The Journal of American Academy of Business, Cambridge

Vol.  13 * Num.. 2 * September 2008

The Library of Congress, Washington, DC   *   ISSN: 1540 – 7780

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An Empirical Investigation of the Stock Market Reaction to Domestic and International Joint Venture Formations

Dr. Turkan Dursun, West Texas A&M University, Canyon, TX

Dr. Ceyhan Kilic, New York Institute of Technology, New York, NY



The objective of this study is to examine the value creation effects of the joint venture announcements and to find out whether there is a difference between the impacts of the international and domestic joint venture announcements on firm value. An event-study methodology was employed using a multi-variate regression model. The sample included 43 joint venture announcements made by U.S. companies that developed international or domestic joint ventures with a domestic or a foreign partner over the period of 1990 to 1994. The results of this study indicate that domestic joint venture formation adds to firm value. However, an international joint venture formation does not add to firm value. This result implies that investors are aware of, and sensitive to the disadvantages, costs, and risks of the internationalization component of an international joint venture formation.  Corporate partnering has become increasingly fashionable in the last two decades. The most common form of corporate partnering is the joint venture (Terpstra and Sarathy 1994). According to McConnell and Nantell (1985):  “A joint venture involves the joining together of a subset of the resources of two (or more) companies to accomplish some objective under the combined management of two (or more) parent companies” (p. 520). Joint venture formations have been driven by financial, market, technological, and geographic forces (Terpstra and Sarathy 1994). Today international and domestic joint ventures are undertaken by many of the largest U.S. companies, involving billions of dollars in capital expenditures annually (McConnell and Nantell 1985). Therefore, the question of whether a joint venture formation adds to firm value is very critical.  The overall objective of this study is to examine the impacts of the announcements of joint ventures on the participating firm’s common stock returns and to find out whether there is a difference between the impacts of the announcements of international and domestic joint ventures on shareholder’s wealth, or on firm value.  The current body of literature on joint ventures can be divided into two distinct streams of research. One stream of research focuses on the empirical investigation of the common stock returns of U.S. companies that enter into joint ventures with other U.S. companies. McConnell and Nantell (1985) found significant wealth gains from 136 domestic joint ventures over the period 1972-1979. More recently, Koh and Venkatraman (1991) examined the market value impact of joint venture formation for a sample of 239 firms involved in 175 joint ventures over the period 1972-1986. Joint ventures were shown to have a greater impact than technology exchanges. Another stream of research has investigated the common stock returns of U.S. firms forming international joint ventures. The results of these studies are inconsistent. Errunza and Senbet (1984) reported a systematic positive relationship between the current degree of international involvement and market value gains. Doukas and Travlos (1988) reported shareholders of internationally expanding domestic firms experienced insignificant positive abnormal returns at the announcement of overseas acquisitions, except when the firm’s expansion took place in less developed countries (Mesch and Hubler 2003). Lee and Wyatt (1990) found similar results, where only U.S. firms that entered into international joint ventures with foreign partners in less developed countries gained excess returns on investments. On the other hand, Fatemi (1984) found common stock returns of multinational firms operating in competitive overseas markets were negatively affected by international joint venture activities. Chung, Koford and Lee (1993) reported a negative relationship between the announcements of international joint ventures and abnormal stock returns on common stocks. Waheed and Mathur (1995) observed significantly negative abnormal returns when the announced mode of expansion is through formation of a joint venture or a subsidiary or through an acquisition. Park and Kim (1997) argued that the market valuation of joint ventures depends on various strategic and managerial characteristics in joint ventures and their parent firms such as the relationship between partners, the nature of partners’ contributions, the extent of partners’ control over a joint venture and the corporate governance in parent firms.  A joint venture can be defined as “the set of agency contracts covering the way inputs are joined to create outputs and the way receipts from outputs are shared among inputs”(Winfrey and Austin 1996, p.25). The agency theory proposes that the principal contracts with an agent is for conducting the necessary transactions of the business in an integrated and profitable fashion. In general, agency theory concentrates on “the utilization of rules with which the principal seeks to motivate the agent to direct business activities in ways that are advantageous to the principal” (p.22). The typical agency model deals with a principal and an agent in clearly superior-subordinate roles. In a joint venture, the identity and the roles of the principal and the agent is not easily apparent since the roles played by each party are not explicit, may change, or may be reversed over time. As a result, the agency relationship becomes reciprocal, and this creates problems. Even though the joint venture is based on a contractual structure, the contract does not protect the parties sufficiently (Winfrey and Austin 1996).


