Normal Return Research Articles

Pengaruh Faktor-Faktor Akuisisi terhadap Abnormal Return (Studi pada Perusahaan Akuisitor di BEJ antara Tahun 1992 Sampai 1997)

The objective of this study are (1) to examine the change the abnormal returns pre and post acquisition, (2) to examine the influence of acquisition factors: Q ratio (Tobin’s Q ratio), relative size between bid¬der and target acquisition (size), reaction target management (hostile or fiendly/HF), choice of investment financ¬ing/COI), number of bidder acquisition (number of bidder/NB) and asymmetric information (AI), on the companies’ abnormal returns either simultaneously or partially, and (3) to examine the influence acquisition factors on the abnormal returns in case of internal and external acquisition. By analyzing financial statement of 20 bidders and 40 target conducted acquisition at Bursa Efek Ja¬karta between 1992 and 1997, the result of the study shows that (1) the companies abnormal returns have posi¬tive performance, (2) the acquisition factors in both simultaneously and partially have positive influence on the ab¬normal returns, and (3) there is a different influence of acquisition factors on the abnormal returns between inter¬nal acquisition and those of external acquisition. Key words: acquisition, abnormal return, bidder, target

Dual Income Taxation: Why and How?

The dual income tax combines a progressive tax schedule for labour income with a low flat tax rate on capital income and corporate income. This paper restates the case for the dual income tax and discusses alternative methods of taxing business income under such a tax system, paying special attention to the taxation of income from closely held corporations. It is argued that the imputed normal return to shares in unlisted companies should be taxed as capital income, while above- normal returns should be subject to labour income tax. The paper demonstrates that such a tax scheme can be designed to be neutral towards the firm's investment and financing decisions and towards the decisions of shareholders to realize their shares.

Distress Risk Information in Accruals

Past accruals anomaly studies have documented results that suggest that distress risk increases systematically across decreasing accruals portfolios. I investigate and find a negative relation between accruals and distress risk, evidence that suggests that the accruals trading strategy of buying firms with low accruals and selling firms with high accruals results in exposure to higher distress risk. I show that distress risk is compensated by higher future returns. I then show that the future abnormal returns from the accruals trading strategy decline after controlling for distress risk. This evidence suggests that that at least part of the high abnormal returns to the accruals trading strategy should be reclassified as normal returns for engaging in a trading strategy that involves higher distress risk. In addition, I find that the abnormal returns to the accruals trading strategy are largely driven by trading in firms within high distress risk portfolios. JEL classification: G12; G14; G33; M41

Dual Income Taxation: Why and How?

The dual income tax combines a progressive tax schedule for labour income with a low flat tax rate on capital income and corporate income. This paper restates the case for the dual income tax and discusses alternative methods of taxing business income under such a tax system, paying special attention to the taxation of income from closely held corporations. It is argued that the imputed normal return to shares in unlisted companies should be taxed as capital income, while above-normal returns should be subject to labour income tax. The paper demonstrates that such a tax scheme can be designed to be neutral towards the firm's investment and financing decisions and towards the decisions of shareholders to realize their shares.

Does Germany Collect Revenue from Taxing Capital Income?

A widespread objection to the introduction of consumption tax systems claims that this would lead to high tax revenue losses. This paper investigates the revenue effects of a consumption tax reform in Germany. Our results suggest that the revenue losses would be surprisingly low. We find a maximum revenue loss of 1.6 percent of annual GDP. In some years, we even find a tax revenue gain. This implies that the current tax system collects little revenue from taxing the normal return to capital. Based on these results, we calculate a macroeconomic measure of the effective tax rate on capital income.

Total factor productivity and the measurement of technological change

Abstract. TFP is interpreted in the literature in different, mutually contradictory ways. Changes in TFP are shown to measure not technological change, only the super‐normal returns to investing in such change – returns that exceed the full opportunity cost of the activity. Thus, in the limit, technological change can proceed with unchanged TFP. Measuring the effects of technological change instead requires counterfactual estimates. Reasons why changes in TFP are imperfect measures of super normal returns are also studied – reasons connected with the timing of output responses, the treatment of R&D in the national accounts, the omission of resource inputs, and two types of aggregation.

