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The
Effect of Quarterly Earnings Announcements on Sensex: A Case
with Clustering of Events
--Santu
Das, J K Pattanayak and Pramod Pathak
An
event study examines the return behavior of a sample of firms
experiencing a common type of event, e.g., earning announcement,
stock split, issue of new debt or equity, merger and acquisition
and so on. The objective is to assess the significance of
the economic event on the market value of the firm. This study
investigates the impact of quarterly earnings announcements
on the stock price movement of the firms constituting the
BSE-Sensex. Daily return data is used to study the mean stock
price effect. The effect of clustering of events has been
accommodated to analyze the effect of the announcements. The
study also examines the drifting up of share prices with reference
to good news announcement and vice versa.
©
2008 IUP . All Rights Reserved.
Earnings
Management : A Study of Equity Rights Issues in India
--S
Narayan Rao and Sachin Dandale
Earnings
management occurs when managers use judgment in financial
reporting and in structural transactions to alter financial
reports either to mislead some stakeholders about the underlying
performance of the company, or to influence contractual outcomes
that depend on reported financial performance. Many research
studies have been conducted to investigate the earnings management
in developed economies. Due to the regulated operating environment
in India until 1992, earnings management was not a fertile
topic for research. But, post-1992, companies are given freedom
to price their capital issues. This freedom motivates the
issuers to manage their earnings prior to capital issues.
The objective of the study is to investigate if firms in India
manage earnings prior to their launching of equity rights
issues. The study uses Discretionary Current Accruals (DCAs)
to measure the extent of earnings management. Modified Jones
Model is used to estimate the adjusted DCAs during the three
years prior to the rights issue (pre-issue period) and three
years after the rights issue (post-issue period). The DCAs
of rights issuing firms are adjusted for DCAs of control sample
(non-rights issuers). Adjusted mean DCAs of pre-issue period
is compared with adjusted mean DCAs of the post-issue period
to detect the earnings management. The results suggest that
there has been earnings management prior to the rights issues.
The study period is from 1993-94 to 2003-04, and the sample
size is 259.
©
2008 IUP . All Rights Reserved.
An
Empirical Study of Cointegration and Correlation Among Indian,
Emerging and Developed Markets
--B
J Queensly Jeyanthi and Punithavathy Pandian
The
issue of financial integration of emerging stock markets has
generated a great deal of interest among practitioners and
academic researchers. Over the past two decades, a significant
volume of research has been concerned with the integration
of the world's major stock markets. The emerging markets in
some developing countries have achieved considerable improvements
over the past two decades. Several factors, such as the conduct
of sound macroeconomic policies, stock market reforms, privatization,
and financial liberalization, have played vital roles in these
improvements. India is one of the countries with an expanding
stock market that is increasingly attracting funds from the
Foreign Institutional Investors (FIIs). In particular, deregulation
and market liberalization measures, rapid development in the
communication technology and computerized trading systems,
and increasing activities of multinational corporations have
accelerated the growth of Indian capital market. One of the
main reasons for this study focusing on the emerging markets
is because there is an increase in funds flowing from the
developed markets towards the developing markets, and therefore
these markets are becoming important in terms of portfolio
management. The study uses daily stock price indices of the
emerging countries, namely, India, Malaysia, Taiwan, China,
South Korea; and the developed markets, namely, the US, the
UK, Germany, Singapore, Hong Kong, and Japan. This study covers
the period from April 2000 to March 2007 and uses unit root
and cointegration tests to examine the relationships between
the NSE and the stock markets in the emerging markets and
the developed markets. All the stock prices are analyzed both
individually and collectively to test for market efficiency.
Unit roots in stock prices are found. Pair-wise cointegration
tests indicate that there is no evidence of cointegration
among the stock prices. The findings suggest that the stock
prices in major Asian markets and the United States are weak-form
of efficiency, individually and collectively, in the long
run. It also implies that international investors can achieve
substantial risk diversification benefits in Indian markets.
©
2008 IUP . All Rights Reserved.
RO-Based
Capital Budgeting : A Dynamic Approach in New Economy
--Pankaj M Madhani
In
today's business scenario, traditional measures of capital
budgeting were no longer adequate to reflect the dynamic world
of new economy. The current era is characterized by increased
uncertainty and complexity because of changed market and economic
conditions, M&A, globalization, integration of world financial
market, increased competition, and the advent of new and emerging
technologies. Typical approaches to project evaluation are
based on Discounted Cash Flow (DCF)-based measures such as
Net Present Value (NPV) and Internal Rate of Return (IRR).
However, these demonstrate weaknesses in dealing with uncertainty,
complexity, and flexibility. The techniques only use tangible
factors and do not take into account intangible factors such
as future competitive advantage, long-term growth opportunities,
and managerial flexibility. This paper discusses the limitations
of the traditional capital budgeting tools. Real Options (RO)
approach is a method of evaluating and managing strategic
investment decisions in an uncertain business environment.
The RO approach seeks to uncover and quantify a project's
embedded options. Firms in the fast-growing and ever-changing
industries of the new economy require a dynamic approach like
RO in investment decisions. This study also illustrates numeric
example of RO. It discusses various approaches of using RO
in adopting emerging technologies like Radio Frequency Identification
(RFID). It also discusses various embedded options available
for RFID deployment in supply chain management. Real option
is an interdisciplinary subject, combining finance, strategy,
and IT. RO analysis is a powerful financial tool that meshes
well with the complexities of emerging technology projects
that inherently carry significant uncertainty, but also represent
great potential value for the firm. RO analysis is a very
exciting development in the practice of capital budgeting.
RO is a new economy tool and gives a better structured
decision making process for complex and interdependent investment
decisions of new economy. The study also explains the limitations
of RO.
©
2008 IUP . All Rights Reserved.
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November' 08 
