Robert F. Bruner

An analysis of stock price reaction to management change in distressed firms

Abstract This study analyzes excess returns to shareholders at announcement of a change in senior management of distressed firms. Excess returns are significantly positive, which is consistent with the internal corporate control hypothesis that management change following poor performance is associated with gains to shareholders. Cross-sectional tests of the effects reveal a significant title effect and significant interactions between title and appointment of an outside successor and title and firm size. These findings present new insights into the circumstances in which external vs. internal markets for managers will affect shareholder wealth.

The International Debt Crisis and Bank Security Returns in 1982

This research investigates the reaction of bank security returns to the 20 August 1982 Mexican request for the rescheduling of its external debt. Empirical results show that the reaction of bank stocks was rapid and significantly negative. Within six days of the published announcem ent, prices had adjusted to reflect levels of individual bank exposure, which re futes the much longer time impliedin other studies of this event. The authors c onclude that the marketreaction was essentially efficient, rational, and orderly. Copyright 1987 by Ohio State University Press.

Introduction to 'Valuation in Emerging Markets'

The purpose of the Batten InstituteyAssociation for Investment Management and Researchy Emerging Markets Review conference was to examine the challenges of valuing assets in emerging markets. These challenges are immensely interesting to practitioners and scholars for many reasons, among them for what they reveal about the differences between emerging markets and developed markets. The colloquium surveyed business and research practices, stimulated critical reflection, and highlighted questions for future research. This article provides an overview of the issues discussed in the conference. 2002 Elsevier Science B.V. All rights reserved.

Globalization of Management Education

A new study, sponsored by the Association to Advance Collegiate Schools of Business, presented a comprehensive new perspective on the globalization of management education, (AACSB International, 2011). Its findings are sobering: with regard to emerging global trends in higher education and cross-border business, the report reveals a sizable gap between what the world needs and what management educators generally do. Key areas for attention include the expansion of mechanisms for quality improvement and assurance globally, strengthening the use of international partnerships, more intentional internationalization within the curriculum, and connecting various global activities to one another through a comprehensive globalization strategy.

The Crash of the Revco Leveraged Buyout: The Hypothesis of Inadequate Capital

The bankruptcy of Revco Drug Stores is one of the most notable in the history of highly leveraged transactions. This study considers the allegation that the leveraged buyout of Revco left it without adequate capital to survive. We use Monte Carlo simulation to determine Revcos financial coverage ratios and the expected probability of financial survival. The simulation finds a very low probability that Revco would survive the heavy debt and preferred stock obligations during the first three years following the buyout. The simulation approach provides a useful perspective on the efficacy of the insolvency and capitalization tests as evaluated by the courts. We argue that capital adequacy on the day of going private is extremely difficult to prove using a point-estimate valuation; a simulation-based test provides the more appropriate statistic - i.e., a probabilistic assessment of survival.

Crises, Financial Leadership, and the Six Stretches for Financial Education

The former dean of the University of Virginias Darden School explores how business schools must adapt to prepare future business leaders to assume the leadership responsibilities necessary to respond effectively to financial crises. The article begins with a statement by Milton Friedman and Anna Schwarz in their Monetary History of the United States about the failure of U.S. policy makers to prevent the collapse of the U.S. banking system during the Great Depression. Then turning to the crisis of 2008, the author draws on recent accounts of the leadership—both effective and ineffective—provided by policymakers to support Friedman and Schwartzs contention that the success of countries in responding to crises “depends on the presence of one or more outstanding individuals willing to assume responsibility and leadership.” After citing Nassim Talebs characterization of the financial system as inherently “fragile,” the article offers a number of insights about the kind of leadership that is likely to prove effective in protecting such systems. Using the responses of policymakers like Bernanke, Paulson, and Geithner as examples, the author observes that successful leaders rank priorities and set direction, mobilize collective action, choose whether and how to use the “panoply of tools” at their disposal, and attempt to respond in a comprehensive, coordinated way to all aspects of a crisis using a flexible set of approaches and methods that he identifies as “Ad Hoc-racy.” With such insights in mind, the author goes on to suggest that changes in current research and teaching about leadership are likely to take the form of the following six “stretches”: From local to global: “Global” in the context of crises refers to thinking systemically about connectedness and the tendency of trouble to travel within systems of finance. From a single-discipline to an interdisciplinary focus: As examples, the dynamics of mobilizing collective action can be illuminated by research on group decision-making and bargaining theory; and process management research holds insights for the conduct of “Ad Hoc-racy.” From passive learning to active learning: Because so much of crisis leadership is a response to contingencies, exercising students’ skills in financial “whack-a-mole” seems like a valuable complement to more traditional pedagogical styles. Better for students to explore the consequences of bad judgment in the classroom than in the markets. From scholarship about problems of interest to scholarship about problems of consequence: If only because the costs associated with risks to the financial systems are so large, financial leadership is consequential and warrants inquiry. From field mastery to growth of wisdom: Although mastery of the tools and concepts of finance is necessary for a successful career in the field, we need financial leaders who can harness such concepts and analytical insights to sound judgment in the pursuit of larger goals, including, when appropriate, the greatest social good. From preparation for followership to preparation for leadership: The popularity of finance on campuses and the high salaries of finance recruits attest to the value of what higher education delivers in this field. But what the students and recruiters want is preparation for the first job in the field—that is, training that prepares students to follow. We can do better than that.