The Price-Earnings Relation: The Case of Arthur Andersen

Dr. Kirk L. Philipich, University of Michigan, Dearborn, Dearborn, MI



The purpose of this study is to examine the impact of auditor reputation on the price-earnings relation. More specifically, this study examines annual earnings response coefficients (ERC) before (2001 year-ends) and after (2002 year ends) the September 11th through the primary Enron events (the shredding of audit documents on January 10, 2002, that substantially impaired Arthur Andersen’s reputation). Two possibilities exist. First, the market may perceive that Andersen’s shredding of audit documents, and its subsequent loss of reputation, may have caused auditors, in general, to take greater care, thus increasing the reliability of the reported earnings numbers. This would manifest itself by stronger reactions to reported earnings. Alternatively, the market’s confidence in the reliability of reported earnings may have eroded leading to smaller responses to reported earnings. In addition, any resulting change in the market’s response to reported earnings might be even more pronounced for Andersen clients. Statistical tests reveal a significant decrease in ERCs in the post-period.  However, upon further examination, it is found that the clients of Deloitte and Touche and PriceWaterhouseCoopers exhibited large declines in the market’s response to their earnings releases.  The clients of KPMG also saw declines, but not nearly as dramatic as those of Deloitte and Touche and PriceWaterhouseCoopers. However, the clients of Arthur Andersen and Ernst & Young saw their ERCs rise substantially. This study investigates the impact of a decline in auditor reputation on the price-earnings relation. The market response, ERC, to annual earnings announcements for the clients of the Big 5 auditors (Arthur Andersen, Deloitte and Touche, PriceWaterhouseCoopers, and Ernst & Young) is examined.  The ERC for the annual earnings announced one year prior to the Enron events is contrasted with the ERC for the annual earnings announced immediately following the Enron events. The purpose of this examination is to determine if the market became more skeptical of reported earnings or believed that auditors, and their client firms, would take greater care in determining their reported earnings figures. Thus, the market response to the earnings announced by clients of the Big 5 auditors is examined. During 2001, Arthur Andersen was fined and/or paid over $100 million to settle lawsuits for audit problems concerning two clients, Waste Management and Sunbeam. However the worst was yet to come. On November 8, 2001, a third company, Enron, announced that the company and its auditor, Arthur Andersen, determined that certain off-balance sheet variable interest entities (primarily a special purpose entity named Chewco) should have been consolidated in accordance with generally accepted accounting principles (GAAP). As a result, Enron stated that all earnings from 1997 through 2000 should not be relied upon and that restated earnings would lead to reductions in reported earnings by amounts ranging from a low of $96 million in 1997 to a high of $250 million in 1999. Also, Enron’s debt had been understated by a low of $628 million in 2000 to a high of $711 million in 1997. On January 10, 2002, Andersen admitted to shredding a significant number of audit documents related to the Enron audit. On January 17, 2002, Enron fired Andersen and three days later the Powers report was released with more details concerning Andersen’s involvement in certain questionable transactions. On March 15, 2002, the Department of Justice unsealed an indictment against Andersen and on June 15, 2002, the federal jury convicted Arthur Andersen of a single count of obstructing justice. Arthur Andersen was barred from conducting and reporting on the audits of SEC registered companies after August 2002. Obviously, these events raised serious issues concerning Andersen’s audit quality. This paper investigates whether the market’s response to the earnings of Andersen’s clients was affected by these issues. I investigate whether the market’s response, measured via the ERC, to Andersen’s clients’ earnings announcements declined after news of Andersen’s involvement in the Enron audit became public information.  Additionally, these same issues could have impacted the market’s perception of the quality of all audits, leading to like-tests being conducted on the clients of the other Big 4 auditors as well.  There are two primary reasons for independent audits of public firms.  First, the Securities and Exchange Commission (SEC) requires that all firms issuing securities employ an independent auditor to examine its financial records and attest to the fact that the firm’s financial statements have been prepared in accordance with generally accepted accounting principles (GAAP). Audits, by supplying a monitoring function, can also reduce the agency costs that exist among creditors, outside shareholders, and managers.  Auditors issue an opinion stating whether the financial statements represent fairly the financial position of the company. The auditor must also state whether the company has a going concern issue. Thus, auditor and audit quality both have important implications for investors.


An Integrated Approach to Alternative Capital Budgeting Techniques, Mutually Exclusive Projects, and Consistency with the Net Present Value Rule

