Working Paper Series in Strategic Business Valuation

2014 Working Papers   |   2015 Working Papers   |   2016 Working Papers   |   2017 Working Papers   |   All Working Papers

This working paper series presents original contributions focused on the theme of creation and measurement of value in business enterprises and organizations.

All Working Papers

Quality Signaling through Ex-Ante Voluntary Information Disclosure in Entrepreneurial Networks: Evidence from Franchising
Farhad Sadeh and Manish Kacker | 2017-03 | Download the PDF

This paper examines antecedents of ex-ante voluntary information disclosures for standardized contracts in entrepreneurial networks. Entrepreneurs (e.g., franchisors) may make such disclosures to prospective business partners in order to signal profitability of partnering, attract financial and managerial resources and develop their entrepreneurial networks. In practice, only a fraction of franchisors make financial performance representations (FPR), … Continue reading Quality Signaling through Ex-Ante Voluntary Information Disclosure in Entrepreneurial Networks: Evidence from Franchising

Does Marketing Capability matter in determining the Effectiveness of Sport Sponsorships?
Kamran Eshghi, Sourav Ray, and Hesam Shahriari | 2017-02 | Download the PDF

Despite the significant academic and corporate interest in sports sponsorships, and despite the significant financial stakes these present (sports sponsorship is almost a $15 billion business in North America alone), the literature is equivocal both on the impact as well as on the determinants of the effectiveness of these activities. While some papers report sports … Continue reading Does Marketing Capability matter in determining the Effectiveness of Sport Sponsorships?

Arbitrage Pricing Restrictions and the Predictability of Stock Returns by Statistical Factor Analysis
Ronald Balvers and Adam Stivers | 2016-04 | Download the PDF

In standard principal components estimation of the APT, the factors are obtained without employing the restrictions on mean returns implied by the APT. We modify the principal components methodology to allow mean returns to reflect the theoretical restrictions up to any level of accuracy and generate optimal constrained APT factors from the eigenvectors of a … Continue reading Arbitrage Pricing Restrictions and the Predictability of Stock Returns by Statistical Factor Analysis

The Relationship between Initial and Ongoing Fees in Franchising: A Meta-Analysis
Farhad Sadeh and Manish Kacker | 2016-03 | Download the PDF

Franchisors typically create and appropriate value through the growth of agent (franchisee) networks and extraction of economic profits (for the rights granted to franchisees) through revenue sharing contracts. Mechanisms and rationales for revenue sharing have been the subject of many theoretical and empirical studies on contracting. Franchising is a popular form of retailing in a … Continue reading The Relationship between Initial and Ongoing Fees in Franchising: A Meta-Analysis

Asset Valuation
Ronald J. Balvers | 2016-02 | Download the PDF

A survey discussing fundamental conceptual issues in valuation. Topics include differences in fundamental valuation, comparative valuation, and replacement-value based valuation; accounting approaches to valuation such as residual income as contrasted with discounted cash flows; the use of valuation ratios based on earnings, dividends, and return on investment; the roles of different types of real capital … Continue reading Asset Valuation

Fire-Sale Channel of Industry Contagion: Evidence from the Pricing of Industry Recovery Rate
Yi-Ting Hsieh, Peter Miu, Wenchien Liu, and Yuanchen Chang | 2016-01 | Download the PDF

How does bankruptcy contagion propagate among industry peers? We study the fire-sale channel of industry contagion by examining whether the cost of debt of a company is affected by the observed recovery rates of its bankrupt industry peers. Our results show that lower industry recovery rates are associated with higher loan spreads but only when … Continue reading Fire-Sale Channel of Industry Contagion: Evidence from the Pricing of Industry Recovery Rate

Discretion in Bank Loan Loss Allowance, Risk Taking, and Earnings Management
Justin Jin, Kiridaran Kanagaretnam, and Gerald J. Lobo | 2015-12 | Download the PDF

We study whether bank managers’ use their discretion in estimating the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We do so by examining whether the use of this discretion relates to bank stability and bank risk taking, or whether it relates to earnings management to meet or beat earnings benchmarks. We … Continue reading Discretion in Bank Loan Loss Allowance, Risk Taking, and Earnings Management

