest in the valuation of gene therapy companies. This perspective discusses the theoretical underpinnings of company valuation and explains why traditional approaches have limitations when valuing in vivo gene therapy companies, which produce single treatments that may achieve durable or curative benefits. We use the AveXis case study to illustrate certain points on the valuation of breakthrough innovation that we think have broader applicability throughout the in vivo gene therapy space. This publication is the first in a three-part series. Future discussions in this series on in vivo gene therapy companies will explore real-world approaches and considerations that have already proven successful in mitigating the limitations of traditional valuation approaches as well as those that may soon emerge.

Trump, Regulation and Stock Returns

Using the 2016 US Presidential election result as a shock to the expectations about the future regulatory environment, I find that firms in the most regulated industries, on average, earned 3.7% higher abnormal stock returns ($27 billion in market capitalization in aggregate) during the first 10 trading days after the election. The gains are more for firms having ex-ante higher growth opportunities and less for firms with ex-ante less competition, in more regulated industries. These results indicate that more regulations disproportionately benefit low-growth firms and also help incumbent firms to accrue monopoly rents. Finally, I provide direct evidence of political favoritism through which regulations benefit the shareholders of incumbent firms.

The Value of Offshore Secrets Evidence from the Panama Papers

We use the data leak of the Panama Papers on April 3, 2016 to study whether and how the use of secret offshore vehicles affects firm value around the world. The data provide insights into the operations of more than 214,000 shell companies incorporated in tax havens by Panama-based law firm Mossack Fonseca. Using event study techniques, we find that the data leak erases US$135 billion in market capitalization among 397 public firms with direct exposure to the revelations of the Panama Papers, reflecting 0.7 percent of their market value. Tax aggressive firms and firms with exposure to perceptively corrupt countries are more adversely affected. This is consistent with the leak (i) reducing firms’ ability to avoid taxes and finance corruption, or (ii) increasing regulatory fines for past tax evasion and violations of anti-corruption regulations. Taken together, secret offshore vehicles are used for value-enhancing but potentially illegal activities that go beyond tax avoidance. Offshore intermediaries facilitate such activities.

The Performance of Audit Committee Function in Malaysian Government Link Companies

Government-Linked Companies (GLC’s) are defined as companies that have a primary commercial objective and in which the Malaysian Government has a controlling stake. Controlling stake refers to the Government’s ability (not just percentage ownership) to appoint BOD members, senior management, make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments etc.). GLCs represent a substantial portion of the economic structure of Malaysia to account for approximately RM260 billion in market capitalization (the market capitalization approximately 36% of Bursa Malaysia and 54% respectively of the benchmark Kuala Lumpur Composite Index). In addition, GLCs account for an approximated 5% of the national work force.

Deleveraging Corporate America: Job and Business Recovery Through Debt Restructuring

When the Great Recession roiled capital and labor markets in early 2009, up to a third of U.S. public corporations, and nearly 60% of privately owned companies, reported high levels of financial distress resulting from frozen credit markets. And the problems of “debt overhang” and corporate underinvestment were clearly in evidence as the combination of default risk and a relatively new provision of the tax code restricted the ability of distressed companies to deleverage their capital structures.But as described in this article, at least 110 U.S. companies used a little known provision in the American Recovery and Reinvestment Act of 2009 to defer taxes on the cancellation of debt income (CODI) resulting from exchanges or repurchases of significant amounts of debt. This suspension of tax policy gave many distressed U.S. companies the flexibility to cut costs, shore up balance sheets, and boost liquidity, thereby keeping themselves in business and their workers employed throughout the economic crisis. The 110 companies examined either repurchased or exchanged a total of $32.5 billion of corporate debt. The deleveraging of these companies, which represented more than $2.2 trillion in total assets and $520 billion in market capitalization, helped them to remain solvent throughout the downturn and retain their collective 2.2 million employees. The resulting tax savings are estimated to have saved (or in some cases created) almost 90,000 jobs, while contributing $3.2 billion to total corporate earnings and $10.7 billion of output to the national gross domestic product. Although this approach could be criticized as adding to the federal budget deficit, the deferral of taxes on CODI is viewed as a targeted financial policy tool aimed directly at boosting the productive capacity and employment of corporate enterprises.

