Total Asset Value Research Articles

Building depreciation and sustainable development

Sustainable development is a hot topic, but is mostly referred to environmental protection, although it encompasses environmental, social and economic developments as defined by the United Nations. Worse still, the impacts of building maintenance on sustainable (economic) development are almost totally ignored. This paper aims to carry out the first sensitivity analysis of the impacts of housing depreciation on sustainable development in Hong Kong. The analysis is based on an empirical result of the housing depreciation rate and an estimation of the ageing trend of housing in Hong Kong. The results highlight the utmost importance of building maintenance on achieving sustainable development. It does not only reduce construction waste, but it also enhances the total asset value of the city. For example, the analysis shows that a 10 per cent reduction of housing depreciation would yield about 14 per cent increase in gross domestic product (GDP) in a decade, but it just costs about 2.3 per cent of GDP.

How Household Portfolios Evolve after Retirement: The Effect of Aging and Health Shocks

In this paper, we study how the portfolios of elderly U.S. households evolve after retirement, using data from the Health and Retirement Study (HRS). In particular, we investigate the influence of aging and health shocks on a household%u2019s ownership of various assets and on the dollar value and share of total assets held in each asset class. We find that households decrease their ownership of most asset classes as they age, with the strongest evidence for principal residences and vehicles, while increasing the share of assets held in bank accounts and CDs. Consistent with prior studies, we find that the death of a spouse is a strong predictor of selling the principal residence. However, we find that widowhood also leads households to sell vehicles, businesses, and real estate and to put money into bank accounts and CDs, and further that other health shocks have very similar impacts. Finally, we explore why health shocks affect asset holdings and find that the effect of a shock is greatly magnified when households have physical or mental impairments. This suggests that factors other than standard risk and return considerations may weigh heavily in many older households%u2019 portfolio decisions.

EXECUTIVE STOCK OPTIONS: A FIRM VALUE APPROACH

Executive stock options are an important component of executive compensation and the topic is of interest to both practitioners and academics. The vigorous debate on whether these options should be treated as an expense is subsiding but discussion continues on how these instruments should be valued in order to expense them. In this paper, executive stock options are viewed as contingent claims on a firm's assets and we formalize this through the concept of an augmented balance sheet. This means that the total market value of the firm's assets is equal to the market value of its traded securities plus the market value of its stock options. This approach leads to two valuation formulae for these options: one in terms of the firm's stock price and the other in terms of firm value. We explore the connections between these two approaches and derive explicit valuation formulae under certain assumptions.

An Analysis of Credit Scoring for Agricultural Loans in Thailand

Loan contract performance determines the profitability and stability of the financial institutions and screening the loan applications is a key process in minimizing credit risk. Before making any credit decisions, credit analysis (the assessment of the financial history and financial backgrounds of the borrowers) should be completed as part of the screening process. A good credit risk assessment assists financial institutions on loan pricing, determining amount of credit, credit risk management, reduction of default risk and increase in debt repayment. The purpose of this study is to estimate a credit scoring model for the agricultural loans in Thailand. The logistic regression and Artificial Neural Networks (ANN) are used to construct the credit scoring models and to predict the borrower’s creditworthiness and default risk. The results of the logistic regression confirm the importance of total asset value, capital turnover ratio (efficiency) and the duration of a bank - borrower relationship as important factors in determining the creditworthiness of the borrowers. The results also show that a higher value of assets implies a higher credit worthiness and a higher probability of a good loan. However, the negative signs found on both capital turnover ratio and the duration of bank-borrower relationship, which contradict with the hypothesized signs, suggest that the borrower who has a long relationship with the bank and who has a higher gross income to total assets has a higher probability to default on debt repayment.