Dr. David Cary, University of Michigan, Dearborn, Dearborn, Michigan



Alternative capital budgeting techniques are usually presented as a set of somewhat unrelated methods for the acceptance or rejection of a project.  Managers seem to prefer the Internal Rate of Return (IRR) method for their decisions while academics support the Net Present Value (NPV) method. It is well noted that the IRR method, which determines an interest rate which makes the NPV of a project equal to zero, is related to the NPV technique.  However, other techniques, such as the Modified Internal Rate of Return (MIRR or Financial Management Rate of Return, FMRoR), the Equivalent Annual Annuity (EAA), the Profitability Index (PI), and the Marginal Growth Rate (MRG) which are presented as alternatives to IRR and NPV, are not usually shown to be derived from the NPV method. This paper derives the equations for calculating the MIRR, EAA, PI, and MGR methods directly from NPV. Deriving the alternative methods as functions of NPV not only gives a consistency to the capital budgeting procedures, but also shows how this approach can be used with the alternative methods to overcome problems when comparing mutually exclusive projects that require different size investments (scale problem) or have different lives (unequal life problem).  The contributions of this paper are showing, mathematically, the direct relationships between the alternative capital budgeting techniques as well as deriving solutions for the scale and unequal life problems for the alternative methods when comparing mutually exclusive projects.  The goal of management of a publicly traded firm is generally accepted to be maximizing the value of the firm to the existing shareholders (Brigham and Gapenski, 1994, page 14; Ross, Westerfield and Jaffe, 1996, page 15).  When making capital budgeting decisions, the Net Present Value (NPV) method has been shown to be consistent with the goal of value maximizing, except in some cases of capital rationing (Brigham and Gapenski, 1994, pages 512-514).  For independent projects, where the acceptance of one project does not affect the acceptance or rejection of another other project, the Modified Internal Rate of Return (MIRR), the Profitability Index (PI), the Equivalent Annual Annuity (EAA), the Marginal Growth Rate (MRG) and generally, the Internal Rate of Return (IRR) will give the same decision as the NPV method.  However when choosing between mutually exclusive projects, where the acceptance of one means the rejection of all other projects, the alternative methods may give decisions that are not consistent with NPV.  The potential lack of consistency is caused by one or more of the following factors: Differences in the size of the investment in the projects, the size problem,   Differences in the lives of the projects, the different life problem.  Differences in the timing patterns of cash flows, and/or  Differences in the risk classes of the alternative projects. The different life problem can be further broken down into 2a) repeatable and 2b) non-repeatable projects.  When projects have different lives and are repeatable in the future, then comparing the simple NPVs of the projects may not give the correct decision.  It may be necessary to repeat each project to a common ending point (replacement chain approach), truncate the longer project to the length of the shorter project, or use the Equivalent Annual Annuity method.  The difference in timing patterns of the cash flows mainly affects the comparison of IRR and NPV and not between NPV and the methods discussed in this paper and thus will not be discussed below. This paper examines the conditions which can cause the inconsistent results and, by showing the relationship between the various methods and NPV, derives modifications to the alternative capital budgeting techniques to give decision rules which are consistent with NPV.  Exhibit A has three projects, A, B and C that are assumed to be in the same risk class. Projects A and B have the same life, but different initial outflows.  Project A and C have the same initial outflows, but last for different lengths of time.  The alternative capital budgeting techniques give different rankings for the three projects:  The MIRR was developed to overcome the problem of inconsistency between Internal Rate of Return and NPV.  The MIRR is similar to the Financial Management Rate of Return (FMRoR) that is frequently used in real estate analysis (Findlay and Messner, 1973).  However, for real estate analysis, the calculation of the FMRoR may use an interest rate different than the cost of capital in the calculation of the Terminal Value.  The traditional method of calculating the MIRR, is to first compound the future cash flows of the project, at the cost of capital (k), to the end of the project (Dudley, 1972; Meyer, 1979; Nicol, 1981).  This compounded value is called the Terminal Value (TV). The second step is to calculate MIRR which is the interest rate which will make the initial outflow of the project grow to the computed terminal value.  An alternative method of calculating the TV, derived by Cary and Dunn (1997), is to compound the present value of the future cash flows, which is equal to the NPV of the project plus the initial outflow, to the end of the project, at the cost of capital.


Explaining the Persistence of Price Discrimination in the Airline Industry

Dr. Recai Aydin, Lamar University, Beaumont, TX



 This paper aims to analyze the possibility of price discrimination in competitive markets without market power, using the airline industry as an example and setting up a model to explain this case. Politicians and regulators have often used the presence of price discrimination as an indicator of market power to justify their complaints about pricing schemes in the airline industry. This paper focuses on the idea that price discrimination alone is not evidence of market power and should not be used to justify interventions by regulatory institutions. It has almost been a tradition in economics textbooks to study price discrimination on the assumption that it can be practiced only in the presence of market power. Basically, the idea is that price discrimination cannot be practiced in markets with more than one firm without some form of conspiracy among the firms, because without this agreement any firm who deviates from price discrimination can attract some of the consumers who are suffering from the discriminatory prices. This could be the case when the costs are separable, since the firm could easily identify the marginal cost of each unit and undercut the rivals who are selling the same unit at a higher price to high value customers as long as price exceeds the marginal cost of the unit.


