Template-Type: ReDIF-Article 1.0 Author-Name: Chiung-Ju Liang Author-Name: Ying-Li Lin Author-Name: Tzu-Tsang Huang Title: DOES MULTI-DIMENSIONAL OWNERSHIP STRUCTURE MATTER IN FIRM PERFORMANCE? A DYNAMIC FIRM’S LIFE CYCLE PERSPECTIVE Abstract: Prior studies on the relationship between ownership and firm performance have produced mixed results; hence, this paper re-examines the relationship using an unbalanced panel pooled sample of 4,443 observations listed in the emerging Taiwanese market. We adopt a dynamic perspective to explore the persistence of the relationship across the life cycle stages of firms over time. Does the impact of ownership on firm performance vary at different life cycle stages? Does it persist across the stages over time? Our empirical results suggest a potential nonlinear relationship between ownership and performance. Furthermore, evidence shows that the impact of ownership on performance is a function of the life cycle effect, where the impact is more pronounced among mature firms over the same period. However, the case is not the same across different periods. To alleviate a potential simultaneity issue, we lag all measures of ownership structure by one year in the fixed-effect regressions framework of panel data. Overall, this paper contributes to ongoing research by extending the importance of the life cycle stages of firms in assessing the impact of ownership on firm performance over time. Classification-JEL: C31; C33; G34 Keywords: Multi-dimensional ownership structure, Performance, Life-cycle stage, Unbalanced panel, Taiwanese market Journal: The International Journal of Business and Finance Research Pages: 1-19 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:1-19 Template-Type: ReDIF-Article 1.0 Author-Name: Tai-Yuan Chen Author-Name: Lie-Jane Kao Author-Name: Hsing-Yu Lin Title: THE LONG-TERM WEALTH EFFECT OF SHARE REPURCHASES EVIDENCE FROM TAIWAN Abstract: This paper examines the long-term wealth effect of 948 share repurchase announcements in the Taiwan market. We also investigate what factors determine the wealth effect of share repurchases. Our findings show that share repurchases induce positive buy-and-hold abnormal returns during the 12-month post-announcement period. Undervaluation and unexpected operating profits are the two important factors explaining the wealth effect regardless of firms’ investment opportunities. In addition, for firms with poor investment opportunities, estimated repurchase ratio also explains the wealth effect for the two-month period after repurchase announcements but not for the long-term. By contrast, this study does not find the explanatory power of the changes in free cash flow on either the short- or the long-term wealth. The overall evidence supports the undervaluation and the signaling hypotheses, rather than the free cash flow hypothesis. Classification-JEL: G35; G14 Keywords: Share Repurchase; Abnormal Return; Undervaluation; Signaling; Agency Theory Journal: The International Journal of Business and Finance Research Pages: 21-33 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:21-33 Template-Type: ReDIF-Article 1.0 Author-Name: Shih-Ping Feng Title: THE LIQUIDITY EFFECT IN OPTION PRICING: AN EMPIRICAL ANALYSIS Abstract: This paper empirically examines whether asset’s liquidity can help resolve the known strike-price biases of the Black-Scholes model for different liquidity measures based on trading volume, bid-ask spread and the Amihud’s ILLIQ. Our results indicate that, when the underlying asset or its derivative exhibit lower liquidity, the degree of curvature of the strike-price biases will tend to increase, regardless of the liquidity measures used. Furthermore, inspection of 2R reveals that the stock’s liquidity has an excellent ability in explaining the strike-price biases compared with the option’s liquidity in terms of the liquidity measures based on trading volume and the Amihud’s ILLIQ. Classification-JEL: G10; G12; G13 Keywords: Option Pricing; Liquidity; Stock’s Liquidity; Option’s Liquidity; Strike-Price Biases Journal: The International Journal of Business and Finance Research Pages: 35-43 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:35-43 Template-Type: ReDIF-Article 1.0 Author-Name: Raymond Posey Author-Name: Alan K. Reichert Title: A COMPARISON OF NON-PRICE TERMS OF LENDING FOR SMALL BUSINESS AND FARM LOANS Abstract: This study examines differences in terms of lending for small loans among non-farm commercial banks and farm lenders of different sizes. Large farm lenders more frequently require collateral than large commercial banks, while small farm lenders require collateral less frequently than small commercial banks. In addition, there is evidence that small commercial banks require collateral more frequently than large commercial banks. There is no difference in the frequency of collateral use among farm lenders, regardless of size. The type of the collateral used, real estate vs. non-real estate, is also affected by the term of the loan for farm lenders. The longer the term of the loan, the more frequently real estate is used as collateral. Classification-JEL: G2 Keywords: farm lending, role of collateral, terms of lending Journal: The International Journal of Business and Finance Research Pages: 45-59 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:45-59 Template-Type: ReDIF-Article 1.0 Author-Name: Devrim Yaman Title: LONG-RUN OPERATING PERFORMANCE OF PREFERRED STOCK ISSUERS Abstract: In this paper, we study the long-run operating performance of preferred stock issuers. We use three different measures of operating performance; pre-tax cash flows, profit margin and return on assets. We study the performance of industrial firms, financial firms, and utilities separately, as well as the performance of the whole sample. Our results indicate that the operating performance of preferred stock issuers as a whole declines in the three-years before the issue. We find that profitability continues to decline after the issue. This finding is consistent with earlier findings on bond and common stock issuers. We also find that the decline in profitability is more pronounced for financial firms, although the cash flows of financial firms increase after the offering. The results show that the operating performance after the issue is worse for firms that raise large amounts of capital through the issue. There is also some evidence that preferred stock issuers with information asymmetry have lower operating performance following the issue. Classification-JEL: G30, G32 Keywords: Preferred stock; long-run performance; operating performance Journal: The International Journal of Business and Finance Research Pages: 61-73 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:61-73 Template-Type: ReDIF-Article 1.0 Author-Name: Sandip Mukherji Title: THE