A comprehensive study of bankruptcy prediction: Accounting ratios, market variables, and microstructure

Bankruptcy prediction has been a fruitful area of research. Univariate analysis and discriminant analysis were the first methodologies used. While they perform relatively well at correctly classifying bankrupt and nonbankrupt firms, their predictive ability has come into question over time. Univariate analysis lacks the big picture that financial distress entails. Multivariate discriminant analysis requires stringent assumptions that are violated when dealing with accounting ratios and market variables. This has led to the use of more complex models such as neural networks. While the accuracy of the predictions has improved with the use of more technical models, there is still an important point missing. Accounting ratios are the usual discriminating variables used in bankruptcy prediction. However, accounting ratios are backward-looking variables. At best, they are a current snapshot of the firm. Market variables are forward-looking variables. They are determined by discounting future outcomes. Microstructure variables, such as the bid-ask spread, also contain important information. Insiders are privy to more information that the retail investor, so if any financial distress is looming, the insiders should know before the general public. Therefore, any model in bankruptcy prediction should include market and microstructure variables. That is the focus of this dissertation. The traditional models and the newer, more technical models were tested and compared to the previous literature by employing accounting ratios, market variables, and microstructure variables. Our findings suggest that the more technical models are preferable, and that a mix of accounting and market variables are best at correctly classifying and predicting bankrupt firms. Multi-layer perceptron appears to be the most accurate model following the results. The set of best discriminating variables includes price, standard deviation of price, the bid-ask spread, net income to sale, working capital to total assets, and current liabilities to total assets.

Information Technology Trends: Impact on Hotel Corporations

Hospitality organizations are embracing technology in all its aspects to ensure that they can effectively compete in today's market The author cites the results of a survey of corporate executives designed to assess how technology is affecting their organizations.

Evidence of the heterogeneous market hypothesis using wavelet multi -resolution analysis

In finance literature many economic theories and models have been proposed to explain and estimate the relationship between risk and return. Assuming risk averseness and rational behavior on part of the investor, the models are developed which are supposed to help in forming efficient portfolios that either maximize (minimize) the expected rate of return (risk) for a given level of risk (rates of return). One of the most used models to form these efficient portfolios is the Sharpe's Capital Asset Pricing Model (CAPM). In the development of this model it is assumed that the investors have homogeneous expectations about the future probability distribution of the rates of return. That is, every investor assumes the same values of the parameters of the probability distribution. Likewise financial volatility homogeneity is commonly assumed, where volatility is taken as investment risk which is usually measured by the variance of the rates of return. Typically the square root of the variance is used to define financial volatility, furthermore it is also often assumed that the data generating process is made of independent and identically distributed random variables. This again implies that financial volatility is measured from homogeneous time series with stationary parameters. In this dissertation, we investigate the assumptions of homogeneity of market agents and provide evidence for the case of heterogeneity in market participants' information, objectives, and expectations about the parameters of the probability distribution of prices as given by the differences in the empirical distributions corresponding to different time scales, which in this study are associated with different classes of investors, as well as demonstrate that statistical properties of the underlying data generating processes including the volatility in the rates of return are quite heterogeneous. In other words, we provide empirical evidence against the traditional views about homogeneity using non-parametric wavelet analysis on trading data, The results show heterogeneity of financial volatility at different time scales, and time-scale is one of the most important aspects in which trading behavior differs. In fact we conclude that heterogeneity as posited by the Heterogeneous Markets Hypothesis is the norm and not the exception.

