Edward Nelling

CEO founder status and firm financial performance

Founders create their organizations, yet are often expected to eventually become liabilities to these same organizations. Past empirical research on the relationship between CEO founder status (i.e., is the CEO also the founder?) and firm performance has yielded inconsistent results. This study of 94 founder‐ and nonfounder‐managed firms finds that founder management has no main effect on stock returns over a 3‐year holding period, but that firm size and firm age moderate the CEO founder status–firm performance relationship. Copyright

An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers

This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of target and acquiring funds. Results indicate significant improvements in postmerger performance and a reduction in expense ratios for target fund shareholders. In contrast, acquiring fund shareholders experience a significant deterioration in postmerger performance. The net asset flows continue to remain negative for the combined fund in the year following the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mutual fund mergers. However, poor past performance is a significant determinant for only within-family mergers. Copyright The American Finance Association 2002.

Market volatility and the demand for hedging in stock index futures

This study examines the relation between stock market volatility and the demand for hedging in S&P 500 stock index futures contracts. Open interest is used as a proxy for hedging demand. The analysis employs unique data that identify separately the open interest of large hedgers, large speculators, and smaller traders. Volatility estimates are decomposed into expected and unexpected components, to assess whether traders’ reactions to volatility depend upon its predictability. Results indicate that daily open interest for hedgers increases when unexpected volatility increases. Increases in unexpected volatility may cause hedgers to raise their estimates of future expected volatility, and hence increase their demand for hedging. Open interest of speculators is not related to expected volatility, and is only weakly related to unexpected volatility. The increase in the participation of hedgers in periods of higher volatility is significantly larger than the increase in the participation of speculators. The results suggest that increases in stock market volatility increase the demand for hedging.

Executive Compensation in Socially Responsible Firms

This study examines chief executive officer (CEO) compensation and turnover in socially responsible (SR) firms. We compare characteristics of SR firms with a matched sample of firms based on industry and size. Analysis of CEO compensation indicates that the link between CEO pay and firm performance is weaker for SR firms than for non-SR firms. CEO turnover tests indicate that SR firms are more likely to experience CEO turnover following poor performance. Stock option grants to CEOs of SR firms do not appear to result in future risk-taking behaviour, whereas such grants are significantly related to future risk at non-SR firms. Copyright (c) 2006 The Authors; Journal compilation (c) 2006 Blackwell Publishing Ltd.

The Determinants and Predictive Ability of Mutual Fund Ratings

he dramatic increase in new mutual funds in the U.S. in recent years has led to a corresponding T increase in the demand for information on these funds. In 1980, investors could choose &om among 564 mutual funds. In recent years, the number of funds has increased to over 7,000, more than the number of stocks that trade on the NYSE. Like the Value Line Investment Survey, which provides investment advisory services on inlvidual stocks, several rating agencies provide investment advice for mutual funds. One of the more prominent sources of such information is Morningstar, which ranks all open-end mutual funds that have existed for at least three years. Morningstar’s “star ratings” have received increased attention since their inception in 1984. Indeed, the attention given to the ratings has increased so much that many funds that receive the highest rating of five stars include that information in their advertisements. We examine the determinants and prelctive abhty of the Morningstar mutual fund rating system in order to better understand the extent to which ratings are related to various fund characteristics. We also examine the degree of persistence in fund ratings, to see whether successful funds tend to remain highly rated in the future. These issues are relevant for both individual and institutional investors who use the ratings in their investment decisions. We find that funds with hgher ratings tend to have higher risk-adjusted performance, lower systematic risk, a greater degree of &versification, a larger asset base, managers with longer tenures, and lower fi-ont-load charges and expense ratios. Persistence tests on fund ratings indicate statistically significant persistence in fund performance over a short-term time horizon. We find that highly rated funds perform substantially better than lower-rated funds in the period after the ratings are issued. Overall, the results suggest that the Morningstar rating system does indeed provide useful information to investors in their mutual fund selection process.

Real Estate Investment Trusts, Small Stocks, and Bid-Ask Spreads

This study examines the liquidity of Real Estate Investment Trusts (REITs), as measured by their bid-ask spread. We find that REIT spreads have increased over the period 1986-1990, are inversely related to market capitalization, and are similar in magnitude to spreads on other stocks of comparable size. Analysis of variance tests indicate that REIT spreads are similar across equity, mortgage and hybrid asset types. Multivariate regression results indicate that market capitalization is the primary determinant of REIT bid-ask spreads, and spreads are larger for National Association of Securities Dealers Automated Quotations (NASDAQ) REITs than for New York Stock Exchange (NYSE) REITs. The regression results also indicate that spreads are lower for equity REITs than for mortgage or hybrid REITs, and are inversely related to the fraction of the REITs shares held by institutional investors. The similarity between REIT spreads and those of other common stocks holds in both bull and bear real estate markets and suggests that, from a liquidity perspective, REITs are similar to other common stocks. Copyright American Real Estate and Urban Economics Association.

Estimating the Value of Medical Education: A Net Present Value Approach

Background: Estimating the value of a medical education is a difficult undertaking. Purpose: As student debt levels rise and the role of managed care in price-setting increases, the financial benefit of an MD degree comes into question. Methods: We developed a model using net present value (NPV) analysis for a range of annual costs of medical school attendance. Using this model, we determined the point at which pursuing a medical education is a “break-even” proposition from a financial perspective. Results: The NPV of a medical education was positive for all annual costs of attendance from

Innovation and price: the case of digital cameras

10,000 to

Herding behavior in Chinese stock markets: An examination of A and B shares

100,000 and ranged from approximately

Corporate social responsibility and financial performance: the “virtuous circle” revisited

39,000 to