Loading...
29 results
Search Results
Now showing 1 - 10 of 29
- Perpetual debt valuation: the net present value myopiaPublication . Reis, Pedro; Augusto, MárioWould you prefer to receive a fixed rent for a period of 50 years, 75 years or perpetually? Well, if you have chosen the perpetual option, you are absolutely right. However, when considering a mathematical and financial approach, they may all end up roughly the same whenever the Net Present Value (NPV) is approximately identical. It makes common sense to choose the perpetual option even if the NPV exhibits myopia when computing the discount value of a fixed yearly rent. After a certain period, the discount value becomes approximately the same even when adding more yearly fixed rents. Corporations and governments issue perpetual bonds while recognizing these may not represent a very good financing strategy and thus implying that most of these issues are either callable or convertible on the issuer’s request. In approaching the existing perpetual debt related NPV myopia, this paper holds two main goals: firstly, we intend to study the behaviours of perpetual debt yields against other perpetual instruments and, secondly, we consider the financial methods for assessing the value of money before proposing a formula adjustment that might serve to overcome default NPV when evaluating fixed rents in perpetuity.
- The Terminal Value (TV) Performing in Firm Valuation: The Gap of Literature and Research AgendaPublication . Reis, Pedro; Augusto, MárioThe uncertainty about the future of firms must be modeled and incorporated in the valuation of enterprises outside the explicit period of analysis, i.e., in the continuing or terminal value (TV). There is a multiplicity of factors that influence the TV of firms which are not being considered within current evaluation models. This aspect leads to the incurring of unrecoverable errors, thus leading to values of goodwill or bad will far away from the substantial value of intrinsic assets. As a consequence, the evaluation results will be presented markedly different from market values. There is no consensus in the scientific community about the method of computation of the TV as a forecast in an infinite horizon. The size of the terminal, or non-explicit period, assumed as infinite, is never called into question by scientific literature, or the probability of business bankruptcy. This paper aims to promote a study of the existing literature on the TV, to highlight the fragility of the evaluation models of companies that have been used by the academic community and by financial analysts, and to point out lines for future research to minimize these errors.
- COVID-19 Surprise Effect and Government Response Measures on the Influence on Asset Pricing Risk among European Travel and Airline SectorsPublication . Reis, Pedro; Pinho, CarlosPurpose: This work provides an empirical analysis of investor behaviour's simultaneous influence due to the surprise effect caused by COVID-19 cases and government responses to market risk. This analysis compares tourism assets risk with other sectors and different types of investors' assets and categories in Europe. Design: The paper applies an ARIMA with a GARCH model to predict conditional volatility of models for market uncertainty. Nonlinear models, factor analysis and time series linear regression for stationary variables in first differences are applied to predict market uncertainty. Findings: We demonstrate that market risk does not arise from COVID-19 cases but instead from the surprise effect, as the market accurately predicts future cases. Only the volatility of the sectors Travel, Airline, and Utility are influenced by both surprise effect and government response, but only the travel sector reveals an interaction effect with both government response effort and surprise effect. Originality: The article mutually studies the simultaneous interactions among investor behaviour due to the surprised effect caused by COVID-19 and government responses to the pandemic and the influence on professional investors' volatility in two asset types and between different sectors. Practical implications: With this model and results, investors and financial service providers may verify whether or not government intervention during pandemic periods is effective in reducing uncertainty and risk levels on sectors, types of investors and different sorts of assets.
- Implied equity duration as a measure of risk and its simultaneous endogeneity with performance in European companiesPublication . Reis, PedroThis work, in addition to applying the adapted implied equity duration (IED) concept through incorporating the dividends returned by the stock markets of France, Germany, Spain, Portugal and the UK, creates and tests new concepts both for firm risk and of business life expectancy, entitled the implied enterprise value duration (IEVD), for those countries. Furthermore, this article provides proof of the simultaneous endogeneity between IED and performance through recourse to a simultaneous equations system approach with 3sls and, additionally, studies the implications of company expected life, capital structure, size, market expectations, historic growth and risk both on IED and on performance. This paper reaches an IED based on dividends for European companies of 9.93 years, contributing to the existing IED paradox and confirming that IED is a risk measure. Furthermore, it concludes that IED does not provide a proxy for company life expectancy.