The market value implications of pension asset allocation

Pension funds have been part of the private sector since the 1850's. Defined Benefit pension plans [DB], where a company promises to make regular contributions to investment accounts held for participating employees in order to pay a promised lifelong annuity, are significant capital markets participants, amounting to 2.3 trillion dollars in 2010 (Federal Reserve Board, 2013). In 2006, Statement of Financial Accounting Standards No.158 (SFAS 158), Employers' Accounting for Defined Benefit Pension and Other Postemployment Plans, shifted information concerning funding status and pension asset/liability composition from disclosure in the footnotes to recognition in the financial statements. I add to the literature by being the first to examine the effect of recent pension reform during the financial crisis of 2008-09. This dissertation is comprised of three related essays. In my first essay, I investigate whether investors assign different pricing multiples to the various classes of pension assets when valuing firms. The pricing multiples on all classes of assets are significantly different from each other, but only investments in bonds and equities were value-relevant during the recent financial crisis. Consistent with investors viewing pension liabilities as liabilities of the firm, the pricing multiples on pension liabilities are significantly larger than those on non-pension liabilities. The only pension costs significantly associated with firm value are actual rate of return and interest expense. In my second essay, I investigate the role of accruals in predicting future cash flows, extending the Barth et al. (2001a) model of the accrual process. Using market value of equity as a proxy for cash flows, the results of this study suggest that aggregate accounting amounts mask how the components of earnings affect investors' ability to predict future cash flows. Disaggregating pension earnings components and accruals results in an increase in predictive power. During the 2008-2009 financial crisis, however, investors placed a greater (and negative) weight on the incremental information contained in the individual components of accruals. The inferences are robust to alternative specifications of accruals. Finally, in my third essay I investigate how investors view under-funded plans. On average, investors: view deficits arising from under-funded plans as belonging to the firm; reward firms with fully or over-funded pension plans; and encourage those funds with unfunded pension plans to become funded. Investors also encourage conservative pension asset allocations to mitigate firm risk, and smaller firms are perceived as being better able to handle the risk associated with underfunded plans. During the financial crisis of 2008-2009 underfunded status had a lower negative association with market value. In all three models, there are significant differences in pre- and post- SFAS 158 periods. These results are robust to various scenarios of the timing of the financial crisis and an alternative measure of funding.

Three Essays on the Interrelationships Among Financial Restatements, Corporate Governance, Market Microstructure and the Firm's Rate of Return

The increase in the number of financial restatements in recent years has resulted in a significant decrease in the amount of market capitalization for restated companies. Prior literature does not differentiate between single and multiple restatements announcements. This research investigates the inter-relationships among multiple financial restatements, corporate governance, market microstructure and the firm's rate of return in the form of three essays by differentiating between single and multiple restatement announcement companies. First essay examines the stock performance of companies announcing the financial restatement multiple times. The postulation is that prior research overestimates the abnormal return by not separating single restatement companies from multiple restatement companies. This study investigates how market penalizes the companies that announce restatement more than once. Differentiating the restatement announcement data based on number of restatement announcements, the results support for non persistence hypothesis that the market has no memory and negative abnormal returns obtained after each of the restatement announcements are completely random. Second essay examines the multiple restatement announcements and its perceived resultant information asymmetry around the announcement day. This study examines the pattern of information asymmetry for these announcements in terms of whether the bid-ask spread widens around the announcement day. The empirical analysis supports the hypotheses that the spread does widen not only around the first restatement announcement day but around every subsequent announcement days as well. The third essay empirically examines the financial and corporate governance characteristics of single and multiple restatement announcements companies. The analysis shows that corporate governance variables influence the occurrence of multiple restatement announcements and can distinguish multiple restatements announcement companies from single restatement announcement companies.

A study of the top executive conference centers in the United States and an examination of the corresponding corporate meetings market

Introduction: The United States today has become "meeting-conscious." The complexity of conducting business has led to the need for sophisticated coordination of decision-making processes on all levels of the organization. Company meetings have played an increasingly important role in the success and future of many companies. Strategies and decisions are developed at meetings that can determine future policies of crucial importance. Executive training can mean the difference in whether the company will even survive. Large and growing companies have increased their off-premise meeting budgets annually in spite of the state of the economy. however, the rising costs of travel and lodging have made management monitor these budgets more closely than ever. Thus, the need to use every dollar efficiently has compelled companies to examine newer methods of running meetings and alternatives to the usage of typical off-premise meeting facilities. The importance of off-premise meetings in the United States economy has greatly increased due to the billions of dollars spent annually. These factors make it vital to explore the effectiveness of time and monetary expenditures. Up until the mid-1960's, company meetings were held in facilities of various design and purpose, none of which were specifically designed for the small to medium corporate meeting. Upon gathering information concerning the meetings market and the corporate meeting planner, certain individuals endeavored to change the situation. This study is designed to investigate this new concept, which will hereafter be referred to as "conference center." For the purpose of this study, the following two definitions will be used. 1. Conference center - that meeting facility primarily marketing its facilities for the small to medium-sized corporate meeting. The center is operated by specialists aware of market needs in as much detail as are those people working for the company involved. On-premise sleeping rooms are not mandatory provided such facilities are within easy access. 2. Meeting planner - that person within an organization who has primary responsibility for arranging off-premise meetings and all other related items necessary for meeting effectiveness. This person may spend anywhere from 10 to 100l of his time in this capacity. The conference center has effectively satisfied the need for specialized corporate meeting facilities. This study will show the depth of the corporate meetings market and trace the growth and development of this relatively new conference center concept. Information will also be compiled on the top centers in the country. It is hoped that by presenting this research meeting planners will become more aware of the nature and location of these centers, especially for use by the small to medium-sized company. Such exposure of the centers will hopefully increase existing demand and enable the construction of new, innovative centers.

