TESTING FOR MORAL HAZARD IN FINANCIAL NETWORKSPer Bäckman
This document summarizes a master's thesis that tests for moral hazard in financial networks. It develops a simulation model to show that players in financial markets can exploit their position within a network. The simulation constructs a network where one firm defaults on an external asset, causing the default to spread through the system as the asset is repackaged and resold. However, the initiating firm only bears part of the consequences due to risk sharing in the network, giving it an incentive to engage in risky behavior. The thesis reviews literature on financial contagion theory, network theory and game theory to develop this model. It then outlines the methodology and intended results sections to analyze data from the simulation to determine how different network structures and positions within them influence
International journal of engineering and mathematical modelling vol1 no1_2015_2IJEMM
This document discusses using the CIR++ model to estimate default risk through simulation. It begins by describing structural and reduced-form approaches to default estimation. It then introduces the CIR and CIR++ processes, which can model the evolution of short-term interest rates and default intensities. The document outlines how the CIR++ model can be calibrated to market data on yield curves and credit default swap prices to estimate default probabilities. It concludes by stating the calibrated CIR++ model will be tested against Deutsche Bank estimates to evaluate its ability to model default risk.
Research of Corporate transparency as a factor for capitalizationEldaniz Shikhlinsky
The document summarizes research on transparency and disclosure as elements of corporate management in Russia. It finds that only 39% of sampled companies have transparency criteria above 2 out of 5, with averages around 1.87. Better disclosure is correlated with higher P/E and P/BV ratios. Two models are constructed and compared to examine the relationship between transparency and investment decisions.
Impact of corporate vc investment motivation on startup valuationIan Beckett
This document describes a study that aims to classify corporate venture capitalists (CVCs) into subgroups based on their levels of strategic and financial investment motivation, as determined through computer-aided text analysis of CVC mission statements. It then examines how startup valuation differs across these CVC types using a sample of 147 startup valuations from 2009-2016 involving first-time CVC investments. The study finds that CVCs with a strategic investment motivation assign lower valuations than those with a moderate analytic motivation, suggesting entrepreneurs trade off value-adding contributions for a valuation discount. CVCs with an unfocused motivation pay higher prices, supporting the idea of "liability of vacillation." Valuations from CVCs with a financial motive do not differ
This paper extends Merton's structural model of corporate debt pricing to incorporate stochastic volatility in the underlying firm's asset value. Through simulation, the author finds that accounting for stochastic volatility can significantly increase the credit spreads generated by the model, especially for shorter maturity debts. Specifically, for debt maturities of 5 years or less, incorporating stochastic volatility increases average credit spreads by about 33 basis points, or 32.35%, compared to the standard Merton model which assumes constant volatility. Therefore, the stochastic volatility model addresses a key limitation of Merton-type models in generating credit spreads that match levels observed in real markets.
The document examines how the shift from active to passive investing affects financial stability. It finds that the shift both increases and decreases certain risks:
1) The growth of ETFs, which are largely passive and do not redeem in cash, has likely reduced risks from liquidity transformation and destabilizing redemptions compared to mutual funds.
2) However, some passive strategies like leveraged ETFs amplify market volatility.
3) The shift has also increased asset management industry concentration, potentially exacerbating risks from operational problems at large firms.
4) Evidence is mixed on whether passive investing increases comovement of asset returns and liquidity through "index inclusion effects."
This document discusses a study that uses a simple screening method based on publicly available financial statements to select stocks from the Russell 2000 index that consistently outperform the index from 2001-2005. The screen generates an annualized excess return (alpha) of 7.58% over this period. The document estimates that widespread adoption of XBRL could reduce the cost of capital for small public companies by 1.75-3.03% by enabling easier analysis of financial statements, particularly for companies that currently lack analyst coverage. The returns to the simple screening method provide evidence that information from financial statements not fully incorporated into stock prices, and that XBRL could help reduce this inefficiency.
Corporate bankruptcy prediction using Deep learning techniquesShantanu Deshpande
This document proposes using deep learning techniques like LSTM neural networks to predict corporate bankruptcy by integrating both financial ratio data and textual disclosures from annual reports. It notes that previous studies have largely relied on statistical models or used only financial data with machine learning. The researcher aims to determine if adding textual data to an LSTM model improves prediction performance over a CNN model using only financial ratios. The document outlines the research question, objectives, and provides an overview of previous bankruptcy prediction studies using statistical, machine learning and deep learning methods.
TESTING FOR MORAL HAZARD IN FINANCIAL NETWORKSPer Bäckman
This document summarizes a master's thesis that tests for moral hazard in financial networks. It develops a simulation model to show that players in financial markets can exploit their position within a network. The simulation constructs a network where one firm defaults on an external asset, causing the default to spread through the system as the asset is repackaged and resold. However, the initiating firm only bears part of the consequences due to risk sharing in the network, giving it an incentive to engage in risky behavior. The thesis reviews literature on financial contagion theory, network theory and game theory to develop this model. It then outlines the methodology and intended results sections to analyze data from the simulation to determine how different network structures and positions within them influence
International journal of engineering and mathematical modelling vol1 no1_2015_2IJEMM
This document discusses using the CIR++ model to estimate default risk through simulation. It begins by describing structural and reduced-form approaches to default estimation. It then introduces the CIR and CIR++ processes, which can model the evolution of short-term interest rates and default intensities. The document outlines how the CIR++ model can be calibrated to market data on yield curves and credit default swap prices to estimate default probabilities. It concludes by stating the calibrated CIR++ model will be tested against Deutsche Bank estimates to evaluate its ability to model default risk.
