Price Announcements Research Articles

Ákvörðun skiptaverðs í skiptiútboði Íbúðalánasjóðs

Í lok júní árið 2004 bauð Íbúðalánasjóður eigendum hús‐ og húsnæðisbréfa að skipta þeim út fyrir ný skuldabréf, svokölluð íbúðabréf. Deutsche Bank London AG var aðalráðgjafi sjóðsins við skiptiútboðið og ráðlagði sjóðnum meðal annars um ákvörðun skiptaverðsins. Skiptaverð hús‐ og húsnæðisbréfa í útboðinu átti að ákvarðast af ávöxtunarkröfu þeirra á markaði og ávöxtunarkrafa íbúðabréfanna átti að ákvarðast af ávöxtunarkröfu húsnæðisbréfa með sérstöku frádragi þannig að skiptaverð þeirra væri hærra en húsnæðisbréfanna. Skiptaverðið í útboðinu var ekki í samræmi við þessar fyrirætlanir Íbúðalánasjóðs; verð húsbréfanna var of hátt og íbúðabréfanna of lágt. Sjóðurinn keypti því útistandandi bréf á of háu verði og seldi nýju skuldabréfin á of lágu verði. Með því að endurskapa skiptaverðið sem Íbúðalánasjóður bauð í útboðinu eru færð rök fyrir því að sjóðurinn eða ráðgjafar hans hafi gert mistök við ákvörðun sína sem fólust í fjórum villum. Þrjár þeirra höfðu lítil sem engin áhrif á endanleg skiptihlutföll í útboðinu en ein þeirra hafði talsverð áhrif og kostaði sjóðinn um 1,5 milljarða kr. á verðlagi ársins 2004. Sú villa fólst í því að bera saman ávöxtunarkröfu tveggja skuldabréfa sem reiknuð var miðað við mismunandi vaxtaform; ávöxtunarkrafa húsnæðisbréfa var reiknuð miðað við árlega vaxtavexti en ávöxtunarkrafa íbúðabréfa miðað við hálfsárslega vaxtavexti. Mistökin má hugsanlega rekja til þess að mismunandi venjur eru varðandi framsetningu ávöxtunarkröfu skuldabréfa á íslenskum skuldabréfamarkaði annars vegar og sumum evrópskum mörkuðum hins vegar.

An Assessment of Wheat Procurement Issues in Jafferabad District of Balochistan

Exploitation of farmers’ profit margins by middlemen is well documented and reported by various studies. In this regard, public sector initiated support price and procurement policies especially for wheat. Presently, Pakistan Agricultural Storage and Services Corporation (PASSCO) is a key procurement agency in Pakistan. It has been reported that in certain cases, PASSCO do not reach directly to farmers for the purchase of wheat. Hence, the role of middlemen in procurement of wheat is once again emerging and leaving low profit margins for the farmers. In this regard, this study aimed to assess wheat procurement issues in Jaffarabad district of Balochistan. Quite a large majority of the respondents were aware about seed dealers (69.4%), whole sellers (66.6%) and commission agents (62.5%). On the other hand, majority (55.5%) of the respondents were not aware about procurement centers of PASSCO. Price variation by various wheat procurement agencies was observed from Rs. 22.50kg-1 offered by seed dealer to Rs. 31.25 kg-1 offered by PASSCO. One fourth (25.0%) of the respondents opted “lack availability of gunny bags” as one of the top most problem in selling wheat while 20.8% respondents reported for timely availability (especially during harvesting season) of gunny bags as a serious problem. Lack of coordination was reported by 13.8% while the same proportion of the respondents was of the opinion “delay in announcement of the support price” is one of the most important issues. Majority (94.44%) of the farmers suggested that the transport facilities should be provided to farming community for transport of their wheat from farm to market.

The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communication are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.

