Equity Positions Research Articles

A User's Guide to BPM6-Based BOP and IIP Accounts

This note presents a short description of BPM6-based balance of payments (BOP) and international investment position (IIP) data. It works through examples using data for the United States and Mexico while providing guidance for understanding the data of just about any country. Excerpt UVA-GEM-0154 Rev. Jan. 7, 2021 A User's Guide to BPM6-Based BOP and IIP Accounts This note presents a short description of balance of payments (BOP) and international investment position (IIP) data. It refers to data for the United States and Mexico, but given that there are worldwide standards for countries that report BOP and IIP, it provides guidance for understanding the data of just about any country. The BOP accounts record international transactions (flows within a period of time), whereas the IIP records financial positions (stocks accumulated over time, reported as end-of-period values). In theory, there should be a straightforward link between the two. The BOP concerns the current account (trade in goods and services, plus remittance flows and income streams from international positions) and the transactions that finance it. The financing transactions the so-called capital flows result in cross-border positions in equities, debt, and other investment vehicles, and those positions are what make up the IIP. The position (or IIP) from year to year should evolve according to flows recorded in the BOP plus valuation changes (due to price and exchange rate movements). Individual countries publish their own BOP and IIP data, but the easiest place to find the data is in various International Monetary Fund (IMF) databases available at . The IMF not only brings together BOP and IIP data for more than 100 countries, but it also ensures consistency in the presentation of the data and creates global standards for BOP and IIP reporting. IMF guidelines change infrequently; when they do, countries try (to various degrees) to restructure data collection systems so that data can be produced according to the current set of global guidelines. This note is based on the current set of guidelines, which were codified in the sixth edition of the IMF's Balance of Payments Manual (BPM6), which was released in November 2013. . . .

Performance Evaluation of Private Commercial Banks of Bangladesh: A Trend Analysis

The study revealed the trend analysis of the private commercial banks and given an overview of the performance of private commercial banks of Bangladesh. Nowadays, the banking sector is the “lifeblood” of all economic activity. The study is empirical. To get the proper understanding about the trend of different variables such as, investment loan & advancement, total asset, total liability, total equity, profit after tax, return on investment, return on asset, and return on equity from 2013 to 2017 the sample was extracted from the scheduled commercial banks. The result shows that the banking system of Bangladesh is not running at a normal pace. The index of the various variable of PCBs has progressed in some years, but again it has been delayed for the next time. The ROI and the ROA result show the best output in 2014 and the worst in 2017. On the other side, the best return on equity shows in 2014, but it is in the lowest position in 2015 because of a sudden increase in an equity position. The trend of profit after tax is like a wave. In 2014 and 2016 it is increased than the last year. On the other hand, in 2013, 2015 & 2017 it is decreased in comparison to the previous year. The data shows that the PAT is rotated within 15,000 to 20000 million taka. It is studied that, the growth and development, as well as the performance trend, is not rhythmic. PCBs should get the proper rhythm of their development, and for the development of the state.

The Importance of Engineer Image in Society: Understanding Engineer’s Representation in the Mind of Tunisian Entrepreneurs

This paper aims to investigate a new perspective that can incrementally analyze framework of entrepreneurs’ representations with regards to engineer image. It identifies managers’ attitudes towards the engineer and reveals the real factors that can explain the policy of hiring senior technicians in the Tunisian Cap-Bon industry. The sociological analysis of the representation of the industrial company leader on the issue of executive recruitment engineers had helped to highlight the risks of driving performed changes, the discrepancy between managerial objectives and how implement decisions. The ultimate consequences of this inconsistency can brake recruiting new engineers. Results highlight the influence of the entrepreneurs’ representations on the employment issue. Analysis of attitudes demonstrates that mind of leader towards framework engineer seems irrational, as long as, leader integrates technical uncertainties related to organizational and economic changes. In line with the main study, these social representations of the frame could be made on configurations, opinions, habits, equity positions, varied and often contradictory. If we are willing to embrace the idea that there would be a “change” in entrepreneurs’ representations towards engineers, it might be incrementally achieved through a triple register: cognitive, strategic and ethical.

Does the Threat of a PCAOB Inspection Mitigate U.S. Institutional Investorss Home Bias?

