Equity Sales Research Articles

Effects of environmental pro-activeness on financial performance in South Africa: short panel vector autoregressions analysis

Employing impulse response function analysis in short panel vector autoregressions, we examined the response of financial performance proxies namely return on asset, return on sale, equity returns and market value of equity deflated by sales to shocks in environmental pro-activeness, measured by energy usage intensity and emissions intensity of JSE's SRI firms for the period 2008-2014. The results showed that while financial measure, return on asset responds negative to shocks in environmental pro-activeness, measured by energy usage intensity in the first four years, the financial measure tends to respond positive to shocks in environmental pro-active measured by emissions intensity at each time responsive period. On the contrary, return on sale tends to show negative response to shocks energy usage intensity at each time responsive period, but a positive response to shocks in emissions intensity in the first 2 years and the last 2 years. Furthermore, the paper found that shocks in 'end of pipe' activities value drives equity returns only in year 1. Shocks in 'prevention' and 'end of pipe' activities seemed to show value destroying tendencies on market value of equity deflated by sale at each time responsive period.

Analysis of Distribution Channels’ Successfulness –The Case of the Retail Chains in the Republic of Serbia

Abstract The importance of distribution channels comes from the increasingly sophisticated consumer demands, producer’s focus on core competences, and the contribution of the distribution channels to achievement of goals at the national economy level. Due to the fact that intermediaries of distribution channel have the role to link producer and consumers, the results of their functioning have a direct impact on the mentioned partners in the channel. Therefore, the efficiency of the intermediaries directly affects the performance of related partners, producers and consumers. Retailers, as intermediaries in the channel, attracted great attention due to their leadership position and power, which proceed from direct communication with consumers. In this regard, the objective of the research presented in this paper is the analysis of the importance of distribution channels, from partners’ point of view, as well as from macro aspect, with special reference to the retailers, as the primary participants in the distribution channel, in the Republic of Serbia. As indicators of performance, authors use Return of Sale (ROS) and Return of Equity (ROE). By applying the regression analysis, the authors examine whether the performance and role of retail chain leaders in distribution channels depends on the size of the sales network, or the number of sales facilities. The survey shows that the largest retail chains in the Republic of Serbia are performing below the average for the retail sector, and that the size of their retail network has a significant impact on the achieved results.

The Walk-Down to Beatable Forecasts: International Evidence

We use the framework developed in Richardson et al. (2004) to identify country, firm and analyst characteristics that we expect to be associated with the prevalence of the analyst walk-down forecast pattern. Based on a large sample of 50,649 analysts covering 33,645 firms from 46 countries during 1992-2014, we find that the walk-down pattern positively correlates with country characteristics related to insider trading restrictions and equity sales. It also positively relates to the stock market reward for beating analyst forecasts, firm-level characteristics underlying management concerns with share prices after earnings announcements, and analysts’ incentives to cooperate with management. The effects of these factors on the walk-down pattern are more pronounced in countries with better media-coverage institutions. Overall, these findings suggest that capital market incentives affecting the communication between managers and analysts and the resulting analyst forecast bias involves various forces including a country’s institutional infrastructure, and firm and analyst characteristics.

The Long-Term Consequences of Short-Term Incentives

This paper studies the long-term consequences of actions induced by vesting equity, a measure of short-term concerns. Vesting equity is positively associated with the probability of a firm repurchasing shares, the amount of shares repurchased, and the probability of the firm announcing a merger or acquisition (M&A). However, it is also associated with more negative long-term returns over the 2-3 years following repurchases and 4 years following M&A. A potential driver of the negative M&A returns is subsequent goodwill impairment. These results are inconsistent with CEOs buying underpriced stock or companies to maximize long-run shareholder value, but consistent with these actions being used to boost the short-term stock price and thus equity sale proceeds. CEOs sell their own stock shortly after using company money to buy the firm’s stock, also inconsistent with repurchases being motivated by undervaluation.

Managerial Self-Interest and Strategic Repurchases: Evidence from Equity Vesting Schedules

This paper studies the strategic use and timing of share repurchases by insiders for personal gain. Using grant level compensation data and a hand-collected sample of monthly repurchases, I find a positive causal relation between CEO equity sales and share repurchases. I identify the relation using the vesting schedule of equity grants as an instrument for equity sales. This behavior is stronger when the CEO is chairman of the board but otherwise is persistent across firm characteristics. However, these repurchases do not appear to destroy shareholder value. The results indicate CEO contracts motivate the timing of share repurchases.