CAPITAL ASSET PRICING MODEL’S RISK-FREE RATE Abstract: The risk-free rate is an important input in one of the most widely used finance models: the Capital Asset Pricing Model. Academics and practitioners tend to use either short-term Treasury bills or long-term Treasury bonds as the risk-free security without empirical justification. This study investigates the market and inflation risks of Treasury securities with different maturities over different investment horizons. The results show that mean real returns, volatility, and market and inflation risks, of Treasury securities increase with the maturity period. Only Treasury bills do not have any market risk for 1- and 5-year periods, and they have the lowest market risk over 10 years. Although Treasury securities of all maturities have significant inflation risk, Treasury bills have the lowest inflation risk over all three horizons. Further, the inflation beta and explanatory power of inflation for real Treasury bill returns decline with the investment horizon. Over 10 years, inflation and market risks explain only 13% of variations in real Treasury bill returns, compared to 20% of intermediate government bond returns, and 23% of long government bond returns. These findings indicate that Treasury bills are better proxies for the risk-free rate than longer-term Treasury securities regardless of the investment horizon. Classification-JEL: G11; G12 Keywords: Risk-free rate, Capital Asset Pricing Model, investment horizon Journal: The International Journal of Business and Finance Research Pages: 75-83 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:75-83 Template-Type: ReDIF-Article 1.0 Author-Name: Frank D’Souza Author-Name: Harold Fletcher Author-Name: Octavian Ionici Title: EQUITY MARKET TIMING AND SUBSEQUENT DELISTING LIKELIHOOD Abstract: Timing the market for equity is an accepted practice by managers who in theory have the best interests of current shareholders in mind. It is clear that by using their superior information, managers can indeed successfully issue overvalued equity to the new shareholders. Recent research has determined that some firms do well after a market timed issue, while others underperform. The post-issue performance is linked to the investment opportunity set of the issuing firms as well as their choice of investments. In general, firms without good investment options will perform poorly. We extend this line of research by studying the post-issue delisting pattern of market timing firms and the two subsets. Specifically, we research whether firms that mistakenly time the market for equity are more likely to compromise their future and get delisted (through acquisitions, bankruptcies etc.) in the immediate future than those firms that have a use for the funds. Using logistic regression models, we show that firms that are market timing firms and that lack good investment opportunities are indeed more likely to get delisted; strengthening the growing argument that equity market timing does not always result in shareholder benefit. Classification-JEL: G14, G32 Keywords: equity market timing, delisting likelihood Journal: The International Journal of Business and Finance Research Pages: 85-94 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:85-94 Template-Type: ReDIF-Article 1.0 Author-Name: Yu-Hong Liu Author-Name: I-Ming Jiang Author-Name: Shih-Cheng Lee Author-Name: Yu-Ting Chen Title: THE VALUATION OF RESET OPTIONS WHEN UNDERLYING ASSETS ARE AUTOCORRELATED Abstract: This paper introduces the autocorrelation effect of assets’ returns into the valuation model of reset options. The MA(q) process, which is an extension of MA(1) process noted by Liao and Chen (2006), is applied to the valuation of reset options in this paper. Due to the impact of autocorrelation on the volatility of assets’ returns, the probability of reset and the value of reset option are affected. Positive autocorrelation increases the value of a reset option by increasing the probability of reset. On the contrary, negative autocorrelation decreases the probability of a reset and reset premium. Moreover, the reset timing is affected by the autocorrelation characteristics. In the case of positive autocorrelation, the investors tend to reset earlier to prevent a possible loss. Positive autocorrelation is also significant for the hedging of reset options. This paper demonstrates that positive autocorrelation characteristics lessens the delta jump and gamma jump problem. Classification-JEL: G12, G13 Keywords: Reset Option, Autocorrelation; MA(q) process, Delta Jump; Gamma Jump Journal: The International Journal of Business and Finance Research Pages: 95-114 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:95-114 Template-Type: ReDIF-Article 1.0 Author-Name: Ching-Ping Wang Author-Name: Hung-Hsi Huang Author-Name: Chien-Chia Hung Title: IMPLIED INDEX AND OPTION PRICING ERRORS: EVIDENCE FROM THE TAIWAN OPTION MARKET Abstract: This study examines both restricted and unrestricted Black-Sholes models, according to Longstaff (1995). Using the Taiwan index options for each day from January 2005 to December 2008, the unrestricted model simultaneously solves the implied index value and implied volatility whereas the restricted model only solves the implied volatility. Next, this study compares the pricing performance of restricted and unrestricted Black-Scholes models. The empirical results show he implied index value is almost higher than the actual index value. Moneyness has a significant negative impact on the index pricing error for calls but negative impact for puts. Open interest has a significantly negative impact on the index pricing error for calls. Volatility for calls has no significant effect on the index pricing error. The path-dependent effect on index pricing error increases with index returns. The unrestricted model has significantly less option pricing bias for calls than the restricted model. The option pricing error for calls in the restricted model has much larger negative bias near the middle maturity. The R-square in the restricted model is always much larger than the unrestricted model for both calls and puts. Finally, the option pricing errors are significantly affected by moneyness and time to expiration for all cases; this fact is consistent with Longstaff (1995). Additionally, based on the criterion of adjusted R-square, this study investigated the optimal explanatory variables of index pricing error. Classification-JEL: G12; G13; G14 Keywords: Index pricing error, option pricing error, Black-Scholes, implied volatility, implied index Journal: The International Journal of Business and Finance Research Pages: 115-125 Volume:5 Issue: 2 Year: 2011 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v5n2-2011/IJBFR-V5N2-2011-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:115-125