We exploit the staggered introduction of the PCAOB’s international inspection program to examine the role that the stringency of public audit oversight plays in shaping US institutional investors’ home bias. Analyzing a sample of foreign firms listed in the United States, we evaluate whether US institutional investors hold larger equity stakes in these firms―a longstanding issue that reflects investor portfolio decisions―if their auditors are exposed to the threat of a PCAOB inspection. In a differences-in-differences framework, we find that US listed foreign firms enjoy an increase in US institutional investors’ equity positions after their auditors become subject to PCAOB inspection access. Cross-sectional analysis implies that the benefit of the PCAOB inspection threat in mitigating US institutional investors’ home bias is concentrated in: foreign countries without a strict local audit oversight system; active US institutional investors that are known to value accounting transparency; and firms from countries that grant PCAOB access later (after the onset of its international inspection program in 2005). Our evidence suggests that foreign firms become better known in the capital markets under the PCAOB inspection program, which induces US institutional investors to acquire larger equity stakes in US listed foreign firms given the lower information asymmetry that ensues under the PCAOB inspection threat.

Financial Vulnerability of Midwest Grain Farms: Implications of Price, Yield, and Cost Shocks

Recent years have witnessed increasing volatility in crop prices and yields, fertilizer prices, and farm asset values. In this study, the financial performance of illustrative Midwest grain farms with different scales, tenure status, and capital structures was examined under the shocks of volatile crop prices, yields, fertilizer prices, farmland value, and cash rent. Illustrative farms of 550, 1200, and 2500 acres were constructed reflecting the production activity for these farms with three different farmland ownership structures (15%, 50%, and 85% of land owned) and two capital structures measured by debt-to-asset ratio (25% and 50%). Absolute measures and financial ratios were used to evaluate the income, cashflow, debt servicing and equity position of these illustrative farms. The “stress test” results suggest that farms with modest size (i.e. 550 acres) and a large proportion of their land rented are very vulnerable irrespective of their leverage positions. Large size farms with modest leverage (25% debt-to-asset ratio) that combine rental and ownership of the land they operated have strong financial performance and limited vulnerability to price, cost, yield, and asset value shocks. And these farms can increase their leverage positions significantly (from 25% to 50% in this study) with only modest deterioration in their financial performance and a slight increase in their vulnerability. These results suggest that the perspective that farmers are resilient to price, cost, yield and asset value shocks because of the current low use of debt in the industry (an average of approximately 10% debt-to-asset ratio for the farming sector) does not adequately recognize the financial vulnerable of many typical family farms to those shocks.

Designing Incentives in Startup Teams: Form and Timing of Equity Contracting

Entrepreneurial teams assign equity positions in their startups using a term sheet that details equity splits and conditions for being granted those splits. It is conventional wisdom in the entrepreneurial press that equal splits are poor choices. The conventional logic is that by not connecting rewards to contribution level equal split contracts can encourage free-riding behaviors. We experimentally test this conventional wisdom, among other entrepreneurial contracting hypotheses. Our results confirm the relationship between equal splits and depressed effort and contribution, but suggest a different causal sequence relative to conventional wisdom. Rather than the contract form being the primitive and the behavior the derived consequence, our results suggest the reverse. The differences in contract performance are driven primarily by the sorting of high contributors into non-equal contracts and of low contributors into equal contracts. However, delaying the contracting mitigates these sorting effects, reducing the effort gap between contracts. Taken together, our results suggest that both investors and founders should pay as much (or more) attention to personality type as they do to contract form, but if one is stuck with a given set of personalities delayed contracting (more so than contract form) can improve performance.

Institutional determinants of ownership positions of foreign acquirers in Africa

Research summaryUsing unique features of the African context and blending institutional, hostage, and transaction cost theories, we address gaps in our understanding of institutional determinants of ownership position in cross‐border acquisitions (CBAs) in emerging countries. We focus on two traditional institutional determinants: Informal and formal institutional distances between the two firms’ home countries and two determinants that are particularly acute in the African context: the colonial ties between and fractionalization of the two firms’ home countries. We find colonial ties and uncertainty avoidance distance, an indicator of informal institutional distance, are negatively related to ownership position. Conversely, we show that formal institutional distance and the host country's fractionalization positively influence ownership levels, but the latter effect is weakened when acquirers come from more fractionalized home countries.Managerial summaryWe examine the effects of four institutional factors that influence organizational decision‐making in the African context: (a) its colonial history, (b) differences in informal cultural norms, (c) differences in formal regulatory structures, and (d) ethnic and linguistic diversity within a country on the percentage of equity ownership that foreign acquirers hold in African target firms. Results indicate that this equity position is lower when colonial ties and greater differences in uncertainty avoidance exist between the acquirer's home country and the target African country. Conversely, foreign acquirers’ equity ownership positions are higher when there are greater formal regulatory differences between the two countries and the host country is more ethnically and linguistically diverse, though the latter effect is reduced when the acquirer is from a home country that is also diverse.