National Railroad Passenger Corporation (“Amtrak”): Acela Financing

In the late 1990s, the National Railroad Passenger Corporation (Amtrak) faced a rude awakening as Congress stipulated that it eliminate its reliance on federal subsidies by 2002. In response, Amtrak drew up a plan for self-sufficiency, the centerpiece of which was a new high-speed passenger service that, it was hoped, would boost revenue enough to make Amtrak self-sufficient by 2002. To run this new service, Amtrak needed to purchase

Financial innovation and the consequences of complexity: insights from major US banking crises

750 million worth of new locomotives and train sets in 1999. Three alternatives were available for funding the purchase: debt financing, lease financing, or reliance on federal sources. The case opens with Amtraks CFO instructing her staff in April 1999 to review a leveraged-lease proposal that has just been submitted by BNY Capital Funding LLC. The objectives of the case are to introduce students to financial leases as a financing alternative, explore the lease-versus-buy decision and the conditions under which financial lease arrangements make sense, and exercise skills in the valuation of financial leases. Excerpt UVA-F-1363 Version 1.6 National Railroad Passenger Corporation (“AMTRAK�?): Acela Financing On April 30, 1999, Arlene Friner, CFO of Amtrak, instructed her Treasury staff to review a leveraged-lease proposal from the BNY Capital Funding LLC (BNYCF). Several weeks earlier, Amtrak and its adviser, Babcock & Brown Financial Corporation, had invited financial institutions to submit lease-financing proposals for Amtraks planned purchase of locomotives and high-speed train sets. The equipment would be utilized on the “Acela�? line, Amtraks new brand that was designed to differentiate Amtrak passenger trains and service in the Northeast Corridor from the existing service. Acela, scheduled to begin service in late 1999, promised to offer faster trip times and premium service (Exhibit 1). Friner and her staff had gone over the proposals and agreed that BNYCF was among those that offered the best terms. Now, she had to decide whether Amtrak should finance the equipment purchases using BNYCFs leveraged-lease proposal or borrow money and purchase the equipment on its own. . . .

The Development of General Management Capabilities in a Global World

Complexity and instability have been persistent features of the American financial system since the earliest days of the republic. Beginning with Alexander Hamilton’s Bank of the United States in 1791, the growth of the banking sector and the everdeepening interconnections among banks and banklike institutions have coincided with cycles of crashes, panics, financial crises, and, in some cases, depressions. One view is that the absolute complexity1 of the financial system, especially in its instruments and institutions, is itself a material source of the instability; that is, as the banking sector has grown more complex, so has its tendency toward disequilibrium and dysfunction. We suggest an alternate view that complexity by itself is not a sufficient condition to precipitate systemic vulnerability. Instead, we observe that complex financial systems may fall out of equilibrium with the introduction (or adoption) of novel financial instruments, institutions or markets – that is, financial innovations. Such innovations have the potential, we suggest, to amplify negative dynamics within complex systems and, under certain conditions, may result in significant adverse consequences. Drawing from the growing body of literature that applies concepts from the study of complex adaptive systems to economics (for example, Arthur, 2014) and financial markets (for example, Beinhocker, 2007; Sornette, 2003), this chapter explores two interrelated features of complex financial systems that may serve as the mechanisms by which innovation can induce financial instability: tight linkages and information flows. The systemlike architecture of the banking sector often creates opacity that makes it difficult for information to flow freely when trouble occurs; also, a complex system creates tight linkages whereby the trouble itself can quickly spread.

The gains to bidding firms from merger

Many of the graduates of today’s business schools are well prepared to excel in applying the functional knowledge and skill they have acquired. The world needs people who can do this. Yet the business profession expresses a growing need for general managers and leaders, people who can knit together the work of many technicians, who take an enterprise point of view, and who create a whole that is greater than the sum of the parts. As business grows more global in form and content, the need for leaders who can synthesize activities across borders grows more urgent. The gap between what schools produce and what business needs is at the heart of a chorus of criticism of business education.