Framework for Inspection, Maintenance, and Replacement of Corrugated Steel Culvert Pipes

A framework for inspection, rehabilitation, and replacement of corrugated steel culvert pipes (CSCP) is developed. It is expected to lead to developing a culvert information management system (CIMS), wherein justification and need are based on recent Governmental Accounting Standards Board (GASB) requirements. The CIMS will assist in evaluating infrastructure assets and facilitate comparing present costs of preserving infrastructure. Benefits include long-term savings from adopting optimized preventive maintenance strategies. CSCP condition states are used to express the extent of deterioration. Rehabilitation options and recommendations are given for deteriorated CSCPs. These options will be incorporated into the proposed CIMS, which uses survival probabilities based on the CSCP condition state during the previous year. Survival probabilities within Condition States 1, 2, and 3 are computed on the basis of corrosion research data. However, implementing the proposed CIMS requires field data for CSCPs or laboratory tests that mimic field conditions. The proposed CIMS can analyze decisions to inspect, rehabilitate and replace, or do nothing at both project and network levels. At the project level, inspection or rehabilitation and replacement costs are compared with failure risks and costs. At the network level, associated costs are optimized to meet the annual maintenance budget by prioritizing CSCPs needing inspection and rehabilitation and replacement. The proposed CIMS can also be used to estimate the required annual budgetary allocation for a stipulated planning horizon and to maintain or improve the aggregate condition state of the CSCP network or to maintain or improve the total highway CSCP network asset value, thereby meeting GASB 34 requirements. The optimum sequential path in the annual decision-making process may then be determined using a combination of operations research tools.

The valuation of intangibles for hotel investments

Reviews the literature on the valuation of intangibles for hotel investments. Contrary to the sceptical outlook portrayed in the literature, demonstrates the effectiveness of ex‐post models and hedonic pricing models (HPM) as an objective and robust tool in separating and measuring intangible hotel property and decomposing total asset value. Develops two HPM models using data on 50 hotel properties appraised in 1997. All hotels are owned and managed by the same hotel company and affiliated with the same brand. Some 58 per cent of the properties are freeholds and the rest are leaseholds. Estimates the hedonic price equations by regressing appraised values on physical, location and economic characteristics of the properties. Results confirm the effectiveness of HPM and in fact its relative superiority to traditional ex‐ante modelling in measuring and decomposing intangible property. As expected at the outset, comparable‐leases and excess‐profits‐based models produced similar results.

Calibrating the CreditMetrics™ correlation concept — Empirical evidence from Germany

This paper deals with the problems associated with empirically calibrating the CreditMetricsTM correlation concept for a portfolio of loans to medium-sized, non-listed German firms. Using this framework to determine the probabilities of joint default events, requires an estimation of the portion of the obligors' asset return volatility that is firm-specific (idiosyncratic). We analyze if and how the solution to this estimation problem offered in CreditManagerTM, which basically relates the weight of the idiosyncratic component to company size, can be adapted to meet the needs of our application. Using a random sample of 250 German stocks, we show that there is indeed a significant positive relationship between R-squared and market capitalization (book value of total assets). However, this relationship appears to hold only for stocks with considerable index weights. For "smaller" firms, both size proxies perform very poorly. We also test the explanatory power of four different versions of the CreditMetricsTM index model to predict asset correlations. While the use of the book value of total assets as a proxy for size does not contribute to explaining obligors' pairwise asset correlations beyond the correlations of their corresponding CDAX(R) industry indices at all, the use of market capitalization does - but only with respect to "bigger" companies.

THE SQUARED ORNSTEIN‐UHLENBECK MARKET

We study a complete market containing J assets, each asset contributing to the production of a single commodity at a rate that is a solution to the squared Ornstein‐Uhlenbeck (Cox‐Ingersoll‐Ross) SDE. The assets are owned by K agents with CRRA utility functions, who follow feasible consumption/investment regimes so as to maximize their expected time‐additive utility from consumption. We compute the equilibrium for this economy and determine the state‐price density process from market clearing. Reducing to a single (representative) agent, and exploiting the relation between the squared‐OU and squared‐Bessel SDEs, we obtain closed‐form expressions for the values of bonds, assets, and options on the total asset value. Typical model parameters are estimated by fitting bond price data, and we use these parameters to price the assets and options numerically. Implications for the total asset price itself as a diffusion are discussed. We also estimate implied volatility surfaces for options and bond yields.