A Perfect Storm for Innovation

To the Editor: The March issue produced two outstanding articles that should make us all sit up and seriously contemplate the future of clinical pharmacology and the biopharmaceutical industry in general.1,2 The Editorial by Honig and Lalonde described the financial pressures facing drug development,1 and Kaitin’s Development article discussed the failing business model and potential innovative solutions.2 Both articles reflect the sea changes taking place in the biopharmaceutical industry as well as the absolute necessity to create innovative approaches to the development process. Over many years, we have clearly seen the decline of the biopharmaceutical industry. However, Kaitin’s analysis showing that a handful of top-tier pharmaceutical companies have lost >$650 billion in market capitalization in the past 8–9 years is alarming. This development is particularly poignant because, during this same time frame, companies have “merged,” “reengineered,” “reinvented,” and “redesigned” their operations in an attempt to improve productivity. It would appear that, although such approaches are important for achieving short-term efficiencies, they do not address the issue of innovation. Operational excellence is not strategy!3 This is not to say there have not been innovations in the development paradigm over the years. As described by Kaitin, the Lilly/Chorus model and the relationships between functional service providers and contract research organizations are probably helpful strategies for cost containment. In fact, Chorus has reported that it can take a molecule through to proof of concept for $5 million, whereas traditional development pathways would require $30 million and 12 months longer. Such an approach would therefore add up to about $300 million less for the overall cost of development.4 This number provides, in part, an astounding example of the time value of money as discussed by Honig and Lalonde. So why are we so hesitant to experiment with new development processes and business models? Are we really so enamored of empirical business models that are unsustainable and failing? There will never be a better time to explore innovative ways of redesigning the development process. Financial pressures, soaring health-care costs, globalization, and the explosive growth of basic science have coalesced to create the perfect storm to drive change. Innovative business and development models will certainly be welcomed by all stakeholders, but especially by patients in need of new lifesaving therapies. The Editorial by Honig and Lalonde, as well as the article by Kaitin, acknowledges a rather grim situation. Surely such clear evidence of functional distress must force us to seek contemporary business models/ development paradigms to reverse the downward trajectory of an essential health-care industry.

The Vioxx debacle

This paper discusses the issue on the market withdrawal of a popular pain relief drug - Vioxx. The popularity of this drug stems from its manufacturer's (Merck) claim that the drug has no gastrointestinal side effects making it superior to other pain relievers available in the market. However, a number of external clinical trials showed that Vioxx increased cardiovascular risk. Investigations showed that even before the drug was introduced in 1999, there was an awareness at Merck that Vioxx might carry significant cardiovascular risk but Merck's advertising did not include any mention of the risk of the heart problems that further studies revealed. The US Food and Drug Administration (FDA) then required Merck to send letters to physicians to correct "false or misleading impressions and information". In the end the withdrawal of this money-making drug from the market ensued. This caused Merck's stock price to fall by 40% and a loss of US$40 billion in market capitalization. The scandal has also put the FDA in the hot seat as calls for an independent drug safety board to monitor the safety of drugs that have been approved and are on the market. This episode shows that what Merck did was unethical. Drug companies must keep in mind that drugs and medical devices have risks but it is important that the risks be proportional to the benefits.

What Caused Enron?: A Capsule Social and Economic History of the 1990's

Between January 1997 and June 2002, approximately 10% of all listed companies in the United States announced at least one financial statement restatement. The stock prices of restating companies declined 10% on average on the announcement of these restatements, with restating firms losing over $100 billion in market capitalization over a short three day trading window surrounding these restatements. Such generalized financial irregularity requires a more generic causal explanation than can be found in the facts of Enron, WorldCom or other specific case histories. Several different explanations are plausible, each focusing on a different actor (but none giving primary attention to the board of directors): 1. The Gatekeeper Story looks to the professional reputational intermediaries on whom investors rely for verification and certification - i.e., auditors, analysts, debt rating agencies and attorneys - and views the surge in financial restatements as the product of both (a) reduced legal exposure for gatekeepers (as the result of legislation and judicial decisions in the 1990's sheltering them from liability) and (b) the increased potential for consulting income or other benefits from their clients (resulting in gatekeeper acquiescence in accounting or financial irregularities). This is essentially the story to which the Sarbanes-Oxley Act responds. 2. The Misaligned Incentives Story instead focuses on managers and a dramatic change in executive compensation during the 1990's, as firms shifted from cash to equity-based compensation. Stock options (and legal changes that enabled management to exercise the option and sell the security without any delay) arguably gave management a strong incentive to inflate reported earnings and create short-term price spikes that were unsustainable, but which they alone could exploit. Sarbanes-Oxley does not address this potential cause of irregularities. 3. The Herding Story focuses on the incentives of investment fund managers and argues that they are uniquely focused on their quarterly performance vis-a-viz their rivals. As a result, they have an incentive to ride the bubble, even when they sense danger, because they fear more the mistake of being prematurely prophetic. Again, Sarbanes-Oxley does not address this cause of bubbles and price spikes. This comment compares and contrasts these explanations, finding them highly complementary.

Warnings from the Enron Message Board

As Enron collapsed in the Summer and Fall of 2001, most Wall Street analysts maintained either “buy” or “strong buy” recommendations for Enron common stock. The largest bankruptcy in U.S. history was often described as coming “without warning,” as $60 billion in market capitalization vanished. The authors searched postings on the Yahoo! Enron Message Board between 1997 and 2001 for warnings of a crash to come. They find a compelling four-year history of Enron as told by apparent insiders through anonymous posts. Excerpts of 127 posts from Enron9s Yahoo! message board, describing a disturbing corporate culture at Enron, include repeated warnings to investors to get out while they can.