Fire sale discount: Evidence from the sale of minority equity stakes

Most empirical studies estimate the impact of fire sales either without the benefit of market prices from frequent trades, as with aircraft sales, or without observing transaction prices, as with the forced sales of equity securities by mutual funds facing outflows. We observe both by studying firms’ sales of minority equity stakes in publicly listed third parties. We estimate the distressed sale discount to be about 8% while controlling for liquidity and for industry, or about double the 4% estimated for equity sales by distressed mutual funds. The discount becomes 13–14% if the stake sold is more than 5% of the firm or is sold as a block. Prices recover after distressed sales.

The social network of the UK PPP secondary equity market – returns and competition in an emerging market

In recent years, the UK’s private finance initiative secondary equity market has increased in size and maturity as primary investors, principally contractors, liquidate their stakes. As an emerging unlisted market, research challenges include the availability of timely and comprehensive information about equity transactions, as well as established methods for their interpretation and comparison. Data on transactions between 1998 and 2012, collected in the European Services Strategy Unit PPP equity database, are used to map this market and analysed using network theory. Active sellers and buyers are identified providing insight on the levels of competition. Following Granovetter’s conceptualization of SNA, actors operating in the secondary equity market (buyers and sellers of SPV equity – contractors, equity funds, banks, institutional investors amongst others) are characterized in terms of out-degree centrality, increasing with the number of actors within a seller’s ego network. The ties created through equity sales are applied in the formation of the market network. The notion that out-degree centrality of sellers can improve overall financial returns is examined with data on initial equity investment and sale values. Isolating returns on equity based on capital appreciation for a sample of transactions reveals that annualized return on equity is seemingly not improved by higher out-degree centrality, when compared to average returns. A more general contribution is provided through the visualization of the network of equity transactions in this emerging market.

분리공모와 최초공모의 장기성과 비교

Corporate restructuring activity has alternative mechanisms including spin-offs, sell-offs, and equity carve-outs. Spin-offs are stock dividends based on pro rata that distribute subsidiary firm’s ownership to existing stockholders of the parent firm. A spin-off creates a stand-alone public firm which is administratively and financially independent of the parent firm. Sell-offs are sales of divisions or subsidiary firms to the third party. A sell-off allows the parent to transform illiquid divisions or assets into cash and does not entail equity offerings. Equity carve-outs are public sale of unseasoned equity offerings of the subsidiary, and the offerings generate cash for the parent through a public sale of equity. Whereas spin-offs do not raise external funds and sell-offs do not involve any public securities issuance, equity carve-outs are initial public offerings of subsidiary equity. The purpose of this paper is to compare the long-run performance of equity carve-outs relative to matching initial public offerings following the offerings in the Korean stock market. No existing empirical studies except Prezas, Tarimcilar, and Vasudevan (2000) have analyzed the comparison. Moreover, while Prezas et al. (2000) examined the comparison using holding period returns only, this study compares the long-run performance using holding period returns as well as operating performance and Tobin’s Q. The samples consist of 90 equity carve-outs and 789 initial public offering firms. The first proxy of long-run performance is stock returns. The buy-and-hold abnormal returns (BHAR) are defined as the buy-and-hold return of the ECO firms less the return of matching firms. The second proxy of long-run performance is operating performance. We follow the recommendation of Barber and Lyon (1996), who suggest that the ratio of earnings before interest, taxes, depreciation and amortization to total assets (EBITDA/TA) is an adequate proxy of operating performance. The abnormal operating performances are defined as the EBITDA/TA of the ECO firms less that of matching firms. The third proxy of long-run performance is Tobin’s Q. The abnormal Tobin’s Q is defined as the Tobin’s Q of the ECO firms less that of matching firms. The empirical results are as follows. Firstly, the buy-and-hold returns of ECO firms show underperformance during the whole post-issuance years. The results are consistent with previous studies of underperformance during the three to five years subsequent to seasoned equity offerings. The buy-and-hold returns of IPO firms also report underperformance during the three years of post-issue period, which conforms to prior empirical studies. More importantly, the differences of long-run returns between ECO firms and IPO firms are not statistically significant. Secondly, both the operating performance of ECO firms and that of IPO firms show outperformance during the whole post-issuance years. The outperformance of operating performance are not consistent with underperformance of stock returns. The inconsistency could be explained by the fact that operating performance completely depends on firm’s management decisions, while stock returns are dependent upon investors in the stock market. More importantly, the differences of long-run operating performance between ECO firms and IPO firms are not significant. Thirdly, both the Tobin’s Q of ECOs and that of IPOs report outperformance during the whole post-issuance years, and the differences of Tobin’s Q between ECO firms and IPO firms are not statistically significant.

