Efficiency of firm’s operations determines the optimal use of inputs that create cash flows, which in turn are affected by firm factors pertaining to the firm. Those firm factors include but are not limited to production characteristics (i.e., R&D and advertising), forecast characteristics (consensus forecast error and dispersion), and identity measures (book-to-market, BE/ME and size). This study will link the firm’s efficiency to these firm factors by benchmarking the actual value of the firm relative to its optimal value and studying the impact of the factors on their efficiency score. Our findings suggest that firm factors impact the level of firm efficiency, which has a direct effect on the ability of a firm to optimally use the inputs that create cash flows, implying that there is value for firms in setting a goal of operating at a high level of efficiency.
The current financial crisis has exposed a number of structural and functional weaknesses in the global financial system. Some consensus has been reached on the main contributing factors to the crisis, many of which have long been the focus of a subset of the investment community known as socially responsible investors. The Socially Responsible Investment (SRI) community has actively campaigned and engaged with public companies on issues such as executive compensation, transparency and predatory lending for more than two decades.
This report examines the root causes of the financial crisis from the environmental, social and governance (ESG) perspective employed by the SRI community. The report describes the progression of the crisis, places it in the Canadian context and analyzes the factors that are most relevant to socially responsible investors; namely governance and executive compensation, subprime and predatory lending, transparency and disclosure, securitization and systemic risk. It also comments on the role of regulatory gaps throughout the system.
An understanding of the variation of stock price exposures in different countries helps to determine equilibrium compensation and evaluate portfolio performance and assists making decision on the allocation of international portfolio. However, there are two unanswered questions regarding international asset pricing. How do different developmental stages of countries affect the risk of individual stock price? Do the risks of stock prices in the different regions demonstrate variation? In this study, we first explain the relationship between international integration of local markets and individual stock price volatility. We then report the result of an empirical test of relative magnitude, measured by non-parametric Mann-Whitney statistics, of price exposures in the nations of different developmental stages and areas by using firm-level data. We found that the stocks in emerging markets are significantly riskier than in rich countries. On the other hand, in contrast to developed countries, the volatilities in most developing nations, on the whole, are steadily decreasing. We also found similar levels of risk in equity values in the countries of the same area.
One explanation to the cross-country variation of asset price risks is the degree of integration of a domestic market with international financial markets. Bekaerk and Harvey (1995) and Bae, Bailey, and Mao (2003) suggest the influence of liberalization of financial market to equilibrium price of domestic assets differs from nation to nation. Following the opening of financial market, the exchange of capital and information flows of local market with foreign markets may trigger escalation of volatility of security prices. On the other hand, as the degree of international financial integration and market efficiency increases, any investment should only be compensated by the amount of global systematic risk. One may also expect the shrinkage of the idiosyncratic risks of asset prices. However, the empirical results suggest the mixed effect of global integration of financial markets on asset risk. The empirical findings by Bekaert and Harvey (1997, 2003) and De Santis and ?mrohoro?lu (1997) support the argument that there is no straight finance theory about the change of volatility after market liberalization. Kim and Singal (2000) suggest that market openings of developing nations decrease the risk in the long-run by increasing market efficiency.
