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Buy-back
Announcements and Stock Price Behavior : An
Empirical Study
-- Karamjeet
Kaur and Balwinder Singh
The
objective of this paper is to investigate whether the companies
in India have been successful in achieving their motive of
correcting the undervaluation and signaling to the market,
the positive future prospects, by announcing the buy-back
programs. By establishing relationship between buy-back announcements
and stock price returns it is demonstrated that stocks experience
significant positive returns and these positive returns can
be attributed to signaling because of informational asymmetries
between managers and investors.
The IUP Journal of APPLIED FINANCE, Vol. 9, No. 5, August 2003
©
2003, The IUP Journal of APPLIED FINANCE.
Transaction
Costs and Size Effect1
-- Pitabas
Mohanty
Prior
studies document the evidence of size effect in India. Mohanty
(2002) for example, documents that during the sample period
1991-2000, the small-sized companies have generated an annualized
excess return of more than 60% over the large stocks. Since
it is a well-known fact that the transaction costs of the
small-sized companies are much higher than those of the large
companies, Indian stocks market can however be termed inefficient
only if one can actually earn this excess return after adjustment
of the transaction costs. In this paper we find that though
the transaction costs of the small-sized companies are much
higher compared to those of the large companies, the return
differential still persists even after adjustment of the transaction
costs.
The IUP Journal of APPLIED FINANCE, Vol. 9, No. 5, August 2003
©
2003, The IUP Journal of APPLIED FINANCE.
Valuation
of Asset Management Companies A Free Cash Flow Approach
-- G Sethu and Rachana
Baid
During
the past few years, a large number of mergers, acquisitions
and takeovers have been reported in the Indian mutual fund
industry. The buyer may either purchase the mandate to manage
the schemes currently managed by another company or acquire
the ownership of that company. The consideration paid in either
case is a percentage of Assets Under Management (AUM). All
AMCs (AMCs) in India are privately held and are unlisted.
An unlisted company is usually valued using a comparable,
firm approach. As the entire universe of AMCs in India is
made up of unlisted companies, such an approach is not feasible.
This paper attempts to use the free cash flow approach to
derive an explicit framework for valuation of unlisted AMCs.
We first analyze the building blocks of asset management activity.
Based on this analysis, an innovative Capital Asset Pricing
Model (CAPM) based framework is suggested for valuing AMCs.
The methodology is described in detail and applied to the
non-UTI segment of the industry. The results seem to validate
the current valuations reported in the business press. The
methodology is seen useful to explicitly incorporate strategic
expectations in valuation exercise.
The IUP Journal of APPLIED FINANCE, Vol. 9, No. 5, August 2003
©
2003, The IUP Journal of APPLIED FINANCE.
"Winners
Take all Competition" Creative Destruction and Stock
Market Bubble
-- Christophe
Boucher
From
the model of Hobijn and Jovanovic (2001), we modelize a technological
shock with uncertainty. We assume that this technological
shock appears in the shape of new firms. Only a part of these
firms will be productive. Uncertainty relates to the identification
of the viable firms. This uncertainty decreases with the time
and the diffusion of fundamentalist information that makes
it possible to identify without error the viable firms. Without
this fundamentalist information, the behavior of agents follows
a rule of decision similar to that formulated by Heiner (1983).
Uncertainty concerning the identification of viable firms
which emerge of the technological shock, leads to a stock
market bubble even though agents have a perfect knowledge
of the impact of the shock and date on which it occurs. This
type of uncertainty seems to characterize firms of the Information
Communication Technology industries, which are confronted
with a `winners take all' competition.
The IUP Journal of APPLIED FINANCE, Vol. 9, No. 5, August 2003
©
Christophe Boucher (http://www.econwpa.wustl.edu). Reprinted
with permission. |
