on Corporate Finance
 Issue of 2009‒11‒14 seven papers chosen by Zelia Serrasqueiro University of the Beira Interior

1.  By: Fernandez, Pablo (IESE Business School) Abstract: This paper contains 100 questions that students, alumni and other persons (judges, arbitrageurs, clients¿) have posed to me over the past years. They were recompiled so as to help the reader remember, clarify and, in some cases, discuss some useful concepts in finance. Most of the questions have a clear answer but others can receive several emphasis. A short answer to all of the questions is provided at the end of the paper. Keywords: flow; net income; required return; simple return; weighted return; market premium; value creation; JEL: G12 G31 M21 Date: 2009–09–01 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0817&r=cfn
2.  By: Fernandez, Pablo (IESE Business School); Bermejo, Vicente (IESE Business School) Abstract: We compute the correlations of the annual stock returns (1989-2008) of the Dow Jones companies with a) Rm; and with b) Rm; and find that the second correlation (assuming beta = 1 for all companies) is higher than the first one, on average, and for all companies except Caterpillar and General Motors. Rm is the return of the S&P 500. Beta = 1 works better than calculated betas! Not surprisingly, Adjusted betas (0.67 calculated beta + 0.33) have higher correlation than calculated betas. But Adjusted betas have lower correlation than beta = 1. We do the exercise with 4 calculated betas every year end vs. the S\$P 500, using: a) monthly data of last 5 years; b) monthly data of last 2 years; c) weekly data of last 5 years; d) daily data of last 5 years. We find similar results with the four betas. Despite this results, Fernandez (2009) reports that 97.3 % of the professors that justify the betas use regressions, webs, databases, textbooks or papers (the paper specifies which ones), although many of them admit that calculated betas "are poorly measured and have many problems". Only 0.9% of the professors justified the beta using exclusively personal judgments. Keywords: historical beta; calculated beta; adjusted beta; common sense; JEL: G12 G31 G32 Date: 2009–09–15 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0825&r=cfn
3.  By: Groh, Alexander P. (IESE Business School); Liectenstein, Heinrich (IESE Business School) Abstract: We contribute to the knowledge about the capital flow from institutional investors, via Venture Capital (VC) funds as intermediaries, to their final destination, entrepreneurial ventures. Therefore, we run a world-wide survey among 1,079 institutional investors to determine the importance of several criteria when they select VC funds. The expected deal flow and access to transactions, a VC fund's historic track record, its local market experience, the match of the experience of team members with the proposed investment strategy, the team's reputation, and the mechanisms proposed to align interest between the institutional investors and the VC funds are the top criteria. The level of fees payable to the funds is not an important selection criterion. The VC relationship is based on a complex structure of (several) principals and agents, and is functional only if the interests of all participants are aligned. Fees are an important element of this alignment. Overall, the sorting criteria of institutional investors are very similar to what we know about the criteria applied by VC funds themselves, when selecting entrepreneurial ventures: the institutions have to mitigate the same kind of agency conflicts that VC funds and entrepreneurs are exposed to. Keywords: Entrepreneurial Finance; Venture Capital; Asset Allocation Criteria; Institutional Investor; JEL: G23 G24 Date: 2009–05–17 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0795&r=cfn
4.  By: Fernandez, Pablo (IESE Business School) Abstract: We report 2,510 answers from professors from 65 countries and 934 institutions. 1,791 respondents use betas, but 107 of them do not justify the betas they use. 97.3% of the professors that justify the betas use regressions, webs, databases, textbooks or papers (the paper specifies which ones), although many of them state that calculated betas "are poorly measured and have many problems". Only 0.9% of the professors justify the beta using exclusively personal judgement (named qualitative, common sense, intuitive, and logical magnitude betas by different professors). The paper includes interesting comments from 160 professors. We all admit that different investors may have different expected cash flows, but many of us affirm that the required return should be equal for everybody: That is a kind of schizophrenic approach to valuation. Most professors teach that the expected cash flows should be computed using common sense and good judgement about the company, its industry, the national economies¿ However, many professors teach a formula to calculate the discount rate (instead of using again common sense). Keywords: historical beta; calculated beta; common sense; JEL: G12 G31 M21 Date: 2009–09–09 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0822&r=cfn
5.  By: Fernandez, Pablo (IESE Business School); Bermejo, Vicente (IESE Business School) Abstract: Este documento resume 1.466 respuestas a una encuesta por e-mail realizada a directivos de empresas y a profesores de finanzas europeos. 1.143 personas utilizan rentabilidad exigida y 824 utilizan betas para calcularlas. La mayoría (717) de estas 824 personas justifican las betas que utilizan con regresiones, webs, bases de datos, libros o artículos. Solamente 70 personas justifican las betas que utilizan empleando únicamente el sentido común. La proporción de directivos que utilizan rentabilidad exigida pero no utilizan betas para su cálculo (44%) es muy superior a la de los profesores (8%). La proporción de directivos que utilizan sólo el sentido común para justificar las betas que utilizan (15%) es muy superior a la de los profesores (2%). Sorprende que, con los problemas que presentan las betas calculadas por regresión, un gran porcentaje de los profesores y directivos todavía las utilicen para calcular la rentabilidad exigida. La mayoría admite que hay muchos problemas en su determinación, pero continúan enseñándola y utilizándola por diversas razones: "ha obtenido el Premio Nobel en Economía", "se utiliza mucho", "permite defender una valoración, impresionar a la dirección y parecer un gurú financiero" Keywords: beta; beta histórica; beta calculada; sentido común; JEL: G12 G31 M21 Date: 2009–09–13 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0824&r=cfn
6.  By: Vroom, Govert (IESE Business School); Mccann, Brian T. (Krannet School of Management) Abstract: We question the broad applicability of the assumption of profit maximization as the goal of the firm and investigate how variance in objective functions across different ownership structures affects competitive behavior. While prior work in agency theory has argued that firms may fail to engage in profit maximizing behaviors due to misalignment between the goals of owners and managers, we contend that we are unlikely to observe pure profit maximizing behavior even in the case of the perfect alignment of goals that exists in owner-managed firms. We compare the competitive behaviors of owner-managed and professionally managed firms and find that, contrary to the expectations of agency theory, professionally managed firms are more likely to engage in behaviors consistent with profit-maximization goals. Consistent with the view that owner-managers are less concerned with maximizing profits, we observe that the entry, exit, and pricing decisions of owner-managed firms are all relatively less responsive to the underlying economic attractiveness of the markets in which they operate. Keywords: profit; behavior; goals; firms; market; Date: 2009–07–07 URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0800&r=cfn
7.  By: Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer Abstract: This study questions the popular stereotype that women are more risk averse than men in their financial investment decisions. The analysis is based on micro-level data from large-scale surveys of private households in five European countries. In our analysis of investment decisions, we directly account for individuals' self-perceived willingness to take financial risks. The empirical evidence we provide only weakly supports the gender differences argument. We find that women are less likely to invest in risky financial assets. However, when the probability of investing is controlled for, males and females are found to allocate equal shares of their wealth to risky assets. Keywords: Gender, risk aversion, financial behavior JEL: G11 J16 Date: 2009 URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp928&r=cfn

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