Distress risk, growth and earnings quality

We extend and complement prior work by investigating the earnings quality of firms with different financial health characteristics and growth prospects. By using three alternative measures of default likelihood and two alternative measures of growth options, without being limited to a specific event, we provide a more comprehensive setup for analysing the earnings characteristics of the universe of firms than examining distressed firms with persistent losses, dividend reductions or bankruptcy-filings. Our dataset consists of 15,049 healthy U.S. firms over the period 1990-2004. Results show that the relation between earnings quality and financial health is not monotonic. Distressed firms have a low level of earnings timeliness for bad news and a high level for good news, and manage earnings toward a positive target more frequently than healthy firms. On the other hand, healthy firms have a high level of earnings timeliness for bad news. Growth aspects play an important role in a firm's ability to manage earnings. In contrast to the findings of prior studies, growth firms have greater earnings timeliness for bad news, whereas value firms manage earnings toward a positive target more frequently than growth firms. © 2011 The Authors. Abacus© 2011 Accounting Foundation, The University of Sydney.

The impact of institutional complexity and top management characteristics on executive compensation and firm performance

While most studies take a dyadic view when examining the environmental difference between the home country of a multinational enterprise (MNE) and a particular foreign country, they ignore that an MNE is managing a network of subsidiaries embedded in diverse environments. Additionally, neither the impacts of global environments on top executives nor the effects of top executives’ capabilities to handle institutional complexity are fully explored. Thus, using a three-essay format, this dissertation tried to fill these gaps by addressing the effects of institutional complexity and top management characteristics on top executive compensation and firm performance. ^ Essay 1 investigated the impact of an MNE’s institutional complexity, or the diversity of national institutions facing an MNE’s network of subsidiaries, on the top management team (TMT) compensation. This essay proposed that greater political and cultural complexity leads to not only greater TMT total compensation but also to a greater portion of TMT compensation linked with long-term performance. The arguments are supported in this essay by using an unbalanced panel dataset including 296 U.S. firms with 1,340 observations. ^ Essay 2 explored TMT social capital and its moderating role on value creation and appropriation by the chief executive officer (CEO). Using a sample with 548 U.S. firms and 2,010 observations, it found that greater TMT social capital does facilitate the effects of CEO intellectual capital and social capital on firm growth. Finally, essay 3 examined the performance implications for the fit between managerial information-processing capabilities and institutional complexity. It proposed that institutional complexity is associated with the needs of information-processing. On the other hand, smaller TMT turnover and larger TMT size reflect larger managerial information-processing capabilities. Consequently, superior performance is achieved by the match among institutional complexity, TMT turnover, and TMT size. All hypotheses in essay 3 are supported in a sample of 301 U.S. firms and 1,404 observations. ^ To conclude, this dissertation advances and extends our knowledge on the roles of institutional environments and top executives on firm performance and top executive compensation.^

Three essays on a longitudinal analysis of business start-ups using the Kauffman Firm Survey

This dissertation focused on the longitudinal analysis of business start-ups using three waves of data from the Kauffman Firm Survey. ^ The first essay used the data from years 2004-2008, and examined the simultaneous relationship between a firm's capital structure, human resource policies, and its impact on the level of innovation. The firm leverage was calculated as, debt divided by total financial resources. Index of employee well-being was determined by a set of nine dichotomous questions asked in the survey. A negative binomial fixed effects model was used to analyze the effect of employee well-being and leverage on the count data of patents and copyrights, which were used as a proxy for innovation. The paper demonstrated that employee well-being positively affects the firm's innovation, while a higher leverage ratio had a negative impact on the innovation. No significant relation was found between leverage and employee well-being.^ The second essay used the data from years 2004-2009, and inquired whether a higher entrepreneurial speed of learning is desirable, and whether there is a linkage between the speed of learning and growth rate of the firm. The change in the speed of learning was measured using a pooled OLS estimator in repeated cross-sections. There was evidence of a declining speed of learning over time, and it was concluded that a higher speed of learning is not necessarily a good thing, because speed of learning is contingent on the entrepreneur's initial knowledge, and the precision of the signals he receives from the market. Also, there was no reason to expect speed of learning to be related to the growth of the firm in one direction over another.^ The third essay used the data from years 2004-2010, and determined the timing of diversification activities by the business start-ups. It captured when a start-up diversified for the first time, and explored the association between an early diversification strategy adopted by a firm, and its survival rate. A semi-parametric Cox proportional hazard model was used to examine the survival pattern. The results demonstrated that firms diversifying at an early stage in their lives show a higher survival rate; however, this effect fades over time.^

Leverage, Volatile Future Earnings Growth and Expected Stock Returns

We provide theory and evidence to complement Choi's [RFS, 2013] important new insights on the returns to equity in `value' firms. We show that higher future earnings growth ameliorates the value-reducing effect of leverage and, because the market for earnings is incomplete, reduces the earnings-risk sensitivity of the default option. Ceteris paribus, a levered firm with low (high) earnings growth is more sensitive to the first (second) of these effects thus generating higher (lower) expected returns. We demonstrate this by modeling equity as an Asian-style call option on net earnings and find significant empirical support for our hypotheses.