Research of Corporate transparency as a factor for capitalizationEldaniz Shikhlinsky
The document summarizes research on transparency and disclosure as elements of corporate management in Russia. It finds that only 39% of sampled companies have transparency criteria above 2 out of 5, with averages around 1.87. Better disclosure is correlated with higher P/E and P/BV ratios. Two models are constructed and compared to examine the relationship between transparency and investment decisions.
Impact of corporate vc investment motivation on startup valuationIan Beckett
This document describes a study that aims to classify corporate venture capitalists (CVCs) into subgroups based on their levels of strategic and financial investment motivation, as determined through computer-aided text analysis of CVC mission statements. It then examines how startup valuation differs across these CVC types using a sample of 147 startup valuations from 2009-2016 involving first-time CVC investments. The study finds that CVCs with a strategic investment motivation assign lower valuations than those with a moderate analytic motivation, suggesting entrepreneurs trade off value-adding contributions for a valuation discount. CVCs with an unfocused motivation pay higher prices, supporting the idea of "liability of vacillation." Valuations from CVCs with a financial motive do not differ
This paper extends Merton's structural model of corporate debt pricing to incorporate stochastic volatility in the underlying firm's asset value. Through simulation, the author finds that accounting for stochastic volatility can significantly increase the credit spreads generated by the model, especially for shorter maturity debts. Specifically, for debt maturities of 5 years or less, incorporating stochastic volatility increases average credit spreads by about 33 basis points, or 32.35%, compared to the standard Merton model which assumes constant volatility. Therefore, the stochastic volatility model addresses a key limitation of Merton-type models in generating credit spreads that match levels observed in real markets.
The document examines how the shift from active to passive investing affects financial stability. It finds that the shift both increases and decreases certain risks:
1) The growth of ETFs, which are largely passive and do not redeem in cash, has likely reduced risks from liquidity transformation and destabilizing redemptions compared to mutual funds.
2) However, some passive strategies like leveraged ETFs amplify market volatility.
3) The shift has also increased asset management industry concentration, potentially exacerbating risks from operational problems at large firms.
4) Evidence is mixed on whether passive investing increases comovement of asset returns and liquidity through "index inclusion effects."
This document discusses a study that uses a simple screening method based on publicly available financial statements to select stocks from the Russell 2000 index that consistently outperform the index from 2001-2005. The screen generates an annualized excess return (alpha) of 7.58% over this period. The document estimates that widespread adoption of XBRL could reduce the cost of capital for small public companies by 1.75-3.03% by enabling easier analysis of financial statements, particularly for companies that currently lack analyst coverage. The returns to the simple screening method provide evidence that information from financial statements not fully incorporated into stock prices, and that XBRL could help reduce this inefficiency.
Corporate bankruptcy prediction using Deep learning techniquesShantanu Deshpande
This document proposes using deep learning techniques like LSTM neural networks to predict corporate bankruptcy by integrating both financial ratio data and textual disclosures from annual reports. It notes that previous studies have largely relied on statistical models or used only financial data with machine learning. The researcher aims to determine if adding textual data to an LSTM model improves prediction performance over a CNN model using only financial ratios. The document outlines the research question, objectives, and provides an overview of previous bankruptcy prediction studies using statistical, machine learning and deep learning methods.
This document outlines a study examining the impact of capital structure on firm value and investment decisions, with a focus on the moderating role of corporate tax changes. The study aims to analyze 200 Pakistani firms from 2003-2017 using panel data methodology and GMM regression. It develops four hypotheses related to the effects of capital structure on firm value and investment, and the moderating impact of taxes. A literature review covers prior research on the relationships between capital structure, firm value, investment decisions, and taxes. The methodology section outlines the sample selection, data collection from annual reports, and analysis approach.
Kristine Farla's dissertation contains four empirical studies on how institutions and policies impact economic development. The studies find that:
1) Countries with stronger property rights, contract enforcement, and competition see greater financial development, even when controlling for financial policies.
2) Pro-business policies that support industry development, like innovation, have a stronger positive effect on growth than pro-market policies aimed at competition.
3) Previous findings that foreign direct investment negatively impacts domestic investment are sensitive to methodology. The dissertation finds foreign investment may actually stimulate domestic investment through technology spillovers.
4) Firm-level data shows investment is influenced by both micro and macro factors. Stronger property rights and less corruption encourage
This document is a bachelor thesis that investigates the impact of capital structure choice on investment decisions of firms. Specifically, it examines the effect of leverage on investment decisions for all Dutch AEX-listed firms as well as separately for high-growth and low-growth firms. The thesis begins with an introduction and literature review on the relationship between leverage and investment. It then describes the regression model that will be used for analysis and defines the variables. Finally, it presents the results of the regression analysis and draws conclusions regarding the effect of leverage on investment decisions.
