Heterogeneous Investment Opportunities in Multiple-Segment Firms and the Incremental Value Relevance of Segment Accounting Data

2003 ◽  
Vol 78 (2) ◽  
pp. 397-428 ◽  
Author(s):  
Peter F. Chen ◽  
Guochang Zhang
Keyword(s):  
Value Creation ◽  
Value Relevance ◽  
Growth Potential ◽  
Capital Investments ◽  
Firm Level ◽  
Accounting Data ◽  
Incremental Value ◽  
Investment Opportunities ◽  
Level Information ◽  
Segment Data

Applying a real-options-based valuation approach, we develop and test a model that addresses the incremental value relevance of segment data beyond firmlevel accounting data. Prior studies (e.g., Zhang 2000; Biddle et al. 2001) show that equity valuation requires accounting data (in part) because accounting provides signals that guide capital investments underlying value creation. In this study, we establish that the usefulness of segment data beyond aggregate data relates to heterogeneity of investment opportunities across segments, caused by divergences of segment profitability and growth potential. Empirical results are consistent with the model's predictions. We also assess the magnitude of the valuation impact of segment information relative to that of firm-level information.

scholarly journals Cyclical Fluctuations, Financial Shocks, and the Entry of Fast-Growing Entrepreneurial Startups

2020 ◽  
Author(s):  
Christoph Albert ◽  
Andrea Caggese
Keyword(s):  
Financial Crises ◽  
Employment Growth ◽  
High Growth ◽  
Growth Potential ◽  
Financial Shocks ◽  
Firm Level ◽  
Cyclical Fluctuations ◽  
Ex Post ◽  
Level Information ◽  
High Growth Potential

Abstract We analyze a multiyear, multicountry entrepreneurship survey with more than one million observations to identify startups with low and high growth potential. We confirm the validity of these ex ante measures with ex post firm-level information on employment growth. We find that negative aggregate financial shocks reduce all startup types, but their effect is significantly stronger for startups with high growth potential, especially when GDP growth is low. Our results uncover a new composition of entry channel that significantly reduces employment growth and is potentially important for explaining slow recoveries after financial crises.

The value relevance of capital expenditures and the business cycle

2018 ◽  
Vol 35 (3) ◽  
pp. 386-406 ◽  
Author(s):  
Sungsoo Kim ◽  
Brandon byunghwan Lee
Keyword(s):  
Business Cycles ◽  
Stock Returns ◽  
Value Relevance ◽  
Financial Data ◽  
Capital Expenditures ◽  
Capital Investments ◽  
Content Type ◽  
Market Participants ◽  
Business Conditions

Purpose This paper aims to clarify the relationship between corporate capital investments and business cycles. Specifically, a major purpose of this paper is to investigate whether there are inherent differences in corporate investment patterns and whether the stock market exhibits different reactions to the value relevance of capital expenditures across different business conditions. Design/methodology/approach The authors use pooled ordinary least square regressions with archival stock price data and financial data from CRSP and Compustat. The authors regress buy and hold returns on the main test variables and control variables that are identified to be related to the investment literature. Findings This paper provides empirical evidence that US firms’ capital expenditures are more value relevant to capital market participants during expansionary business cycles and, conversely, less value relevant during contractionary business cycles. This evidence validates previous literature that has found the information content of capital expenditures to be uncertain and cyclical in nature. Research limitations/implications The main limitation of this paper, as with other work dealing with stock returns and archived financial data, is that the authors try to match stock returns with contemporaneous financial data in an association study context. The precise mapping in this methodology is always challenging and has been questioned in the literature. Practical implications This paper has various implications for capital market participants. Capital expenditures are good news for investors, but they will make a better investment when firms make capital investments during an expansionary period. Creditors deciding whether to extend credit to firms would benefit from more accurate information on the viability of long-term investment. The results also suggest to creditors that an excessive number of loans during the contractionary period may be suboptimal because firms’ returns on capital investment are smaller in that period than in the expansionary period. Social implications Given the valuation of implications of long-term capital investments across different business conditions, this paper sheds light on asset allocations for mutual funds, institutional investors who are entrusted with investors’ investments including retirement funds. Originality/value This paper fulfils an identified need to study how capital investments are valued differently across different business conditions.

scholarly journals Value relevance of accounting data and financial crisis in Europe: an empirical analysis