A Geopolitical Issue: Energy at a Turning Point

Dr. Flory Anette Dieck-Assad, Instituto Tecnológico y de Estudios Superiores de Monterrey, Monterrey, N.L., Mexico



 Petróleos Mexicanos (PEMEX), a Mexican state-owned company, is the only authorized by law to produce oil and gas in Mexico. PEMEX can neither issue equity nor borrow money by selling bonds; however, it finances one-third of the Federal Government expenses, leaving scarce money for drilling activities and, thus, restricting its ability to develop new reserves. PEMEX requires huge flows of investment in order to avoid its financial bankruptcy and secure the energy supply for Mexico’s sustainable development. The objective of the case is to place the student in the debate about sustainable development that encompasses political, economic, financial, and ethical decisions, in a geopolitical changing scenario where the “global warming” issue is presenting a new challenge for doing business in the future. A detailed Teaching Note is available from the author.  In the foggy morning of April 7, 2006, Elba Esther Gordillo Morales, national president of the Education Syndicate—Sindicato Nacional de Trabajadores de la Educación (SNTE)—was staring through the window. Suddenly, she decided to call for a reunion in her office with Expert Consultants, Inc. (EC, Inc.). She needed their evaluation to know if what she did in 2003 to support the energy reform was the right decision. As a member of the Mexican Congress, she had supported the energy reform even though the rest of the members of her political party, the PRI, decided not to support it. As a result, she was expelled from her political party. She worried about the repercussions that her decisions had caused.


The Metaphor Matrix: Improving Metaphor Usage in Management Education

Dr. John P. Meyer, Iona College, NY

Dr. Theodore Schwartz, Iona College, NY



 In this article, we review the use of metaphor in management education, explore the shifting boundaries between metaphorical and literal language, and suggest some improvements that can be made to the use of metaphors in the management classroom. To that end, we demonstrate how the use of any single metaphor is insufficient and potentially misleading. It is better to introduce students to a wide range of metaphors – juxtaposing their strengths and weaknesses in a metaphor matrix – in order to present a more accurate picture.  While the use of metaphors in management education is both widespread and ultimately very beneficial to understanding the abstract elements of organizations and illuminating the practice of management, there are dangers and consequences related to their application and misapplication. Based upon three approaches to dealing with the dichotomy between metaphorical language and literal language in management education – a “black and white” approach, a “shades of gray” approach, and a newly proposed “metaphor drift” approach – we suggest that it is possible to understand some of the common hazards of organizational metaphors and make even better use of the ever-expanding range of vivid organizational images in our teaching through the use of a metaphor matrix.  


Successful Strategies of Foreign-Born American Leaders

Dr. Ahmad Ahmadian, Colorado State University –Pueblo, CO

Dr. Fereshteh Amin, Amin Consulting Group, CA



 During the first half of the 20th century, the national origins policy in the United States favored European immigrants.  In recent decades the United States has received immigrants from across the globe including many third world countries.  Foreign-born residents currently make up about 11.1% of the U.S. population.  Iranian American’s are highly educated and have succeeded economically in the United States. The focus of this paper is on personal traits that contributed to Iranian American leaders’ successes, the challenges, and strategies they have used to overcome these challenges. The study documented the unique traits and success strategies of each participant.  The large entry of Iranian immigrants to the United States in the decades since 1979 has been a direct consequence of the Islamic revolution. Various factors provoked the revolution: political oppression, income inequality, religious suppression, and an inopportune relationship with the West, especially the United States (Mostofi, 2003). Most left their homeland for social, political, or religious reasons. Many Iranians with the means to immigrate chose to make a new home in the United States. The following section describes these Iranian Americans as a group.


The Effective Marketing Class: Enhancing Student Learning

Dr. Stacy M. P. Schmidt, California State University, Bakersfield, CA

Dr. David L. Ralph, Pepperdine University, CA

Dr. Bruce Buskirk, Pepperdine University, CA



 Student evaluations have become a tool used to grant tenure, promotions, and retention and in some cases the only information utilized to make the determination.  As a result, professors have a tendency to resent these evaluations and discount the comments of the students.  Open minded professors can benefit from the evaluations.  This study evaluated marketing course from the student’s perspective. Students from twenty different marketing professors fifty-nine courses were surveyed on what aspects of teaching were effective and not effective and thus aided in their learning.  The survey resulted in five hundred and nineteen responses.    The study found that effective professors incorporate a variety of tools into their classrooms that include a balance of the following:  Lectures   *    Cases    *   Real Life Examples   *   Guest Speakers    *    Group/Team Work,  Students indicated that learning is hindered when professors lack the following in their marketing courses:   Structure   *   Up-to-date and relevant information    *    Focus   *   Feedback  *  Clear Expectations. Professors need to provide students with the opportunity to apply key concepts and theories while keeping them intrigued and motivated.  Students understand and acknowledge that the content of marketing is crucial, but it is the professor’s responsibility to convey the information in a manner that students can learn and apply it in the real world.  Students are the best and sometimes the only source for determining whether the student was able to learn. 