Regulatory scrutiny has significantly increased and has prompted banks to develop complex models at the lowest level of granularity to capture the impact of economic cycles. Segmentation is one of the first steps in establishing a quantitative basis for the enterprisewide scenario analysis of stress testing.
Forum Microcredit Interest Rates and their DeterminantsDr Lendy Spires
This document analyzes microcredit interest rates and their determinants from 2004-2011 using data from the Microfinance Information Exchange. It finds that globally, interest rates declined substantially through 2007 but then leveled off. This is partly due to operating costs, which declined long-term but rose in 2008 and 2011. It also examines the components that determine interest rates: cost of funds, loan losses, operating expenses, profits. It reports that average returns on equity have fallen and profits as a percentage of loan payments have dropped dramatically over this period.
The ability of previous quarterly earnings, net interest margin, and average ...RyanMHolcomb
The document describes an empirical research paper that aims to establish a regression model to forecast quarterly earnings for regional pure-play banks. Specifically, the model hypothesizes that a bank's previous quarter earnings, net interest margin, and average assets are jointly significant in predicting future earnings. The motivation and economic theory behind including these variables in the model is discussed. Previous literature finding relationships between earnings, cash flow, and other variables is also reviewed to support the inclusion of variables in the proposed model.
The document discusses restoring public trust in corporate reporting. It proposes a three-tiered model for corporate transparency consisting of global accounting standards, industry standards, and company-specific information. Recent scandals have undermined trust in executives, boards, auditors, and analysts that produce corporate information. To rebuild trust, all participants must embrace transparency, accountability, and integrity. New technologies like XBRL can improve access and analysis of reported information across the three tiers. The future of corporate reporting relies on cooperation across industries to establish comprehensive transparency standards.
Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty by Nacef Mouri, M.B. Sarkar, Melissa Frye.
Fund performance persistence and competition keswanibfmresearch
This document summarizes a study that examines how competition within a sector affects mutual fund performance persistence at the sector level in the UK market. The study uses data on UK unit trusts from 1991-2001 that includes annual returns, assets, and sector classifications. Several variables are constructed to measure competition within each sector, such as the number of funds, proportion of mature funds, and concentration of assets. The main finding is that performance persistence is higher in sectors where concentration of assets under management is higher, indicating less competition is associated with greater persistence. This suggests the degree of persistence exhibited by a sector's funds depends on how competitive that sector is.
This document examines how organization capital affects mergers and acquisitions. It asks whether high organization-capital firms are more active acquirers, if they make good acquirers, and how they choose targets. The study uses a panel data probit model and data on over 17,000 M&A transactions from 1984-2014. It finds that high organization-capital firms prefer organic growth over acquisitions. However, acquisitions by high organization-capital firms achieve higher returns and better post-merger performance than those by low organization-capital firms. Specifically, high organization-capital acquirers tend to purchase complementary, high organization-capital targets in different industries in order to apply their knowledge and realize synergies.
Aerospace and Defense Value Creators Report 2015Seda Eskiler
globalaviationaerospace.com
Putting Conventional Wisdom to Test
A&D Segments Outperformed to S&P 500 over the Past Decade
Top-Quartile Performers Derive Almost All Long-Term Value from Growth
Sources of Value for Top Perfomers in the Sector Are in Line with the Top Quartile of the S&P 500
Commercial and Diversified Players Outperformed Defense-Focused Companies
Asset-Light Companies Are Not Earning the Highest Returns
Multidimensional Analysis Of The External Environment In The Strategic Netwo...theijes
The International Journal of Engineering & Science is aimed at providing a platform for researchers, engineers, scientists, or educators to publish their original research results, to exchange new ideas, to disseminate information in innovative designs, engineering experiences and technological skills. It is also the Journal's objective to promote engineering and technology education. All papers submitted to the Journal will be blind peer-reviewed. Only original articles will be published.
The papers for publication in The International Journal of Engineering& Science are selected through rigorous peer reviews to ensure originality, timeliness, relevance, and readability.
This document summarizes a research paper that investigates the relationships between IT capability, IT spending, and market value across industries. The paper uses two datasets from 1992-1994 and 1999-2006 to examine this question. It employs Ohlson's residual income valuation model and controls for factors like industry effects, firm performance, size, and growth. The results show that IT capability is positively associated with market value, while IT spending is not, indicating that how IT is used is more important than how much is spent. This adds to the existing literature by simultaneously analyzing the effects of both IT capability and spending.
Network Models of Regional Innovation Clusters and their Impact on Economic G...Scott Dempwolf
This research uses social network analysis to develop models of regional innovation clusters using data from patent applications and other sources. These new models are more detailed than current industry cluster models, and they reveal actual and potential relationships among firms that industry cluster models cannot. The network models can identify specific clusters of firms with high potential for manufacturing job growth where business retention and expansion efforts may be targeted. They can also identify dense clusters of talent where innovation and entrepreneurial efforts may be targeted. Finally, this research measures relationships between network structure at the time of patent application and manufacturing job growth in subsequent years. This will permit the translation of a wide range of network-building activities into the ubiquitous “jobs created” metric. These new tools will help economic developers focus resources on high-yield activities, and measure the results of networking activities more effectively.
