Yearly Archives: 2009

Finance

Introduction to Financial Models for Management and Planning

James R. Morris and John P. Daley
London: Chapman and Hall. 2009

A properly structured financial model can provide decision makers with a powerful planning tool that helps them identify the consequences of their decisions before they are put into practice. Introduction to Financial Models for Management and Planning enables professionals and students to learn how to develop and use computer-based models for financial planning. Providing critical tools for the financial toolbox, this volume shows how to use these tools to build successful models.

Placing a strong emphasis on the structure of models, the book focuses on developing models that are consistent with the theory of finance and, at the same time, are practical and usable. The authors introduce powerful tools that are imperative to the financial management of the operating business. These include interactive cash budgets and pro forma financial statements that balance even under the most extreme assumptions, valuation techniques, forecasting techniques that range from simple averages to time series methods, Monte Carlo simulation, linear programming, and optimization.

The tools of financial modeling can be used to solve the problems of planning the firm’s investment and financing decisions. These include evaluating capital projects, planning the financing mix for new investments, capital budgeting under capital constraints, optimal capital structure, cash budgeting, working capital management, mergers and acquisitions, and constructing efficient security portfolios.

While the primary emphasis is on models related to corporate financial management, the book also introduces readers to a variety of models related to security markets, stock and bond investments, portfolio management, and options.

This authoritative book supplies broad-based coverage and free access to @Risk software for Monte Carlo simulation, making it an indispensible text for professionals and students in financial management.

Accounting

The use of expected value in pricing judgments

Colbert, Gary, Murray, Dennis, and Nieschwietz, Robert
Journal of Risk Research Vol. 12, Issue 2, p. 199-208

Previous research has examined the extent to which decisions made in binary choice situations are consistent with expected value. Li (2003) reports that decisions in multiple-play gambles are well explained by expected value, while single-play gambles are not consistent with expected value. The present study extends previous work by examining the use of expected value in the pricing of gambles. The results show that subjects’ pricing decisions are much more consistent with expected value in multiple-play situations than in single-play situations, particularly when the subjects are provided with a simple decision aid (i.e. a very brief description of expected value and the calculated amount of the expected value). Additionally, substantially fewer subjects in our study made decisions consistent with expected value than in Li’s (2003) study, suggesting that binary choice studies may overstate the extent of expected value usage.

Entrepreneurship, Finance

Life and Death of Businesses: A Review of Research on Firm Mortality

Morris, James R.
Journal of Business Valuation and Economic Loss Analysis Vol 4, Issue 1, Article 3

Neither the literature of finance nor the literature of valuation practitioners has taken account of the relatively short life expectancy of firms. Fewer than fifty percent of new firms live longer than ten years; yet, it is common practice to estimate firm value with a very long term horizon model such as the constant growth model. The purpose of this paper is to increase awareness of the life expectancy of firms and show how to take account of the likelihood of firm death in valuation. Data on firm death rates and life expectancy that is available in the field of industrial organization is reviewed and summarized so that valuation practitioners can take it into account in their valuations.

Information Systems

Classification algorithm sensitivity to training data with non representative attribute noise

Michael Mannino, Yanjuan Yang, and Young Ryu
Decision Support Systems Vol. 46, Issue 3, p. 743-751

We present an empirical comparison of classification algorithms when training data contains attribute noise levels not representative of field data. To study algorithm sensitivity, we develop an innovative experimental design using noise situation, algorithm, noise level, and training set size as factors. Our results contradict conventional wisdom indicating that investments to achieve representative noise levels may not be worthwhile. In general, over representative training noise should be avoided while under representative training noise is less of a concern. However, interactions among algorithm, noise level, and training set size indicate that these general results may not apply to particular practice situations.

Finance

Do futures lead price discovery in electronic foreign exchange markets?

Cabrera, Juan, Wang, Tao and Yang, Jian
Journal of Futures Markets Vol. 29, Issue 2, p. 137-156

Using intraday data, this study investigates the contribution to the price discovery of Euro and Japanese Yen exchange rates in three foreign exchange markets based on electronic trading systems: the CME GLOBEX regular futures, E-mini futures, and the EBS interdealer spot market. Contrary to evidence in equity markets and more recent evidence in foreign exchange markets, the spot market is found to consistently lead the price discovery process for both currencies during the sample period. Furthermore, E-mini futures do not contribute more to the price discovery than the electronically traded regular futures.