- Determinants Of Firm Terminal Value: The Perspective Of North American And European Financial AnalystsPublication . Reis, Pedro; Augusto, MárioCompany valuation models attempt to estimate the value of a company in two stages: (1) comprising of a period of explicit analysis and (2) based on unlimited production period of cash flows obtained through a mathematical approach of perpetuity, which is the terminal value. In general, these models, whether they belong to the Dividend Discount Model (DDM), the Discount Cash Flow (DCF), or RIM (Residual Income Models) group, discount one attribute (dividends, free cash flow, or results) to a given discount rate. This discount rate, obtained in most cases by the CAPM (Capital asset pricing model) or APT (Arbitrage pricing theory) allows including in the analysis the cost of invested capital based on the risk taking of the attributes. However, one cannot ignore that the second stage of valuation that is usually 53-80% of the company value (Berkman et al., 1998) and is loaded with uncertainties. In this context, particular attention is needed to estimate the value of this portion of the company, under penalty of the assessment producing a high level of error. Mindful of this concern, this study sought to collect the perception of European and North American financial analysts on the key features of the company that they believe contribute most to its value. For this feat, we used a survey with closed answers. From the analysis of 123 valid responses using factor analysis, the authors conclude that there is great importance attached (1) to the life expectancy of the company, (2) to liquidity and operating performance, (3) to innovation and ability to allocate resources to R&D, and (4) to management capacity and capital structure, in determining the value of a company or business in long term. These results contribute to our belief that we can formulate a model for valuating companies and businesses where the results to be obtained in the evaluations are as close as possible to those found in the stock market
- Perpetual debt valuation: the net present value myopiaPublication . Reis, Pedro; Augusto, MárioWould you prefer to receive a fixed rent for a period of 50 years, 75 years or perpetually? Well, if you have chosen the perpetual option, you are absolutely right. However, when considering a mathematical and financial approach, they may all end up roughly the same whenever the Net Present Value (NPV) is approximately identical. It makes common sense to choose the perpetual option even if the NPV exhibits myopia when computing the discount value of a fixed yearly rent. After a certain period, the discount value becomes approximately the same even when adding more yearly fixed rents. Corporations and governments issue perpetual bonds while recognizing these may not represent a very good financing strategy and thus implying that most of these issues are either callable or convertible on the issuer’s request. In approaching the existing perpetual debt related NPV myopia, this paper holds two main goals: firstly, we intend to study the behaviours of perpetual debt yields against other perpetual instruments and, secondly, we consider the financial methods for assessing the value of money before proposing a formula adjustment that might serve to overcome default NPV when evaluating fixed rents in perpetuity.
- Certification of Portuguese companies as an inducer of profitability: A panel data approachPublication . Dos Santos, Anabela Saraiva; Pinto, António; Manuel Nogueira Reis, Pedro; Neves, M. ElisabeteWith the globalization and internationalization of markets, companies need to be more competitive and offer high-quality guarantees to consumers, suppliers, banking institutions, and shareholders. Thus, the objective of this paper is to measure the impacts that these guarantees, analyzed through quality management, environmental management, and management of occupational health and safety standards, will have on the return on assets (ROA) of companies classified by sector of activity, considering each of the certifications individually and as a whole. The panel data approach methodology was used for 10 years in Portuguese- certified companies between 2010 and 2019. The Chow test, the Breusch-Pagan, and the Hausman test were applied to identify a more feasible model between the pooled OLS and the random or fixed effects model. Furthermore, the cluster-robust standard errors model was applied. The results show the existence of synergies when adopting more than one certification to improve firm performance. Moreover, the single certification estimate by sector results are significant and can be positive drivers of profitability, but only for companies in the manufacturing industries related to natural resources. However, they trigger negative results in the accommodation, catering, and information and communication sectors.
