Front Matter Source: Financial Management, Vol. 20, No. 4 (Winter, 1991), pp. 1-6 Published by: Wiley on behalf of the Financial Management Association International Stable URL: http://www.jstor.org/stable/3665701 . Accessed: 15/06/2014 15:36 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . Wiley and Financial Management Association International are collaborating with JSTOR to digitize, preserve and extend access to Financial Management. http://www.jstor.org This content downloaded from 62.122.73.250 on Sun, 15 Jun 2014 15:36:25 PM All use subject to JSTOR Terms and Conditions
Transcript
Front MatterSource: Financial Management, Vol. 20, No. 4 (Winter, 1991), pp. 1-6Published by: Wiley on behalf of the Financial Management Association InternationalStable URL: http://www.jstor.org/stable/3665701 .
Accessed: 15/06/2014 15:36
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp
.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].
.
Wiley and Financial Management Association International are collaborating with JSTOR to digitize, preserveand extend access to Financial Management.
http://www.jstor.org
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Chairman, Finman Corporation Richard S. Bower Bower, Rohr and Associates
Vice President - Program Philip L. Cooley Trinity University 1992
Gary L. Trennepohl Texas A&M University 1993
Vice President - Meeting Arrangements Russell J. Fuller Concord Capital Management
Vice President - Membership Services Edward A. Moses Rollins College 1991-1992
Jean L. Heck Villanova University 1992-1993
Vice President - Awards James W. Wansley University of Tennessee 1991-1992
Roy L. Crum University of Florida 1992-1993
Vice President - Financial Education William Sartoris Indiana University
Vice President - Practitioner Services Samuel C. Weaver Hershey Foods Corporation
Chairperson, Institutional Directors Thomas A. Durkin Federal Reserve Board
Editor-Financial Management James S. Ang Florida State University
Editor-Financial Practice and Education
Jerry L. Stevens University of Richmond
Editor-Survey and Synthesis Series Michael S. Long Rutgers University
Immediate Past President Richard W. McEnally University of North Carolina-Chapel Hill
FMA EXECUTIVE OFFICE Jack S. Rader, CFA, Executive Director Financial Management Association
University of South Florida
College of Business Administration Tampa, Florida 33620-5500 (813) 974-2084 FAX: (813) 974-3318
Financial Management (ISSN 0046-3892) is the journal of the Financial Management Association, an affiliate of the Finman Corporation. It is published quarterly. See publishing schedule and deadlines below. The Editor and the Association assume no responsibility for views expressed by the authors.
Membership dues of the Association include a one-year subscription to the journal. Subscription rates are: Regular $50; Sustaining $55. Library subscriptions are $60 per year. Members outside the U.S. add $20 per year to cover overseas postage (Canada and Mexico add $15). All fees must be in U.S. dollars drawn on a U.S. bank. Application forms are available in this issue.
Memberships, Subscriptions, and Address Changes: Write Financial Management Association, College of Business Administration, University of South Florida, Tampa, FL 33*620-5500.
Manuscripts: Send to James S. Ang, Editor, Financial Management, R-53G, Department of Finance, College of Business Administration, Florida State University, Tallahassee, FL 32306-1042. A submission fee is required for evaluation of each manuscript, $40 for non-FMA members and $20 for FMA members (U.S. dollars). Style information for manuscripts is at the back of this journal.
Advertising Rates and Requirements: Write Julie Weiler, Managing Editor, c/o James S. Ang, Editor, Financial Management, R-53G, Department of Finance, College of Business Administration, Florida State University, Tallahassee, FL 32306-1042.
Publishing Schedule and Deadlines for 1992: Financial Management is published on March 30 (Spring), June 30 (Summer), September 30 (Autumn), and December 30 (Winter). Deadlines for receipt of meeting announcements, calls for papers, or positions available are: January 31 (Spring), April 30 (Summer), July 31 (Autumn), and November 7 (Winter). Announcements received after these deadlines will be printed in the current issue if possible or will be printed in the next available issue (if appropriate). (These deadlines do not apply to camera-ready copy for advertisements. Advertisers please direct queries to the Managing Editor.)
