Richard A. Lord

Leverage, imports, profitability, exchange rates, and capital investment: a panel data study of the textile and apparel industries 1974-1987

Abstract This paper explores the relationship between capital structure and import competition for the textile and apparel industries from 1974–1987. The level of import penetration should have an important effect on business risk and hence on financial leverage. We also examine the response of leverage to the interrelationships that may exist between import competition and three other factors: firm profitability, strength of the dollar, and investment in capital equipment. The evidence suggests that leverage for the textile firms increases with rising imports but that the effect is less marked if the imports are the result of a strengthening dollar. The textile firms also seem to have inaugurated a capital investment campaign in reaction to import competition. For apparel firms, the interrelationship between profitability and import penetration seems to have been the primary determinant of leverage.

Does Compensation Structure Alleviate Personal CEO Risks

Abstract:  Are CEO compensation packages designed to alleviate some of the personal risks that they bear? We employ a unified framework to test the relationship between the four major components of executive pay; salary, bonuses, option grants and restricted stock grants, and four factors that increase CEOs’ personal risks; the real value of their pay, the riskiness of firm equity, the value of their equity portfolios, and the delta of these equity holdings. We show that personal risks that CEOs face have significant effects on the design of their compensation contracts. Our results suggest that the portion of salary compensation decreases many of the personal risks that they face. There are intriguing differences between salary and bonuses on one hand, and option and restricted stock grants on the other. As predicted, we find that the delta of CEOs’ equity portfolios have strong nonlinear relationships with the different forms of compensation; especially with option grants.

Effect of Exchange Rates and Gasoline Prices on US Imports of Japanese Automobiles

We analyze the effects of gasoline prices and exchange rates on Japanese automobile imports to the United States between 1970 and 2004. We test the relationships before, during, and after the Voluntary Restraint Agreement placed on Japanese imports between 1981 and 1988. We also control for general demand for automobiles and domestically manufactured Japanese vehicles. As expected, we found that demand for Japanese imports is positively correlated with the price of gasoline. Before 1988 the demand for Japanese imports contributed to a strengthening of the yen. But after, a positive relationship between the yen-for-dollar exchange rate and imports has prevailed.

Using Financial Investment Measures to Proactively Engage Students in the Introductory Business Statistics Course.

ABSTRACT Typically, the core-required undergraduate business statistics course covers a broad spectrum of topics with applications pertaining to all functional areas of business. The recently updated American Statistical Associations GAISE (Guidelines for Assessment and Instruction in Statistics Education) College Report once again stresses the pedagogical importance of topic and application relevancy in an increasingly data-centered world. To this end, only two introductory textbooks have incorporated some financial investment measures (Sharpe ratio and beta coefficient) in the teaching of numerical descriptive measures and simple linear regression analysis, respectively, while a few others include them as real-data application exercises at the end of their respective chapters. Although this latter coverage is in compliance with GAISE College Report recommendations on the importance of using relevant real data applications in the teaching of introductory business statistics, it forgoes an opportunity to provide more detailed discussion within the text itself and add value to a business students learning. Given that all business students will have an opportunity to learn about financial investment, regardless of their functional area major, this paper offers a more proactive use of these and other financial investment measures as part of the current, traditional course or as part of a suggested dedicated introductory business statistics course for finance majors.

Performance Before and After Discontinued Operations

Discontinuing an operation is a major decision for a manager, and requires approval from the board of directors. We provide valuable insights into these strategic choices. First, we document changes in reports of discontinued operations in recent decades. There is a major increase in divestitures after the implementation of new SFAS statements in 1998 and 2002. After the change in reporting requirements, the portion of firms discontinuing operations more than doubles in almost one-third of the industries that we analyze. Second, we use three multinominal logit models to determine the reasons for discontinuing an operation, and to gain insight into the signs and magnitudes of the reports. Three factors have the strongest effect on the decision. The firms that divest are unusually widely diversified, have high financial leverage, and have low values of Tobin’s Q. Undervalued firms are particularly likely to discontinue negative valued operations. Tightening corporate focus and improving performance seem to be very powerful motives for discontinuing an operation. Firms that divest often have also recently made large acquisitions, employ low levels of R&D and advertising, and slow historical sales growth. Finally, we examine operating efficiency after a discontinuation, and find evidence of marginal improvement in performance. Tobin’s Q rises, suggesting that markets approve. Revenue growth is better than for typical firms, and there is some evidence that operating profit margins improve. Overall, our results suggest that firms that discontinue an operation experience below average performance before, and improve marginally after, and markets reward them for these changes.