Goodyear Tire & Rubber Company: Follow-On Equity Issue

2017 ◽  
pp. 1-20
Author(s):  
Susan Chaplinsky ◽  
Warren Estey
Keyword(s):  
Stock Price ◽  
Intrinsic Value ◽  
Balance Sheet ◽  
Cost Savings ◽  
Indirect Costs ◽  
Equity Offerings ◽  
Equity Issue ◽  
Long Run ◽  
Investment Manager ◽  
Additional Value

This case explains marketing process for follow-on equity offerings, the direct and indirect costs of issue, and the long-run performance of equity issuers. Students use analysts' projections from which to estimate the intrinsic value of the company's share—including the cost savings from the VEBA and financial improvements over the next several years. It is appropriate for use in corporate finance courses covering the topics of capital raising, equity financing, capital structure, costs of financing, funding alternatives, investment banking, and valuation. It presents the classic profile on an equity issuer—a firm whose stock price has risen to new heights in recent months. Will the issue lead to additional value that creates opportunities for shareholders, or is it a sign the firm is overvalued? The case explores the thinking of a prominent investment manager who had accumulated a large stake in Goodyear and who did not see the need for Goodyear to make an equity issue at this time. The company's position was that the high stock would allow it to further strengthen its balance sheet and pursue international growth opportunities. Students are asked to decide what the investor should do with respect to the current offer—buy, sell, or hold.

scholarly journals CEO-shareholder incentive alignment around SEOs

2015 ◽  
Vol 41 (1) ◽  
pp. 45-66
Author(s):  
Yilei Zhang ◽  
Yi Jiang
Keyword(s):  
Stock Price ◽  
Wealth Effect ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Equity Financing ◽  
Compensation Policy ◽  
Incentive Alignment ◽  
Content Type ◽  
Financing Decisions ◽  
Long Run

Purpose – The purpose of this paper is to examine CEO wealth changes around seasoned equity offerings (SEOs) to explore the shareholder-manager incentive alignment in major corporate equity financing decisions. Design/methodology/approach – The authors decompose CEO wealth into three major components: price effect, board compensation grant, and CEO’s own portfolio adjustment. The authors then compare SEO-event sample vs non-event samples; and evaluate the dynamic and long-run CEO wealth effect. Findings – The authors find when market reacts negatively to SEO announcement leading to losses in CEO’s existing firm-related wealth, CEO gets additional grants to offset the losses. Although this appears to be a rent-seeking activity, the authors find that the additional grants are mainly in the form of stock options which would have no value if stock price failed to pick up in the future. In this sense, the additional grants align the interests between shareholders and managers. Consistent with this argument, the authors show that the additional grants motivate CEOs to promote the stock performance, benefiting themselves as well as shareholders in the long-run. Originality/value – The study explicitly calculates the contribution of each wealth component to CEO total wealth effect. The results improve the understanding of CEO compensation policy change after major corporate event and contribute to the literature of the optimality explanation of prevailing compensation policy.

An Empirical Research on Fu-Wang Foods Ltd: Industry, Strategy, Accounting, Ratio, Valuation and Proforma Analysis

2017 ◽  
Vol 1 (1) ◽  
pp. 1-11
Author(s):  
K.M. Anwarul Islam
Keyword(s):  
Cash Flow ◽  
Food Processing ◽  
Stock Price ◽  
Food Industry ◽  
Intrinsic Value ◽  
Balance Sheet ◽  
Sales Growth ◽  
Balance Sheets ◽  
Discretionary Powers

In this study an attempt was made to prepare the research on Fu-Wang Foods Ltd. We have also analyzed the strategies, accounting policies and ratios. Historical and Proforma income statements, balance sheet and cash flow statement have been made. We have also determined, loosely speaking, the intrinsic value of stocks of firm. The company is in food processing industry. The position of Fu-Wang is good in this industry. Its long term profitability and sustainability is also secured. The accounting policies and estimates of Fu-Wang as well as the food industry are flexible enough. Management enjoys moderate discretionary powers. Analysis of the various ratios over the five years reveals that many of them are satisfactory and some are not. By doing the valuation of the company with some assumption we found the intrinsic value of the firm is approximately 36 tk. Sensitivity of stock price by changing the discount rate and sales growth rate has also been examined. By projecting the historical accounting figures we have also prepared Proforma income statements, balance sheets and cash flow statements and found that the future of Fu-Wang Foods ltd. is rather satisfactory, given some assumptions.