Computation of feasible portfolio controlstrategies for an insurance company using a discrete time asset/liability model

A nonlinear discrete time asset/liability model is developed for an insurance company selling investment policies with a guaranteed minimum rate of return and a fixed maturity date. The model accommodates time-dependent investment strategies and transaction costs. At time instants where portfolio rebalancing takes place, the model implements a constraint equation dictating that the total value of assets sold must be equal to the total value of assets purchased plus the total transaction costs. Asset transactions are thus self-financing and no additional cash is required. A procedure is proposed for computing time-dependent portfolio control strategies and the initial shareholders capital, such that given nonlinear financial constraints and requirements are satisfied. Such control strategies are called feasible portfolio control strategies.

The fixed payment financing decision

AbstractWe first investigate the factors influencing the industrial firm's decision to use fixed payment financing or regular debt plus leasing. We find that the level of fixed financing is positively related to the portion of fixed assets in the firm and negatively related to profitability, risk, and the levels of both advertising and R&D expenditures. We then focus on the more interesting issue of why firms lease instead of use regular borrowing. Using additional variables along with the residuals from the initial regression, the firm's tax position, agency costs, and bankruptcy costs, and asymmetric information are significant factors in predicting leasing levels as others have found. We also find that firms that use more fixed form financing than predicted also use lower portions of leasing. This is consistent with leasing and regular debt being substitutes. In quartile splits on total leverage, firms with high levels of regular debt also have higher levels of leasing, which is consistent with Ang and Peterson's [J. Finance 39 (1984) 1055.] earlier empirical study on lease financing levels. Our results are robust regardless of how leasing is measured. We consider operating leases, capital leases, and all leases. For regular debt, we considered both all debt and funded debt. These values are scaled by the market value of total assets.

Agro-socioeconomic profile of adopters and non-adopters of drainage technology in Dankuni basin of West Bengal

A sample survey consisting of eight farm households each of adoption and non-adoption of drainage and alternative technology was conducted in the Serampore block of Dankuni basin in West Bengal during 1999 for a comparative economic evaluation. The results show that the adopting farm households have better place in terms of average size of family, education status and operational holdings as compared to the non-adopting counterparts. The value of total assets for agricultural operation is also higher for the adopting farms. The medium landowners by virtue of their forward looking attitude and willingness to adopt sub-surface drainage technology were able to extract potential benefits from crops., Unsuitability of most of the low land for cultivation due to acute drainage problem is observed in both categories of farms.

The Introduced Butterfly Peacock (Cichla ocellaris) in Florida. IV. Socioeconomic Analyses

Results of two 12-month creel surveys were used to estimate fishing effort, success, and the economic value of canal fisheries in the metropolitan Miami area. The total asset value for these sportfisheries was estimated at $15.5 million annually, most of which was contributed by anglers fishing for butterfly peacock (Cichla ocellaris) and largemouth bass (Micropterus salmoides). The butterfly peacock received 56% more fishing effort than largemouth bass, and their estimated annual asset value was $6.6 million ($12,450/km). Angler catch rates for largemouth bass (0.30 and 0.41 fish/h) and butterfly peacock (0.64 and 0.85 fish/h) confirmed good fisheries for both species exist in these canals. These data indicate that on a surface area basis, canal fisheries in southeast Florida are some of the most socioeconomically important fisheries in the state.

The relationship between variability, distance from target, and firm size: A test of prospect theory in the commercial banking industry