Future Earnings Growth Volatility and the Value Premium

The value premium is well established in empirical asset pricing, but to date there is little understanding as to its fundamental drivers. We use a stochastic earnings valuation model to establish a direct link between the volatility of future earnings growth and firm value. We illustrate that risky earnings growth affects growth and value firms differently. We provide empirical evidence that the volatility of future earnings growth is a significant determinant of the value premium. Using data on individual firms and characteristic-sorted test portfolios, we also find that earnings growth volatility is significant in explaining the cross-sectional variation of stock returns. Our findings imply that the value premium is the rational consequence of accounting for risky earnings growth in the firm valuation process.

Inter-industry differences in local banks' effect on new firm formation : A regional study of entrepreneurship in Sweden

Formation of new firms is important, since new firms create jobs and economic growth. When entrepreneurs lack the financial resources which are needed to start a firm, they often turn to banks to borrow money. Previous research has shown that relationships between banks and new business borrowers most often are local and that the dependence on banks differs across industries. In light of this, the purpose of this paper is to investigate if local access to banks has a stronger relationship with the rate of new firm formation in some industries than in others. Based on cross-sectional data on all Swedish municipalities in 2009, a series of OLS regressions are estimated to test if variables used to describe the bank market in a municipality are related with the new firm formation rate, both in total and in different industry categories. The results show that the number of bank branches per capita is positively related with the total new firm formation rate. In regards to the inter-industry differences, the findings indicate that local access to banks is more important for new firm formation in some industries than in others. 

Capital structure of Finnish firms – Estimating the effects of firm characteristics on capital structure

One of the most disputable matters in the theory of finance has been the theory of capital structure. The seminal contributions of Modigliani and Miller (1958, 1963) gave rise to a multitude of studies and debates. Since the initial spark, the financial literature has offered two competing theories of financing decision: the trade-off theory and the pecking order theory. The trade-off theory suggests that firms have an optimal capital structure balancing the benefits and costs of debt. The pecking order theory approaches the firm capital structure from information asymmetry perspective and assumes a hierarchy of financing, with firms using first internal funds, followed by debt and as a last resort equity. This thesis analyses the trade-off and pecking order theories and their predictions on a panel data consisting 78 Finnish firms listed on the OMX Helsinki stock exchange. Estimations are performed for the period 2003–2012. The data is collected from Datastream system and consists of financial statement data. A number of capital structure characteristics are identified: firm size, profitability, firm growth opportunities, risk, asset tangibility and taxes, speed of adjustment and financial deficit. A regression analysis is used to examine the effects of the firm characteristics on capitals structure. The regression models were formed based on the relevant theories. The general capital structure model is estimated with fixed effects estimator. Additionally, dynamic models play an important role in several areas of corporate finance, but with the combination of fixed effects and lagged dependent variables the model estimation is more complicated. A dynamic partial adjustment model is estimated using Arellano and Bond (1991) first-differencing generalized method of moments, the ordinary least squares and fixed effects estimators. The results for Finnish listed firms show support for the predictions of profitability, firm size and non-debt tax shields. However, no conclusive support for the pecking-order theory is found. However, the effect of pecking order cannot be fully ignored and it is concluded that instead of being substitutes the trade-off and pecking order theory appear to complement each other. For the partial adjustment model the results show that Finnish listed firms adjust towards their target capital structure with a speed of 29% a year using book debt ratio.

Quantification of key biological processes determining the dynamics and the assessment of the anchovy population in the Bay of Biscay: growth, reproduction, demography and natural mortality.

333 p.

Three Essays on a Longitudinal Analysis of Business Start-ups using the Kauffman Firm Survey