This document summarizes a study on investors' perceptions of mutual funds. It discusses how mutual funds pool investor money and invest in securities to generate profits or losses distributed to investors proportionally. The study aims to analyze how demographic factors impact investor attitudes toward mutual funds and determine which types and distribution channels investors prefer. It also reviews past literature on mutual fund performance evaluation and discusses India's growing financial services sector and prominent mutual fund companies. The researcher seeks to identify the key parameters like liquidity and returns that shape investor perceptions of mutual funds.
Mergers and acquisitions and bank performance in Europe the role of strategic...- -
This paper analyzes 262 mergers and acquisitions in the European banking sector between 1990-2004 to examine the impact of strategic similarities on bank performance. The authors find that mergers between banks with similar efficiency levels, capital structures, and business profiles led to improved post-merger performance, especially for domestic mergers focused on cost-cutting. However, differences in credit risk and activities boosted performance for cross-border mergers seeking revenue synergies. The analysis provides insights but has limitations such as a narrow time window, lack of controls for multiple mergers, and not accounting for differences in accounting standards across countries.
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
Plan sponsors hire and fire investment management firms to manage retirement plan assets totaling $6.3 trillion. The study examines the hiring and firing decisions of 3,400 plan sponsors between 1994-2003. It finds that plan sponsors hire managers after periods of strong excess returns, but these returns do not continue afterward. Managers are terminated for various reasons, including but not limited to underperformance, and excess returns after firings are indistinguishable from zero. When comparing returns from fired vs. newly hired managers, staying with fired managers would have yielded similar returns. Hiring and firing patterns vary based on plan sponsor characteristics.
Short term persistence in mutual fund performance(12)bfmresearch
This study examines the short-term persistence of mutual fund performance using daily returns data over quarterly periods. The researchers estimate stock selection and market timing models for mutual funds and rank funds into deciles based on their estimated abnormal returns each quarter. They then measure the average abnormal return of each decile in the following quarter. They find that the top-performing decile in a given quarter generates a statistically significant average abnormal return of 25-39 basis points in the subsequent quarter, providing evidence of short-term persistence in performance. However, this persistence disappears when funds are evaluated over longer periods using a concatenated time series approach.
Data returnsselectionoffunds elton_gruberbfmresearch
1) Using holdings data and security betas to estimate mutual fund alphas and betas leads to better selection of funds than estimating from fund returns alone. The funds selected using the holdings data approach have significantly higher future alphas.
2) Estimating alphas and betas more frequently, such as with monthly holdings data rather than quarterly, further improves selection. However, quarterly data captures most of the benefits and allows analysis of a much larger sample.
3) Neither conditional betas nor an alternative approach using holdings proposed by Grinblatt and Titman provided better rankings than the primary approach using holdings to estimate alphas and betas.
This document presents a system for predicting corporate bankruptcy using textual disclosures from SEC filings. It discusses how previous studies have used financial ratios and market data to predict bankruptcy, but that textual disclosures also provide important unstructured qualitative information. The proposed system uses natural language processing and machine learning algorithms to extract features from 10-K and 10-Q filings and predict bankruptcy with high accuracy, even before the final bankruptcy occurs. It aims to improve on previous bankruptcy prediction methods by incorporating both financial and textual data sources.
Distribution Series III: Changing Distribution & Share Class Landscape WebinarNICSA
This document summarizes a webinar on trends in asset management distribution. It provides information on the presenters and CPE codes. It then summarizes the objectives of the survey conducted by EY, including how changes in demographics may impact asset flows. Key findings from the survey are outlined, including increasing demand for fee transparency and the dominance of fee-based models. It also discusses trends from the perspective of mutual fund complexes, including growth in omnibus accounts and fee-based business. Charts on holdings by share class and the changing mutual funds product set are also included.
This document outlines a study examining the impact of capital structure on firm value and investment decisions, with a focus on the moderating role of corporate tax changes. The study aims to analyze 200 Pakistani firms from 2003-2017 using panel data methodology and GMM regression. It develops four hypotheses related to the effects of capital structure on firm value and investment, and the moderating impact of taxes. A literature review covers prior research on the relationships between capital structure, firm value, investment decisions, and taxes. The methodology section outlines the sample selection, data collection from annual reports, and analysis approach.
Kristine Farla's dissertation contains four empirical studies on how institutions and policies impact economic development. The studies find that:
1) Countries with stronger property rights, contract enforcement, and competition see greater financial development, even when controlling for financial policies.
2) Pro-business policies that support industry development, like innovation, have a stronger positive effect on growth than pro-market policies aimed at competition.
3) Previous findings that foreign direct investment negatively impacts domestic investment are sensitive to methodology. The dissertation finds foreign investment may actually stimulate domestic investment through technology spillovers.
4) Firm-level data shows investment is influenced by both micro and macro factors. Stronger property rights and less corruption encourage
This document is a bachelor thesis that investigates the impact of capital structure choice on investment decisions of firms. Specifically, it examines the effect of leverage on investment decisions for all Dutch AEX-listed firms as well as separately for high-growth and low-growth firms. The thesis begins with an introduction and literature review on the relationship between leverage and investment. It then describes the regression model that will be used for analysis and defines the variables. Finally, it presents the results of the regression analysis and draws conclusions regarding the effect of leverage on investment decisions.
