Andrew W. Alford

THE EFFECT OF THE SET OF COMPARABLE FIRMS ON THE ACCURACY OF THE PRICE EARNINGS VALUATION METHOD

The price-earnings (PIE) valuation method estimates a firms stock price as the product of its earnings and the PIE multiple determined from a set of comparable firms. This paper studies empirically the accuracy of the PIE valuation method when comparable firms are selected on the basis of industry, risk, and earnings growth. The effect of adjusting earnings for cross-sectional differences in leverage is also examined.

Extensions and violations of the statutory SEC form 10-K filing requirements☆

Abstract We present evidence that 20 percent of the 10-Ks in our sample are filed with the SEC after the 90-day statutory due date. Firms that delay filing their 10-K are not a random sample of firms; up to 25 (10) percent of the firms experiencing unfavorable (favorable) economic events delay their 10-K. Firms that delay their 10-K are, on average, small, have negative accounting rates of return, negative earnings changes, low liquidity, and high financial leverage; they also experience negative market- adjusted stock returns.

Financial reporting and information asymmetry: an empirical analysis of the SEC's information-supplying exemption for foreign companies

This paper examines empirically the effect of SEC registration and reporting requirements on information asymmetry. We compare the adverse-selection component of the bid-ask spread our measure of information asymmetry for three samples of companies listed on NASDAQ that are subject to different levels of disclosure requirements: registered U.S. companies registered non-Canadian foreign companies and unregistered non-Canadian foreign companies covered by the information-supplying exemption of Rule 12g3-2(b) of the Securities and Exchange Act of 1934. After controlling for other determinants of adverse-selection we find that adverse- selection is lower for the foreign companies than for the U.S. companies and that it is indistinguishable for the exempt and non-exempt foreign companies. We are unable to document that less stringent SEC registration and reporting requirements are associated with greater information asymmetry for foreign securities listed on NASDAQ.

The performance of international joint ventures: A study of the merchant banking industry in Singapore

Abstract We examine operating performance and ownership of joint venture and wholly-owned merchant banks operating in Singapore from the formation of the industry to its maturity. For our sample, joint ventures dominated wholly-owned banks as an organizational form only within the first six years of the industrys life, when there were opportunities for organizational learning and risk sharing by venture partners. Thereafter, new banks were typically wholly-owned subsidiaries and 71% of surviving joint ventures switched to wholly-owned status. Despite their higher mortality rates, we find no evidence of lower performance for joint ventures.

A Foreign Investor's Guide to Accessing the Chinese Equity Market

In this article the authors compare the extent to which Chinese companies with different types of shares provide balanced exposure to the Chinese equity market. Whereas many previous studies focus on Chinese stocks, the authors also examine the properties of Chinese companies. They find that companies that have issued A-shares exclusively (and are therefore inaccessible to most foreign investors) are distinct from companies that have also issued B-shares and/or H-shares, or those companies who have shares listed on a foreign stock exchange (and are therefore accessible to foreign investors). Consequently, the latter are not representative of the broader Chinese equity market. Foreign investors who wish to participate more fully in the Chinese market should consider obtaining a Qualified Foreign Institutional Investor (QFII) license and quota so that they can gain direct exposure to the large number of Chinese companies that have only A-shares.

Implementing a Smart Beta Index: The Implications of a Dual Performance Objective and Limited Liquidity

A smart beta portfolio that tracks an explicit smart beta index has two performance benchmarks: the smart beta index itself and a cap-weighted index that represents the broader equity market. This dual performance objective creates a trade-off whenever the portfolio is large relative to the liquidity of the smart beta index. A portfolio that fully replicates the smart beta index, and trades all shares near the close on each rebalancing date of the smart beta index, can incur significant transaction costs and thereby adversely affect the performance of the smart beta index vis-à-vis the cap-weighted market. This article shows that sampling (by excluding the least-liquid stocks) and trading patiently (by trading over a longer interval of time) can reduce expected transaction costs and improve the performance of the smart beta index (and, by extension, the smart beta portfolio). Sampling and patient trading cause tracking error between the smart beta portfolio and the smart beta index. However, this tracking error, when modest, has very little impact on the tracking error between the smart beta portfolio and the cap-weighted performance index. The authors conclude that the optimal level of tracking error between the smart beta portfolio and the smart beta index may be much higher than the level usually chosen for a cap-weighted passive portfolio.