This research examined predictions drawn from value‐based planning models. Results indicate that profitability and growth do influence shareholder value in the manner predicted; however, the relationships are conditional. This study also shows that, the market‐to‐book value of equity ratio and Tobin's q‐ratio are theoretically and empirically, equivalent measures of value creation.
Monte Carlo simulation has been used to value options since Boyle's seminal paper. Monte Carlo simulation, however, has not been used to its fullest extent for option valuation because of the belief that the method is not feasible for American-style options. This paper demonstrates how to incorporate optimal early exercise in the Monte Carlo method of valuing options by linking forward-moving simulation and the backward-moving recursion of dynamic programming through an iterative search process. To demonstrate the potential of this method, we use it to value American-style options on the average price (or Asian options). The computational experience reveals a flexible valuation technique with potential for application to a range of securities and financial decision problems.option valuation, contingent claims valuation, Monte Carlo simulation, Asian options, average-price options, American options, path-dependent options, derivative securities
The purpose of this paper is to examine the use of shareholder returns to study the impact of complex strategic interactions that involve a sequence of moves by competing firms. The paper seeks to begin to build a bridge between the capital asset pricing model of modern financial theory and competitive strategy. Competition in instant photography is used as an example. Results demonstrate how shareholder returns and changes in market risk (β) can be associated with both overall strategies and specific competitive moves.
We examine the marginal choice between debt and equity securities using a factor analytic approach. This data reduction property eliminates the need to select the one best variable to proxy for a particular theoretical construct. Our results reinforce numerous existing findings using traditional methods and suggest both static tradeoff and asymmetric information based considerations are relevant in determining security choice. Two new results are presented related to the accounting liquidity of the firm. First, the preference for equity is increasing with liquidity as suggested by the window of opportunity hypothesis. Secondly, the market response to equity issuance announcements is inversely related to the liquidity of the firm. Profitability and growth measures support Jensen's (1986) agency cost of free cash flow as a potential explanation for the second finding. Copyright Blackwell Publishers Ltd, 2004.
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