Equity Vesting and Investment

This paper links the CEO’s concerns for the current stock price to reductions in real investment. These concerns depend on the amount of equity he intends to sell in the short-term, but actual equity sales are an endogenous decision. We use the amount of stock and options scheduled to vest in a given year as an instrument for equity sales. Such vesting is determined by equity grants made several years prior, and thus unlikely driven by current investment opportunities. An interquartile increase in instrumented equity sales is associated with a decline of 0.25% in the growth of R&D/assets, 4.6% of the average R&D/assets ratio. Vesting-induced equity sales also increase the likelihood of meeting or marginally beating analyst earnings forecasts, and are associated with higher returns to earnings announcements. More broadly, by introducing a measure of incentives that is not driven by the current contracting environment – vesting-induced equity sales – our paper suggests that CEO contracts affect real outcomes.

No-arbitrage Private Market Equity Prices and Transaction Costs: Generalized IPCPL Theory and Private Market Empirical Tests

Implied private company pricing line theory (IPCPL theory) is based on the fundamental assumption — taken from modern asset pricing theory — that no arbitrage opportunities exist between pricing of privately- and publicly-held equity. More specifically, IPCPL theory is based on the assumption that no arbitrage opportunities exist resulting from differences in equity sale transaction costs across private and public equity markets, while holding risk exposures and sensitivities constant. This study generalizes IPCPL theory to explain and predict the relationship between equity prices set under conditions where equity transaction costs differ across any market setting — including differences both within and across private and public markets — and then presents preliminary empirical evidence from private capital market data that is largely consistent with the theory.

Maintaining market principles: Government auditors, PPP equity sales and hegemony

The UK's government auditors, the National Audit Office (NAO), play a central role in the accountability relations surrounding government expenditure. Commonly portrayed as being independent, they carry out performance audits assessing value for money. To date, the emerging market for PPP equity transactions has attracted little attention. This paper explores that emerging market through a Gramscian framework utilising the concepts of ‘common sense’ and ‘good sense’, focusing on a dialogical analysis of a NAO report on the topic.In the process, the paper contributes to the debate about the nature and role of government auditors.

Homophily and Individual Performance

We study the relationship between choice homophily in instrumental relationships and individual performance in knowledge-intensive organizations. Although homophily should make it easier for people to get access to some colleagues, it may also lead to neglecting relationships with other colleagues, reducing the diversity of information people access through their network. Using data on instrumental ties between bonus-eligible employees in the equity sales and trading division of a global investment bank, we show that the relationship between an employee’s choice of similar colleagues and the employee’s performance is contingent on the position this employee occupies in the formal and informal hierarchy of the bank. More specifically, homophily is negatively associated with performance for bankers in the higher levels of the formal and informal hierarchy whereas the association is either positive or nonexistent for lower hierarchical levels.

Changes in earnings announcement tone and insider sales

The evidence from prior literature suggests that insider trading is related to firms' reported financial results and disclosure choices. I contribute to the literature by examining the association between narrative disclosure in earnings announcements and insider trading. Specifically, I hypothesize and find a positive association between changes in the optimistic tone of earnings announcements and CEOs' subsequent equity sales. In addition, I hypothesize and find that this relation is mitigated by the Sarbanes–Oxley Act and litigation risk. CEOs' financial gain from selling equity after more optimistic earnings announcements is small relative to their total compensation.