Equity Duration and Portfolio Risk Management

The authors adopt the perspective of a portfolio manager simultaneously holding long and short equity positions and investigate whether portfolio standard deviation is reduced by calibrating the overall portfolio duration to be zero. Although numerous studies have suggested that equity duration may be useful in portfolio risk management, this study directly tests this proposition. The authors first identify some methodological issues involved with measuring equity duration and then explore the use of equity duration as a tool in portfolio risk management. They present strong evidence that equity duration can be used in equity portfolios to reduce volatility and introduce a novel test that involves the comparison of market-neutral portfolios that are duration hedged with those that are duration exposed. Portfolio standard deviations form a “volatility smile” that reaches a minimum when duration is fully hedged. The results suggest that duration may be measuring risk not captured by beta.

An Investigation into the Relationship between Executive Compensation in the Financial Services Sector and the Credit Crisis in the U.K.

Executive compensation has been a controversial topic for many years and it has accumulated a wealth of research. The most recent financial crisis of 2007-2008 has accelerated this debate. There is a general consensus amongst market participants that incentive misalignment was one of the biggest contributory factors to the crisis. It has been argued that one of the most important elements of executive compensation is performance-related pay. Traditionally, this is used as a corporate governance mechanism to reduce agency costs and mitigate moral hazard. Many studies have shown that the divergence of interest between agents and principals has been accurately, or commensurately, reflected in their respective performance and compensation structures. This paper has used a combination of research and literature-based approaches by reviewing past theories and also investigating the relationship between executive compensation in the financial services sector during the relevant period of the credit crisis in the U.K., primarily by observing the evolution of compensation structures of financial intuitions and performance measures between 1997 to 2016. In order to bridge the gap in the literature between the disciplines, a variety of performance indicators have been considered including market-based and accounting-based indicators. The analysis of the paper has focused on three key areas. Firstly, an analysis on the entire sample from 1997-2016. Secondly, an analysis on each time period (before, during and after the crisis). Finally, an analysis based on the size of the firms (small, medium and large). Consequently, this study concludes: (1) The U.K. financial market has an oligopolistic nature, with few firms (mainly banks) holding a significant portion of market share. (2) When comparing each period, the average salaries and fees of executives have decreased whilst the equity-based pay has increased. (3) When comparing firms by size, smaller firms paid a greater portion of total compensation toward fixed pay such as salaries whilst larger firms paid the biggest portion in bonuses, suggesting a greater bonus-oriented culture. (4) Smaller firms had a better return on assets figure compared to medium and large firms, suggesting they are more efficient at generating income using fewer assets. (5) On average, a higher return on equity corresponded to a higher debt burden and lower equity position, indicating a possible risk-return trade-off that contributed to the crisis.

Rethinking bank shareholder equity: The case of Deutsche Bank

We introduce and apply an innovative accounting approach to analyse the equity position of a European systemically important financial institution, Deutsche Bank, between 2001 and 2015. According to our findings, the actual contribution by shareholders to bank equity capital was limited, while shareholder payout policies, including share buybacks and trading on its own shares, were both material. These findings raise concerns on the actual capacity by shareholder equity to assure protection against (residual) risk and loss absorption. Customer and investor protections appear to lay with bank entity equity dynamics. These findings have implications for bank financial sustainability and resilience, company capital maintenance, and regulatory capital requirements. Further developments based upon this innovative methodology may improve on existing prudential and accounting regulations.

Focus Media Holding Ltd. (2014)