Momentum Strategies on Optioned and Non-Optioned Stocks

Dr. Keh-Yiing Chern, Hedge IQ Inc., NY

Dr. Susana Yu, Montclair State University, NJ

Dr. Kishore Tandon, Baruch College / CUNY, NY



 As implied by Mayhew and Mihov (2004), an ideal control sample of non-optioned stocks used in comparing or contrasting to optioned stocks must consider the liquidity and the volatility of these stocks. Following this and the study by Chan, Jegadeesh, and Lakonishok (1996), we study price and earnings momentum strategies on both optioned stocks and selected non-optioned stocks over 1983 to 2002. The purpose is to examine whether information issued by or related to non-optioned stocks have more information contents than similar information regarding optioned stocks. We find that both price and earnings momentum strategies can be applied more successfully in the sample of non-optioned stocks than in the sample of optioned stocks. This better performance in the sample of non-optioned stocks is associated with the wider spread of earnings estimate revisions between the winning portfolio and the losing portfolio, an indication of a richer information content regarding the sample of non-optioned stocks than that of the sample of optioned stocks.  Te evidence of return predictability constitutes a controversial aspect of the debate on market efficiency. Jegadeesh and Titman (1993) added a new twist to the literature by documenting that over an intermediate horizon of three to twelve months, past winners on average continue to outperform past losers, concluding that there is “momentum” in stock prices. Investment strategies that exploit such momentum, by buying past winning stocks and selling past losing stocks, predate the scientific evidence and have been implemented by many professional investors.


Optimal Capital Structure in Various Tax Systems

Sheng-Te Chou, Yuan Ze University, Taiwan



 This study provides a theoretical examination of the optimal capital structure under personal and corporate taxation for various tax systems. In the imputation system, the firms are willing to supply the lowest rates of return, the fewest bonds and the shareholders require the lowest cost of capital before taxes in the optimal capital structure. On the other hand, in the two-rate system, the firms shall select the most bonds and the shareholders require the highest cost of capital before taxes. Furthermore, we also discuss the degree of bondholder taxes burdens under various systems, and demonstrate that the imputation system had the smallest tax rate in comparison with another system.   Capital structure deals with the firm's decision to raise funds through debt versus equity and what ratio of debt to equity should the firm maintain. In the traditional framework, Modigliani and Miller (1958) showed that in perfect and efficient capital markets and no taxes a firm could not change its total value by altering its debt/equity ratio; thus capital structure is irrelevant. However in the real world, capital structure is carefully thought about by every company, and it is in fact not irrelevant because taxes do exist and capital markets are not perfect.


How Much High is Really High: Probability Analysis for Oil Prices and Market Performance in USA and India

Dr. Viviane Y. Naimy, Notre Dame University, Louaize – Lebanon



 The purpose of this paper is to study how the increase in oil prices does affect oil importing countries. This research explores probability analysis, chi-square tests and regressions in USA and India.  In opposition to financial rules, we noticed a strong positive relation between oil prices and the market indices. Oil prices increase had neutral impact on both economies since 2000 and these economies are still far from recession. The cap of USD 75 is more like a psychological number set by big financial firms who themselves are making millions investing in oil futures contracts and funds.  When oil prices briefly crossed the USD 70 barrier per barrel in 2005, many economists around the world thought that if such high prices persisted, the world would soon be in a recession and the US economy would take a major hit and it might even be the end of the world in financial terms. Fast forwarding a year forward, it can be said that prices have been about the level set by most economists and yet there is no sign of a recession. The prices might have shaved a little bit of a robust growth that would have otherwise occurred, but there is no sense of a crisis. The world economies are still healthy if not healthier than they were post the 9/11 event where the issue was not the oil prices but security which made economies take a toss for the worse.


Relationship among HR and Firm Performance: A Turkey Context

Dr. Gurhan Uysal, Bilecik University, Turkey



 This study aims to explore relationship between HR practices and firm performance. Firm performance is divided into two parts: Organizational performance and market performance. Correlation and regression analyses are used in the study. Significant and positive relationships are found among HR practices and firm performance. Staffing, training, compensation and promotion are significantly and positively related to organizational and market performance of firms. The study shows that HR practices have an impact on firm performance.  Literature studies show positive relationship between HR and firm performance. Because HR provides a firm of effective management of human capital, and affects on organizational outcomes. Firm performance is divided into two parts in the study (Delaney, Huselid, 1996): Organizational performance and market performance. Effective management of human capital might improve market performance of firm, and the impact of HR on organizational outcomes might improve organizational performance. Employees who have needed knowledge, skills and abilities required for individual performance contribute more to business results such as sales, market share, profits, quality of products and new product development. HR’s impact on organizational outcomes such as commitment, satisfaction, motivation, turnover, organizational support affects on attracting and holding good employees, customer satisfaction, organizational relationships among employees and management.