News Arrival, Jump Dynamics, and Volatility Components for Individual Stock Returns

ABSTRACTThis paper models components of the return distribution, which are assumed to be directed by a latent news process. The conditional variance of returns is a combination of jumps and smoothly changing components. A heterogeneous Poisson process with a time‐varying conditional intensity parameter governs the likelihood of jumps. Unlike typical jump models with stochastic volatility, previous realizations of both jump and normal innovations can feed back asymmetrically into expected volatility. This model improves forecasts of volatility, particularly after large changes in stock returns. We provide empirical evidence of the impact and feedback effects of jump versus normal return innovations, leverage effects, and the time‐series dynamics of jump clustering.

Does investor identity matter in equity issues? Evidence from private placements

We examine the relation between stock price performance and the identity of the investors buying the shares in private placements of equity. We find that although the shareholders not participating in the placement experience post-issue negative long-term abnormal returns, the participating investors purchase the shares at a discount and earn normal returns. For the non-participating investors, both announcement and long-term abnormal returns are significantly higher when the shares are placed with affiliated than only with unaffiliated investors. Additionally, when we exclude financially-distressed firms, we find insignificant announcement returns followed by negative long-term abnormal returns in placements to unaffiliated investors. On the other hand, consistent with affiliated investors having a certification effect, we find positive announcement returns and normal long-term returns following placements to affiliated investors. Thus, the disparity found in private placements between the positive announcement period and the negative post-issue long-term abnormal returns disappears when we control for financial distress and participating investor identity.

Revenue Investment, Accounting Conservatism and the Valuation of Loss Making Firms

The proportion of listed firms reporting accounting losses has increased greatly since the 1970s. The perception that accounting losses always indicate a loss of economic value is no longer widely held. It is now accepted that many loss making firms report losses because of investments that cannot be capitalized under present accounting rules. Charges against income caused by investments are called 'revenue investments' in this study. Two aspects of the valuation of loss making firms are investigated. Firstly, a method of distinguishing firms that have made revenue investments from firms that are suffering 'real' economic losses is developed. The findings show that loss making firms can be categorized, and that the accounting and economic characteristics of firms differ over these categories. Secondly, the impact of revenue investment on the residual income valuation model is examined. The findings show that revenue investment means that book value is not sufficient to specify the stream of normal returns on the firm's investments. The Ohlson (1995) model is used to show that decomposition of residual income leads to a better valuation model and that current and past losses are associated with value creation for firms that practice revenue investment.

Rehabilitation of the Thrower's Elbow

The elbow joint is susceptible to injuries in the overhead athlete due to the large amount of forces observed during the act of throwing. Injuries often occur due to repetitive microtrauma nature of throwing. Rehabilitation following injury or surgery to the throwing elbow is vital to fully restore normal function and return the athlete to competition as quickly and safely as possible. Rehabilitation of the elbow, whether post-injury or postsurgical, must follow a progressive and sequential order to ensure that healing tissues are not overstressed. Emphasis is placed on restoring full motion, muscular strength, and neuromuscular control. The purpose of this article is to provide an overview of a multiphased rehabilitation program for the thrower's elbow. In addition, rehabilitation for specific nonoperative and postoperative pathologies often observed in the throwing athlete is discussed.

USING A HYPOTHETICAL EFFICIENT FIRM TO BENCHMARK WATER UTILITIES IN CHILE

Natural monopoly regulation should ideally meet the objectives of inducing firms to produce the socially efficient quantity (allocative efficiency), inducing the firms to produce at minimum cost, (productive efficiency) while letting the firm to obtain enough revenues so as to cover its costs.1 Since 1989, the regulatory scheme established in Chile for price setting in electricity distribution, local telecommunications and water supply has been one based on the construction of a hypothetical efficient firm to benchmark utilities.2 Unlike the yardstick schemes used in countries like, for example, the U.K., in which the reference used for benchmarking is the behavior of existing firms (using their average behavior or the behavior of the most efficient one), the scheme used in Chile uses as a benchmark a hypothetical firm.3 The latter is commonly refered in the Chilean legislation as model firm4; term that we will retain in what follows. This model firm is supposed to produce the quantity demanded by the market at the minimum cost that is technically feasible, given predefined quality standards and available information. The scheme separates the costs used for price determination from the firm’s real costs, so that it will only be able to obtain a normal return if it behaves according to the model firm. Thus, any “inefficiencies” (i.e., costs higher than predicted by the model firm) will not be passed through to final consumers but borne by the utilities, which in most cases are private entities. In this sense, the mechanism offers the advantages of an incentive based mechanism while maintaining some of the characteristics of the rate of return regulation (Newbery (1999)).

