Growth options, option exercise and firms’ systematic risk

Koussis, Nicos; Makrominas, Michalis

doi:10.1007/s11156-013-0405-5

Cited by 11 publications

(5 citation statements)

References 43 publications

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“…Thus, there is a need of a firm theoretical base to establish these relationships. A number of researches have responded to this need (Hong & Sarkar, 2007;Lockwood & Prombutr, 2010;Yao et al, 2011;Li et al, 2012;Koussis & Makrominas, 2015). Various studies have focused on growth related performance measures to address new metric needs.…”

Section: Introductionmentioning

confidence: 99%

Firm Performance and Systematic Risk

Arora¹

2019

Proceedings of 2nd International Conference on Business, Management and Economics

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The only security specific parameter in capital asset pricing model is beta which can affect the return on a risky security. We develop a framework applicable to securities to test if the performance of firms can explain the level of their systematic risk. Findings from 203 firms across nine industries form the Indian manufacturing sector for the period of 1998-2014 indicate that profitability causes the systematic risk to decline, while the profit retention ratio is positively related to the risk. The ability of profitability, efficiency and appropriate utilization of funds to predict the firm betas is consistent with previous empirical studies. However, the positive association of profit retention ratio with the risk is an inconsistent outcome as opposed to the relevant finance theory and previous research.

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Section: Introductionmentioning

confidence: 99%

Firm Performance and Systematic Risk

Arora¹

2019

Proceedings of 2nd International Conference on Business, Management and Economics

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“…Bernardo et al (2007)finds that the ''beta of growth opportunities is greater than the beta of assets-inplace for virtually all industries over all periods of time dating back to 1977''. On the other hand, Koussis and Makrominas (2015) find that an increase in moneyness of firm options, or the exercising of firm options (reduction of growth options) result in more significant decreases in beta. The findings suggest that variation in PVGO may be strongly influenced by cross-sectional differences in systematic risk.…”

Section: Portfolio Regressionsmentioning

confidence: 83%

Recognized intangibles and the present value of growth options

Makrominas

2016

Rev Quant Finan Acc

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We investigate the relation of recognized intangibles, defined as acquired intangibles net of goodwill, and the market's perception of firm growth options (PVGO). We find that: (a) on average recognized intangibles are positively associated with PVGO after controlling for intangible expenditures immediately expensed, firm specific characteristics, industry membership and systematic risk (b) the said relation is highly non-linear (negatively skewed) and more strongly pronounced in companies with lower accumulation of R&D Capital; recognized intangibles are not that significant at higher levels of PVGO and whereas firms have committed to in-house technological development, and (c) while adjusted levels of recognized intangibles increase approximately tenfold over the last 35 years their explanatory power to PVGO over the period generally wanes. Our results are informative for the interpretation of recognized intangibles as a summary balance sheet item and therefore useful to users of financial statements forming investment and credit decisions, to policy makers aiming at stimulating firm growth and to standard setters aiming at improving value relevance.

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“…Based on prior research (Chang, Chen, Hsing, & Huang, 2007;Core, 2001;Koussis & Makrominas, 2015), information asymmetry and agency costs problems are intense in high-growth firms. As a consequence, these firms cannot access sufficiently to external financial sources.…”

Section: The Effect Of Growth Opportunity On the Pricing Of Discretiomentioning

confidence: 99%

Earnings Management Incentives and the Pricing of Discretionary Accruals

Draief¹

2019

IJBM

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The objective of this research is to investigate whether earnings management incentives influence the pricing of discretionary accruals. Specifically, we verify if growth opportunity, leverage, free cash flow, insider trading and financial distress are useful to investors to discriminate between opportunistic and informative earnings management.Using a sample of 486 American firms for the period 2002-2010, we find that discretionary accruals are positively related to stock returns. This relation is more intensive in high growth firms and high levered firms. Indeed, these firms use more informative earnings management to communicate future prospects and good financial situation to external investors. However, discretionary accruals are negatively priced by investors in distressed firms. These firms have a greater incentive to manage earnings opportunistically to hide any financial problem. Likewise, we detect a negative relationship between discretionary accruals and stock returns in firms with excessive free cash flow revealing the opportunistic perspective of earnings management. Finally, we demonstrate that investors award positive (negative) value to discretionary accruals in case of insider buying (selling).

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Growth options, option exercise and firms’ systematic risk

Cited by 11 publications

References 43 publications

Firm Performance and Systematic Risk

Firm Performance and Systematic Risk

Recognized intangibles and the present value of growth options

Earnings Management Incentives and the Pricing of Discretionary Accruals

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