Information Systems

Balanced prediction of protein functions: a hybrid approach using homologies and protein interactions

Nguyen, C., Mannino, M., Gardner, K., and Cios, K.
Journal of Bioinformatics and Computational Biology Vol. 6, Issue 1, p. 203 – 222

We introduce a new hybrid algorithm, ClusFCM, which combines techniques of clustering and fuzzy cognitive maps for prediction of protein function. ClusFCM takes advantage of protein homologies and protein interaction network to improve low recall predictions associated with existing prediction methods. ClusFCM exploits the fact that proteins of known function tend to cluster together and deduce funtions not only through their direct interaction with other known proteins, but also from other proteins in the network. We use ClusFCM to annotate protein functions for cerevisiae (yeast), Caenorhabditis elegans (worm) and Drosophila melanogaster (fly) using protein-protein interaction data from the General Repository for Interaction Datasets (GRID) database and functional labels from Gene Ontology (GO) terms. The algorithm’s performance is compared with four state of the art methods for function prediction – Majority, 2 statistics, Markov random field, and Functional Flow using measures of Matthews correlation coefficient, harmonic mean, and receiver operating characteristic (ROC) curves. The results indicate that ClusFCM predicts protein functions with high recall while not lowering precision.

Finance

Is Value Premium a Proxy for Time-Varying Investment Opportunities: Some Time Series Evidence

Guo, Hui, Robert Savickas, Zijun Wang, and Jian Yang
Journal of Financial and Quantitative Analysis, Vol 44, Issue 1 , pp. 133-154

Recent authors argue that the value premium constructed from the cross-section of stocks is a proxy for investment opportunities. We show that this conjecture sheds light on the puzzling empirical risk-return tradeoff in the stock market across time. That is, in contrast with many early authors, we find that the stock market return is positively and significantly related to its conditional variance after controlling for its covariance with the value premium. The covariance, which is negatively correlated with stock variance, is positively and significantly priced as well.

Therefore, by ignoring the effect of time-varying investment opportunities on the stock market return, the early specification might suffer from an omitted variables problem, which generates a downward bias in the estimate of the risk-return relation. Also, consistent with recent investment-based equilibrium models, we document a positive and significant relation between the value premium and its conditional variance over the post-1963 period. Overall, our empirical evidence suggests that the value premium might be a proxy for investment opportunities.

Health Management

Emerging Trends in Chinese Healthcare: The Impact of a Rising Middle Class

JOYCE CHANG, DAVID WOOD, JIA XIAOFENG and BLAIR GIFFORD
Journal of the International Hospital Federation Volume 44 Number 4

In this report, the authors examine a major phenomenon in the Chinese healthcare marketplace: the explosion of a vigorous and demanding middle class and its impact on the future directions the industry should pursue.
Little is known about the expectations of the middle class regarding their healthcare needs other than through anecdotal or informal sources. The views of the middle class are shaped by a variety of influences which include exposure through direct personal contact with international healthcare facilities when traveling abroad or indirectly through increased exposure to the entertainment industry with its abundance of hospital and medical dramas. In addition to a general increased international awareness arising from more advanced education, the perspective of the middle class consumer is also shaped by the reality of what is currently available in China and what is realistic to expect. This report addresses this lack of factual data through an extensive survey of middle class consumers in three major cities in China: Beijing, Shanghai and Chengdu.

The survey took a practical and pragmatic approach to exploring this issue. No attempt was made in this study to explain why the consumer feels the way they do about their healthcare expectations. The purpose was simply to
outline what expectations the middle class have for the healthcare  marketplace in China.

In some respects the results are not surprising. They are the expectations that people have in any country, any where. They expect greater privacy and dignity in the care-giving process. They want to be more involved in the
decisions that are made regarding their care. They would prefer a personal, private physician as opposed to a revolving door of faces they will never see a second time. They rely strongly on family and friends to advise them on
their choice of provider. They expect clean, well-maintained facilities, efficient systems and courteous personnel.

In other respects, the conclusions are not necessarily expected. They feel strongly that their hospital or provider of care should be located in a residential area. They are willing in some circumstances to pay more for their care in order to meet their expectations but not significantly more. Despite acknowledging that many of the facets of care they seek such as greater respect for privacy and a generally perceived more positive attitude in the care-giving process are found in foreign physicians, middle class consumers do not express a strong preference for foreign physicians but opt instead for Chinese physicians.

In conclusion, the results provide an insight into the expectations held by middle class Chinese of their healthcare providers and outlines a direction for future healthcare development.