scholarly journals Net deferred tax assets and the long-run performance of Initial Public Offerings

2019 ◽  
Vol 16 (4) ◽  
pp. 111-127
Author(s):  
Jost Kovermann ◽  
Patrick Velte
Keyword(s):  
Initial Public Offerings ◽  
Stock Price ◽  
Balance Sheet ◽  
Important Lesson ◽  
Going Public ◽  
Accounting Data ◽  
Deferred Tax Assets ◽  
Long Run ◽  
Deferred Tax ◽  
Loss Firms

On average, firms’ going public severely underperform compared to the market, a phenomenon which is widely known in the literature as IPO underperformance. Though there is no generally accepted theory on the reasons, information asymmetries and the scarcity of information on the issuers is generally considered to contribute to the phenomenon. Accounting data provided by issuers in the offering prospectuses is mostly backward-looking information that is of limited use in forming expectations of future performance. This problem becomes even more pressing, given the increasing fraction of loss firms among IPOs. Net deferred tax assets (NDTA), however, are a balance sheet item that can be expected to include forward-looking information on future earnings. Reporting under IFRS, firms may recognize NDTA only to the extent, that positive income will be available in future periods. We, therefore, expect NDTA to be positively associated with the long-run performance of IPOs. Investigating a sample of firms going public in Germany between 2005 and 2015, we find that NDTA are positively associated with long-run stock price performance. The association is particularly strong among loss firms. Our findings are relevant especially to investors, who regularly have difficulties valuing loss firms. We show that firms which recognized NDTA perform much better in the aftermarket than those that do not have NDTA on the balance sheet. The most important lesson to be learned is that IPO firms that did not recognize NDTA will likely be very poor investments.

Understanding Short-run Stock Price Movements through System Dynamics

1989 ◽  
Vol 14 (3) ◽  
pp. 13-24
Author(s):  
S Srinivasan ◽  
P K J Mohapatra ◽  
K C Sahu
Keyword(s):  
System Dynamics ◽  
Capital Market ◽  
Stock Price ◽  
Dynamics Model ◽  
Equity Issue ◽  
Structural Framework ◽  
Model Combining ◽  
Long Run ◽  
Short Run ◽  
Price Movements

The Capital Assets Pricing Model (CAPM) provides insights into the equilibrium price of stocks but does not offer a structural framework for short range price movements. In this paper, Srinivasan, Mohapatra, and Sahu use the System Dynamics methodology and demonstrate through their model how short-run price movements can be explained. This model may be useful to finance managers who are concerned about the equity issue price for pricing new issues when they go to the capital market. It is also useful to financial institutions interested in buying and selling securities. The authors exhort researchers to develop a unified model combining CAPM and the System Dynamics model to explain long-run and short-run price movements.

scholarly journals Stock Price Reactions And Long Run Performance Of Rule 144A Equity Issuance

2013 ◽  
Vol 29 (6) ◽  
pp. 1615
Author(s):  
Kelly Cai
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Abnormal Return ◽  
Seasoned Equity Offerings ◽  
Cumulative Abnormal Return ◽  
Equity Issuance ◽  
Equity Offerings ◽  
Valuation Effect ◽  
Long Run ◽  
Common Stocks

This paper examines the valuation effect of Rule 144A equity offers on issuing firms common stocks for the period 1970 to 2010. Similar to findings for seasoned equity offerings, I find a statistically significant cumulative abnormal return of -3.07 percent over the three-day issue period for the overall sample of 160 Rule 144A equity offers. Further, I find that issuing firms exhibit significant long-run under-performance in stock returns over the three years after the issuance of Rule 144A equity offers. The results are consistent with the under-reaction hypothesis.