Entrepreneurs’ biographic characteristics and small enterprise growth in Bangladesh: an empirical analysis

The growth of any business enterprise depends on different factors including its entrepreneur's biographic characteristics. The present paper aims at exploring these characteristics and analyzing their effects on the growth of small enterprises in Bangladesh. The entrepreneurs (400) were selected randomly for the study using multi-stage sampling technique constitute and have been interviewed personally. Findings of the study reveal that relatively higher educated and married male entrepreneurs, having business experience of less than ten years, were significant group to enter the business. The majority of the sample entrepreneurs hailed from non-business family and had started their business at young and middle age. Results also claim that entrepreneurs’ biographic characteristics except family background and marital status play a significant role in the growth of small enterprises’ equity capital, production, employment, sales, and profit.

The Effect of Managerial Short‐Termism on Corporate Investment

We show that executives with more short-term incentives spend less on long-term investment. We examine a unique event in which hundreds of firms eliminated option vesting periods to avoid an accounting expense under FAS 123-R. This allowed executives to exercise options earlier and to profit from boosting short-term performance. Our identification exploits that FAS 123-R's timing was staggered almost randomly by firms' fiscal year ends. CEOs responded to option acceleration by cutting investment, increasing equity sales, and departing more frequently. Accelerating firms' stocks initially rose, but then underperformed over the long term. Our findings support managerial myopia theories.

Privatization through the sale of equity: Conceptual framework and achieved results in Serbia

Following the political changes in 2000, Serbia aggressively accelerated its process of economic transition, which initially started in 1990. As a key element of its transitional strategy, a new privatization model was defined in order to radically change the ownership structure of the Serbian economy. Based on characteristics of the Serbian economy in 2001, the new model stipulated the sale of socially- and state-owned enterprises through tenders, auctions, and auctions on financial markets to strategic and financial investors. As methods of privatization, tenders were used for the privatization of large, while auctions were used for the privatization of medium and small size enterprises. By analyzing the results of implementation of the new privatization model, this paper confirms a hypothesis that the method of sale was the most adequate privatization model in late transition. In addition, it also confirms that tenders were the most suitable method of privatization for large, while auctions were the most suitable method of privatization for medium- and small-size enterprises.

Do Firms Replenish Executives' Incentives after Equity Sales?

Do Firms Replenish Executives' Incentives after Equity Sales?

AAR Re-Characterizes Capital Gains from Sale of Equity Shares, Denies Exemption Under India-Mauritius Tax Treaty

Whether gains arising to the applicant on sale of shares and CCDs of Indian Company are exempt from capital gains tax in India under Article 13(4) of the India-Mauritius tax treaty. The AAR has held that the income from sale of CCDs by the applicant is taxable in India as ‘Interest’ under Section 2(28A) of the Act and Article 11 of the tax treaty. However, as far as equity shares are concerned, the AAR held that the capital gains exemption on sale of equity shares is not available under India-Mauritius tax treaty. To deny such benefit, the AAR has treated the Indian holding and subsidiary as one and the same and treated the entire transaction as sham. However, the AAR did not rule that the equity shares are to be treated as debt. Also, the AAR did not rule that equity shares should be clubbed with the debt transaction to tax it as interest. The AAR has disregarded the corporate form of an Indian subsidiary company as an independent juridical person to treat the parent and subsidiary company as one and the same. It is pertinent to note that Supreme Court in the case of Vodafone had held that the corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colorable or artificial device.

Agency Implications of Equity Market Timing

We develop a rational expectations model to examine the conflicts of interest between different groups of shareholders in firms' market timing decisions. We show that current shareholders benefit from share repurchase timing, whereas future shareholders prefer issuance timing. Using a new empirical measure that captures the additional returns to shareholders from equity sales and stock repurchases, we document that managers of large firms time the market primarily through stock repurchases and are rewarded with higher compensation when they beat the market. In contrast, managers of small firms appear to cater more to future shareholders in their market timing decisions.

Do Firms Replenish Executives' Incentives after Equity Sales?

After selling firm equity, executives' incentives to maximize shareholder value may decrease. How do boards respond? Theory shows boards can restore executives' incentives by shifting subsequent pay from cash toward equity. Unobservable firm-level changes that cause executives to sell equity and simultaneously reduce their need for incentives may bias estimates. I therefore compare selling and non-selling executives at the same firm. I find that boards replenish only 7% of incentives after sales, allowing some executives to accumulate substantially fewer incentives than others. I show that boards may instead focus on benchmarking annual equity grants to those of peer firms.