Regulatory scrutiny has significantly increased and has prompted banks to develop complex models at the lowest level of granularity to capture the impact of economic cycles. Segmentation is one of the first steps in establishing a quantitative basis for the enterprisewide scenario analysis of stress testing.
Forum Microcredit Interest Rates and their DeterminantsDr Lendy Spires
This document analyzes microcredit interest rates and their determinants from 2004-2011 using data from the Microfinance Information Exchange. It finds that globally, interest rates declined substantially through 2007 but then leveled off. This is partly due to operating costs, which declined long-term but rose in 2008 and 2011. It also examines the components that determine interest rates: cost of funds, loan losses, operating expenses, profits. It reports that average returns on equity have fallen and profits as a percentage of loan payments have dropped dramatically over this period.
The ability of previous quarterly earnings, net interest margin, and average ...RyanMHolcomb
The document describes an empirical research paper that aims to establish a regression model to forecast quarterly earnings for regional pure-play banks. Specifically, the model hypothesizes that a bank's previous quarter earnings, net interest margin, and average assets are jointly significant in predicting future earnings. The motivation and economic theory behind including these variables in the model is discussed. Previous literature finding relationships between earnings, cash flow, and other variables is also reviewed to support the inclusion of variables in the proposed model.
The document discusses restoring public trust in corporate reporting. It proposes a three-tiered model for corporate transparency consisting of global accounting standards, industry standards, and company-specific information. Recent scandals have undermined trust in executives, boards, auditors, and analysts that produce corporate information. To rebuild trust, all participants must embrace transparency, accountability, and integrity. New technologies like XBRL can improve access and analysis of reported information across the three tiers. The future of corporate reporting relies on cooperation across industries to establish comprehensive transparency standards.
Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty by Nacef Mouri, M.B. Sarkar, Melissa Frye.
Fund performance persistence and competition keswanibfmresearch
This document summarizes a study that examines how competition within a sector affects mutual fund performance persistence at the sector level in the UK market. The study uses data on UK unit trusts from 1991-2001 that includes annual returns, assets, and sector classifications. Several variables are constructed to measure competition within each sector, such as the number of funds, proportion of mature funds, and concentration of assets. The main finding is that performance persistence is higher in sectors where concentration of assets under management is higher, indicating less competition is associated with greater persistence. This suggests the degree of persistence exhibited by a sector's funds depends on how competitive that sector is.
This document examines how organization capital affects mergers and acquisitions. It asks whether high organization-capital firms are more active acquirers, if they make good acquirers, and how they choose targets. The study uses a panel data probit model and data on over 17,000 M&A transactions from 1984-2014. It finds that high organization-capital firms prefer organic growth over acquisitions. However, acquisitions by high organization-capital firms achieve higher returns and better post-merger performance than those by low organization-capital firms. Specifically, high organization-capital acquirers tend to purchase complementary, high organization-capital targets in different industries in order to apply their knowledge and realize synergies.
Aerospace and Defense Value Creators Report 2015Seda Eskiler
globalaviationaerospace.com
Putting Conventional Wisdom to Test
A&D Segments Outperformed to S&P 500 over the Past Decade
Top-Quartile Performers Derive Almost All Long-Term Value from Growth
Sources of Value for Top Perfomers in the Sector Are in Line with the Top Quartile of the S&P 500
Commercial and Diversified Players Outperformed Defense-Focused Companies
Asset-Light Companies Are Not Earning the Highest Returns
Multidimensional Analysis Of The External Environment In The Strategic Netwo...theijes
The International Journal of Engineering & Science is aimed at providing a platform for researchers, engineers, scientists, or educators to publish their original research results, to exchange new ideas, to disseminate information in innovative designs, engineering experiences and technological skills. It is also the Journal's objective to promote engineering and technology education. All papers submitted to the Journal will be blind peer-reviewed. Only original articles will be published.
The papers for publication in The International Journal of Engineering& Science are selected through rigorous peer reviews to ensure originality, timeliness, relevance, and readability.
This document summarizes a research paper that investigates the relationships between IT capability, IT spending, and market value across industries. The paper uses two datasets from 1992-1994 and 1999-2006 to examine this question. It employs Ohlson's residual income valuation model and controls for factors like industry effects, firm performance, size, and growth. The results show that IT capability is positively associated with market value, while IT spending is not, indicating that how IT is used is more important than how much is spent. This adds to the existing literature by simultaneously analyzing the effects of both IT capability and spending.
Network Models of Regional Innovation Clusters and their Impact on Economic G...Scott Dempwolf
This research uses social network analysis to develop models of regional innovation clusters using data from patent applications and other sources. These new models are more detailed than current industry cluster models, and they reveal actual and potential relationships among firms that industry cluster models cannot. The network models can identify specific clusters of firms with high potential for manufacturing job growth where business retention and expansion efforts may be targeted. They can also identify dense clusters of talent where innovation and entrepreneurial efforts may be targeted. Finally, this research measures relationships between network structure at the time of patent application and manufacturing job growth in subsequent years. This will permit the translation of a wide range of network-building activities into the ubiquitous “jobs created” metric. These new tools will help economic developers focus resources on high-yield activities, and measure the results of networking activities more effectively.
