Scott Beyer, Luis Garcia-Feijoo, Gerry Jensen and Robert R. Johnson
The purpose of this paper is to analyze security-market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the…
Abstract
Purpose
The purpose of this paper is to analyze security-market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the president’s term, and the state of political gridlock. Contrary to prior studies, which evaluated the influences separately, the authors jointly evaluate these variables.
Design/methodology/approach
The analysis supports the notion that security returns are significantly related to shifts in Fed monetary policy, political gridlock, and the year of the presidential term; however, returns are generally invariant to the president’s political party affiliation. Overall, the findings suggest that investors should focus less attention on the party of the president and instead more closely monitor Fed actions.
Findings
It appears that political harmony should be welcomed by equity investors, but not debt investors. Finally, regardless of the political outcome, if the past serves as a guide, investors may have to wait until year three of the next presidential term to enjoy the fruits of the current political season.
Originality/value
The academic literature is rich with studies that consider the aforementioned political effects and the influence that monetary policy have on the markets. To date, however, these factors have not been jointly considered when examining returns. This paper considers several dimensions of the political landscape – the party of the president, the presence or absence of political gridlock, and the presidential term cycle effect – in conjunction with Fed monetary policy in examining long-term security returns. By examining the relationship between security returns and both political and monetary conditions, the authors provide robust evidence regarding the relationships.
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Matthew Faulkner, Tracie Frost and Stoyu I. Ivanov
We examine the changes in a firm’s cost of debt after it is included in or removed from the S&P 500. The extant literature on index composition focuses on the cost of equity and…
Abstract
Purpose
We examine the changes in a firm’s cost of debt after it is included in or removed from the S&P 500. The extant literature on index composition focuses on the cost of equity and lacks an understanding of the impacts on a firm’s cost of debt capital upon inclusion in or removal from a major stock market index. Therefore, we address the following question: Does a firm’s cost of debt change around its inclusion in or removal from the S&P 500?
Design/methodology/approach
We develop two hypotheses based on the research question and use univariate and multivariate fixed-effects analyses to test them. Furthermore, to ensure robustness and address endogeneity concerns, we employ a matched control sample difference-in-difference statistical framework.
Findings
Inclusion in the S&P 500 lowers a firm’s cost of debt by 0.145% and 0.200%, on average, in the six- and three-month periods after inclusion. Furthermore, after a firm is removed from the index, a firm’s cost of debt increases on average 0.380% and 0.260% in the six- and three-month periods in the post-inclusion period when compared to the pre-inclusion period.
Originality/value
This study contributes novel insights into the cost of debt and index composition literature. It provides insights for academics, investors, creditors, corporate managers and index selection committees.
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Robert E. Houmes, John B. MacArthur and Harriet Stranahan
Strategic cost structure choices determine how firms divide operating costs between fixed and variable components, and therefore have important implications for financial…
Abstract
Purpose
Strategic cost structure choices determine how firms divide operating costs between fixed and variable components, and therefore have important implications for financial performance. The purpose of this paper is to examine the effect of operating leverage on equity Betas when managers have discretion over firms' cost structures.
Design/methodology/approach
Using panel data for publicly listed trucking firms over years 1994‐2006, market model Betas are regressed on controls and alternatively measured proxies for operating leverage: degree of operating leverage, assets in place and percentage of company employed drivers.
Findings
Results of this study generally show positively significant coefficients on all three operating leverage variables.
Originality/value
Operating characteristics of many industries require that firms make substantial investments in long‐lived assets that result in high fixed costs (e.g. depreciation), and for these firms cost structure is exogenously or technologically constrained leaving managers with little discretion. In contrast to these types of firms, the authors examine the effect of operating leverage (OL) on Betas when managers have discretion over firms' cost structures. Trucking firms are a particularly interesting industry group for analyzing the impact of operating OL choices on Beta because distinct strategic cost structure choices are available to the management of trucking firms that result in various degrees of OL throughout the industry.
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Many prior tests of market efficiency, which occurred decades ago, were limited by data and did not employ methodology to correct for leptokurtosis in the stock return…
Abstract
Purpose
Many prior tests of market efficiency, which occurred decades ago, were limited by data and did not employ methodology to correct for leptokurtosis in the stock return distribution. Furthermore, these studies did not test many aspects of conditional market efficiency. One aspect of a potential conditional violation of market efficiency is whether stock markets are efficient conditional on the level of stock return.
Design/methodology/approach
This paper uses quantile regressions to control for leptokurtosis in the stock return distribution and simultaneous quantile regressions to test whether markets are efficient conditional on the level of the market return. This paper uses market-level stock return data to bias against finding significant results in the efficiency tests. Furthermore, the author uses data from 1926 through 2018, providing the longest time period to date under which market efficiency is tested.
Findings
This paper presents evidence that the autoregressive coefficient decreases across return levels in stock market indices. The autoregressive coefficient is positive around highly negative returns and negative or insignificant around highly positive returns, which suggests that when stock returns are low they are more likely to continue lower, and when stock returns are high they are more likely to reverse. Results additionally suggest that market efficiency is not time-invariant and that stock markets have become more efficient over the sample period.
Originality/value
This paper extends the literature by finding evidence of a violation of weak-form market efficiency conditional on the level of stock returns. It further extends the literature by finding evidence that the stock market has become more efficient between 1926 and 2018.
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Diana Londoño-Correa, Juan Carlos Lopez-Diez and Jairo Campuzano-Hoyos
The purpose of this paper is to contribute to thecomprehension of management education in the Global South, focusing on how contextual specificities, exemplified in the Colombian…
Abstract
Purpose
The purpose of this paper is to contribute to thecomprehension of management education in the Global South, focusing on how contextual specificities, exemplified in the Colombian case, have driven curricular reforms. These reforms harmonize traditional practical training with a substantial emphasis on humanities education. to
Design/methodology/approach
Using a historical approach, this study conducts a heuristic and hermeneutic analysis of historical primary documents from archives, secondary sources and interviews.
Findings
The curricular reforms in Eafit’s Business Administration program responded to the need to diverge from a model borrowed from the United States. This departure leads to organic transformations that empower the inclusion of humanities for holistic professional manager education. This holistic approach was aimed to equip graduates to address organizational challenges and unique local issues, transcending conventional boundaries of education.
Research limitations/implications
This research serves as an initial exploration of a Global South case, laying the groundwork for future analyses of analogous cases. Comparative studies may eventually provide a more comprehensive understanding of management education beyond the Global North.
Originality/value
This work pioneers a relatively unexplored area of literature by investigating the history, unique aspects of business administration curricula and the role of curricular reforms within specific contexts. It is particularly pertinent in understanding the distinctive characteristics of business schools in the Global South. These institutions initially took inspiration from well-established American counterparts and literature reflecting Northern Global settings. However, they introduced innovations tailored to their local demands. This study spotlights the distinctive character of management education in Latin America, emphasizing a robust humanistic component.