Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 THE IMPACT OF SHIFTS IN FORECASTED EARNINGS AND SYSTEMATIC RISK ON ACQUIRING FIRM SHAREHOLDER WEALTH IN DOMESTIC AND INTERNATIONAL ACQUISITIONS LeRoy D. Brooks University of South Carolina Dorothee J. Feils University of British Columbia Bijoy K. Sahoo University of South Carolina Abstract On average, acquiring firm shareholders experience significant wealth losses in domestic acquisitions, but not in international acquisitions. However, the difference between wealth effects from domestic and international acquisitions is not statistically significant. Acquiring firm unique synergy benefits manifest themselves in larger future expected cash flows but not in reductions in systematic risk. Acquiring firm shareholder gains are positively related to relative size of the target firm to the acquiring firm.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 EVALUATING REFINANCING STRATEGIES PRECISELY Lawrence S. Tai Loyola Marymount University Zbigniew H. Przasnyski Loyola Marymount University Abstract When a borrower refinances a mortgage, choices have to be made between fixed-rate and adjustable-rate loans based on expectations of future interest rates and the expected holding period of the loan. This paper presents a new, comprehensive and precise calculation procedure which will assist a borrower in selecting the best refinancing option by taking into account all of the interacting factors that contribute to the decision. The calculation procedure can be computerized and used to investigate various refinancing conventional wisdoms, for example it leads us to refute the conventional 2% rule, and to avoid erroneous and costly decisions.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 ACCOUNTING BETAS - AN EX ANTI PROXY FOR RISK WITHIN THE IPO MARKET Mohamad A. Almisher King Saud University - Saudi Arabia Richard J. Kish Lehigh University Abstract Several studies in the past established an association between market and accounting betas. Most of the previous studies are performed using a sample of large established firms for which both accounting and market betas can be computed. In our study, market betas cannot be computed due to the data limitations associated with private firms. Thus, a direct measure of the association between the two betas is impossible. However by relying on the relationship that exists between market betas and the underpricing of the IPOs, we are able to establish the linkage between market and accounting betas. Through this linkage, our results confirm that accounting betas are associated with market betas within the IPO market. Therefore, accounting betas can be used as an ex anti measure for the riskiness of firms entering into the IPO market.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 A MULTIPLE-METRIC STUDY OF THE RETURNS TO SHAREHOLDERS: THE CASE OF BANK HOLDING COMPANY MERGERS-PART II, THE SOURCE OF THE RETURNS J.C. Thompson Eastern Kentucky University Abstract The initial thrust of this research (Thompson 1995) was an event study that dealt with shareholder reaction to the announcement of a merger of two bank holding companies (BHC). It was found that positive abnormal returns accrue to the shareholders of the acquired firm. The abnormal returns to the shareholders of the acquiring firm are either negative or zero and are stock exchange dependent. This paper details regressions analyses that were employed to attempt to isolate the underlying reasons for the abnormal returns. The results of the regressions indicate that, of the variables chosen, only the capital-to-assets ratio was significant for the acquired sample. None of the variables were significant for the acquiring sample.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 HOW TO VALUE INDEXED EXECUTIVE STOCK OPTIONS Oliver Schnusenberg St. Joseph's University Wm R McDaniel Florida Atlantic University Abstract Some powerful investors, boards of directors and even executives themselves have recently observed that stock options with fixed exercise prices do not properly tie managers' performance to compensation. To mitigate the problem, several corporations are considering the use of employee options whose exercise price varies with major stock indexes. We show how to use the Fischer-Margrabe option pricing model to value this new kind of option for determining the executive's remuneration and for financial reporting.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 GLOBAL FIXED INCOME PORTFOLIO MANAGEMENT Karen M. Hogan Saint Joseph's University Richard J. Kish Lehigh University James A. Greenleaf Lehigh University Abstract Global income investing has become very popular over the last decade as investors worldwide sought more favorable risk-return tradeoffs by combining international positions with domestic alternatives. Global investing involves fixed income, equity, and derivative securities. This study focuses on the first aspect, fixed income. The performance of global fixed income investing is a function of the investor's home currency, the asset allocation chosen, and the degree to which currency risks are controlled through hedging or diversification. It is the authors' contention that while global fixed income investing is generally an attractive alternative to solely domestic investments, the risk-reward trade offs are often misunderstood because of improper risk and return estimates. The primary purpose of this paper is to develop a model that properly specifies risks and returns, so that the global investor may make properly informed asset allocation/hedging decisions. The model's main advantage is that it contains a complete specification of each asset's risk and return, broken down into principal component parts, such as currency exposure and local return volatility. Current market data are used in favor of historical inputs whenever possible, and additional sources of ex ante data are discussed. Empirical results are generated using June 1992 and January 1996 as contrasting investment periods. The model results are useful in explaining observed investor behavior. Most of the solutions may be easily rationalized in terms of their expected returns and contribution towards reducing risk, including some of the subtle covariance relationships.

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 CONTROL AND BANK PERFORMANCE Lawrence Fogelberg Troy State University John M. Griffith Old Dominion University We wish to thank the Editor and especially the referees whose comments and suggestions greatly improved the paper. We are responsible for any remaining errors. Abstract This study examines the relation between management ownership and firm performance for a sample of commercial bank holding companies. We find that, when an economic measure of performance is used, the relation between ownership and performance of commercial banks is not monotonic, but is significantly curvilinear. This differs from the results of Pi and Timme (1993). We also find that the question of whether or not the CEO also holds the title of chairman of the board has no impact on bank performance. We speculate that, in commercial banks, management entrenchment, as proposed in Morck, Shleifer and Vishny (1988), may offset the effects predicted by the convergence-of-interest hypothesis of Jensen and Meckling (1976).

Journal of Financial and Strategic Decisions Volume 13, Number 3   Fall 2000 THE EFFECTS OF INFORMATION ORDERING ON INVESTOR PERCEPTIONS: AN EXPERIMENT UTILIZING PRESIDENTS' LETTERS Jane E. Baird Minnesota State University, Mankato Robert C. Zelin, II Minnesota State University, Mankato Abstract This study provides experimental evidence regarding the existence of order effects related to the presentation of positive and negative qualitative information in annual reports. Specifically, the effect of information order in the president's letter is examined. The president's letter in an annual report is an important vehicle for management to persuade investors that the company is a worthwhile investment. Prior studies have shown both that managements manipulate information in presidents' letters and that investors use the information in presidents' letters in making investment decisions. Such usage has potential ramifications for corporate management and investors. This study extends prior research by examining whether the ordering of good news and bad news in a president's letter could bias investor perceptions. Part-time MBA students participated in an experiment as surrogates for investors. The results indicate a primacy effect did occur.

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