This document summarizes a study on investors' perceptions of mutual funds. It discusses how mutual funds pool investor money and invest in securities to generate profits or losses distributed to investors proportionally. The study aims to analyze how demographic factors impact investor attitudes toward mutual funds and determine which types and distribution channels investors prefer. It also reviews past literature on mutual fund performance evaluation and discusses India's growing financial services sector and prominent mutual fund companies. The researcher seeks to identify the key parameters like liquidity and returns that shape investor perceptions of mutual funds.
Mergers and acquisitions and bank performance in Europe the role of strategic...- -
This paper analyzes 262 mergers and acquisitions in the European banking sector between 1990-2004 to examine the impact of strategic similarities on bank performance. The authors find that mergers between banks with similar efficiency levels, capital structures, and business profiles led to improved post-merger performance, especially for domestic mergers focused on cost-cutting. However, differences in credit risk and activities boosted performance for cross-border mergers seeking revenue synergies. The analysis provides insights but has limitations such as a narrow time window, lack of controls for multiple mergers, and not accounting for differences in accounting standards across countries.
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
Plan sponsors hire and fire investment management firms to manage retirement plan assets totaling $6.3 trillion. The study examines the hiring and firing decisions of 3,400 plan sponsors between 1994-2003. It finds that plan sponsors hire managers after periods of strong excess returns, but these returns do not continue afterward. Managers are terminated for various reasons, including but not limited to underperformance, and excess returns after firings are indistinguishable from zero. When comparing returns from fired vs. newly hired managers, staying with fired managers would have yielded similar returns. Hiring and firing patterns vary based on plan sponsor characteristics.
Short term persistence in mutual fund performance(12)bfmresearch
This study examines the short-term persistence of mutual fund performance using daily returns data over quarterly periods. The researchers estimate stock selection and market timing models for mutual funds and rank funds into deciles based on their estimated abnormal returns each quarter. They then measure the average abnormal return of each decile in the following quarter. They find that the top-performing decile in a given quarter generates a statistically significant average abnormal return of 25-39 basis points in the subsequent quarter, providing evidence of short-term persistence in performance. However, this persistence disappears when funds are evaluated over longer periods using a concatenated time series approach.
Data returnsselectionoffunds elton_gruberbfmresearch
1) Using holdings data and security betas to estimate mutual fund alphas and betas leads to better selection of funds than estimating from fund returns alone. The funds selected using the holdings data approach have significantly higher future alphas.
2) Estimating alphas and betas more frequently, such as with monthly holdings data rather than quarterly, further improves selection. However, quarterly data captures most of the benefits and allows analysis of a much larger sample.
3) Neither conditional betas nor an alternative approach using holdings proposed by Grinblatt and Titman provided better rankings than the primary approach using holdings to estimate alphas and betas.
This document presents a system for predicting corporate bankruptcy using textual disclosures from SEC filings. It discusses how previous studies have used financial ratios and market data to predict bankruptcy, but that textual disclosures also provide important unstructured qualitative information. The proposed system uses natural language processing and machine learning algorithms to extract features from 10-K and 10-Q filings and predict bankruptcy with high accuracy, even before the final bankruptcy occurs. It aims to improve on previous bankruptcy prediction methods by incorporating both financial and textual data sources.
Distribution Series III: Changing Distribution & Share Class Landscape WebinarNICSA
This document summarizes a webinar on trends in asset management distribution. It provides information on the presenters and CPE codes. It then summarizes the objectives of the survey conducted by EY, including how changes in demographics may impact asset flows. Key findings from the survey are outlined, including increasing demand for fee transparency and the dominance of fee-based models. It also discusses trends from the perspective of mutual fund complexes, including growth in omnibus accounts and fee-based business. Charts on holdings by share class and the changing mutual funds product set are also included.
A Hands-on Future of Endowments and FoundationsState Street
The endowment and foundation sector is increasingly investing in alternatives like infrastructure, private equity, and emerging markets to drive performance and diversification in a low interest rate environment. Many funds plan to increase their risk appetite and shift more assets into alternatives. However, most lack the operational infrastructure to effectively manage increasingly sophisticated portfolios. There is a need for improved manager selection, transparency into alternative investments, and governance structures to oversee complex strategies.
The Total Economic Impact™ Of Cisco Data Virtualizationxband
Cisco commissioned Forrester Consulting to conduct a study on the total economic impact of Cisco's data virtualization solution. Forrester interviewed customers who had been using Cisco Data Virtualization for multiple years. The key findings were:
1) Customers experienced cost savings from IT project cost avoidance and reduced IT operating costs, as well as increased productivity from empowering employees to access data more quickly.
2) For a representative 20,000 employee organization, the benefits over 3 years included $1.3 million in IT project cost savings, $3.8 million from increased productivity, and 50% reduction in IT operating costs.
3) The costs included an initial $600,000 software license and $320,000
Impact of corporate diversification on the market value of firmsAlexander Decker
This document summarizes a study that investigates the impact of diversification on the market value of banks in Nigeria. The study hypothesized that diversification does not significantly impact market value. Using regression analysis, the results rejected this null hypothesis and found that diversification does significantly impact market value of banks in Nigeria. Prior literature on the impact of diversification has shown mixed and inconclusive results. Some studies found diversification reduced firm value while others found no relationship or that diversification increased value. The document reviews these mixed findings from prior studies.