This dissertation focused on the longitudinal analysis of business start-ups using three waves of data from the Kauffman Firm Survey. The first essay used the data from years 2004-2008, and examined the simultaneous relationship between a firm’s capital structure, human resource policies, and its impact on the level of innovation. The firm leverage was calculated as, debt divided by total financial resources. Index of employee well-being was determined by a set of nine dichotomous questions asked in the survey. A negative binomial fixed effects model was used to analyze the effect of employee well-being and leverage on the count data of patents and copyrights, which were used as a proxy for innovation. The paper demonstrated that employee well-being positively affects the firm's innovation, while a higher leverage ratio had a negative impact on the innovation. No significant relation was found between leverage and employee well-being. The second essay used the data from years 2004-2009, and inquired whether a higher entrepreneurial speed of learning is desirable, and whether there is a linkage between the speed of learning and growth rate of the firm. The change in the speed of learning was measured using a pooled OLS estimator in repeated cross-sections. There was evidence of a declining speed of learning over time, and it was concluded that a higher speed of learning is not necessarily a good thing, because speed of learning is contingent on the entrepreneur's initial knowledge, and the precision of the signals he receives from the market. Also, there was no reason to expect speed of learning to be related to the growth of the firm in one direction over another. The third essay used the data from years 2004-2010, and determined the timing of diversification activities by the business start-ups. It captured when a start-up diversified for the first time, and explored the association between an early diversification strategy adopted by a firm, and its survival rate. A semi-parametric Cox proportional hazard model was used to examine the survival pattern. The results demonstrated that firms diversifying at an early stage in their lives show a higher survival rate; however, this effect fades over time.

Impaired Compensatory Beta-cell Function And Growth In Response To High-fat Diet In Ldl Receptor Knockout Mice.

In this study, we investigated the effect of low density lipoprotein receptor (LDLr) deficiency on gap junctional connexin 36 (Cx36) islet content and on the functional and growth response of pancreatic beta-cells in C57BL/6 mice fed a high-fat (HF) diet. After 60 days on regular or HF diet, the metabolic state and morphometric islet parameters of wild-type (WT) and LDLr-/- mice were assessed. HF diet-fed WT animals became obese and hypercholesterolaemic as well as hyperglycaemic, hyperinsulinaemic, glucose intolerant and insulin resistant, characterizing them as prediabetic. Also they showed a significant decrease in beta-cell secretory response to glucose. Overall, LDLr-/- mice displayed greater susceptibility to HF diet as judged by their marked cholesterolaemia, intolerance to glucose and pronounced decrease in glucose-stimulated insulin secretion. HF diet induced similarly in WT and LDLr-/- mice, a significant decrease in Cx36 beta-cell content as revealed by immunoblotting. Prediabetic WT mice displayed marked increase in beta-cell mass mainly due to beta-cell hypertrophy/replication. Nevertheless, HF diet-fed LDLr-/- mice showed no significant changes in beta-cell mass, but lower islet-duct association (neogenesis) and higher beta-cell apoptosis index were seen as compared to controls. The higher metabolic susceptibility to HF diet of LDLr-/- mice may be explained by a deficiency in insulin secretory response to glucose associated with lack of compensatory beta-cell expansion.

Genetic Predictors Of Long-term Response To Growth Hormone (gh) Therapy In Children With Gh Deficiency And Turner Syndrome: The Influence Of A Socs2 Polymorphism.

There is great interindividual variability in the response to GH therapy. Ascertaining genetic factors can improve the accuracy of growth response predictions. Suppressor of cytokine signaling (SOCS)-2 is an intracellular negative regulator of GH receptor (GHR) signaling. The objective of the study was to assess the influence of a SOCS2 polymorphism (rs3782415) and its interactive effect with GHR exon 3 and -202 A/C IGFBP3 (rs2854744) polymorphisms on adult height of patients treated with recombinant human GH (rhGH). Genotypes were correlated with adult height data of 65 Turner syndrome (TS) and 47 GH deficiency (GHD) patients treated with rhGH, by multiple linear regressions. Generalized multifactor dimensionality reduction was used to evaluate gene-gene interactions. Baseline clinical data were indistinguishable among patients with different genotypes. Adult height SD scores of patients with at least one SOCS2 single-nucleotide polymorphism rs3782415-C were 0.7 higher than those homozygous for the T allele (P < .001). SOCS2 (P = .003), GHR-exon 3 (P= .016) and -202 A/C IGFBP3 (P = .013) polymorphisms, together with clinical factors accounted for 58% of the variability in adult height and 82% of the total height SD score gain. Patients harboring any two negative genotypes in these three different loci (homozygosity for SOCS2 T allele; the GHR exon 3 full-length allele and/or the -202C-IGFBP3 allele) were more likely to achieve an adult height at the lower quartile (odds ratio of 13.3; 95% confidence interval of 3.2-54.2, P = .0001). The SOCS2 polymorphism (rs3782415) has an influence on the adult height of children with TS and GHD after long-term rhGH therapy. Polymorphisms located in GHR, IGFBP3, and SOCS2 loci have an influence on the growth outcomes of TS and GHD patients treated with rhGH. The use of these genetic markers could identify among rhGH-treated patients those who are genetically predisposed to have less favorable outcomes.

Growth And Body Composition In Brazilian Female Rhythmic Gymnastics Athletes.