This study analyzes accounting rates of return and capital ratios and the variability of these measures for 142 U.S. commercial banks over the period 1970 through 1989. Fishburn's measure of risk and Kahneman and Tversky's prospect theory are tested in this context. This study contributes to the existing literature (1) by testing for a relationship between outcome variability, distance from target, and firm size, and (2) by examining alternative target mechanisms in the commercial banking industry. Time series medians of return on assets ( MEROA), return on equity ( MEROE), and primary capital ratio ( MEPCR) form the basis of the study. Cross-sectional medians of these values ( MEDMROA, MEDMROE, and MEDMPCR) are used as target outcomes. Distance from target is defined as the difference between individual bank median and target outcome ( MEROA — MEDMROA), ( MEROE- MEDMROE), and ( MEPCR — MEDMPCR)). Firm size for each bank is measured by the natural logarithm of (time series) median total asset value. In a series of cross-sectional regressions, standard deviation of individual bank measures is the dependent variable and distance from target and firm size are the independent variables. Both above and below target, firm size is not consistently related to outcome variability. Below target, the results confirm Fishburn's measure of risk and prospect theory. The evidence further suggests that rates of return may be the operative target outcomes. Above target, the results are not as strong and there is less consistency with prospect theory predictions.

Direct Bankruptcy Costs: Evidence from the Trucking Industry

AbstractDirect costs of bankruptcy are measured for a sample of firms in the trucking industry that petitioned for bankruptcy protection from 1970 to 1985. Average direct bankruptcy costs represent 9.12 percent of the book value of total assets as of the year before filing. These costs are large compared with those reported in prior studies: 3.39 percent of book value of assets for retail firms, 4.31 percent for industrials, and .53 percent for railroads. We also find evidence of substantial economies of scale in bankruptcy costs in the trucking sample.

TAX‐TIMING OPTIONS, LEVERAGE, AND THE CHOICE OF CORPORATE FORM

AbstractThe tax‐timing options associated with opportunities to trade corporate securities are examined. The availability of such options to both the firm and its securityholders is shown to create incentives for, and thereby to add to the possible explanation of, three empirically observed financial phenomena: (1) the existence of complex corporate capital structures; (2) the presence of debt in those capital structures; and (3) corporate spin‐offs as vehicles to increase the total market value of a firm's assets. A set of symmetrical arguments also offers a reason to expect at least one negative effect on shareholder wealth from mergers of publicly traded companies.

Protection from whom?

Once a debtor becomes financially distressed, conflict among creditors can occur, leading to an inefficient liquidation of the debtor. We argue that bankruptcy law is intended to protect creditors from one another. In the absence of a bankruptcy system, creditors generally find individual debt-collection remedies privately optimal, even though a coordinated liquidation would increase the total value of the firm's assets that could be distributed to the creditors as a group.

From Light to Inspissated Gloom

This paper tries to explain why the unit trust industry of the United Kingdom has experienced massive fluctuations in its growth rate and a low penetration of the market. After 20 years it has retained only about one million unit holders, and in total value of assets is barely 75 per cent of the size of the Halifax Building Society. It is argued here that the unit trust industry is a prisoner of movements of Stock Exchange Indices, and it is questioned whether it was wise for the industry to switch from consumer-directed advertising to indirect channels of distribution. The industry's product proliferation has probably been misdirected and counter-productive, having been mesmerized by the short-term attractions of the selling concept at the expense of the marketing concept.

Westinghouse Air Brake Company Claim.

State responsibility — Claims — Nationality of — Requirement that claim must be continuously owned by national of claimant State — Claim of national company through interest in non — national company — Limitation of award to percentage of national interest in non — national company.181State responsibility — Claims — In general — Valuation of property — Shares — Valuation by reference to total value of assets of company — Use of balance sheet valuations — Conversion of values from foreign currency into national currency — Rate of exchange — Appropriate date — Whether same date appropriate for fixed and current assets.

Optimizing Property Insurance Deductibles, a Theoretical Model for the Corporate Buyer

Buying insurance is the last thing a corporate risk manager should do-after he has done everything else economically feasible to eliminate hazards, minimize unavoidable destruction of assets, and budget for predictable property losses.' Fundamentally, risk managers should avoid insurance because it is an expensive way to protect assets: about half the premium goes to support the insurance company rather than to pay losses. And actual savings for firms ranging in size from a small Texas manufacturer to the Humble Oil Company show it pays to go it alone on insurance.2 Still risk managers continue to buy insurance. In purchasing insurance they are really purchasing protection, financial security possibly equal to the total insurable value of all physical assets. This is ultimate attainable security which no firm of any