Permission to Quote or Republish: Blanket permission is granted to any individual wishing to use articles appearing in Financial Management for educational (university classroom) purposes. Written permission from the Financial Management Association or the Editor is not required. All other requests to quote or republish should be submitted in writing to Financial Management Association, College of Business Administration, University of South Florida, Tampa, FL 33620-5500.
Copyright @ 1991 Financial Management Association, an affiliate of the Finman Corporation. Composed and printed by Dartmouth Printing Company, Hanover, NH. Second class postage paid at Tampa, FL and additional mailing offices.
POSTMASTER: Send address changes to FMA, College of Business Administration, University of South Florida, Tampa, FL 33620-5500.
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B. Espen Eckbo University of British Columbia, Canada
Gary W. Emery University of Oklahoma
John D. Finnerty McFarland Dewey & Co.
Julian Franks London Business School, U.K.
Robert S. Harris University of Virginia
Roger G. Ibbotson Yale University
EDITOR
James S. Ang Florida State University
College of Business, R-53G Tallahassee, FL 32306-1042
MANAGING EDITOR
Julie Weiler (904) 644-6512
ASSOCIATE EDITORS
Kose John New York University
Andrew J. Kalotay Andrew Kalotay Associates, Inc.
Richard Kolodny University of Maryland
Ronald Lease University of Utah
Wilbur G. Lewellen Purdue University
Gershon N. Mandelker University of Pittsburgh
John J. McConnell Purdue University
Richard H. Pettway University of Missouri
Jay Ritter University of Illinois
Lemma W. Senbet University of Maryland
Clifford W. Smith University of Rochester
Meir Statman University of Santa Clara
Hans R. Stoll Vanderbilt University
Anjan Thakor Indiana University
Theo Vermaelen INSEAD, France
Takaaki Wakasugi University of Tokyo, Japan
David A. Walker Georgetown University
Ralph A. Walkling Ohio State University
SPONSORS
Florida State University University of South Florida
INSTITUTIONAL MEMBERS
Arkansas Public Service Commission AT&T Communications Bell Atlantic Corporation Central Bank for Cooperatives Credit Research Foundation E.F. Hutton Hampton University
John Hancock Mutual Life Morgan Guaranty Mutual Trust Morgan Stanley & Co. N.Y. Society of Fixed Income Analysts Republic National Bank of New York Wisconsin Bell
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11 On the Integration of International Capital Markets: M. Wayne Marr Evidence From Euroequity Offerings John L. Trimble
Raj Varma Euroequity, a new financial instrument, is a new issue of stock by a U.S. firm that is sold simultaneously to investors
domestically as registered shares and offshore as bearer shares. In perfectly integrated capital markets, whether Euroequity or domestic equity is issued should not have differential effects on a firm's stock price. Like past studies of domestic
equity-financing announcements, we find negative stock-price responses for announcements of equity offers. Our findings are consistent with the hypothesis that, during their infancy, new financial instruments which reduce previously effective barriers to investment across national borders enable firms to capitalize on beneficial financing opportunities in overseas markets.
Robert S. Hansen We examine the impact of joint ventures between industrial companies located in Japan and the U.S. on their stockholders' wealth. Consistent with previous evidence, stockholders of both Japanese and U.S. companies earn significant positive abnormal returns, on average. Further results show that joint ventures in which the Japanese company is the larger partner have greater stockholders' gains, and that the joint venture partner's currency strength is a significant determinant of the stockholders' gains.
31 The Wealth Effect of International Joint Ventures: Haiyang Chen The Case of U.S. Investment in China Michael Y. Hu
Joseph C.P. Shieh This study provides direct evidence of the wealth effect of international joint venture announcements on the value of U.S. firms investing in China from 1979 to 1990. Using a sample of 88 announcements, we find statistically significant positive portfolio excess returns at the joint venture announcements. The results lend strong support to the positive-multinational- network hypothesis, which predicts that a firm's value increases when it expands into global markets. Further, shareholders of U.S. firms investing a relatively small amount in the joint ventures gain positive excess returns, while shareholders of those investing a relatively large amount earn insignificant excess returns. The implication is that the wealth gain arises primarily from the value of a collection of real options acquired by the U.S. firms through their investments in China.
