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Department: search.filters.department.Department of Business AdministrationSubject: search.filters.subject.Business enterprises

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Now showing 1 - 2 of 2
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    Predicting systematic risk: implications from growth options
    (Elsevier Science Bv, 2010) Jacquier, Eric; Titman, Sheridan; Department of Business Administration; Yalçın, Atakan; Faculty Member; Department of Business Administration; Graduate School of Business; 179934
    In accordance with the well-known financial leverage effect decreases in stock prices cause an increase in the levered equity beta for a given unlevered beta However as growth options are more volatile and have higher risk than assets in place a price decrease may decrease the unlevered equity beta via an operating leverage effect This is because price decreases are associated with a proportionately higher loss in growth options than in assets in place Most of the existing literature focuses on the financial leverage effect This paper examines both effects We show with a simple option pricing model the opposing effects at work when the firm is a portfolio of assets in place and growth options Our empirical results show that, contrary to common belief the operating leverage effect largely dominates the financial leverage effect even for initially highly levered firms with presumably few growth options We then link variations in betas to measurable firm characteristics that proxy for the fraction of the firm invested in growth options We show that these proxies jointly predict a large fraction of future cross-sectional differences in betas These results have important implications on the predictability of equity betas hence on empirical asset pricing and on portfolio optimization that controls for systematic risk.
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    Regulation fair disclosure and the market's reaction to analyst investment recommendation changes
    (Elsevier Science Bv, 2007) Cornett, Marcia Millon; Tehranian, Hassan; Department of Business Administration; Yalçın, Atakan; Faculty Member; Department of Business Administration; Graduate School of Business; 179934
    Previous research has shown that affiliated analysts (those who are working for investment banks that underwrite securities for companies) have an incentive to provide optimistically biased recommendations from selective information they are given by the firm. In an effort to halt such activities, as of October 2000, Regulation Fair Disclosure (RegFD) prohibits selective disclosure of material non-public information by public companies to privileged individuals (such as favored research analysts) and requires broad, non-exclusionary disclosure of such information. We examine firms' stock price reactions to investment recommendation changes from affiliated analysts versus unaffiliated analysts from October 1998 to November 2002, around the passage of RegFD. Similar to previous research, we find that investors reacted more significantly to recommendation downgrades by affiliated analysts than to those by unaffiliated analysts prior to the passage of RegFD. However, we find that the difference in the reactions to recommendation changes is not present after the passage of RegFD. We also find that stock price reactions to analysts' (both affiliated and unaffiliated) recommendation changes decreased significantly after the passage of RegFD. Thus, RegFD appears to have curbed the selective disclosure of information (particularly negative information) by firms to affiliated analysts. Further, the smaller reactions to recommendation changes by all analysts after RegFD may reflect a change in analysts' behavior (irrespective of information that is available) or a response by corporate managers to withhold information rather than risking a violation of fair disclosure rules.