In November 2011, Muddy Waters, a U.S. short-seller fund, accused Focus Media of overstating the size of its business. Focus Media's stock price fell sharply at first but then rebounded as the company countered the attacks. In March 2012, however, the U.S. Securities and Exchange Commission launched its own investigation and pressured Focus Media to amend some of its filings. A few months later, CEO Jiang partnered with a group of private equity firms, to take Focus Media private in a deal valued at more than $3.7 billion—China's largest-ever buyout. In the following months, several Chinese companies followed suit and delisted from the NASDAQ. In mid-2014, the PE firms in the consortium wanted to cash out of their equity positions, and Jiang faced the difficult decision of what to do next. Excerpt UVA-F-1722 Rev. Jan. 26, 2015 Focus Media Holding Ltd. (2014) The past decade had been a wild ride for Jason Jiang, the founder, chairman, and CEO of Focus Media Holding, a multiplatform digital advertising and media company. Shortly after he founded the company in 2003, he was named Media Man of the Year by Media magazine. Building on its success as the leading digital media network in China, Focus Media went public in July 2005 in the largest initial public offering (IPO) of a Chinese company on NASDAQ (ticker: FMCN) up to that time. In 2006 and 2007, China's stock market experienced a dramatic price appreciation followed by a wave of companies seeking the prestige that came with being listed on the NYSE or NASDAQ (Exhibit 1). At the peak of the wave in 2010, China-based firms represented more than 25% of all IPOs listed on U.S. stock exchanges (Exhibit 2). But investor sentiment regarding the U.S.-listed Chinese firms weakened when analysts started to suspect business and accounting fraud in some of the U.S.-listed Chinese firms. In November 2011, Muddy Waters, a U.S. short-seller fund, accused Focus Media of overstating the size of its business. Focus Media's stock price fell sharply at first but then rebounded as the company countered the attacks. In March 2012, however, the U.S. Securities and Exchange Commission (SEC) launched its own investigation and pressured Focus Media to amend some of its filings. A few months later, Jiang partnered with a group of private equity (PE) firms, including the Carlyle Group, to take Focus Media private in a deal valued at more than $ 3.7 billion—China's largest-ever buyout. In the following months, several Chinese companies followed suit and delisted from the NASDAQ. In mid-2014, the PE firms in the consortium wanted to cash out of their equity positions, and Jiang faced the difficult decision of what to do next. Should the company stay private by going through a leveraged recap or secondary buyout of the PE stakes? Would the company be able to go public again, this time with a listing on the Hong Kong Stock Exchange? And would Focus Media be well received in Hong Kong after its turbulent history in U.S. markets? . . .

Investor-legislators: Tax holiday for politically connected firms

In this paper, we examine whether political connections in the U.S. Congress affect voting patterns with respect to the American Jobs Creation Act of 2004 (AJCA). Using the financial disclosure statements of members of the U.S. Congress, we define political connections as equity-based ties between lawmakers and business groups, which capture the deliberate decision of lawmakers to establish a relationship by investing personal wealth in firm equity. We first examine whether politicians are more likely to hold equity in firms receiving benefits under the AJCA (i.e., firms with high repatriation tax costs). Our results suggest that politicians are more likely to hold equity positions in firms with high repatriation tax benefits only when such firms donate to their political campaign. We further examine how equity-based connections affect the AJCA voting outcomes and find that members of the House, but not of the Senate, holding repatriating firm's equity are more likely to vote in favour of the AJCA when PAC donations support their election campaigns. Last, we investigate whether politicians with equity holdings in repatriating firms are more likely to receive larger donations from firm-affiliated PACs before the AJCA vote in Congress. We find that PACs have larger contributions to House members who purchase equity in repatriating firms immediately prior to the AJCA vote. The results suggest that PACs of repatriating firms strategically target House representatives to increase political support for the tax holiday.

Posicionamiento del patrimonio en cooperativas de intermediación financiera frente a las NIIF sobre instrumentos financieros

Esta investigación tiene un diseño no experimental y transeccional, se enfoca en analizar el posicionamiento patrimonial de las cooperativas de intermediación financiera (I.F.) frente a las aportaciones de sus asociados. Inicia con planteamientos teóricos de normativa contable internacional y local, la relación del Activo total invertido versus el Pasivo, Patrimonio y Aportaciones. El Estudio de Caso analizó cifras del Balance de Situación, las diferencias reales, bajo la incertidumbre de la norma plena. Los resultados arrojan desmejoramiento patrimonial de 14.8% y endeudamiento general por el mismo orden. En el Estudio de Caso la situación real, versus la norma plena, y considerando el Capital mínimo irreducible de Aportaciones, igual disminuye el Patrimonio en 10.2% y aumenta los Pasivos Financieros en 10.2%. En conclusión, se considera usar alguna estrategia que solvente la situación de la normativa contable internacional con las nacionales que converjan en beneficio de las cooperativas.

Housing equity dynamics and home improvements

In this study, we examine the effect of housing equity position, measured using the loan-to-value (LTV) ratio, on the probability of home improvements. Using 2001–2011 data from the Panel Study of Income Dynamics (PSID), we find that a higher LTV ratio, in general, reduces the probability of home improvements. We also find that the probability of home improvements depends on the recent change of housing equity position and, more importantly, on the causes of the change. Probability of home improvements decreases more when a high LTV ratio is caused by falling house prices than when it is caused by equity extraction.

Housing Equity Dynamics and Home Improvements

In this study, we examine the effect of housing equity position, measured using the loan-to-value (LTV) ratio, on the probability of home improvements. Using 2001-2011 data from the Panel Study of Income Dynamics (PSID), we find that a higher LTV ratio, in general, reduces the probability of home improvements. We also find that the probability of home improvements depends on the recent change of housing equity position and, more importantly, on the causes of the change. Probability of home improvements decreases more when a high LTV ratio is caused by falling house prices than when it is caused by equity extraction.