42 Foreign Project Financing in Segmented Capital Markets: Stavros Thomadakis Equity Versus Debt Nilufer Usmen
Starting with the premise of capital structure irrelevance in each national market, the study arrives at an optimal international capital structure comprised of country A equity and country B debt in segmented international capital markets. It is also shown in such a market that risky foreign debt can enhance shareholder wealth beyond that of default- free debt. Empirical predictions are made about types of firms that are prone to issue foreign debt/equity.
54 Cross-Border Liability of Multinational Enterprises, Kose John Border Taxes, and Capital Structure Lemma W. Senbet
Anant K. Sundaram Under incomplete contracting, limited liability creates differential valuations of investments from private and government perspectives. Managers in the private sector tend to overinvest in risky technologies, compared to levels of investment that are optimal from the standpoint of the society as a whole. This problem is exacerbated from the point of view of the host government when a multinational enterprise (MNE) engages in cross-border investments but faces incomplete cross-border liability, since there is the likelihood of localization of costs and globalization of benefits. This paper explores financial management implications of policies for the MNE and derives some empirically testable predictions.
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68 Factors Affecting Price Earnings Ratios and Market Values Richard L. Constand of Japanese Firms Lewis P. Freitas
Michael J. Sullivan This paper investigates cross-sectional explanations of Japanese PE ratios by focusing on two dependent variables, the
percentage change in the PE ratio (PE) and the percentage change in the market value of equity (MV). Results of this study suggest that changes in the value of hidden assets such as land, changes in the patterns of ownership by Japanese individuals, and foreign investors, changes in expected earnings growth and earnings risk, and changes in dividends per share and dividend payout are significantly related to changes in PE ratios and market values. Our results, therefore, support the contention of French and Poterba that changes in land values appear to explain at least a portion of changes in Japanese PE ratios.
CORPORATE COMPENSATION POLICY SPECIAL ISSUE
80 Management Ownership and Firm Compensation Policy: Richard B. Carter Evidence From Converting Savings and Loan Associations Roger D. Stover
We examine the relationship between management ownership and compensation for a sample of savings and loan associations which have recently converted to stock organizations. Previous expense preference literature has indicated that the stock form of organization lessens the potential for non-value-maximizing behavior that may be manifested in the payment of employee compensation. Our results confirm those of Merck, et al, which suggest that support for the convergence of interests hypothesis (management acts in the interests of the owners) and the entrenchment hypotheses (management acts in its own interests) is conditional on the magnitude of management ownership in the firm.
91 ESOPs and Profit-Sharing Plans: Michael A. Conte Do They Link Employee Pay to Company Performance? Douglas Kruse
In recent years, there has been increased interest in the impact of pay systems on company performance. However, clear results on the impact of these pay plans have not been achieved. We argue here that stronger results have been elusive because compensation systems which supposedly create a pay/performance linkage often do so only weakly, if at all. In most of the companies that we studied, we find that these nominally performance-contingent pay systems provide less of a financial incentive to the achievement of company-wide performance goals than does basic salary and wage compensation. It is therefore not surprising that empirical studies would find these plans to be mixed in their effectiveness.
101 The Effects of Board Composition and Direct Incentives Benjamin E. Hermalin on Firm Performance Michael S. Weisbach
This paper examines the relationship between top management compensation and corporate performance in public utilities. Previous researchers have argued that incentives for profitability are not needed in public utilities, since regulation provides assured profits. Earlier empirical work supports this claim. We reexamine this issue and provide several methodological improvements over prior studies. Our findings are consistent with the hypothesis that compensation packages for senior managers in public utilities are constructed to provide them with incentives to maximize stockholders' wealth.
