Massey Documents by Type

Permanent URI for this communityhttps://mro.massey.ac.nz/handle/10179/294

Browse

Has files: YesSubject: search.filters.subject.Corporate finance

Search Results

Now showing 1 - 4 of 4
  • Thumbnail Image
    Item
    Opacity and event study analysis : a thesis presented in partial fulfillment of the requirements for the degree of Master of Finance at Massey University, Auckland, New Zealand
    (Massey University, 2015) Vu, Dieu Huong
    This study examines the impact of asset pricing model’s misspecification on the power of an event study analysis. Gilbert, Hrdlicka, Kalodimos, and Siegel (2014) show that asset pricing model fails to price asset accurately at high frequency. This is due to uncertainty about the effect of systematic news on firm value, which they address as firm opacity. They propose an additional factor in the market model and empirically show better performance of the augmented model. This study practically investigates the implication of this additional factor on enhanced power of event study analysis. Key findings indicate that an adjusted asset pricing model improves the power of event studies for small stock portfolio. The detection rate increases from 2.9 percent to 15.5 percent based on an induced abnormal return of 1.5 percent to 2 percent. However, there is no improvement in abnormal return detectability in portfolios of random stocks or other characteristic- sorted portfolios.
  • Thumbnail Image
    Item
    Pattern recognition techniques and financial analysis : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand
    (Massey University, 2014) Rajput, Suresh Kumar Oad
    The balance sheet statement is an essential feature of financial reporting, and is expected to convey complete information on firms’ operating business decisions. Since these decisions are based on the manager’s perception of the existing and future investment opportunities, they cannot be directly observed. This results in two major data analysis issues. First, it is difficult to observe directly the most common operating business decisions; secondly, these decisions may not have a same linear relation to all firms and all firm’s performance measures. This thesis attempts to address these issues in three interconnected essays. The first essay examines an outcome of the double-entry bookkeeping system when financial transactions simultaneously shift a firm’s financial position, providing the special information to interpret the meaning of a transaction. Using the factor analysis model, this essay makes use of this information, and identifies the five fundamental factors (decisions) that can capture a firm’s time-varying operating business status in a given year. These factors include: financial flexibility, short-term credit, long-term investment, convertible debt usage, and preferred stock usage. The method of extracting these factors controls for missing variable bias, account for limited attention, and provide true decomposition of accounting aggregates such as total asset growth. These factors subsist in predicting future stock returns, forecasting a firm’s value (Tobin’s Q), cash flows, and earnings beyond their well-known determinants. The second essay explores the sources of return predictability contained in financial flexibility, which is the first factor identified in essay one. The horse races of the asset pricing versus mispricing tests find a significant positive premium on financial flexibility based return factor, and make it a candidate for a new priced factor. The evidence suggests that covariances dominate the characteristics, and it is non-redundant to well-established risk factors. This factor meets the new conservative minimum of t-statistics value of above 3.0 and is constructed using unobserved information. The final essay addresses the second issue in the data analysis by employing the nonlinear firm grouping technique – the K-means clustering analysis method. Firms are grouped in their 12 natural groups using the five fundamental factors identified in the first essay, and firm size as the clustering criteria. This essay shows how firms differ on priority and the composition of their common operating decisions. This type of firm grouping suggests that operating business decisions are related to firm-specific health and structure instead of industry. This essay recommends the nonlinear firm grouping prior to employing the linear regression models in predicting future performance measures to improve the precision of business analysis.
  • Thumbnail Image
    Item
    Capital structure and financing choices : an Australian study : a thesis submitted in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey University
    (Massey University, 2010) Cross, Roy
    This thesis uses a modified pecking order framework to analyse financing choices for Australian firms. The traditional pecking order model has been extended to allow a non-linear relationship between a firm’s requirements for external capital (the financial deficit) and the amount of external debt used to meet these requirements. The pecking order theory predicts that firms will follow a defined hierarchy of financing choices with internal funds being used first, followed by external debt and as a last resort the issuance of external equity. The sample used includes ASX listed industrial firms from 1995-2009 and includes a total of 702 unique firms and 3,852 individual firm year observations. My main finding is that Australian firms do not follow the pecking order as closely as in other markets as the model explains less of the variation in debt issuance. Importantly I find that this is not related to debt capacity constraints, which has been hypothesized by other authors as a legitimate reason why firms, small firms in particular, would not appear to be following the pecking order theory. I use Altman’s Z-Score, which is a commonly used measure of financial distress, to identify firms that are relatively unconstrained in terms of debt capacity. I find that while controlling for debt capacity does improve the explanatory power of the model, the improvement is only marginal. However I do find evidence against the static trade-off theory of capital structure. In particular firms that are unconstrained in terms of debt capacity and not facing significant capital expenditure do not increase leverage towards an optimal capital structure in the manner predicted by the static trade-off theory. In many cases they actually decrease leverage further. I hypothesize that at least part of the reason for these findings is due to taxation differences, with the imputation credit system in Australia effectively removing the tax advantage of debt for domestic investors. Another important factor that could explain the lower explanatory power of the pecking order model could be the more accepted use of warrants and rights issues to raise equity, which have been argued to have lower asymmetric information costs than issuing straight equity.
  • Thumbnail Image
    Item
    The contemporaneous movement between cash flow and accruals-based accounting numbers : the New Zealand evidence : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University
    (Massey University, 1995) Dowds, John; Dowds, John
    Much attention has been focused on the usefulness of cash flow numbers as variables used in predicting the future cash flows of an entity. Paradoxically, little attention has been paid to how earnings move relative to cash flows over a sustained time period. This thesis addresses the issue and analyses the financial information from the annual reports of New Zealand listed companies for the 21 year period, 1971-1991. The evidence shows that there has been wide variation between earnings and the underlying cash flows during the 1980s. The two years following the 1987 stock market collapse appears to have had a reduced degree of variation between the earnings and cash flow variables. This suggests that post-crash the attention on financial reporting was influential in reducing the degree of variation between earnings and the underlying cash flows. The study also examines the data scaled and with outliers removed. Scaling indicates that non-current accruals are more important for large companies while removal of outliers has little effect on the results. Data on actual cash flows were analysed for the period 1989-1991. The results indicate that the variation between earnings and actual cash flows is quite high. The contextual relationship between changes in each of the accounting variables (earnings and cash flows) and changes in macroeconomic indicators (gdp, money supply and inflation) was investigated. The evidence is that the association between changes in the macroeconomic indicators and changes in the accounting variables is not particularly strong and that changes in both money supply and inflation are of more importance than changes in gdp. An industry by industry analysis provides evidence showing that for most industries there is little association between changes in the accounting variables and changes in economic indicators. There is evidence that some industries are more sensitive than others to macroeconomic changes. This evidence is enhanced when the data are partitioned in a way which allows low, medium and high changes in macroeconomic activity to be analyzed separately. The conclusion of the study is that although the largest proportion of variation in accounting numbers is explained by factors other than changes in the economy there is sufficient evidence to suggest that for some industries the impact of changes in macroeconomic conditionss is greater than for others.