The document summarizes a presentation on the 10 year anniversary of the FTSE RAFI Index Series. It discusses how fundamental indexing was originally conceived as an alternative to cap-weighted indexing and active management. It then reviews how the original criticisms of fundamental indexing have held up based on 10 years of live performance data. Finally, it discusses how fundamental indexing has evolved and the future of smart beta strategies.
Similar to Whom You Know Matters in Venture Capital (20)
Näkökulmia siitä, millaisiin omistajiin kannattaa sijoittaa. Taaleri Pääomarahastot Oy:n sijoitusjohtaja Tero Luoman esitys Sijoitusmessuilla 8.5.2018. #omistajuus #sijoittaminen
Hallituksen ja toimitusjohtajan suhde ei aina ole mutkaton. Kumpi vie kumpaa? Mitä jos toimitusjohtaja onkin vahvempi ja vie heikompaa hallitusta?
Tässä on luokiteltu 10 tyyppitapausta käytännön tilanteista, joissa hallitus voi olla heikoilla.
Jensen Meckling Agency Theory Presentation LuomaBreatheBusiness
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1. Hochberg, Yael V., Alexander Ljungqvist, and Yang Lu,
“Whom You Know Matters: Venture Capital Networks and Investment
Performance.”
Journal of Finance 62 (February 2007), pp. 251-301.
2. Background
• Giving an academic answer to a well-known fact?
– Hochberg, Ljungqvist and Lu’s article is fairly new (2007). It’s
cited 631 times (June 2013), which is relatively well.
– It was published in Journal of Finance, although it could have
been published also in Journal of Venture Capital for example.
– The title “Whom You Know Matters: Venture Capital Networks
and Investment Performance” is quite self-evident fact for VC
players. How could the role of contacts be negative? Either it
matters or it has no effect.
– This study gave an academic and reliable answer to this well-
known hypothesis. However, the question still remains worth of
reflecting.
3. Overview
• The Content of the Article:
1. Abstract / Introduction (a long one)
2. Network Analysis Methodology
3. Sample and Data
4. Fund-Level Analysis
5. Company-Level Analysis
6. How Does Networking Affect Performance?
7. Further Robustness Tests
8. How Do VC Firms Become Networked?
9. Conclusions
10.Appendix: Network Analysis Example
4. Abstract / Objectives
• Venture capital is a business of contacts:
– “Many financial markets are characterized by strong relationships and
networks, rather than arm’s-length, spot market transactions. We
examine the performance consequences of this organizational
structure in the context of relationships established when VCs
syndicate portfolio company investments.
– We find that better-networked VC firms experience significantly better
fund performance, as measured by the proportion of investments that
are successfully exited through an IPO or a sale to another company.
– Similarly, the portfolio companies of better-networked VCs are
significantly more likely to survive to subsequent financing and
eventual exit.
– We also provide initial evidence on the evolution of VC networks.”
5. Literature Review
• Three reasons to expect that syndication networks improve the
quality of deal flow:
1. VCs invite others to coinvest in their promising deals in the expectation
of future reciprocity (Lerner (1994a)).
2. By checking each other’s willingness to invest in potentially promising
deals, VCs can pool correlated signals and thereby select better
investments in situations of often extreme uncertainty about the
viability and return potential of investment proposals (Wilson (1968),
Sah and Stiglitz (1986)).
3. Individual VCs tend to have investment expertise that is both sector-
specific and location-specific. Syndication helps diffuse information
across sector boundaries and expands the spatial radius of exchange,
allowing VCs to diversify their portfolios (Stuart and Sorensen (2001)).
6. Network Analysis Methodology
• Degree centrality
– Degree: # of ties they have (i.e. syndication relationship);
– Indegree: # of ties they receive (i.e., are invited to be syndicate members
by many lead VCs);
– Outdegree: # of ties an actor initiates (i.e., lead syndicates with many
other VC members).
• Closeness
– Weighting an actor’s ties to others by the importance of the actors he is
tied to;
• Betweenness
– The extent to which a VC may act as an intermediary by bringing together
VCs with complementary skills or investment opportunities that lack a
direct relationship between them.
8. Sample and Data
• There is always hard to get data for VC / PE studies
– Venture Capital: Thomson Financial’s Venture Economics;
– Sample: 3,469 U.S. based VC funds managed by 1,974 VC
firms which participate in 47,705 investment rounds involving
16,315 portfolio companies;
– Time: 1980-2003;
– Fund Characteristics: $64 million of committed capital, with a
range from $0.1 million to $5 billion. (Fund size is unavailable
for 364 of the 3,469 sample funds.)
– Data on IRRs was available only for 188 of the 3,469 sample
funds.
– Company exit data no available.
9. Sample and Data - Definitions
• No direct data available – indirect variables and measures
– Measuring Fund Performance: fraction of the fund’s portfolio companies
that have been successfully exited via an IPO or M&A transaction(Nov.