2012 ◽  
Vol 2 (2) ◽  
pp. 201 ◽  
Author(s):  
Alain Devalle
Keyword(s):  
Financial Crisis ◽  
Positive Impact ◽  
Value Relevance ◽  
Net Income ◽  
Accounting Data ◽  
Book Value ◽  
Crisis Period ◽  
Comprehensive Income ◽  
The Impact ◽  
The Relationship

This paper aims at verifying the relationship between book value and  market value for a four years period (2006-2009) in Europe, under IFRS. In particular, I used value relevance approach to measure whether net income or comprehensive income are more useful to understand the relationship between market data and financial data. Moreover, the paper analyzes the impact of financial crisis on the value relevance of accounting data. The examination period runs from a pre-crisis period (2006-2007) to an in-crisis period (2008-2009). Results shows that comprehensive income is more value relevant than net income. Furthermore, the financial crisis has a positive impact on value relevance.  

The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms

2006 ◽  
Vol 41 (2) ◽  
pp. 341-355 ◽  
Author(s):  
Sheng-Syan Chen
Keyword(s):  
Economic Impact ◽  
Capital Markets ◽  
Operating Performance ◽  
Capital Expenditures ◽  
Internal Capital Markets ◽  
Capital Investments ◽  
Corporate Capital ◽  
Investment Opportunities ◽  
Diversified Firms

AbstractThis paper examines the role of focus versus diversification in explaining the economic impact of corporate capital investments. I find that the stock market's responses to announcements of capital investments are more favorable for focused firms than for diversified firms. I also show that focused firms exhibit significantly better post-investment operating performance than diversified firms. The overall findings in this study suggest that the investment opportunities hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of capital investments on the investing firms.

Where Women Make a Difference: Gender Quotas and Firms’ Performance in Three European Countries

ILR Review ◽  
2019 ◽  
Vol 73 (3) ◽  
pp. 768-793 ◽  
Author(s):  
Simona Comi ◽  
Mara Grasseni ◽  
Federica Origo ◽  
Laura Pagani
Keyword(s):  
Firm Performance ◽  
Positive Impact ◽  
Gender Quotas ◽  
Policy Debate ◽  
Corporate Board ◽  
Firm Level ◽  
Data Set ◽  
Accounting Data ◽  
Positive Effect ◽  
Identification Strategy

The authors study the effect of corporate board gender quotas on firm performance in France, Italy, and Spain. The identification strategy exploits the exogenous variation in mandated gender quotas within country and over time and uses a counterfactual methodology. Using firm-level accounting data and a difference-in-difference estimator, the authors find that gender quotas had either a negative or an insignificant effect on firm performance in the countries considered with the exception of Italy, where they find a positive impact on productivity. The authors then focus on Italy. Using a novel data set containing detailed information on board members’ characteristics, they offer possible explanations for the positive effect of gender quotas. The results provide an important contribution to the policy debate about the optimal design of legislation on corporate gender quotas.

Wage-setting practices in the metalworking sector in Greece

2020 ◽  
Vol 42 (6) ◽  
pp. 1441-1463
Author(s):  
Daphne Nicolitsas
Keyword(s):  
Market Competition ◽  
Industrial Relations ◽  
Product Market ◽  
Structural Features ◽  
Collective Agreement ◽  
Wage Setting ◽  
Firm Level ◽  
Content Type ◽  
Level Information ◽  
And Performance

PurposeThe paper aims to link product market features in the Greek metal processing sector to the wage-setting practices followed therein.Design/methodology/approachAggregate business structural statistics are used to document the product market structure features while information from a rich sectoral collective agreement database, covering a number of sectors of the Greek economy, is used for the wage-setting practices. The approach is, in general, descriptive and discursive with the use of some regression analysis.FindingsThe main findings of the paper include: first, the metal sector as a whole is heterogeneous in terms of its structural/productive features; second, the type of collective agreements followed in the subsectors of the metal sector appear related to the structural features of the subsectors; third, negotiated wages appear binding for subsectors facing less product market competition; and finally, the ability to opt out of the sectoral agreement and sign firm-level agreements during the recent crisis in Greece was used mainly by firms suffering accounting losses.Research limitations/implicationsThe research results are limited by the absence of detailed firm-level information both on the actual wages paid and on the exact industrial relations practices in the workplace.Originality/valueIn view of the changes taking place in industrial relations in general and collective bargaining in particular, the issue of the homogeneity – in terms of structure and performance – of individual sectors, sets the question of whether one size (agreement) fits all and consequently whether extensions of agreements to whole sectors are advisable. This is the spirit in which the paper is written. The originality is linked both to the issue addressed but also to the use of the detailed collective labour agreements information and its association with product market features.

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