Willingness to Pay for Green Buildings - Empirical Evidence from Switzerland

The demand for green buildings and to what extent firms accept to pay a premium price compared to conventional buildings is a lively debate and highly relevant for investors and policy makers. Policy instruments like the Swiss CO2-enactment and the Swiss Building Program encourage and incentivize investments in energy efficient properties. Based on a corporate real estate survey, I investigate the premium percentage price firms are willing to pay for green buildings. I distinguish between the decisions to lease, purchase, or retrofit a property. On average, I find that Swiss corporations are willing to pay a premium price of 3.0% for leasing, 4.75% for purchasing, and 5.0% for retrofitting. Using censored regression analysis I find that, depending on firm characteristics, the announced premium price ranges from 1.3 to 7.9 percent compared to conventional properties. My results indicate that firms from the building and financial service industries, as well as public corporations and authorities signal the highest willingness to pay.

Comparative Analysis of Organic and Inorganic Food

Increased use of chemicals, under intensive cultivation has disturbed the harmony existing among soil, plants and animals and human health. The extensive use of chemicals and antibiotics in inorganic food production technology has compelled the health conscious people to explore and support organic farming. The study reveals the fact that the food produced using organic methods taste better and contains a better balance of vitamins and minerals than inorganically grown food. The eating of organic food considerably reduces the heart attacks, strokes, cancer, bowel cancer, and many other diseases. Hence, importance of organic farming has increased due to its environmental friendly methods and growing consumer awareness of food safety. The role of the Government is critical in motivating the farmers switching over from inorganic farming system to organic farming system where organic farming is economically viable in the country. Besides, the government has to take appropriate measures like the separate market for organic products; announcement of support price, creation of demand by more awareness programmes, subsidy for organic inputs producers, subsidies for encouraging organic farmers; certification of farms and increase in investment on research and development activities in organic farming practices.

Investors' Opinion Divergence and the REIT Post-Repurchase Announcement Price Drift

Executive Summary. This study examines whether the divergence of opinions among investors is a significant determinant of the real estate investment trust (REIT) post-repurchase announcement price drift. We find that change in trading turnover, a proxy for divergence of investors' opinions, is negatively related to the REIT post-repurchase announcement returns. Alternative measures of opinion divergence such as change in risk and earnings surprises are not associated with the REIT long-term return anomaly. We also find that the signaling-delayed reaction and overreaction hypotheses cannot explain the REIT post-repurchase return price drift. In short, our results suggest that divergence of opinions among investors can help explain the REIT postrepurchase announcement returns.

Evaluation of the Stock Price Announcement Effect of Seasoned Equity Offerings

The finance literature documents substantial negative stock price reaction to Seasoned Equity Offerings (SEO). Most studies on SEOs focus on the average negative reaction; however, about thirty to forty per cent of the firms actually experience positive abnormal returns at announcement. This paper tries to find firm specific factors that may explain the apparent heterogeneity in the stock price reaction to SEOs. We find that the firms with observed positive market reaction tend to have higher price run-up before the announcement, suggesting that investors may have higher expectations for the growth potential of the companies and hence the SEO may be viewed as an effort to raise the funds for the growth needs. We also find that these firms have high debt ratios, suggesting that the purpose of the SEO may be to reduce debt and optimize the capital structure, rather than taking advantage of the information asymmetry by issuing additional shares when the management believes the shares are overvalued.

Influence of discount price announcements on consumer's behavior

The theoretical framework that underpins this research study is based on the Prospect Theory formulated by Kahneman and Tversky, and Thaler's Mental Accounting Theory. The research aims to evaluate the consumers' behavior when different patterns of discount are offered (in percentage and absolute value and for larger and smaller discounts). Two experiments were conducted to explore these patterns of behavior and the results that were obtained supported the view that the framing effect was a common occurrence. The patterns of choice of individuals in a sample were found to be different due to changes in the ways discounts were offered. This can be explained by the various ways of presenting discount rates that had an impact on the influence of purchase intentions, recommendations and quality perception.

Do sell-side analysts exhibit differential target price forecasting ability?

We examine the overall and individual analyst performance of 12-month-ahead target price forecasts over the 10 years from 2000 through 2009. Implied target price-based returns exceed actual returns by an average of 15 %, and absolute target price forecast errors average 45 %. At the end of the 12-month forecast horizon, only 38 % of target prices are met, but 64 % are met at some time during the forecast horizon. We find statistically significant but economically weak evidence of persistent differential abilities by sell-side analysts to forecast target prices. Target price announcement period return analyses indicate no differential market reactions to analysts’ target price revisions conditional on their recent target price forecast performance. This finding is consistent with the market understanding that analysts have, at best, limited abilities to persistently provide accurate target price forecasts.

