Risk Factors, Global Factors, and Corporate Finance: A Collection of Investment Papers
Investment Paper 2: Common risk factors in the returns
On stocks and bonds:
This
Paper identities five common
risk factors in the returns on stocks and bonds.
There are
three stock-market factors: an overall market factor and
factors related to firm size and book-to-market equity.
There are two bond-market factors. Related to maturity
and default risks. Most important. The five factors seem
to explain average returns On stocks and bonds. They
used the time-series regressions to attack the central
asset-pricing issues: how do Different combinations
of variables can capture the Common variation through
time in the returns on bonds And stocks, second the
cross-section of average
Returns.
The result concluded
as the following: TERM and DEF was used to explain
the cross-section of returns It seems that default factor
is more powerful than TERM.TERM and DEF is less risky.
Firm size factor seems to Effect on the earnings amount.
Another thing the book to market equity effect
firms by having prescient abnormal return.
While the three
factors model or five factors will give the same explanation
on stock and bound return. Also Sharpe lintner model was
the most used for portfolio Performance valuation.
Are the Fam and French Factors Global or Country Specific?
Investment Paper 3: This Article examines whether country-specific
or global versions of Fama And French’s three-factor model better
explain time-series Variation in international stock returns. Findings
Regressions for portfolios and individual stocks indicate that Domestic
factor models explain much More time-series variation in returns and
generally have lower pricing Errors than the world factor model.
In addition, decomposing the world factors into domestic and Foreign
components demonstrates that The addition of foreign factors to
domestic models leads to less accurate in-sample and out-of-sample
pricing. Practical Applications of the three-factor model, such as cost
of capital calculations and performance evaluations, are best Performed
on a country-specific basis.So the article do not support the Notion that
these are benifite to Extending the fama and French factor model to a
global context.
Corporate Finance Paper 5:Do financial crises alter the dynamics of Corporate capital structure?
Evidence from GCC Countries:We study the impact of the 2008 financial crisis on the capital
structure of GCC firms. We Employ
a dataset covering a 10-year Period from eight sectors to investigate patterns in corporate leverage
before and after the crisis And identify changes in debt financing. Our results indicate that leverage
ratios were negatively and Significantly impacted by the 2008 crisis due to lack of debt supply by
lenders. We also find that the demand for debt by firms is the main Driver of leverage before the
crisis whereas the demand for debt by firms and the supply of debt By lenders are both important
determinants of leverage After the crisis. Moreover, we find that firms adjust their leverage ratios
toward the target leverage Much slower after the crisis. Our results also indicate that the impact
of the crisis on the capital Structure is different across industries and across countries. These
results are of paramount importance for stakeholders to understand And mitigate the impact of
crises on capital structure.
Two traditional approaches have
Emerged attempting to explain capital
structure decisions. The First, the trade-off theory benefits of debt achieved through tax savings
and the reduction of managerial agency costs; against bankruptcy Costs and the agency costs
between shareholders and bondholders. A dynamic extension of this Theory allows firms to
deviate from their target leverage where firms adjust their Leverage by balancing the benefits
from being at their optimal capital structure and the adjustment Costs toward the target leverage.
The second, the pecking order theory, does not assume the existence Of an optimal capital structure
and postulates that capital Structure decisions are driven by the costs of adverse selection between
the firm and outside investors. When financing their operations, The managers attempt to reduce the
asymmetry costs in capital markets. According to the pecking order Theory, the firm first uses internal
resources, then issues debt If internal resources are insufficient, and finally issues external equity
believed to be the most Expensive.
\
Corporate Finance Paper 4: The costs of going public:
This
paper presents evidence Regarding the two quantifiable
components of the costs of Going public: direct expenses
and underpricing which are primarily investment banking
fees and both are economically significant. Together, these
costs average 21.22% of the realized market value of the
securities issued for firm Commitment offers and 31.87% for
best efforts offers. For a Given size offer, the direct expenses
are of the same order of Magnitude for both contract types,
but the underpricing is greater for best efforts offers. An
explanation of why some firms choose to use best efforts offers
in spite of their apparent Higher total costs is given. I resolve this
apparent paradox as follows: If there is enough uncertainty about the
value of the firm, an issuing firm is better off using a best Effort
contract because the required underpricing if it used a firm Commitment
contract would be so severe. Using a data set of initial public Offers
from 1977-1982, I find empirical results consistent with the Theory:
firms that are more volatile in the aftermarket are more likely to Have
used a best efforts contract to go public. The process of going Public
starts when a registration statement, containing descriptive
material about the issuing Firm and the proposed offer is filed
with the united states Securities and exchange commission.
Corporate Finance Paper 6: The Impact of Initiating Dividend Payments
On Shareholders’ Wealth
: This study
Investigates the impact of dividends
on stockholders’ wealth by Analyzing 168 firms that either pay the first
dividend in their corporate history or initiate dividends after a 10-year hiatus.
The empirical results Exhibit larger positive excess returns than any previous
study on dividends. This result does not depend on any other events
(such as earnings announcements) and the excess return is Positively related
to the size of the initial payment. Subsequent dividend increases For the same
sample of firms are also Investigated. Compared with the initiation of dividends,
the results suggest that Subsequent increases may produce a larger positive
impact on shareholders’ Wealth. The results also indicate that other studies
may have underestimated the effect of dividend increases. The Findings for
both initial and subsequent dividends are consistent with the view That
dividends convey unique, valuable information to investors. The Effects we
find are larger than those Presented in other studies and do not appear to be
caused by contemporaneous Announcements such as earnings reports.
These results are consistent with the view that dividends convey Unique,
valuable information to Investors.As lintner (1956) and others have
documented, managers behavior also appears to be consistent with This view.
The impact of a firms dividend policy on its value is an unresolved Issue.
In their seminal work,miller and Modigliani demonstrate that absent Imperfections
Dividend policy should not affect shareholders wealth.
The real exchange rate determination: An empirical investigation: Financial
Market Paper
3:
This study examines the real exchange rate determination in
Asian economies (Japan, Korea, and Hong Kong) The methods show that the
real exchange rate and terms Of trade can be jointly determined. Productivity
differential, terms of Trade, the real oil price, and reserve differential are found
to be important in the real Exchange rate determination in the long run. However,
the significant impacts of Those variables on the real exchange rate determination
are different across economies. The real exchange rate plays an Important role in
the international trade and Investment determination. The results of generalised
forecast error variance decompositions show that terms of trade, The real oil price,
and reserve differential are The important contributors to the real exchange rate
determination in Japan, terms of trade and reserve differential are The important
contributors to the real exchange Rate determination in Korea, and reserve
differential and the real Oil price are the important contributors to the real
exchange rate determination In Hong Kong. Thus there is no universal set of
important contributors on The real exchange rate determination. On the whole,
terms of trade, reserve Differential, productivity differential, and the real oil
price is found to be Important in the real exchange rate determination but the
significant impacts of those Variables on the real exchange rate determination
is different across Economies.