Geoffrey Poitras

Shareholder wealth maximization, business ethics and social responsibility

The primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization (SWM). Distinctions between SWM and the more widely examined construct of profit maximization are identified, the most significant being the central role played in SWM by the market mechanism for pricing the corporations securities. It is argued that empirical tests concerned with evaluating the ethical implications of SWM will almost surely involve a joint hypothesis. A number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed.

The Timing of Asset Sales: Evidence of Earnings Management?

This paper presents empirical evidence from a sample of publicly traded Singaporean firms on the question: to what extent do firms manage earnings through the timing of asset sales? Previous studies have focused on accounting motives behind asset sales, ignoring the need to also consider economic motives. Some empirical evidence is provided to support the hypothesis that managers of firms with decreasing net earnings-per-share smooth earnings upwards using asset sales. Copyright Blackwell Publishers Ltd 2002.

Short sales restrictions, dilution and the pricing of rights issues on the Singapore Stock Exchange

Abstract This paper presents an empirical evidence on the pricing of rights issues traded on the Stock Exchange of Singapore (SES). It is demonstrated that rights prices typically trade below the short arbitrage boundary for a subscription warrant. Given the presence of SES short selling restrictions, which prevent the execution of short arbitrage trades, the size of the price deviations below the arbitrage boundary is attributed to the trading profits of SES market makers. Evidence is also provided indicating that the expected economic dilution associated with the rights issue is only partially reflected in ex rights stock prices.

Arbitrage boundaries, treasury bills, and covered interest parity

Abstract This paper uses the covered interest parity relationship to define upper and lower arbitrage boundaries on domestic Treasury bill (t-bill) rates. Adapting the methodology for estimating frontier functions, empirical tests are specified to determine whether the arbitrage boundaries provide a binding constraint on the behavior of the domestic t-bill rate. Empirical evidence is presented for the covered Canadian t-bill rate which indicates that at various times the US t-bill rate has been a binding lower boundary and the Euro–US ollar deposit rate has provided a binding upper boundary.

Pioneers of financial economics: Das Adam Smith Irrelevanzproblem?

This paper is a contribution to the debate surrounding the steady decline in importance of the history of economic thought within the economics curriculum. The relevance of the history of financial economics to this debate is examined and a ‘histories of economic thought’ strategy is suggested to improve the future prospects of the subject. In the process, Das Adam Smith Irrelevanzproblem is identified and discussed. Das Irrelevanzproblem is concerned with the question: why do Adam Smith and other classical political economists continue to play such a central role in traditional thought when the relevance of these thinkers to modern economics, particularly new additions such as financial economics, is so limited? This paper demonstrates that the history of financial economics commences at least a century prior to The Wealth of Nations and is largely independent of the traditional thought which commences with the role of Adam Smith as the leading Enlightenment thinker on issues relevant to political economy.

OxyContin, prescription opioid abuse and economic medicalization

Correspondence: Geoffrey Poitras Faculty of Business Administration, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada Tel +778 782 4071 Fax +778 782 4920 Email poitras@sfu.ca Abstract: This paper examines the relevance of OxyContin diversion and abuse to the economic medicalization of substance abuse and addiction. Given that medicalization is the general social process of nonmedical problems being transformed into medical problems, economic medicalization occurs where the motivation for the transformation is commercial profitability or, in a corporate context, achieving the objective of shareholder wealth maximization. After considering potential conflicts between medical ethics and business ethics, practical aspects of economic medicalization are detailed by considering the methods used to market OxyContin by Purdue Pharma. Illegal practices are identified and contrasted with legal practices that facilitated economic medicalization. Implications of medicalization research for designing public heath solutions to the epidemic of prescription opioid abuse are discussed.

Skewness preference, mean–variance and the demand for put options

This paper compares the mean-variance and the mean-variance-skewness approaches to modelling expected utility. Attention is focused on a problem encountered in risk management: determining the optimal demand for a put option hedging the return on an asset with a negatively skewed return distribution. It is demonstrated theoretically that incorporating positive skewness preference into the decision-makers objective function typically produces a reduction in the demand for put options when compared with the mean-variance solution. A state-dependent example is provided to illustrate how a mean-variance-skewness objective can result in a significant reduction in the optimal amount of crop insurance demanded when compared with the mean-variance solution. Copyright

Robert Torrens and the Evolution of the Real Bills Doctrine

In the current era of quantity theorists and inconvertible currencies, the real bills doctrine has received a surprising amount of recent attention (e.g., Sargent and Wallace, 1982; Smith, 1988; Selgin, 1989; Cunningham, 1992). While the real bills doctrine has a long history, the doctrine underwent considerable evolution during the period from the Bullionist debates of the Restriction Period, 1797–1819, to the Banking School versus Currency School debates surrounding the introduction of Peels Act in 1844. The debates of the Restriction period are significant for being directly concerned with the workings of an inconvertible, real-bills-based paper currency while the later debates involved the real bills doctrine under convertibility. A primary objective of this paper is to explore the views that Robert Torrens held concerning the inconvertible and convertible versions of the real bills doctrine as a rule for central bank policy. Torrenss contributions as an anti-bullionist and, later, as a leading member of the Currency School reflect the importance that both convertibility and bank lending practices have for interpreting the real bills doctrine and the related law of reflux. The apparently paradoxical evolution of Torrenss monetary thought identified by Lionel Robbins (1958) is attributed primarily to the evolution of his views on bank lending practices.

Turtles, Tails, and Stereos: Arbitrage and the Design of Futures Spread Trading Strategies

S pread trailing of futures contracts is an essential futures market activity, providing an important component of market liquidity; particularly in the deferred contract months. Market participants have used simple types of spread trades since the earliest trailing in futures contracts. Modern futures traders employ a wide range of speculative spreading strategies, including some complicated and exotic trades that are derived from arbitrage fundamentals. Despite the practical relevance of spread trading, treatment of this subject in the academic literature is incomplete and, typically, imprecise. Numerous interesting and widely used trades, such as the crack spread and stereo trades, have received little or no direct attention. A primary objective of this article is to examine a class of spread trading strategies derived from

Long-term covered interest parity and the international swap market

This paper examines the pricing of long-term forward exchange contracts. It is established empirically that the traditional covered interest arbitrage pricing relationship is often violated, and that the behaviour of long- and short-term forward exchange rates is substantively different. It is argued that activity in the international currency and interest rate swap markets provides a potential explanation for the observed “mispricing”. In particular, fixed-to-fixed currency swaps provide another form of arbitrage which can affect long-term forward exchange pricing.