Arthur J. Keown

Do strategic alliances create value

Abstract We investigate share price responses to the formation of 345 strategic alliances spanning 1983–1992. The average stock price response is positive, with no evidence of wealth transfers. This is true for horizontal alliances (involving partner firms in industries with the same three-digit SIC codes) as well as non-horizontal alliances. For horizontal alliances, more value accrues when the alliance involves the transfer or pooling of technical knowledge than with nontechnical alliances. Finally, partnering firms tend to display better operating performance than their industry peers over the five-year period surrounding the year in which an alliance is formed.

Interest Rate Sensitivity and Portfolio Risk

Since its inception the single-index market model has been the subject of a large body of theoretical and empirical research. This study deals with the very difficult issue surrounding the practical implementation of the model in portfolio analysis where significant, nonmarket sources of covariation in security returns are believed to be present.

The intraday speed of stock price adjustment to major dividend changes: Bid−ask bounce and order flow imbalances

Abstract This paper examines the intraday stock price reaction to substantial shifts in dividend policy. The results indicate the price reaction to be slower than that previously found by Patell and Wolfson (1984) and closer to that found with earnings announcements by Woodruff and Senchack (1988). Possible order flow imbalances are examined by looking at the proximity of transaction prices to contemporaneous bid and ask quotes. While order flow imbalances are evident for bad news announcements, this is not the case for the dividend increase sample. This is interpreted as evidence that the price reaction to major dividend increases are in general anticipated. Fifteen minute holding period returns are computed to measure the movement of equilibrium prices during the announcement period. Results show a rapid adjustment of prices to positive announcements with adjustment to negative announcements taking up to 75 minutes. Finally, fifteen minute lagged bid—ask returns are calculated to determine whether an investor could respond to the announcement and earn positive returns. These results are found to be dependent on the transaction cost assumptions being made.

Allocation of research and development funds: A zero-one goal programming approach

The research and development project selection process is one of the most difficult and important problems faced by management. It is typically complicated by indivisibility of projects and multiple and conflicting objectives, in addition to limitations on funding, facilities, and qualified researchers. In this paper a case example involving a high technology electrical equipment manufacturer is developed to illustrate this problem using zero--one goal programming to accommodate indivisibility of projects in addition to multiple and conflicting goals. The model presented is an attempt to provide managers with a robust tool for allocating scarce resources among research and development projects.

An Integer Goal Programming Model for Capital Budgeting in Hospitals

Dr. Keown is Assistant Professor of Finance at Virginia Polytechnic Institute and State University and received his DBA from Indiana University. He has coauthored articles forthcoming in The Journal of Portfolio Management, The Engineering Economist, and the Journal of Financial and Quantitative Analysis. Dr. Martin is Associate Professor of Finance at Virginia Polytechnic Institute and State University and received his DBA from Texas Tech University. He has coauthored articles in the Journal of Business, the Journal of Finance, the Journal of Monetary Economics, and the Winter 1974 and Spring 1975 issues of Financial Management, and forthcoming in the Journal of Financial and Quantitative Analysis and The Engineering Economist.

Multiple objective capital budgeting within the university

Abstract The problem of selecting capital projects in universities is compounded by the existence of conflicting multiple objectives on the part of different groups within the university community. Administrators, faculty members, students and politicians all have different goals and projects which they feel are important to the university and themselves. Because of the multiple objective dimension of the capital budgeting process goal programming becomes an appropriate solution approach. However, because of the indivisibility of some capital projects, mixed integer goal programming, a variation of the traditional GP model, must be employed. The solution approach is demonstrated via an illustrative case example. Model goals in the example (which are prioritized by the top administrative officers of the university) exist for capital budget and operating expenses, building and laboratory construction, accreditation, political interest and area performance.

A Goal Programming Application of Capital Project Selection in the Production Area

Abstract Managers of large production operations are often confronted with the necessity to invest in capital projects whose income generating capacity is not the prime consideration for selection. Examples of this type of investment include projects which satisfy safety, environmental, union and/or consumer requirements placed on the firm. This paper describes and demonstrates a goal programming model for project selection when both profit and nonprofit motivated projects are in competition for scarce resources.

Integer goal programming model for urban renewal planning

THE PROBLEM of allocating scarce resources within the urban renewal setting has attracted considerable attention. In recent years as government expenditures have come under closer scrutiny, attempts have been made to allocate these funds more efficiently through the use of various quantitative decision models. The pioneering work in this area was done by Mao [18], in which he proposed the use of an internal rate of return criterion for the selection of urban renewal projects. This work was later refined through the introduction of linear programming by Stuart [28], Laidlaw [12], and Heroux & Wallace [IO]. Unfortunately, while these efforts have done much to make the process of urban renewal planning more efficient, the problem of multiple and conflicting goals complicated by indivisibility of inputs has yet to be dealt with adequately. While the existence of multiple and conflicting goals within the urban renewal setting is well documented. the precise goals and their priority rankings is still in debate [12, p. 1111. Mao [tS, p. 313 for example, identifies three basic goals or benefits of urban renewal.

Recent SEC prosecution and insider trading on forthcoming merger announcements

Abstract While trading on nonpublic information is illegal, the enforcement of this law has been elusive, particularly in the area of trading in advance of merger announcements. We examine the impact of insider trading on daily stock price changes for firms identified by the SEC in the Antoniu-Newman insider trading case. Using residual analysis, the abnormal returns occuring prior to the announcement are calculated and compared with a sample of 188 typical merger candidates not identified in the Antoniu-Newman case to determine whether or not there was an unusually large market reaction prior to the forthcoming merger announcement on the subset of merger candidates involved in the court procedure.

The Information Content of Corporate Investment Annoucements: The Case of Joint Ventures

Partner firms to the same joint venture experience sharply different stock price reactions. These differences cannot be explained by mechanical factors related to differences in firm size and ownership share in the project, nor are they attributable to different partner roles in the project or differences in investor anticipation of the announcement. We conclude that the stock price reactions reflect a revaluation of non-project assets that is different for each partner. Additionally, we find evidence indicating that investors infer information about agency problems (in the sense of Jensen, 1986) from the joint venture announcements and subsequently, revalue the whole firm – not just the marginal project being announced. Finally, we find that free cash flow is value-enhancing for one type of partner firm after we control for the extent of agency problems.