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Using two decades of shareholder class action filings, we provide evidence of significant and consistent long‐run price underperformance in defendant firms. By partitioning our sample according to the merits of an action, we show that firms less likely to have been involved in earnings manipulation, but who may have benefited from corrective management improvements and better signalling, go on to...
When the firm changes its operating leverage it becomes a different firm with a different payoff distribution from its operations. Its CAPM market value can therefore be higher or lower, as can its cost of capital. Its market value is not independent of its operating leverage in the way that its firm value is independent (under MM) of its debt to equity financing ratio. Changes in debt to equity do...
The firm's operating leverage is its ratio of fixed to variable costs. It is widely understood that production settings with higher fixed costs and lower variable costs are high risk. Well‐rehearsed CAPM arguments show how the firm's beta and cost of capital is higher when its proportion of fixed costs is higher. Importantly, that generalization holds under CAPM if expected total costs are constant...
We examine the issue of operating leverage and firm value. Johnstone (2020), in this issue, questions existing results which indicate that higher operating leverage results in lower firm value. We agree with Johnstone (2020) that this result is to be questioned and present a number of arguments which indicate that operating leverage is irrelevant to the valuation of the firm in the context of the...
This study examines a computational framework for segregation of duties (SoD) in the design as well as implementation of accounting systems. The framework consists of a model of workflows in accounting systems based on workflow graphs, a partial order model of roles performed by the actors in the accounting system, and a specification of SoD rules. We develop a set of algorithms for four SoD rules...
This paper provides evidence on how corporate multinationality from the perspective of acquiring firms relates to M&A returns. Using multivariate regressions and a large dataset of over 6,000 M&As (both cross‐border and domestic) by UK firms during 1987 to 2014, the paper finds multinationality to be associated with significantly higher short‐run announcement returns and long‐run operating...
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