Working Paper Series in Strategic Business Valuation

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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

Performance Implications of Using Signaling and Screening for Expanding Interfirm Business Networks: Evidence from Franchising
Farhad Sadeh, Manish Kacker | 2020-02 | Download the PDF

Entrepreneurial business firms such as franchisors can enhance their network performance by attracting high-quality partners and preventing low-quality partners from joining the network. We draw on agency and transaction cost theories and the substantive literature on voluntary information disclosure to develop a theoretical framework that examines the consequences of using signaling and screening mechanisms for … Continue reading Performance Implications of Using Signaling and Screening for Expanding Interfirm Business Networks: Evidence from Franchising

Determinants and Consequences of Intellectual Capital Efficiency in the U.S. Banking Industry
Justin Y. Jin and Wenting Wang | 2020-01 | Download the PDF

This study investigates the determinants and consequences of intellectual capital efficiency in the U.S. banking industry. We find that banks’ individual institutional memory of bad times reduces their intellectual capital efficiency. We also find that intellectual capital efficiency restricts banks’ risk-taking behaviors and enhances their accounting conservatism. Finally, we find that intellectual capital efficiency helps … Continue reading Determinants and Consequences of Intellectual Capital Efficiency in the U.S. Banking Industry

Antecedents of Locus of Causality Attributions for Destructive Acts in Distribution Channels
Hadi Eslami, Manish Kacker, and Jonathan D. Hibbard | 2019-06 | Download the PDF

Destructive acts in distribution channels are actions by firms that have a significant adverse impact on the viability or functioning of channel members. Understanding an affected channel member’s locus of causality attributions for a destructive act can help the initiating firm determine when, where and how to proactively mitigate the adverse consequences of the act. … Continue reading Antecedents of Locus of Causality Attributions for Destructive Acts in Distribution Channels

Welcome to the Gray Zone: Shades of Honesty and Earnings Management
Pascale Lapointe-Antunes, Kevin Veenstra, Kareen Brown, and Heather Li | 2019-05 | Download the PDF

We examine the influence of face-based judgments of CFO/CEO honesty on earnings management for the largest publicly traded companies in America. After controlling for incentives and opportunities to manage earnings, CFOs and CEOs perceived to be less honest engage in higher levels of both accruals and real earnings management. The beneficial impact of perceived honesty … Continue reading Welcome to the Gray Zone: Shades of Honesty and Earnings Management

Credit Risk Spillovers and Cash Holdings [update of 2018-06]
Jin Lei, Jiaping Qiu, Chi Wan, and Fan Yu | 2019-04 | Download the PDF

This paper examines how credit risk spillovers affect corporate financial flexibility. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers — credit risk contagion (CRC), which increases industry peers’ distress likelihood; and product market rivalry (PMR), which strengthens rivals’ competitive position. We show that firms facing greater CRC hold more … Continue reading Credit Risk Spillovers and Cash Holdings [update of 2018-06]

The Effect of Labor Cost on Innovation
Amrita Nain, Yan Wang | 2019-03 | Download the PDF

Using minimum wage changes as an exogenous shock to the cost of low-skill labor, we show that corporate innovative output declines after the shock, especially in industries dependent on unskilled labor. The substitutability between technology and unskilled labor plays a key role in the response of innovative output to minimum wage shocks. We identify technology … Continue reading The Effect of Labor Cost on Innovation

Gender and Beauty in the Financial Analyst Profession: Evidence from the U.S. and China [update of 2017-06]
Congcong Li, An-Ping Lin, Hai Lu, Kevin Veenstra | 2019-02 | Download the PDF

We examine how gender and beauty affect the likelihood of being voted as an All-Star in the financial analyst profession in both the U.S. and China. We find that female analysts are more likely to be voted as All-Star analysts in the U.S., but good-looking female U.S. analysts are less likely to be voted as … Continue reading Gender and Beauty in the Financial Analyst Profession: Evidence from the U.S. and China [update of 2017-06]

Beauty and Academic Career [update of 2018-01]
Yanju Liu, Hai Lu, Kevin Veenstra | 2019-01 | Download the PDF

We examine the impact of beauty on the academic career success of tenure-track accounting professors at top business schools in America, and show that beauty plays a significant role. Specifically, after controlling for gender, ethnicity, publication history, work experience, and quality of alma mater, more attractive professors obtain better first school placements post-PhD and are … Continue reading Beauty and Academic Career [update of 2018-01]

Banks’ Funding Structure and Earnings Quality
Justin Yiqiang Jin, Kiridaran Kanagaretnam, and Yi Liu | 2018-07 | Download the PDF

Using a sample of U.S. public and private banks, we examine the implications of banks’ funding strategies for banks’ earnings quality. We find that the ratio of core deposits to total liabilities (CDL), our proxy for bank reliance on retail deposits over wholesale funds, is negatively and significantly associated with the magnitude of earnings management … Continue reading Banks’ Funding Structure and Earnings Quality

Credit Risk Spillovers and Cash Holdings
Jin Lei, Jiaping Qiu, Chi Wan, and Fan Yu | 2018-06 | Download the PDF

This paper examines how credit risk spillovers affect corporate Financial Flexibility and bank loan contracting. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers — credit risk contagion (CRC), which increases industry peers’ distress likelihood; and product market rivalry (PMR), which strengthens rivals’ competitive position. We show that firms facing … Continue reading Credit Risk Spillovers and Cash Holdings

Technology and Return Predictability
Jiaping Qiu, Jin Wang, and Yi Zhou | 2018-05 | Download the PDF

