Dušan Isakov

Are practitioners right ? On the relative importance of industrial factors in international stock returns

This paper investigates the relative influences of industrial and country factors in international stock returns. Until very recently, academic research has consistently found that country factors dominate industrial factors. This result is in contradiction with practitioners beliefs. This paper re-examines this issue by analyzing a sample of more than 4000 stocks quoted in 20 developed countries. We find that on average the country effect still dominates stock returns over the period 1997-2000. This result has to be interpreted with caution though, as an analysis that allows for time-varying relative influences demonstrates the rapidly increasing impact of industry effects in recent times. We find, in particular, that this trend is common to all 20 developed countries considered and not only to those that are member of the European Monetary Union. We interpret this result as evidence of the increasing globalization of international equity markets.

Are Founding Families Special Blockholders? - An Investigation of Controlling Shareholder Influence on Firm Performance

This paper examines how family and non-family ownership affects the performance of Swiss listed firms from 2003 to 2010. We distinguish between these two types of controlling shareholders since they have different objectives. We hypothesise that only family shareholders have a real incentive to reduce agency costs whereas non-family blockholders are similar to widely held companies. Our results show that family firms are more profitable than companies that are widely held or have a non-family blockholder. For market valuations we find that the family stake plays a critical role and document a concave relationship between family ownership and Tobin’s Q. We also investigate the impact of different features of family firms on performance, and document that the generation of the family and the active involvement of the family play an important role for market valuation.

Pay-Out Policies in Founding Family Firms

This article analyses founding family influence on pay-out policies for Swiss listed firms over the period 2003-2010. We hypothesise that family firms have different incentives and characteristics that affect pay-out decisions and propose three possible explanations: agency theory, reputation building and family income needs. Our results show that founding family firms display significantly higher dividend pay-outs relative to companies with other ownership structures. We also examine specific family characteristics and document that the family stake, the active involvement and generation of the family play an important role for pay-out policies. Our findings appear to be consistent with the family income hypothesis and to some extent with reputational concerns.

Family Ownership, Multiple Blockholders and Firm Performance

Recent research has documented that family-controlled firms are very common around the world. This paper provides new evidence on the accounting and market performance of this type of companies. The empirical investigation is conducted on a market in which family firms are well-established and represent the most widespread form of ownership, namely Switzerland. Using panel data for the period 2003 to 2007 on companies listed on the Swiss exchange, we find evidence that family firms have a 1.19 higher Tobin’s Q and a 3% higher return on assets than non-family firms. A finer analysis reveals that the outperformance depends on the characteristics of the family business. First, we find evidence that family firms in which a second blockholder is present are even more profitable with a 5% higher return on assets and a 1.27 higher Tobin’s Q than non-family firms. In this case not only agency costs between management and shareholders are reduced but also between majority and minority shareholders by limiting private benefit extraction. Second, family firms in which a family is only an investor do not perform better than non-family firms. Only if family members are actively involved in management, as either CEO, Chairman or both do they add value and thus perform significantly better than outsiders. This indicates that family members have superior knowledge on their companies that is lost when they solely hold a financial participation in the firm. Finally, our results also show that these skills are not confined to the founder but are also present in heir-managed family firms. In particular we find that firms with descendant-CEO or founders acting as Chairman have better accounting and market performances.

Technical Analysis with a Long Term Perspective: Trading Strategies and Market Timing Ability

This paper extends the literature on the profitability of technical analysis in three directions. First, we investigate the performance of complex trading rules based on moving averages computed over longer periods than those usually considered. Different trading rules are simulated on daily prices of the Standard & Poor’s 500 index and we find that trading rules are more profitable when signals are generated over long horizons. Second, we analyse whether financial leverage can improve the profitability of different strategies, which appears to be the case when leverage is achieved with debt. Third, we propose a new market timing test that assesses whether a trading strategy can generate signals corresponding to bull and bear markets. The results of this test show that complex rules produce high proportions of accurate signals.

The Optimal Strategy of the Initial Bidder in Takeover Contests: Theory and Empirical Evidence

This paper investigates the optimal bidding strategy for the initial bidder in takeover contests. In the theoretical model, the initial bidder has the choice between making a low or a high preemtive initial bid. Both types of bids can lead to a competitive auction process among bidders, and both information and bidding costs are included in the analysis. Optimal strategies are specified following the Perfect Bayesian Equilibrium. The model predicts notably that the optimal strategy for the initial bidder is make a high preemptive initial bid. This strategy deters potential bidders to compete for the same target. The empirical implications of the theoritical model are then examined on US data over the period 1990-1995. Among other results, the relation between the level of bid premiums and the degree of competition is found to be dependent on the type of offer, i.e. hostile or friendly.

Founding family ownership,stock market returns, and agency problems

This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors. Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns. Although they are more profitable, family firms have lower valuations and regularly surprise markets by announcing better-than-expected earnings. The evidence suggests that outside investors earn a premium for being exposed to the specific agency problems present in family firms. JEL Classification: G32; G14