A Game Theoretic Framework for Bandwidth Allocation and Pricing in Federated Wireless Networks

With the proliferation of IEEE 802.11 wireless local area networks, large numbers of wireless access points have been deployed, and it is often the case that a user can detect several access points simultaneously in dense metropolitan areas. Most owners, however, encrypt their networks to prevent the public from accessing them due to the increased traffic and security risk. In this work, we use pricing as an incentive mechanism to motivate the owners to share their networks with the public, while at the same time satisfying users' service demand. Specifically, we propose a “federated network” concept, in which radio resources of various wireless local area networks are managed together. Our algorithm identifies two candidate access points with the lowest price being offered (if available) to each user. We then model the price announcements of access points as a game, and characterize the Nash Equilibrium of the system. The efficiency of the Nash Equilibrium solution is evaluated via simulation studies as well.

Stock Price Effects of Mandatory Exchangeable Debt

We study mandatory exchangeable debt offerings. A firm that issues mandatory exchangeable debt requires bondholders to exchange their bonds for shares of the underlying firm in which the issuing firm has a stake. We find significant announcement (−3.3%) and long-run (−13%) abnormal price declines for underlying companies. The evidence is consistent with the hypothesis that mandatory exchangeable debt issuers exploit private information that they possess to issue mandatory exchangeable debt when the underlying stock is overvalued.

A stackelberg game approach to distributed spectrum management

We consider a cognitive radio system with one primary (licensed) user and multiple secondary (unlicensed) users. Given the interference temperature constraint, the secondary users compete for the available spectrum to fulfill their own communication need. Borrowing the concept of price from market theory, we develop a decentralized Stackelberg game formulation for power allocation. In this scheme, the primary user (leader) announces prices for the available tones such that a system utility is maximized. Using the announced prices, secondary users (followers) compete for the available bandwidth to maximize their own utilities. We show that this Stackelberg game is polynomial time solvable under certain channel conditions. When the individual power constraints of secondary users are inactive (due to strict interference temperature constraint), the proposed distributed power control method is decomposable across the tones and unlike normal water-filling it respects the interference temperature constraints of the primary user. When individual power constraints are active, we propose a distributed approach that solves the problem under an aggregate interference temperature constraint. Moreover, we propose a dual decomposition based power control method and show that it solves the Stackelberg game asymptotically when the number of tones becomes large.

Inventory model for items with imperfect quality under announced price increases

Previous research for determining ordering policies in response to known announced price increases assumed that the items received were of perfect quality. However, in practice, the above assumption may not be true because the manufacturer’s production process quality is often not perfect. Therefore, the study develops a new model in response to an announced price increase, in which defectives could be screened out using a 100% inspection process and have different holding costs compared with the good items. Three situations, where the announced price increases become effective at any future specified time, occur for the optimal ordering strategies in which there is no need to calculate the new economic order quantity (EOQ) associated with the revised price. The study further develops a simple algorithm to determine a special order lot size and cost savings. In addition, an alternative method, called a critical price-increase index value, was developed to help determine whether to employ a special order or not. Finally, a numerical example to illustrate the proposed model and algorithm was provided. Key words: Ordering strategies, price increases, imperfect quality, inventory.

The Impact of Analyst Industry Expertise on Market Prices

Security analysts are often considered experts in the industries they follow. We analyze the impact of such expertise on market prices and returns in a setting where firms’ earnings components may differ in their levels of persistence over time. In this context we show that a firm’s post-earnings announcement price is a function of the analyst’s prior earnings forecast even though that forecast does not contain any incremental information about current period earnings. This is because the forecast provides information about the firm’s individual earnings components, which is useful in predicting its future earnings. We demonstrate how this result can serve as a theoretical underpinning for the observed market premium earned by firms that meet or beat consensus analyst forecasts and how it can explain the premium’s empirical link to future earnings performance. This result also provides a rational justification for the practice of expectations management. We derive the optimal expectations management strategy in our setting and compare its effectiveness to that of earnings management.