Information Systems, Marketing

A comparison of consumer views of traditional services and self-service technologies

Lawrence F. Cunningham, Clifford E. Young, James Gerlach
Journal of Services Marketing Vol. 23, Issue 1, p. 11-23

Purpose – Few marketing studies look at service classifications for self-service technologies (SSTs) and none directly compare consumer-based perceptions of traditional services to SSTs. To fill this gap, this study aims to examine how customers perceived traditional services and SSTs on service classifications criteria proposed by Lovelock, Bowen and Bell.
Design/methodology/approach – In two separate studies consumer ratings for each classification method on each service were obtained. Using multi-dimensional scaling (MDS), 13 traditional services and 12 SSTs were separately mapped onto a perceptual space of service classifications.
Findings – The comparison of the two perceptual spaces reveals that consumers viewed the classifications of convenience, person/object, and delivery for SSTs differently than that for traditional services. The classifications of traditional services were represented by two dimensions of customization/standardization and person/object. In contrast, the classifications of SSTs were represented by two dimensions of customization/standardization and separability/inseparability. Thus the description of the underlying dimensions of services varied by traditional services or SSTs.
Research limitations/implications – It is possible that the results of the MDS were influenced by the use of preset classifications. Results may also be influenced by the authors’ choice of MDS method. Further research is needed regarding the classification of SSTs and the use of these classifications for SST design.
Originality/value – This research extends previous consumer-based classification research by including SSTs. The findings identified separate typologies for SSTs and traditional services. The typologies should be of interest to both researchers and managers who are interested in how SSTs are perceived by consumers.

Management

First Decade of Organizational Research Methods

Aguinis, Herman, Pierce, Charles, Bosco, Frank and Muslin, Ivan S.
Organizational Research Methods Vol. 12, Issue 1, p. 69-112

The authors conducted a content analysis of the 193 articles published in the first 10 volumes (1998 to 2007) of Organizational Research Methods (ORM). The most popular quantitative topics are surveys, temporal issues, and electronic/Web research (research design); validity, reliability, and level of analysis of the dependent variable (measurement); and multiple regression/correlation, structural equation modeling, and multilevel research (data analysis). The most popular qualitative topics are interpretive, policy capturing, and action research (research design); surveys and reliability (measurement); and interpretive, policy capturing, and content analysis (data analysis). The authors found upward trends in the attention devoted to surveys and electronic/Web research, interpretive, and action research (research design); level of analysis of the dependent variable and validity (measurement); and multilevel research (data analysis). Implications for training doctoral students, retooling researchers, future research on methodology, the advancement of the organizational sciences, and the extent to which ORM is fulfilling its mission are discussed.

Management

Managing Intractable Identity Conflicts

C. Marlene Fiol, Michael G. Pratt, and Edward J. O’Connor
The Academy of Management Review Vol. 34, Issue 1, p. 32 – 55

Identity is often at the heart of ongoing intergroup conflicts in organizations. Drawing from theories of conflict management, social identity, and organizational identification, we develop the intractable identity conflict resolution model, which delineates a multiphase process by which the conflicting parties’ identities shift in order to permit eventual intergroup harmony.

Business Analytics

Computationally attractive non-linear models for combinatorial optimisation

B. Alidaee, G.A. Kochenberger, K. Lewis, M. Lewis, and H. Wang
International Journal of Mathematics in Operational Research Vol. 1, Issue 1-2, p. 9 – 19

A common approach to many combinatorial problems is to model them as 0/1 linear programs. This approach enables the use of standard linear program-based optimisation methodologies that are widely employed by the operation research community. While this methodology has worked well for many problems, it can become problematic in cases where the linear programs generated become excessively large. In such cases, linear models can lose their computational viability. In recent years, several articles have explored the computational attractiveness of non-linear alternatives to the standard linear models typically adopted to represent such problems. In many cases, comparative computational testing yields results favouring the non-linear models by a wide margin. In this article, we summarise some of these successes in an effort to encourage a broader view of model construction than the conventional wisdom, i.e. linear modelling, typically affords.

Management

Benefits of training and development for individuals and teams, organizations, and society

Aguinis, H., & Kraiger, K.
Annual Review of Psychology, Vol. 60

This article provides a review of the training and development literature since the year 2000. We review the literature focusing on the benefits of training and development for individuals and teams, organizations, and society. Our review, which adopts a multi-disciplinary, multi-level, and global perspective, demonstrates that training and development activities in work organizations can produce important benefits for each of these stakeholders. We also review the literature on needs assessment and pre-training states, training design and delivery, training evaluation, and transfer of training to identify the conditions under which the benefits of training and development are maximized. Finally, we also identify research gaps and offer directions for future research.