A study to identify the motivation compelling the business traveler to choose a specific airline in the Miami to Atlanta market and to develop a marketing strategy

The purpose of this study was to determine if the business traveler's behavior is influenced by brand loyalty. This brand loyalty, which became evident through the use of a survey, was then to be thoroughly evaluated. In order for this information to be best understood and utilized as the basis of future marketing strategies, much research was undertaken and its significance explained in relation to the airline industry as it exists at present. The results and conclusions of this study indicate that the airline industry is, for the most part, taking a successful approach in attracting business travelers. These travelers' business is highly valued due to the frequency with which they pay full-fare rates. The airlines view business travelers as a potential for great profit and their actions are in line with these philosophies.

Optimal Reporting Systems With Investor Information Acquisition

This paper analyzes a manager's optimal ex-ante reporting system using a Bayesian persuasion approach (Kamenica and Gentzkow (2011)) in a setting where investors affect cash flows through their decision to finance the firm's investment opportunities, possibly assisted by the costly acquisition of additional information (inspection). I examine how the informativeness and the bias of the optimal system are determined by investors' inspection cost, the degree of incentive alignment between the manager and the investor, and the prior belief that the project is profitable. I find that a mis-aligned manager's system is informative

only when the market prior is pessimistic and is always positively biased; this bias decreases as investors' inspection cost decreases. In contrast, a well-aligned manager's system is fully revealing when investors' inspection cost is high, and is counter-cyclical to the market belief when the inspection cost is low: It is positively (negatively) biased when the market belief is pessimistic (optimistic). Furthermore, I explore the extent to which the results generalize to a case with managerial manipulation and discuss the implications for investment efficiency. Overall, the analysis describes the complex interactions among determinants of firm disclosures and governance, and offers explanations for the mixed empirical results in this area.

Efficient Prices at Any Cost: Does Algorithmic Trading Deter Information Acquisition?

I demonstrate a powerful tension between acquiring information and incorporating it into asset prices, the two core elements of price discovery. As a salient case, I focus on the transformative rise of algorithmic trading (AT) typically associated with improved price efficiency. Using a measure of the relative information content of prices and a comprehensive panel of 37,325 stock-quarters of SEC market data, I establish instead that algorithmic trading strongly decreases the net amount of information in prices. The increase in price distortions associated with the AT “information gap” is roughly $42.6 billion/year for U.S. common stocks around earnings announcement events alone. Information losses are concentrated among stocks with high shares of algorithmic liquidity takers relative to algorithmic liquidity makers, suggesting that aggressive AT powerfully deters fundamental information acquisition despite its importance for translating available information into prices.

Market-oriented new product development of health promoting foods for the ageing population

Major factors influencing food development and food marketing strategies in global market places at present can be attributable to the changing age structure of the population. The significant shifts in global age structure will inevitably lead to the number of people aged 60 reaching an all-time high of one billion by the year 2020. The rapidly growing population of ageing people globally represents a large, neglected and very much under-developed category within the Food Industry. The primary focus of this study was the integration of knowledge creation techniques at early NPD stages, for the development of market-oriented new health promoting foods for the ageing population. The methodology of this study was centered on an exploratory sequential mixed methods strategy. Stage one of the study involved in-depth semi-structured interviews with 16 Stakeholders to facilitate the need identification stage of the NPD process. The main outputs identified were the need for: the fortification of foods for a preventative nutrition approach, the development of foods that targeted age-related conditions such as cognitive, heart, gut and bone health, the integration of ageing compensatory packaging adaptations and the creation of marketing messages with an active lifestyle message. Stage two consisted of a market-oriented computer assisted NPD technique, a user centered design interaction (UCD) to integrate consumers as co-creators throughout the idea generation stage of the NPD process. The most important product attributes identified in this stage included: products targeted at brain and cognitive health, liquid based beverages, easy to use packaging with environmentally friendly elements, simplistic marketing with a clear focus on health not age and realistic health claims constructed with consumer friendly terminology. Finally, Stage three used an abbreviated means-end chain (MEC) analysis to complete the concept development stage of the NPD process. This stage identified commercial information that could be used by food firms for the development of positioning and communication strategies. Equally, the information generated could be of high strategic importance to governments, policy makers, health professionals and medical professionals. The values and goals listed in this stage included: better overall health, active lifestyle, optimum nutrition and wellbeing feelings. Overall, this research illustrated that knowledge creation techniques can assist firms in the development of market-oriented health promoting foods for the ageing population.