- Why do firms live longer than others? The elixir of (eternal) life of blue chip American companiesPublication . Reis, PedroPurpose: Why do certain companies live longer than others? The average lifespan of a listed north and South American company is over 33 years and in Europe the average age of a company is 52 (Note 1). In 1288, Stora Enso a big pulp and paper company from Sweden issued its first share. According to credit rating agency Tokyo Shoko Research, in Japan, there are more than 20,000 companies with more than 100 years’ old. Through a sample of blue ship American listed oldest companies and quarter panel data from 1988-2013 this article identifies more than 8 significant explanatory variables and ascertains relevant factors related with longevity. Methodology: A new robust standard errors for panel regressions with cross-sectional dependence based on Driscoll-Kraay estimator is applied. This method (stata xtscc) is heteroskedasticity consistent and the standard error estimates are robust to general forms of cross-sectional and temporal dependence surpassing the deficiencies of traditional panel data statistical approaches. Findings: The sample of blue ship companies and panel regressions with Driscoll-Kraay estimator shows that the most relevant factors to induce longevity are related with growth opportunities perspective and horizon, cash liquidity, profitability and shareholders remuneration whether from dividends or repurchases, capital structure, strong claims-compliance-liability structure department, innovation and firm size. Originality: This paper’s topic considers for the first-time age as a dependent variable and not a control one. Also, the large time period of study, including quarterly observations is new, as well as the original approach to estimation applied to this theme, considered as an alternative to traditional panel data methods. Practical implications: With these determinants identified, professionals and academics can use them as benchmarking and a recipe to endure and assuring bigger lifespan for other mature and young companies.
- A dynamic factor model applied to investor sentiment in the European contextPublication . Reis, Pedro; Pinho, CarlosThis paper proposes an Investor Sentiment Index for the European market and tests its predictability power over returns and volatility. The constructed Investor Sentiment Index for Europe draws upon three well-established and two recent individual sentiment proxies through a novel dynamic factor modeling addressed to behavioral finance. The index is obtained through an extended period of analysis and validated with other sentiment index measures. The work relies on individual sentiment proxies based on a dynamic factor model and tests it using a TGARCH model for volatility and returns. It carries out an in-sample and out-of-sample analysis to examine this sentiment index’s forecasting power over returns sustained on a recursive rolling window prediction against Fama and French’s three-factor model. The findings demonstrate that the proposed index closely predicts STOXX600 variance and returns and confirms a strong spillover effect between European and US stock markets. This study also concludes that the proposed European Sentiment Index is a valid alternative method for investors to monitor and predict market behaviors. The developed sentiment measure is a vital market prediction movement tool for financial information providers, investors, bankers, and financial analysts. The research combines the sentiment index with a TGARCH approach over the extended period of analysis and validates the method with other sentiment index measures. An in-sample and out-of-sample study confirms the predictive power of this work’s sentiment over returns compared to Fama and French’s three-factor model.
- Bank Market Power, Firm Performance, Financing Costs and Capital StructurePublication . Gonçalves, Marisa Pessoa; Reis, Pedro; Pinto, PedroIn this study, we provide a thorough analysis, conducted on a company-by-company basis, of the impact of bank concentration and the bank-relative power of banks on firm profitability, financing costs, and capital structure in a small economy like Portugal. Using a sample of 434,990 Portuguese companies, the study spans a time frame of 13 years (from 2006 to 2018). Principal component analysis (PCA) was used to determine bank concentration, and a new variable, “bank-related power”,was introduced. This work employed linear regression with static panel data for fixed and pooled effects, using Driscoll–Kraay standard errors and robust standard error estimation. A direct associ ation was found between business performance and the use of bank credit in highly concentrated banking markets (SMEs), and there is evidence of an inverse relationship when the relative power of banks increases (small business). Evidence also shows that financing costs increase with greater bank concentration, while firms’ capital structure improves under similar conditions. When a bank holds greater relative market power, it tends to exert a negative impact on the capital structure of large companies. However, an inverse relationship is observed in the case of SMEs. Unlike previous studies, the article assesses the effects of bank market power on each of the different companies involved by using both bank concentration (as a composite variable) and a new variable that measures the relative power of banks. Due to its extensive database and expanded time frame, this research is innovative in the context of small-sized companies.
- «
- 1 (current)
- 2
- 3
- »