Stochastic Control for Optimal Execution: Fast Approximation Solution Scheme Under Nested Mean-semi Deviation and Conditional Value at Risk

When executing a large order of stocks in a market, one important factor in forming the optimal trading strategy is to consider the price impact of large-volume trading activity. Minimizing a risk measure of the implementation shortfall, i.e., the difference between the value of a trader’s initial equity position and the sum of cash flow he receives from his trading process, is essentially a stochastic control problem. In this study, we investigate such a practical problem under a dynamic coherent risk measure in a market in which the stock price dynamics has a feature of momentum effect. We develop a fast approximation solution scheme, which is critical in high-frequency trading. We demonstrate some prominent features of our derived solution algorithm in providing useful guidance for real implementation.

Impact of pension system structure on international financial capital allocation

Recent findings indicate that pension system structure affects private savings and through them the aggregate foreign asset position of a country. We present a two-country overlapping-generations model that explores the relationship between the magnitude of pension guarantees and the resulting portfolio choices of workers. The existence of a pay-as-you-go pension system lowers the wealth of the young workers, who consequently borrow from abroad to supplement their current consumption, and lowers the overall riskiness of their lifetime wealth, prompting them to invest in risky equity financed by the selling of safe bonds. In particular, we are able to replicate and explain the ”venture capitalist” (positive net equity accompanied by negative net debt) portfolio profile of the United States. More broadly, we find empirical support for our results in a cross-country analysis using data from 110 economies: greater amounts of pension spending are associated with international indebtedness, long equity positions, and short debt positions.

Equity Inequity: Housing Wealth Inequality, Inter and Intra-generational Divergences, and the Rise of Private Landlordism

There is much evidence of rising inequalities across advanced economies. This paper argues for the special position of housing equity in inequality dynamics while challenging a persistent “ideology of mass homeownership” as a widespread and equalizing mechanism of asset accumulation. Contemporary dynamics of diminished homeownership access contrast to the continued attractiveness of real estate among those with capital and recent growths in private landlordism. The research presents an explorative examination of the housing wealth dimension of inequality through the British case and assesses empirically the dimensions of: equity concentration, inter and intra-generational divergences, and the role of private landlordism. The research points to the starkly concentrated nature of housing equity and significant trends towards increasing disparities, with especially disadvantaged prospects among younger cohorts. The recent emergence of a substantial secondary rental-property market presents a further key dimension of wealth concentration. The research underscores the fundamental inequality of housing equity and brings into question rooted ideologies of housing-asset-based economic security in an era of individualized welfare responsibility.

Anchoring and Probability Weighting in Option Prices

Cumulative prospect theory argues that the human decision‐making process tends to improperly weight unlikely events. Another behavioral phenomenon, anchoring bias, is the failure to update beliefs away from established anchor points. In this study, we find evidence that equity option market investors both anchor to prices and incorporate a probability weighting function similar to that proposed by cumulative prospect theory. The biases result in inefficient prices for put options when firms have relatively high or relatively low implied volatilities. This has implications for the cost of hedging long portfolios and long individual equity positions. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:614–638, 2017

An Equilibrium Model of Housing and Mortgage Markets With State-Contingent Lending Contracts

We develop a tractable general equilibrium framework of housing and mortgage markets with aggregate and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important role in shaping the form of an equilibrium contract. If borrowers' homeownership values are known, aggregate wages and house prices determine the optimal state-contingent mortgage payments, which efficiently reduces the costs of liquidity default. However, when lenders are uncertain about homeownership values, the equilibrium contract only depends on house prices and takes the form of a home equity insurance mortgage (HEIM) that eliminates the strategic default option and insures the borrower's equity position. Interestingly, we show that widespread adoption of such loans has ambiguous effects on the homeownership rate and household welfare. In economies in which recessions are expected to be severe, the HEIM equilibrium Pareto dominates the equilibrium with fixed-rate mortgages. However, if economic downturns are not severe, HEIMs can lower the homeownership rate and make some marginal home buyers worse-off. We also note that adjustable-rate mortgages (ARMs) may share some benefits with HEIMs, which may help justify a high concentration of ARMs among riskier borrowers. Finally, we find that unrestricted competition between lenders may lead to a non-existence of equilibrium. This suggests that government-sponsored enterprises may stabilize mortgage markets by subsidizing certain mortgage contracts.