Exploring Auditors’ Perceptions of the Usage and Importance of Audit Information Technology

This study provides novel evidence on the extent to which auditors perceive the usage and importance of audit technology in an emerging market. It explores the types of audit technology tools used and factors influencing the use of these; it tests the association between the perceived use and importance of the tools and firm-specific/ auditor-specific characteristics. Using interviews and questionnaires from auditors at Big 4 and international non-Big 4 audit firms, the findings reflect the highly perceived importance of using audit technology in technical and administrative procedures, specifically to assess risk. We find that the perceived use and importance of audit technology is relatively higher for those in Big 4 firms, with less years of auditor experience and higher auditor technology expertise, and those in management positions. The results provide policy makers with guidance on the opportunities and challenges of using information technology in the audit process.

Market reforms and privatisation in the English National Health Service

The article examines developments in the marketisation and privatisation of the English National Health Service, primarily since 1997. It explores the use of competition and contracting out in ancillary services and the levering into public services of private finance for capital developments through the Private Finance Initiative. A substantial part of the article examines the repeated restructuring of the health service as a market in clinical services, initially as an internal market but subsequently as a market increasing opened up to private sector involvement. Some of the implications of market processes for NHS staff and for increased privatisation are discussed. The article examines one episode of popular resistance to these developments, namely the movement of opposition to the 2011 health and social care legislative proposals. The article concludes with a discussion of the implications of these system reforms for the founding principles of the NHS and the sustainability of the service.

Review of virtual power plant applications for the power system management and V2G market development

Utilization of renewable energy sources and energy storage systems is increasing with fostering new policies on energy industries. However, the increase of distributed generation hinders the reliability of power systems. In order to stabilize them, a virtual power plant emerges as a novel power grid management system. The VPP has a role to make a participation of different distributed energy resources and energy storage systems. This paper defines core technology of the VPP which are demand response and ancillary service concerning about Korea, America and Europe cases. It also suggests application solutions of the VPP to V2G market for restructuring national power industries in Korea.

Democracy lessons in market-oriented schools : The case of Swedish upper secondary education

Based on recent ethnographic research, this article explores young people’s opportunities of formal and informal democracy learning and expressions of such learning in the highly market-influenced Swedish upper secondary education. With its ambitious democracy-fostering goals and far-reaching marketisation, Swedish education constitutes an interesting case in this respect. The analysis indicates that ‘voting with the feet’ emerges as an important way of exerting student influence. At the same time, young people’s voice is surprisingly neglected in classroom practice. Increased focus on performance and goal attainment tends to overshadow less ‘rewarding’ aspects of the curriculum, such as democracy teaching and learning, both from the side of teachers and students. Students are also increasingly expected to act as school representatives and to avoid giving negative impressions of their school.

The impact of the Eurozone sovereign debt crisis on bond fund performance persistence: Evidence from a small market

We evaluate the impact of the Eurozone sovereign debt crisis on the performance and performance persistence of a survivorship bias-free sample of bond funds from a small market, identified as one of the most affected by this event, during the 2001–2012 period. Besides avoiding data mining, we also introduce a methodological innovation in assessing bond fund performance persistence. Our results show that bond funds underperform significantly both during crisis and non-crisis periods. Besides, we find strong evidence of performance persistence, for both short- and longer-term horizons, during non-crisis periods but not during the debt crisis. In this way, the persistence phenomenon in small markets seems to occur only during non-crisis periods and this is valuable information for bond fund investors to exploit.