Business Environment in West Bengal: An Ethical Issue

Think India ◽  
2016 ◽  
Vol 19 (1) ◽  
pp. 35-41
Author(s):  
Sreekumar Ray
Keyword(s):  
West Bengal ◽  
Balance Sheet ◽  
Business Environment ◽  
Business Practices ◽  
Ethical Business ◽  
Industrial Growth ◽  
Long Run ◽  
Fixed Assets ◽  
Finance Company ◽  
Set Up

Ethics in Business are keywords in any business environment which are lacking in most of the cases. In a broad sense ethics means not to cheat others and to do the business in an honest way, to abide by the rules and regulations of the soil, and above all to keep the morale high so that the business can grow to a new height in long run. Unfair means and unethical business practices to earn money quickly are often fraught with the danger of losing the business permanently or losing the goodwill and respect of society. West Bengal has got bad reputation for industrial growth and fake chit funds and it has been named as ponzy capital of India by many as 72 out of 86 fake chit funds are in the state of West Bengal (as per the Report of Ministry of Corporate Affairs, Govt. of India). On the other hand the micro finance company Bandhan which has got Banking license last year (set up in 2001 in West Bengal) and Eins Edutech the company which was originally incorporated on March 9, 1983, as Ganpat Udyog in West Bengal are worth mentioning and at ease one can feel proud of them. As on 17th April, 2015 the latter company has got market capital of Rs.700 crore with its fixed assets, as per its balance sheet, as only two cell phones and one printer. As per monthly status of Bandhan in February 2015 it has 2,022 branches, 63,66,269 borrowers, 15,956 staff, loan disbursed for the month Rs.1,572 crores, and loan outstanding Rs.8,908 crores. Under such situation, this study focuses on the ethical business environment prevailing in West Bengal and the strategies adopted by them.

Debt Structure Adjustments and Long-run Stock Price Performance

2000 ◽  
Author(s):  
Sudip Datta ◽  
Mai E. Iskandar-Datta ◽  
Kartik Raman
Keyword(s):  
Stock Price ◽  
Debt Structure ◽  
Price Performance ◽  
Long Run

scholarly journals Financial Crises, Macroeconomic Variables, and Long-Run Risk: An Econometric Analysis of Stock Returns Correlations (2000 to 2019)

2021 ◽  
Vol 14 (3) ◽  
pp. 127
Author(s):  
Marco Tronzano
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Financial Crises ◽  
Stock Price ◽  
Financial Risk ◽  
Swiss Franc ◽  
Chinese Stock Market ◽  
Stock Market Index ◽  
Defensive Role ◽  
Long Run

This paper focuses on four major aggregate stock price indexes (SP 500, Stock Europe 600, Nikkei 225, Shanghai Composite) and two “safe-haven” assets (Gold, Swiss Franc), and explores their return co-movements during the last two decades. Significant contagion effects on stock markets are documented during almost all financial crises; moreover, in line with the recent literature, the defensive role of gold and the Swiss Franc in asset portfolios is highlighted. Focusing on a new set of macroeconomic and financial series, a significant impact of these variables on stock returns correlations is found, notably in the case of the world equity risk premium. Finally, long-run risks are detected in all asset portfolios including the Chinese stock market index. Overall, this empirical evidence is of interest for researchers, financial risk managers and policy makers.

Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

2011 ◽  
Vol 46 (5) ◽  
pp. 1259-1294 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Thomas H. Noe ◽  
Zhen Wang
Keyword(s):  
Cash Flow ◽  
Economic Effect ◽  
Balance Sheet ◽  
Cash Flows ◽  
Long Run ◽  
Goods Market ◽  
Short Run ◽  
Debt Market ◽  
Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

scholarly journals Disposition Effect and Return Predictability in the Tunisian Stock Market

2017 ◽  
Vol 4 (1) ◽  
pp. 1
Author(s):  
Cheïma Hmida ◽  
Ramzi Boussaidi
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Stock Prices ◽  
Stock Price ◽  
Return Predictability ◽  
Capital Gains ◽  
Disposition Effect ◽  
Individual Investors ◽  
Long Run ◽  
Return Reversal

The behavioral finance literature has documented that individual investors tend to sell winning stocks more quickly than losing stocks, a phenomenon known as the disposition effect, and that such a behavior has an impact on stock prices. We examined this effect in the Tunisian stock market using the unrealized capital gains/losses of Grinblatt & Han (2005) to measure the disposition effect. We find that the Tunisian investors exhibit a disposition effect in the long-run horizon but not in the short and the intermediate horizons. Moreover, the disposition effect predicts a stock price continuation (momentum) for the whole sample. However this impact varies from an industry to another. It predicts a momentum for “manufacturing” but a return reversal for “financial” and “services”.

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