This paper finds significant predictability in stock returns across technology-linked firms. Using patent-holding information to identify firms’ technological linkage, we show that a long–short equity trading strategy sorted on lagged returns of technology-linked firms yields monthly alphas of around 105 basis points. The findings are robust to a number of specifications and are not driven … Continue reading Technology and Return Predictability

A Theory of Actionability: Complementing Rigour and Relevance in Management Research
Farimah HakemZadeh and Vishwanath V. Baba | 2018-04 | Download the PDF

Our purpose is to contribute to the debate on how to close the gap between management research and practice and to offer a solution. We analyze the literature investigating the research-practice gap including evidence-based management, mode 1 and 2 knowledge generation, design science approaches, and action research. We argue that in order to narrow the … Continue reading A Theory of Actionability: Complementing Rigour and Relevance in Management Research

Home Capital Group – The High Cost of Dishonesty
Kareen Brown, Kevin Veenstra | 2018-03 | Download the PDF

This instructional case presents the problems that began in the summer of 2015 when Home Capital Group (HCG) announced it had cut ties with 45 mortgage brokers for falsifying figures on mortgage applications regarding the earnings of prospective home purchasers in Canada. The case details the subsequent investigation by the Ontario Securities Commission in 2017 … Continue reading Home Capital Group – The High Cost of Dishonesty

Simulation and Big Data: In Search of Causality in Big Data-Related Managial Decision Making
Maggie M. Cheng, Chenxing Li, Rick D. Hackett | 2018-02 | Download the PDF

The unprecedented availability of digitized human behavioral data offers new research opportunities for discovering hidden patterns in Big Data that may not be apparent in smaller samples. At the same time, there are potential pitfalls associated with Big Data analytics in the absence of also working to identify causal relationships among the constructs thought to … Continue reading Simulation and Big Data: In Search of Causality in Big Data-Related Managial Decision Making

Beauty and Academic Career
Yanju Liu, Hai Lu, Kevin Veenstra | 2018-01 | Download the PDF

We examine the impact of beauty on the academic career success of tenure-track accounting professors at top business schools in America, and show that beauty plays a significant role. Specifically, after controlling for gender, ethnicity, publication history, work experience, and quality of alma mater, more attractive professors obtain better first school placements post-PhD and are … Continue reading Beauty and Academic Career

Cross-Country Competitive Effects of Cross-Listings
Sergei Sarkissian, Yan Wang | 2017-08 | Download the PDF

This paper studies the cross-country competitive effects of foreign listings on U.S. exchanges. We show that incumbent U.S. firms respond strongly negatively to foreign listings and weakly positively to foreign delistings. The performance decline of U.S. firms is related to the competitive advantages that foreign firms receive from placing their shares in the United States … Continue reading Cross-Country Competitive Effects of Cross-Listings

Designing a Global Digital Currency
Ronald Balvers, Bill McDonald | 2017-07 | Download the PDF

The notion of a global currency is a debate set aside in the past decade as the abstraction saw little potential for realization in a world with heterogeneous governments unwilling to sacrifice seigniorage for optimal design. The technical capability of creating digital currencies, independent of governments, resurrects the discussion and begs the questions of practical … Continue reading Designing a Global Digital Currency

Beauty Premium? Evidence from Institutional Investors’ Voting for All-Star Analysts
Congcong Li, An-Ping Lin, Hai Lu, Kevin Veenstra | 2017-06 | Download the PDF

This study examines whether institutional investors’ voting for All-Star financial analysts is affected by analyst beauty. Using a sample of 1,135 U.S. analysts and controlling for analyst performance, we document that beauty, on average, does not affect the outcome of All-Star analyst voting. However, a beauty premium emerges in those sectors where there is high … Continue reading Beauty Premium? Evidence from Institutional Investors’ Voting for All-Star Analysts

The Relationship between Initial and Ongoing Fees in Franchising: A Meta-Analysis
Farhad Sadeh, Manish Kacker | 2017-05 [replaces 2016-03] | Download the PDF

Mechanisms and rationales for revenue sharing have been the subject of many theoretical and empirical studies on contracting. Franchisors typically derive economic profits (for the rights they grant to franchisees) through revenue sharing contracts. Franchising is a popular form of retailing in a wide range of product and service markets, plays a significant role in … Continue reading The Relationship between Initial and Ongoing Fees in Franchising: A Meta-Analysis

Performance Impact Of Distribution Expansion: A Review And Research Agenda
Jonathan D. Hibbard, Manish Kacker, Farhad Sadeh | 2017-04 | Download the PDF

The emergence of new technologies, shifting consumer needs and growth in competition have made the expansion of distribution a business imperative for many firms. In this chapter, we review the empirical marketing literature on the performance consequences of distribution expansion and offer an agenda for future research. In doing so, we consider two dimensions of … Continue reading Performance Impact Of Distribution Expansion: A Review And Research Agenda

Social Capital and Bank Stability
Justin Yiqiang Jin, Kiridaran Kanagaretnam, Gerald J. Lobo, Robert Mathieu | 2017-03 | Download the PDF

Using a sample of public and private banks, we study how social capital relates to bank stability. Social capital, which captures the level of cooperative norms in society, is likely to reduce opportunistic behavior (Jha and Chen 2015; Hasan et al. 2016) and, therefore, act as an informal monitoring mechanism. Consistent with our expectations, we … Continue reading Social Capital and Bank Stability

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?

Quality Signaling through Ex-Ante Voluntary Information Disclosure in Entrepreneurial Networks: Evidence from Franchising
Farhad Sadeh and Manish Kacker | 2017-01 | 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

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

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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