Firm Size, Capital Structure And Earnings Announcement Price Response

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The existence of firm size effects is well documented in the accounting and finance literatures. One stream of this research interprets firm size as a proxy for the amount of information available about the firm. This paper extends prior work in this area and demonstrates that the significance of the size effect is increased substantially by considering information demands of both debt and equity investors. A size proxy that includes the book value of outstanding debt is more highly associated with returns surrounding annual and quarterly earnings announcements than a measure based solely on the market value of common equity.</span></span></p>

A Test of IPO Theories Using Reverse Mergers

Reverse mergers are an alternative method to IPOs for going public and announcement day price reaction to reverse mergers is comparable to the initial day price reaction to IPOs. Most of the academic theories developed thus far to explain the market’s reaction to IPOs, however, are not applicable to reverse mergers. Using reverse mergers as an out-of-sample test on these IPO theories suggests most of them are invalid.

Relative valuation and analyst target price forecasts

We document that within industry relative valuations implicit in analyst target prices do provide investors with valuable information although the implied absolute valuations themselves are much less informative. Importantly, our findings are not merely a small stock phenomenon but apply to the sample of S&P 500 stocks and do not rely on trading at the exact time of announcement. Using a large database of target price announcements from 1997 to 2004, we construct a simple strategy based on target price implied relative valuations and show that the resulting abnormal return is both economically and statistically significant and not easily explained by transaction costs alone.

Coordination of Outsourced Operations to Minimize Weighted Flow Time and Capacity Booking Costs

A set of manufacturers outsources certain operations to a single third party following the announcement of a booking price for each available day of production. Knowing these costs, manufacturers book available production days in a first-come-first-serve order to optimize their individual cost. The cost for each manufacturer consists of booking and work-in-progress costs, as expressed by the weighted flow time. When window booking is completed, the third party identifies a schedule that minimizes the total cost incurred by all manufacturers. This coordination reduces the total cost but may result in higher costs for a subset of manufacturers. For this reason, the third party devises a savings sharing scheme with which the monetary benefit for each manufacturer is greater. In this article we present algorithms for the problem considered, as well as savings-sharing schemes that make coordination a better alternative for all parties. The highlight of our experiments is that the costs of the production chain can be reduced by an average of 32% if one-third of the members let the third party cover their increased work-in-progress cost in exchange for 38%–53% of the total savings.

Investor Equity Private Placement Value Misconceptions: Real and Imagined Operating Flow Determinants

We examine the equity private placement pre- and post-announcement relationship between stock market and operating performance, and how this is impacted by the issuing company’s characteristics. Outside public investors mainly misconstrue the information available at the announcement date, contributing to an unsound announcement price overvaluation. Almost all characteristics related to announcement date abnormal stock returns differ from those related to post-issue stock and operating performance. Results are consistent with outside investors being over-optimistic, using unsound naïve valuation models prior to and at the announcement of equity private placements, and losing wealth thereafter. Alternatively, private investors’ decision to invest in private placements is rational, results in reasonable returns on their investments, and is consistent with providing needed resources for the companies so that they can maintain competitive operating performance levels. <b>TOPICS:</b>Private equity, performance measurement, analysis of individual factors/risk premia, statistical methods

Capital Gains Taxes and the Market Response to Public Announcements in Alternative Tax Regimes

In this paper we investigate the market price and trading volume response to a public announcement in two alternative capital gains tax regimes. The first regime applies a concessional tax rate to long-term gains and losses (the U.S.-style setting). The second regime provides concessional tax treatment via indexation of the cost base (the indexation regime). Our analysis indicates that in both regimes prices will be more responsive to a public signal than when no capital gains tax concessions are present. Moreover, the 'over responsiveness' induces negative correlation between short-term price changes around the public announcement and subsequent long-term price movements. In the U.S.-style setting this effect is greater the larger the differential between tax rates applied to long-term and short-term gains and losses. In the indexation regime the effect is greater when anticipated inflation is higher. Regarding trading volume, the two tax settings generate different effects. In the U.S.-style setting volume is decreasing in price changes around the announcement due to the inhibiting effect of traders wishing to avoid realizing short-term gains. In contrast, in the indexation setting volume is increasing in price change as higher prices provide greater anticipated (indexed) tax shields for the future.