2003);
– Company-level Performance Measures (2):
1. survival to another funding round as an interim signal of success;
2. successful exit as a final signal of the investment’s;
– VC firm experience (4):
1. the age of the VC firm (the number of days since the VC firm’s first-ever investment)
2. the number of rounds the firm has participated in
3. the cumulative total amount it has invested
4. the number of portfolio companies it has backed
– Network measures (5): degree, indegree, outdegree, eigenvector and
betweenness.
10. Venture Capital Investments in Rounds
The average VC fund writes
off 75,3% of its investments.
(Ljungqvist et al 2005)
11. The Effect of Firm Networks on Fund Performance
• Having controlled for fund
characteristics, competition
for deal flow, investment
opportunities, and parent
firm experience, does a VC’s
network centrality
(measured over the prior 5
years) improve the
performance of its fund (over
the next 10 years)? The
results, shown in Table III,
indicate that it does.
• Each specification in Table III
suggests that better-
networked VC firms are
associated with significantly
better fund performance,
and the adjusted-R2
increases to around 19%.
12. How Does Networks Matter?
• Eigenvectos, degree and indegree matter the most:
– Of the five network measures, eigenvector has the largest economic effect, closely
followed by degree and indegree. To illustrate, a one-standard deviation increase
in these measures is associated with 2.4–2.5 percentage point increases in exit
rates, all else equal. Thus, a VC benefits from having many ties (degree), especially
when the ties involve other well-connected VCs (eigenvector), and from being
invited into many syndicates (indegree).
– Having the ability to act as a broker between other VCs (betweenness) has a
smaller effect, with a one-standard-deviation increase in this centrality measure
being associated with only a 1 percentage point increase in fund performance.
Indirect relationships (those requiring intermediation) play a lesser role in the
venture capital market.
– Similarly, outdegree has a relatively small effect economically, consistent with the
view that this measure captures a VC firm’s investment in future reciprocity, which
takes some time to pay off. In other words, inviting many VCs into one’s syndicates
today (i.e., high outdegree) will hopefully result in many coinvestment
opportunities for one’s future funds (i.e., high future indegree).
13. Robustness - Reverse Causality and Performance
Persistence
• Are the results reliable and really true?
– Are results driven simply by reverse causality, that is, a higher fund exit rate
enables a VC to improve its network position, rather than the other way around?
They construct the network centrality measures from syndication data for the 5
years before a fund is created. The fact that these data can help explain fund
performance over the next 10 years suggests that networking truly affects
performance.
– Robustness to Alternative Explanations: It is possible that better-networked VCs
are simply better at taking more marginal companies public, thus generating the
appearance of better performance as measured by the VC’s exit rate or a portfolio
company’s survival probability, but which would not be reflected in returns, if
observed. To test this alternative hypothesis, they focused on two quality
indicators, specifically whether the portfolio company had positive net earnings
when it went public, and whether it survived the first 3 years of trading on the
public markets. In conclusion, better-networked VCs do not appear to be
associated with lower-quality IPO exits.
– Location and Industry-Specific Networks: Findings are robust to using centrality
measures derived from (1) industry-specific networks defined using the six broad
Venture Economics industries, and (2) a network of Californian VC firms.
14. Conclusions
• Fivefold contribution:
1. This is the first paper to examine the performance consequences of the
VC industry’s predominant choice of organizational form: networks.
Previous work focuses on describing the structure of syndication
networks (Bygrave (1988), Stuart and Sorensen (2001)) and motivating
the use of syndication (Lerner (1994a), Podolny (2001), Brander, Amit,
and Antweiler (2002)).
2. The findings shed light on the industrial organization of the VC market.
Like many financial markets, the VC market differs from the traditional
arm’s-length spot markets of classical microeconomics. The high network
returns documented suggest that enhancing one’s network position
should be an important strategic consideration for an incumbent VC,
while presenting a potential barrier to entry for new VCs. The results add
nuance to Hsu’s (2004) finding that portfolio companies are willing to pay
to be backed by brand-name VCs and suggest that there are real
performance consequences to the contractual differences illustrated in
Robinson and Stuart’s (2004) work on strategic alliances.
15. Conclusions (2)
• Fivefold contribution:
3. The findings have ramifications for institutional investors choosing which
VC funds to invest in, as better-networked VCs appear to perform better.
4. The analysis provides a deeper understanding of the possible drivers of
cross-sectional performance of VC funds, and points to the importance of
additional fundamentals beyond those previously documented in the
academic literature.
5. It provides preliminary evidence regarding the evolution of a VC firm’s
network position.
16. Discussion
• Some thoughts to be discussed
– Taking into account the nature of venture capital investing, in which more
than half of the companies fail and only small section of portfolio
companies appear to be great investments, enlarging your portfolio by
syndicating and networking with other professionals makes sense.
– What does it really mean that networks matter in VC industry? This theory
is not comparable to for example portfolio theory, meaning that just
adding contacts would automatically improve your performance. Are
networks a primary or a secondary matter? What you buy, what you pay
and how you exit are still the primary matters?
– What are the most important networks for a VC company? Are other VCs
the most important or is it actually institutional investors, banks,
entrepreneurs, target companies, portfolio companies, service providers
or what? Perhaps VC industry is an ecosystem of value-adding
stakeholders?