Efficiency of Nationwide Banks in China

Dr. Jin-Li Hu, National Chiao Tung University, Taiwan

Yi-Yuan Su, American University, Washington, D.C.,

Chiang-Ping Chen, National Central University, Taiwan



 This research investigates the efficiency of China’s nationwide banks using data envelopment analysis (DEA).  The Chinese government began reforms of its banking industry starting in 1978.  Our dataset contains twelve nationwide banks in China during the period 1996 to 2003:  Four state-owned specialized banks, three policy-related banks, and five nationwide joint-equity commercial banks.  First, the DEA approach is used to estimate the efficiency scores of these twelve banks for each year in China.  Second, the Tobit regression is used to analyze how the environmental variables affect various bank efficiency scores.  Our empirical results show that:  (1) There is no significant effect of ownership reform on the cost efficiency of these banks.  (2) Nationwide joint-equity commercial banks have significantly higher overall technical and scale efficiencies, but lower pure technical efficiencies than state-owned specialized banks.  (3) Small-sized banks’ efficiency except for scale efficiency is higher than large-sized banks.  (4) These twelve banks’ efficiency (except allocative efficiency) have lower scores after WTO participation in 2001.  (5) These twelve banks have lower cost efficiencies after the 1997 Asian financial crisis.  Before economic reform in 1978, there was basically a mono-banking system in China. 


Time-series Properties and Predictability of Closed-end Fund Discounts/Premiums

Dr. Ronald Woan, Indiana University of Pennsylvania, PA

Dr. Germain P. Kline, Indiana University of Pennsylvania, PA



 The first objective of this study is to investigate and identify the time-series properties of closed-end fund discounts/premiums from a class of linear stochastic autoregressive-integrated-moving average (ARIMA) models popularized by Box-Jenkins (1994). We will identify both a common structure premier and fund-specific models. The second objective is to examine the predictabilities of closed-end fund discounts/premiums utilizing the identified models. Comparisons of the forecasting abilities will be made among common structure premier, fund-specific ARIMA and random walk models using mean absolute percent error metric (MAPE) as criterion. Our results show that two different parsimonious common structure premier ARIMA models, first-order autoregressive (ARIMA(1,0,0)) and first differenced autoregressive ARIMA (1,1,0), fit the historical pattern of discounts/premiums well and in terms of the selected error metrics it outperforms the random walk model in spite of the fact that all but three of the domestic equity funds in the sample exhibit random walk characteristic based on Dickey-Fuller’s unit root test. However, it does require fund-specific ARIMA models to significantly outperform the random walk model in terms of nonparametric Wilcoxon signed ranks test. These results provide some support to the statements made by Thompson (1978) and Pontiff (1996) that it is possible to use the discount information to earn abnormal returns.


Profitability Assessment Using MCDM Methods in the International Tourist Hotel Industry in Taiwan

Dr. Ling-Feng Hsieh, Chung Hua University, Taiwan

Shih-Ming Hsu, Chung Hua University, Taiwan



 In recent years, Taiwan's tourism industry has grown rapidly; the number of international tourist hotels continues to rise, making the international tourist hotel industry highly competitive. Performance assessment can help to set the competitive strategy in the industry; thus, in light of the impact profitability has on the operating performance of the industry, this study applied multiple-criteria decision-making methods to establishing an assessment model for the profitability of international tourist hotels. Twenty-four international tourist hotels in Taipei area were used as samples to test and verify the feasibility of the assessment model. The study results showed that that profitability of the international tourist hotels that focus on individual visitors is better than that of hotels that focus on group travelers, and that chain-operated hotels’ profitability is better than that of individually owned hotels. The results provide an important reference for the managing strategies of international tourist hotels.  Entering the 21st century, the global tourism industry has grown rapidly. Because of its unique geographic environment, the Taiwan region has a rich and diverse culture, natural resources and tremendous potential for tourism development. From 2000 to 2005, the number of tourists to Taiwan increased from 2.62 million to 3.37 million, and foreign exchange earnings from tourism increased from US$3.738 billion to US$4.977 billion.


Does the Involvement of Private Equity Investments Matter to Firm Performance and Internationalization?