Computing Productivity: Firm-Level Evidence

We explore the effect of computerization on productivity and output growth using data from 527 large US firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using one year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to five times greater over long periods (using five to seven year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s.

Prospect Theory and Mean-Variance Analysis

The experimental results of prospect theory (PT) reveal suggest that investors make decisions based on change of wealth rather than total wealth, that preferences are S-shaped with a risk-seeking segment, and that probabilities are subjectively distorted. This article shows that while PT’s findings are in sharp contradiction to the foundations of mean-variance (MV) analysis, counterintuitively, when diversification between assets is allowed, the MV and PT-efficient sets almost coincide. Thus one can employ the MV optimization algorithm to construct PTefficient portfolios. The Markowitz (1952a)-Tobin (1958) mean-variance (MV) rule is probably the most popular investment decision rule under uncertainty in economics and in finance, and it is widely employed by both academics and practitioners. The strength of the MV analysis is that in the case of normal return distributions the choice of any expected utility maximizing risk-averse individual will be according to the MV rule. 1 The MV framework is the foundation of the Sharpe (1964)-Lintner (1965) capital asset pricing model (CAPM), which is a cornerstone of modern finance. Moreover, the MV framework provides a very important practical procedure for the construction of efficient portfolios. While standard economic theory and, in particular, MV analysis assume expected utility maximization and risk aversion, in a breakthrough article Kahneman and Tversky (1979) show that the actual behavior of individuals systematically and consistently violates these

Computing Productivity: Firm-Level Evidence

We explore the effect of computerization on productivity and output growth using data from 527 large US firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using one year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to five times greater over long periods (using five to seven year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s.

Inside the 'Accrual Anomaly'

Sloan (1996) and a number of subsequent studies present evidence that a trading strategy based on publicly available accounting accruals earns abnormal returns of approximately 10% in the year following its initiation. This empirical regularity has been named the 'accrual anomaly'. In this paper I investigate the accrual anomaly along two dimensions. First, I evaluate whether the accrual anomaly is related to other anomalies documented in the finance literature. Second, I investigate whether different methods for calculating long-term abnormal returns have an effect on the returns to the accrual strategy. My results indicate that both mergers and divestitures have an effect on the returns generated by the accrual strategy. After excluding observations associated with either mergers or divestitures, there is a decrease of about 25% in the strategy's returns. Second, different calculation methods for benchmark portfolio returns do not have a material effect on the returns of the accrual strategy. Third, when book-to- market is added to size as a second control for normal returns, returns to the accrual strategy decrease by approximately 20%. Fourth, the accrual strategy's returns are much larger in a sample of Nasdaq firms. Overall, I conclude that the accrual anomaly is sensitive to the series of tests conducted in this study, although a substantial portion of it remains unexplained.

Simultaneous observations of optical and electrical signals in altitude‐triggered negative lightning flashes

