If two investments have the same payoff covariance with the market but one has higher expected payoff, which asset according to the CAPM has most risk? One answer is that as far as risk goes the two assets are the same, because they have the same covariance with the market. The correct answer,...

The Financial Crisis of 2008/2009 increased plan sponsors' desire to control risk — and we are still seeing the unfortunate effects. Many approaches adopted to control risk are illusions of risk control. Of particular concern is how sponsors are misapplying tools designed to monitor...

We examine whether the presence of privately informed traders, and information asymmetries between these traders and the rest of investors, undermine the role of accounting information in mitigating financing constraints and reducing under-investment problems. In line with prior research, we...

We find that, in the presence of the “flight to quality” during the 2007-2008 financial crisis, firms that depended less on external financing (or internal finance dependent firms) prior to the crisis were able to secure additional financing and increased investments, while external finance...

This research considers the strategies on the initial public offering of company equity at the stock exchanges in the imperfect highly volatile global capital markets with the nonlinearities. We provide the IPO definition and compare the initial listing requirements on the various markets. We...

There is a strand of CAPM based analytical research in accounting that uncovers a little known CAPM corollary, namely that the firm's cost of capital is a joint effect of its payoff risk and payoff mean. The CAPM equilibrium mechanism has the effect that the "numerator" (expected payoff) drives...

We consider a simple investment project with the following parameters: I0: Initial investment which is amortizable in n years; n: Number of years the investment allows production with constant output per year; A0: Annual amortization (A=I/n); Q0: Quantity of products sold per year; Cv0: Variable...

The effect of corporate governance failure and agency behaviour on stock market prices has long been of great interest to financial economists, behavioural scientists and capital market researchers. Yet there is to date no consensus over what constitutes an effective governance mechanism that...

Using management earnings forecasts over the period 1996-2010, I find that the sensitivity of forecast revisions to contemporaneous stock returns is increasing in the amount of investors' private information in prices. This effect remains after controlling for various confounds and is robust to...

Modigliani and Miller (M&M) proposed that investors forgo dividends, leaving the money available for reinvestment as retained earnings. This recommendation takes two parts: Proposition III, i.e., a dividend has no impact on market value, and Proposition IV, i.e., that financial policy is of no...