113 Executive Compensation and Corporate Performance in Anup Agrawal Electric and Gas Utilities Anil K. Makhija
Gershon Mandelker We study how the composition of the board of directors and incentives from direct shareholdings affect firm performance in a sample of large, publicly traded firms. We use an instrumental variables approach that controls directly for endogeneity of both shareholdings and board composition. We find no evidence that cross-sectional patterns in board composition are correlated with cross-sectional patterns in performance. This result is consistent with a number of different explanations, all of which suggest that potential regulation of board composition would not be beneficial. Similar to the previous literature, we find a nonmonotonic relation between ownership and performance. Our results suggest that this relation is not a product of the endogeneity of shareholdings. Finally, we find that firm performance suffers if the CEO stays on too long (beyond 15 years).
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D ryden Press ....................................................................................................... 139 H arperB usiness ............................................................................................................................................... ........... 129 Kolb Publishing Company .......................................... .......... ............ 140, 141 M cG raw -H ill ....................................................................................................................................................................... 14 2 N ew Y ork U niversity.......................................................................... ............................ 125
INDEX TO PROFESSIONAL ANNOUNCEMENTS
FINANCIAL MANAGEMENT ASSOCIATION INFORMATION FMA Annual Meeting Announcement........................................................................ 126 FM A 1992 Doctoral Student Seminar ........................... .. .........................
............ 126 FMA Annual Meeting Placement Clearinghouse and Message Center ...........................................
127 FM A Professional G rants and A w ards ....................... ........................................................................................................ 127 FMA Future Meeting Sites ................................... ........................................................
126 FM A Application for Libraries .........................................................
............ 128 FMA Membership Application ............ .. .............................................................................. 144 FM A Student Program s
................................................................................................................................. ............... 128 F M A S tyle S h eet ................................................................................................................................................................
143
PLACEMENT DIRECTORY-POSITIONS AVAILABLE AND DESIRED Positions Available and Desired-Multiple Listings Information .................................................... 131
Clarkson U niversity ............................................. ....
......................... 132
Indiana U niversity Southeast........................................................................................................... ........
............... 132
Positions Available-Individual Listings Eastern M ontana College.......................... ....................................................
133
Hong Kong University of Science and Technology ......................................................... 135 M ichigan State University ............................................................
............ 134 P en n S tate ......................................................................................................................................................................
13 2
University of Colorado at Denver ......................................................... ............ 136
U niversity of D allas ............................................... ..
.......................... 136
W estern M ichigan U niversity.....................................................................
Federal R eserve B ank of A tlanta .................................................................................................................. 130 Fourth Annual PACAP Finance Conference ................................................... .....................138 Northern Finance Association .................................................................................................135 Southern Finance Association ................ . ................................................. 137
PROFESSIONAL JOURNALS Journal of Business Finance & Accounting............................................ .....................6
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Journal of Business Finance & Accounting November 1991 Editor: Richard Briston Vol. 18 No. 6
Contents
The Financial Characteristics Associated with Voluntary Liquidations by CHINMOY GHOSH, JAMES E. OWERS AND RONALD C. ROGERS
The Investment Trust Discount Revisited by PAUL DRAPER AND KRISHNA PAUDYAL
Cash Flow Signals and Analysts' Earnings Forecast Revisions
by O. DOUGLAS MOSES
Pension Obligation and the Determination of Bond Risk Premiums: Evidence from the Electric Industry by SARA ANN REITER
The Importance of Accrual Accounting as a Determinant of Submartingale Behaviour in Annual Income Numbers: Empirical Evidence from Finland
by JUHA KINNUNEN
The Hamada and Conine Leverage Adjustments and the Estimation of Systematic Risk for Multisegment Firms by KIRT C. BUTLER, ROSANNE M. MOHR AND RICHARD R. SIMONDS
Initial Option Trading and Security Risk and Return
by MAHMOUD M. HADDAD AND FRANK L. VOORHEIS
Approximate Error in Using Accounting Rates of Return to Estimate Economic Returns: A Correction
by RICHARD P. BRIEF AND RAEF A. LAWSON
Contents Index
Author Index
Subscriptions 1992 volume
Rest of UK/Europe the World North America
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