This paper presents an analysis of the experimental data on five negative lightning flashes initiated using the altitude‐triggering technique in China. The data include highly time‐resolved optical images and electric fields measured 60 m and 1300 m from the lightning channel. The triggering technique involves the launching upward of a small rocket trailing a wire electrically floating. The data show that these 5 flashes have a similar chronological sequence of events, including a bidirectional leader system followed by a mini‐return stroke and a bidirectional discharge process. The bidirectional leader system consists of an upward positive leader initiated from the top of the wire and a downward negative stepped leader from the bottom, with the onset of the former prior to the latter by 3 to 8.3 ms. The downward negative stepped leader, having a step interval of 12–30 μs, appears to pause and resume several times while the upward positive leader extends forward continuously. With the downward negative stepped leader close to ground, a mini‐return stroke occurs between the ground and the bottom of the wire. The mini‐return stroke propagates upward with a speed of 1–2 × 108 m/s and emits intense light signals similar to a normal return stroke below the bottom of the wire. It becomes invisible after entering the bottom of the wire and appears again as a bright upward discharge from the top of the wire several microseconds later. This upper bright discharge ceases after propagating forward several hundred meters at a speed of 1.5–5.4 × 107 m/s. The cessation of the upper bright discharge is obviously associated with the disintegration of the wire at that moment. Right after the cessation of the upper bright discharge, a bidirectional discharge process starts from the bottom of the wire with its positively charged part having an upward speed of 3–10 × 105 m/s and its negatively charged part a downward speed of 2–2.6 × 105 m/s. Reflection of current waves at the bottom of the wire due to the explosion of the wire at that moment may be a major reason for the occurrence of this lower bidirectional discharge.

Gestão Descentralizada de Carteiras

Analisamos o problema de gerência de carteiras descentralizada em um modelo de média-variância. Encontramos a solução para a alocação de carteira ótima para um gerente geral em n diferentes mercados, o qual chamamos de carteira ótima centralizada. Entretanto, quando a alocação é feita de forma descentralizada, como existem muitos operadores especializados em diferentes mercados, a solução para o problema da alocação do portfolio ótimo descentralizado poderá ser diferente do caso centralizado. Neste trabalho, derivamos condições para que se estabeleçam soluções equivalentes. Usamos a hipótese de retorno normal multivariado e uma função exponencial negativa para resolver os problemas analiticamente. Geramos a equivalência de soluções pela suposição de que diferentes operadores lidam com diferentes taxas de juros para captação e empréstimo. Essa taxa de juros depende da razão entre os graus de aversão ao risco do operador e do gerente geral, do excesso de retorno e da correlação entre retornos de ativos.

Hedge Funds: An Alternative Test of Manager Skill

Most studies of hedge funds have reported high returns, on average, over the past 5-10 years. Much consideration is now being given to whether these historical returns are a good representation of the true long-run return to hedge funds. This research is limited by the relatively short history of reliable data and the reliance on classical statistical tests that rely, in turn, on the assumption of normal returns and linear parameters. This paper develops an alternative test for hedge fund skill that addresses these shortcomings. I set up a multi-factor generalized method of moments (GMM) test and then introduce information to condition this test for the possibility that betas rise in bear market conditions. The test confirms the presence of a significant long-run hedge fund manager skill premium which, for most strategies, is robust to underlying market conditions.

The Riskier the Assets, the Riskier the Portfolios: Pitfalls and Misinterpretations

As the dependence structure (i.e. the copula) among the assets is fixed, one might think that the riskier the assets, the riskier the portfolio. Surprisingly enough, this conjecture turns out to be false even for coherent risk measures and normal returns. We show that two conditions are able to preserve risk ordering under the portfolio: Convexity for the risk measure and conditional increasingness for the copula. Eventually, conditional increasingness is checked for the most popular families of copulas used in financial modelling and actuarial sciences.

News Arrival, Jump Dynamics and Volatility Components for Individual Stock Returns

This paper models different components of the return distribution which are assumed to be directed by a latent news process. The conditional variance of returns is a combination of jumps and smoothly changing components. This mixture captures occasional large changes in price, due to the impact of news innovations such as earnings surprises, as well as smoother changes in prices which can result from liquidity trading or strategic trading as information disseminates. Unlike typical SV-jump models, previous realizations of both jump and normal innovations can feedback asymmetrically into expected volatility. This is a new source of asymmetry (in addition to good versus bad news) that improves forecasts of volatility particularly after large moves such as the '87 crash. A heterogeneous Poisson process governs the likelihood of jumps and is summarized by a time-varying conditional intensity parameter. The model is applied to returns from individual companies and three indices. We provide empirical evidence of the impact and feedback effects of jump versus normal return innovations, contemporaneous and lagged leverage effects, the time-series dynamics of jump clustering, and the importance of modeling the dynamics of jumps around high volatility episodes.