Narrow Results

Capital gains play an essential role in the intertemporal allocation of resources, but they can also fuel self-fulfilling bubbles. The simple case of 2 "identical" capitals is analyzed in an overlapping generations model. The only trajectory in which expectations are realized at every date is the one in which blue machines and red machines have the same price. If ever their prices differ, then there is a "bubble" which must burst in finite time.

There is a high level of residual government ownership after privatization processes of state-owned firms in many transitional economies. Accordingly, the role of residual government ownership in firms in these economies draws strong attention from researchers resulting in a huge volume of papers in the literature. This naturally motivates us to examine whether state ownership affects the firm value in Vietnam, a successful transitional economy. More specifically, this paper aims to provide further insights into the impact of residual government ownership on the value of privatized firms listed on the Ho Chi Minh City stock exchange covering the period from 2009 to 2014. Using panel data techniques of fixed effects estimator, our empirical results indicate that residual government ownership has a negative effect on value of Vietnamese firms. This finding provides important implications for different stakeholders in transitional countries.

This study examines the association between firms’ tax avoidance and long-term investments. We find that tax avoidance firms make greater investment than nontax avoidance firms, and that the positive association between tax avoidance and investments holds both for firms that are financially constrained, and therefore ex-ante likely to underinvest, and for financially unconstrained firms that are ex-ante more likely to overinvest. Our results further show that CEO equity incentives and governance strength exert an incremental effect on investment decisions of tax avoidance firms. In additional analyses, we demonstrate that tax avoidance firms’ investments are associated with improved future firm performance especially when those firms are ex-ante more likely to underinvest. For tax avoidance firms that are ex-ante more likely to overinvest, current investments are associated with declined future firm performance. Tax avoidance firms have higher (lower) investment efficiency in terms of improved (declined) operating profitability in the post-investment period when they have lower (higher) CEO equity incentives and stronger (weaker) governance. Overall, our results shed light on efficiency in utilizing the available cash through tax avoidance in long-term investments that might create shareholder value for a group of financially constrained firms but diminish shareholder value for another group of financially unconstrained firms.

Real option valuation with flexibility under uncertainty has been proposed as an alternative and advantageous complement to the traditional net present value (NPV) method for capital budgeting decisions, yet the problem with unrealistic expectations on precision has still not been solved. It appears clearly that a high level of precision in cash flow estimates can be misleading for the decision makers with sentiments. To the extent that precision surrounds a decision, we introduce a fuzzy process into an abandonment option approach, which is built on the use of fuzzy numbers, to investigate the effects of managerial optimism and pessimism when a manager considers whether or not to abandon capital budgeting decisions under imprecision and uncertainty. From the numerical analyses of the proposed model, we find that an optimistic manager tends to continue executing the project, while a pessimistic manager tends to give up the project and liquidate it as the value of the abandonment option is within the range of a fuzzy sentiments interval. In addition, if the project value is below the lower bound of the fuzzy sentiments interval, then it is better to exercise the abandonment option rather than to continue holding it, for both optimistic and pessimistic managers. Finally, this paper also examines why managers may still continue a project, even if its Tobin’s $q$ value is smaller than one.

This paper analyzes two different approaches to assessing the knowledge assets of multiple firms in a given industry. Typically, in evaluating knowledge management (KM) results by measuring intellectual capital (IC), studies in the field have looked specifically at individual firms or a small cluster of organisations. Measuring a large number of firms has proven more of a challenge even though the discipline has some established metrics to do so, principally those using some variation of Tobin's q. In moving such methodologies forward, we look at two variations on Tobin's q for assessing KM requirements in an industry and the relative level of KM success in member firms. We contrast different industries with apparently different KM circumstances, allowing some deeper insights into the strengths and weaknesses of our two metrics. These results will be of interest to those studying KM and IC as they provide guidance in evaluating performance (as well as the need to invest in order to keep up with industry top performers). For the same reason, the results and methodology will inform practitioners taking a strategic approach to knowledge investment, giving them a way to assess relative standing within and across industries. KM strategies can and should differ, and these metrics provide guidance for such decisions.

We develop a model in which the opportunity for a firm to upgrade its technology to the frontier (at a cost) leads to growth options in the firm's value; that is, a firm's value is the sum of value generated by its current technology plus the value of the option to upgrade. Variation in the technological frontier leads to variation in firm value that is unrelated to current cash flow and investment, though variation in firm value anticipates future upgrades and investment. We simulate this model and show that, consistent with the empirical literature, in situations in which growth options are important, regressions of investment on Tobin's Q and cash flow yield small positive coefficients on Q and larger coefficients on cash flow. We also show that growth options increase the volatility of firm value relative to the volatility of cash flow.

Research and development is an emerging competitive advantage to gain maximum market share. This study is conducted to empirically investigate the relationship between research and development intensity and firm performance in selected non-financial firms listed at Pakistan Stock Exchange (PSX). Moreover, the role of ownership structure and board structure have been evaluated between predictor and outcome variable. For this purpose, 27 non-financial firms listed on PSX have been selected for the period of eight years from 2009 to 2016 and unbalanced panel data was obtained. Research and development intensity has been used as an independent variable. ROA, ROE, and TQ are used as measures of financial performance, i.e., dependent variable. Ownership concentration, institutional ownership, and managerial ownership are used as the proxies for ownership structure. Board size, board independence, and board meeting frequency are used as the proxies for board structure. Moreover, firm size, firm age and leverage have also been used as a control variables in data analysis. Based on data analyses, it is concluded that research and development intensity has a positive and significant relationship with all three proxies of firm performance, i.e., ROA, ROE and Tobin’s Q. Afterward, the researchers have investigated the moderating role of ownership structure and board structure between research and development intensity and three proxies of firm performance. It is also concluded that in general ownership structure as well as board structure are negatively moderating the relationship between research and development intensity and firm performance which raises a question mark on the effectiveness of corporate governance mechanism in terms of R&D performance.