The aim was to analyse the physical growth and body composition of rhythmic gymnastics athletes relative to their level of somatic maturation. This was a cross-sectional study of 136 athletes on 23 teams from Brazil. Mass, standing height and sitting height were measured. Fat-free and fat masses, body fat percentages and ages of the predicted peak height velocity (PHV) were calculated. The z scores for mass were negative during all ages according to both WHO and Brazilian references, and that for standing height were also negative for all ages according to WHO reference but only until 12 years old according to Brazilian reference. The mean age of the predicted PHV was 12.1 years. The mean mass, standing and sitting heights, body fat percentage, fat-free mass and fat mass increased significantly until 4 to 5 years after the age of the PHV. Menarche was reached in only 26% of these athletes and mean age was 13.2 years. The mass was below the national reference standards, and the standing height was below only for the international reference, but they also had late recovery of mass and standing height during puberty. In conclusion, these athletes had a potential to gain mass and standing height several years after PHV, indicating late maturation.

Growth Curves For Girls With Turner Syndrome.

The objective of this study was to review the growth curves for Turner syndrome, evaluate the methodological and statistical quality, and suggest potential growth curves for clinical practice guidelines. The search was carried out in the databases Medline and Embase. Of 1006 references identified, 15 were included. Studies constructed curves for weight, height, weight/height, body mass index, head circumference, height velocity, leg length, and sitting height. The sample ranged between 47 and 1,565 (total = 6,273) girls aged 0 to 24 y, born between 1950 and 2006. The number of measures ranged from 580 to 9,011 (total = 28,915). Most studies showed strengths such as sample size, exclusion of the use of growth hormone and androgen, and analysis of confounding variables. However, the growth curves were restricted to height, lack of information about selection bias, limited distributional properties, and smoothing aspects. In conclusion, we observe the need to construct an international growth reference for girls with Turner syndrome, in order to provide support for clinical practice guidelines.

The Inadequacy Of The Y-axis Of Growth (sngn) For The Vertical Pattern Assessment In Patients With Sagittal Discrepancies.

The aim of this cephalometric study was to evaluate the influence of the sagittal skeletal pattern on the 'Y-axis of growth' measurement in patients with different malocclusions. Lateral head films from 59 patients (mean age 16y 7m, ranging from 11 to 25 years) were selected after a subjective analysis of 1630 cases. Sample was grouped as follows: Group 1 - class I facial pattern; group 2 - class II facial pattern; and Group 3 - class III facial pattern. Two angular measurements, SNGoGn and SNGn, were taken in order to determine skeletal vertical facial pattern. A logistic regression with errors distributed according to a binomial distribution was used to test the influence of the sagittal relationship (Class I, II, III facial patterns) on vertical diagnostic measurement congruence (SNGoGn and SNGn). RESULTS show that the probability of congruence between the patterns SNGn and SNGoGn was relatively high (70%) for group 1, but for groups II (46%) and III (37%) this congruence was relatively low. The use of SNGn appears to be inappropriate to determine the vertical facial skeletal pattern of patients, due to Gn point shifting throughout sagittal discrepancies. Clinical Significance: Facial pattern determined by SNGn must be considered carefully, especially when severe sagittal discrepancies are present.

Growth Factor Stimulation Improves The Structure And Properties Of Scaffold-free Engineered Auricular Cartilage Constructs.

The reconstruction of the external ear to correct congenital deformities or repair following trauma remains a significant challenge in reconstructive surgery. Previously, we have developed a novel approach to create scaffold-free, tissue engineering elastic cartilage constructs directly from a small population of donor cells. Although the developed constructs appeared to adopt the structural appearance of native auricular cartilage, the constructs displayed limited expression and poor localization of elastin. In the present study, the effect of growth factor supplementation (insulin, IGF-1, or TGF-β1) was investigated to stimulate elastogenesis as well as to improve overall tissue formation. Using rabbit auricular chondrocytes, bioreactor-cultivated constructs supplemented with either insulin or IGF-1 displayed increased deposition of cartilaginous ECM, improved mechanical properties, and thicknesses comparable to native auricular cartilage after 4 weeks of growth. Similarly, growth factor supplementation resulted in increased expression and improved localization of elastin, primarily restricted within the cartilaginous region of the tissue construct. Additional studies were conducted to determine whether scaffold-free engineered auricular cartilage constructs could be developed in the 3D shape of the external ear. Isolated auricular chondrocytes were grown in rapid-prototyped tissue culture molds with additional insulin or IGF-1 supplementation during bioreactor cultivation. Using this approach, the developed tissue constructs were flexible and had a 3D shape in very good agreement to the culture mold (average error <400 µm). While scaffold-free, engineered auricular cartilage constructs can be created with both the appropriate tissue structure and 3D shape of the external ear, future studies will be aimed assessing potential changes in construct shape and properties after subcutaneous implantation.