Determining hurdle rate and capital allocation in credit portfolio management
Peter Miu, Bogie Ozdemir, Evren Cubukgil, and Michael Giesinger | 2015-11 | Download the PDF

We examine two interrelated issues in risk-adjusted return on capital performance measurement: estimating hurdle rates and allocating capital to debt instruments in a portfolio. We consider a methodology to differentiate hurdle rates for individual debt instruments that incorporates obligor-specific information. These instrument-specific hurdle rates, which define the required compensation of the shareholders, enable a granular … Continue reading Determining hurdle rate and capital allocation in credit portfolio management

Conceptualization and Measurement of Virtuous Leadership: Doing Well by Doing Good
Gordon Wang and Rick D. Hackett | 2015-10 | Download the PDF

Despite a long history in eastern and western culture of defining leadership in terms of virtues and character, their significance for guiding leader behavior has largely been confined to the ethics literature. As such, agreement concerning the defining elements of virtuous leadership and their measurement is lacking. Drawing on both Confucian and Aristotelian concepts, we … Continue reading Conceptualization and Measurement of Virtuous Leadership: Doing Well by Doing Good

Social Capital and Bank Accounting Transparency
Justin Jin, Kiridaran Kanagaretnam, and Gerald J. Lobo | 2015-09 | Download the PDF

Using a sample of public and private banks and a county-level index for social capital, we study how social capital relates to accounting transparency. In a region with high social capital, individuals have a greater propensity to honor an obligation and there is greater mutual trust within a much denser network that deters opportunistic/self-serving actions … Continue reading Social Capital and Bank Accounting Transparency

Temperature Shocks and the Cost of Equity Capital: Implications for Climate Change Perceptions
Ronald Balvers, Ding Du, and Xiaobing Zhao | 2015-08 | Download the PDF

Financial market information can provide an objective assessment of losses anticipated from climate change. In a Merton-type asset pricing model, with asset prices affected by perceived changes in investment opportunities due to climate change, the risk premium is significantly negative, loadings for most assets are negative, and asset portfolios in more vulnerable industries have stronger … Continue reading Temperature Shocks and the Cost of Equity Capital: Implications for Climate Change Perceptions

International Diversification, SFAS 131, and Post-Earnings Announcement Drift
Tony Kang, Inder Khurana, and John Wang | 2015-07 | Download the PDF

Using data from 1990-2013, we show 1) the serial correlation of analyst forecast errors increases in the extent of international diversification, 2) PEAD based on analyst forecast errors increases in the extent of international diversification, and 3) the impact of international diversification on the serial correlation of analyst forecast errors and the associated drift is … Continue reading International Diversification, SFAS 131, and Post-Earnings Announcement Drift

Conflict and Performance in Channels: A Comparative Synthesis of Empirical Findings
Kamran Eshghi and Sourav Ray | 2015-06 | Download the PDF

We conduct a comprehensive meta-analysis of the literature on the role of channel conflict in channel performance. In particular, we assess the existing empirical evidence to compare two rival views of conflict. In the first view, conflict is a residual outcome of business processes that reduces joint profit and is efficiency depleting. Reduction or elimination … Continue reading Conflict and Performance in Channels: A Comparative Synthesis of Empirical Findings

On business theory and influential scholarship: What makes research interesting?
Vishwanath V. Baba | 2015-05 | Download the PDF

Couched within a theory of business, this paper explores what makes business scholarship influential and probe into mechanisms that make a paper interesting to its audience. It presents a framework to combine several attributes of influential scholarship and presents a model for making research interesting. Examples of interesting scholarship are provided and speculations about why … Continue reading On business theory and influential scholarship: What makes research interesting?