Chengli Tien, National Taiwan University, Taiwan

Yvonne Ho, National Taiwan University, Taiwan

Dr. Hongjen Chiu, National Taiwan University, Taiwan



 The purpose of this study is to extend research issues relating to private equity funds to solve a puzzle in the evolving science of organizations: namely, whether the involvement of private equity investments will impact target firms’ performance and internationalization. Using cross-sectional time series regressions, this study offers a model based on the portfolios of three key private equity firms: Blackstone, Carlyle, and Kohlberg, Kravis & Roberts (KKR). The results indicate that the involvement of private-equity investments does not significantly improve firm performance and internationalization.  The recent boom in private equity has been breathtaking. Although it is not new to the market, private equity investment is an increasingly provocative subject. A startling number of U.S. companies—about 1,010— went private in 2006, compared to 664 in 2004 and 324 in 2001; the price tag for the 2006 buyout splurges totals more than $371.4 billion, compared to about $100 billion in the year 2000 (Varchaver, 2007). In the U.K. market, after another record year of deal-making and in spite of being more tightly regulated than the U.S. market, private equity groups entered 2007 with bulging portfolios and assets they were keen to shift (Smith, 2007).


Perceived Corporate Culture by EADS Top Management: European or American Influence?

Dr. Michel Barabel, University of Paris 12, IRG, France

Dr. Gael Le Boulch, University of Paris Dauphine, CREPA, France

Dr. Olivier Meier, University of Paris 12, IRG, France



 This paper presents the results of the study conducted by the authors at the request of the EADS Group and a discussion about the European Culture concept and organizational identity. It is based upon 313 questionnaires administered via the company Intranet to the group’s key managers and directors. It highlights a number of specific cultural and managerial trends within the group and examines their relationship to the company’s economic performance. Our analysis shows that EADS is characterised chiefly by a European ideology. However, in many instances, the actual company values are very close to the Anglo-Saxon cultural model Throughout the period 2000-2004, the EADS Group displayed remarkable economic performance characterised by a significant increase in sales, improved market share, with a leading international position in aeronautic industry for 2004, and ambitious industrial projects notably with the A380. In the same period, the Top Management tried to create an “ad hoc” identity around the EADS Organization, in complement of the already existing identities of the subsidiaries.  Within this context, the directors of the EADS Group decided to carry out an analysis of their company’s cultural characteristics in order to better understand the management style at play and the perceived values of the company’s key directors and managers.


Uncertainty, Fundamentals and Equity Valuation – An Application of the Non-Linear Ohlson Model

Dr. Chien-Jen Wang, Takming University of Science and Technology, Taiwan




 This paper studies the reasonability of the “homogeneous risk-neutral investors” assumption in the original Ohlson model under an incomplete stock market. It then revises the original Ohlson model by utilizing the non-linear Ohlson model (NLOM), which applies the concepts of “nonlinearities” and “smooth transition” of STARX model (McMillan 2001), to represent the arbitrage behavior and heterogeneity among investors and using the uncertainties of macroeconomic fundamentals as exogenous proxy variables of “non-accounting information”. The empirical result shows that the NLOM-Logistic model outperforms both the original Ohlson valuation model and the NLOM-Exponential model. In other words, the assumption of “homogeneous risk-neutral investors” of the original Ohlson model is unsuitable and arbitrage behavior and smooth transition phenomenon exist in stock price.  In 1995, Ohlson proposed a remarkable equity valuation model (hereafter, the Ohlson valuation model or the Ohlson linear valuation model) to evaluate stock market returns. The main concept of the Ohlson model is to perform equity valuation using the three analytical assumptions of the discounted dividend model (DIV), the clean surplus relation (CSR) and the linear information dynamics (LIM).


The Threshold Analysis of the Outside Board, Firm Size, and Corporate Values in Taiwan

Chuang-Min Chao, National Taipei University of Technology, Taiwan



 This study applies Hansen’s (1999) panel threshold model to examine whether the regression relationship between the proportion of the outside board and the corporate value varies with corporate size. The firm size is chosen as the threshold variable. In a sample of 586 Taiwan public corporations observed over the 2002-2004 period, this study finds two thresholds in the regression model. The threshold estimates are 3.19 billion and 12.7 billion, respectively. The outside board is positively related to Tobin’s Q for small and large firms. For medium-sized firms, the outside board is significantly negatively related to Tobin’s Q.  After the Asian financial crisis, it was concluded that an inadequate corporate governance system was to blame for the serious consequences. The scandals and corruption within Asian financial markets allowed the regulators in Taiwan (the Securities and Futures Commission (SFC)) to realize the importance and urgency of implementing good corporate governance for publicly held companies. As a result, the Securities and Futures Institute (SFI), Taiwan Stock Exchange (TSE), Taiwan’s computerized over-the-counter market (known as GreTai Securities Market, GTSM), and Corporate Governance Association (CGA) established the ‘Corporate Governance Code’ and introduced the system of independent directors and independent supervisors.