The Reallocative Employee Costs of Corporate Bankruptcy
John R. Graham, Hyunseob Kim, Si Li, and Jiaping Qiu | 2015-04 | Download the PDF

This paper examines how bankruptcy by a firm leads to costs borne by its employees due to reallocation of the workforce. Using worker-firm matched data from the U.S. Census Bureau’s LEHD program, we demonstrate that annual wages deteriorate by about 10% upon corporate bankruptcy and remain below pre-bankruptcy wages for (at least) six years. In … Continue reading The Reallocative Employee Costs of Corporate Bankruptcy

Profitability, Value and Stock Returns in Production-Based Asset Pricing without Frictions
Ronald J. Balvers, Li Gu, and Dayong Huang | 2015-03 | Download the PDF

In a production-based asset pricing model without adjustment costs and with decreasing returns to scale following Brock (1982), stock returns at the firm level are no longer identically equal to investment returns but are determined by profitability, the book-to-market ratio, and the change in future profitability prospects. Although firms with low book-to-market ratios are normally … Continue reading Profitability, Value and Stock Returns in Production-Based Asset Pricing without Frictions

Value Creation in Strategic Alliances
Anna Sadovnikova, and Ashish Pujari | 2015-02 | Download the PDF

Many firms recognize the appeal of going green and employ strategic partnerships to manage corporate environmental strategies. Yet the mechanisms in green collaborations that create value for a firm remains mostly unexplored. To address this gap, the authors examine the effects of announcements of green strategic partnerships on a firm’s stock market value. It was … Continue reading Value Creation in Strategic Alliances

Technology Spillovers and Corporate Cash Holdings
Jiaping Qiu and Chi Wan | 2014-06 | Download the PDF

This study examines the effect of technology spillovers on firms’ cash holdings. It finds that firms facing greater technology spillovers hold higher cash balances. This effect is more pronounced among financially constrained firms and for firms that are likely to benefit more from diffused technology, e.g., those have newer patents, are more profitable, face better … Continue reading Technology Spillovers and Corporate Cash Holdings

Radical Innovation in Strategic Partnerships: A Framework for Analysis
Anna Sadovnikova, Ashish Pujari, and Andrey Mikhailitchenko | 2014-05 | Download the PDF

The study proposes a conceptual model of the phenomenon of a radical innovation partnership and examines particular partner attributes affecting its performance. Borrowing from the paradox perspective in organizational studies, the model argues that a radical innovation partnership features several paradoxes – the paradox of a partnership structure, the paradox of partnership resources, and the … Continue reading Radical Innovation in Strategic Partnerships: A Framework for Analysis

Social Screens and Systematic Boycott Risk
Hao (Arthur) Luo and Ronald J. Balvers | 2014-04 | Download the PDF

We consider the pricing implications of screens imposed by Socially Responsible Investing funds. The model extends standard risk-based asset pricing models by deriving as an additional systematic risk factor a portfolio of stocks shunned by a subgroup of institutional investors. We reconcile the empirically observed risk-adjusted sin-stock abnormal return with a “boycott risk premium” which … Continue reading Social Screens and Systematic Boycott Risk

A New Method to Measure the Performance of Leveraged Exchange-Traded Funds
Narat Charupat and Peter Miu | 2014-03 | Download the PDF

We examine the effects of daily return compounding, financing costs, and management factors on the performance of leveraged exchange-traded funds (LETFs) over various holding periods. We propose a new method to measure LETFs’ tracking errors that allows us to disentangle these effects. Our results show that the compounding effect generally has more influence on tracking … Continue reading A New Method to Measure the Performance of Leveraged Exchange-Traded Funds

Financial Disclosure and Customer Satisfaction: Do Companies Talking the Talk Actually Walk the Walk?
Ronald J. Balvers, John F. Gaski, and Bill McDonald | 2014-02 | Download the PDF

Using the emerging technology of large-scale textual analysis, this study examines use of the term “customer satisfaction” and its variants in the principal annual financial reports issued by publicly-traded U.S. corporations and filed with the Securities and Exchange Commission as Form 10-K. We document the frequency of the term’s occurrence in 10-Ks over the 1995 … Continue reading Financial Disclosure and Customer Satisfaction: Do Companies Talking the Talk Actually Walk the Walk?

How Firm Strategies Impact Size of Partner-Based Retail Networks: Evidence from Franchising
Manish Kacker, Rajiv P. Dant, Jamie Emerson, and Anne T. Coughlan | 2014-01 | Download the PDF

How do firms’ partnering strategies impact the size of their partner-based retail networks? We draw on agency theory to address this question in the context of franchising. Our econometric analyses (based on nine years of longitudinal balanced panel data) include assessment of data nonstationarity and estimation of a dynamic panel data model that accounts for … Continue reading How Firm Strategies Impact Size of Partner-Based Retail Networks: Evidence from Franchising

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