A Study on University Education Quality by Means of Kano's 2-D Model: Taking the Universities Located in Southern Taiwan for Example

Min-Sheng Liu, Far East University, Taiwan




Affected by the trend with fewer children in families and dramatically increasing number of schools, the competition among schools is more violent resultantly. Education quality is one of an important factor to affect competence ability. How to improve education quality is the prime task for school management and it is even a prime task receiving the attention from all levels.  In this study, it was found that the education quality viewed by various groups actually showed different classification attributes in quality by means of the Kano 2-D model. The improvement on satisfaction indicators of education quality held by various groups came with consistent opinions. Results combined by satisfaction indicators could precisely mark the extent to add every element or delete the dissatisfaction. It would be available for administrative departments in schools to select favorable factors available for immediate improvement activities on education quality after internal and external environmental factors were considered with plausible strategies reached.   Among the advanced nations, to win the competition advantages, there are a series of reforms in politics, economics, education and societies arisen. Under the violent global competition climate, together with the gigantic USA economic pressure, to re-gain the leading advantage, a series of efforts are needed for this goal. It was found that education quality could be a critical factor to affect competence.


The Development of a Learning Disturbances Inventory for Adolescents

Dr. Farn Shing Chen, National Changhua University of Education, Taiwan, R.O.C.

Ming Yu Wang, National Changhua University of Education, Taiwan

Ying Ming Lin, National Changhua University of Education, Taiwan



 During students’ learning process, problems related to educational achievement, quality, or adjustment are unavoidable, thereby causing learning disturbances, even to the point of causing learning pressures. The purpose of this article is to develop a learning disturbance inventory (LDI) through a pre-test, hoping to assist educators in assessing the factors which cause learning disturbances in order to help students and provide a benchmark for diagnosing learning disturbance factors. Pre-test scores were obtained from 214 effective subjects among general and industrial high school students in Taiwan. Based on methodologies reviewed from the relevant literature, the data analysis methods include statistical instruments for item analysis, validity analysis, exploratory factor analysis, reliability analysis, Pearson correlation, and independent t-test measures in the SPSS statistical program. The LDI is comprised of four factors: school, family, individual, and social. The coefficients of Cronbach’s alpha ranged from 0.77 to 0.88 for the four individual factors and 0.91 in the overall LDI. These factors could explain 55.79% of the total variance.


The Effects of Activity-based Costing on Traditional Inventory Model

Yang Tou Ping, Huazhong University of Science and Technology, China


 To analyze the effects of activity-based costing (ABC) on traditional operation model in inventory system, a new inventory model based ABC is developed in this paper. In the new model, based on ABC perspectives we analyze the cost drivers other than conventional ones specified in the inventory system, and then revise the inventory cost functions by discussing the allocation of replenishment cost, inventory carrying cost and shortage cost according to these cost drivers. In this paper, numerical examples are also given to illustrate the new model based on ABC by comparing with traditional model. The results show the new model can control the inventory costs very well, while using traditional model can lead to erroneous decisions.  Since 1980s, direct costs have decreased and overhead costs have increased due to the wide application of high-tech to the production & service enterprises. As a result, cost information is tremendously distorted. The activity-based costing (ABC) can provide more accurate information on decision-making, so it is extensively noted and also applied to different fields. Some scholars believe that logistics is most potential.


The Relationship Between Distinctive Capabilities, Innovativeness, Strategy Types and the Performance of Small and Medium: Size Enterprises (SMEs) of Malaysian Manufacturing Sector

Mandy Mok Kim Man, Universiti Malaysia Sabah, Malaysia

Syed Azizi Wafa, Universiti Malaysia Sabah, Malaysia




This study was conducted to investigate the relationship between distinctive capabilities, innovativeness, strategy types and the performance of SMEs in the Malaysian manufacturing sectors. The conceptual framework is developed based on the distinctive capabilities, innovativeness, strategy types and the performance. This study is based on a sample survey consisting of 100 SMEs in the manufacturing sector. Using structured questionnaires, the data were collected by mail as well as interviews with owner-managers of the SMEs. The findings indicate that there is significant relationships between distinctive capabilities and the innovativeness on the performance of SMEs. The findings also indicated that there is a significant relationship between strategy types and the performance of SMEs.  Small and medium- sized enterprises (SMEs) play a significant role in the business system of both developed and developing economics (United Nations, 1993). This study examines the impact of distinctive capabilities, innovativeness and strategy types on the performance of SMEs, and the model builds upon the previous research which suggests distinctive capabilities, innovativeness and strategy types can affect SMEs performance.


Relationships between the Earnings Management and Accounting Standards

Shen Lie, Zhongnan University of Economics and Law, P.R.China




For the purpose of clarifying the ambiguity about the relationships between accounting standards and earnings management in theory and practice, starting from the definition of earnings management and through the analysis of the theoretical base and the implicit opinion, this paper shows that accounting standards are not the incentives for the earnings management, but the means of performing it, and there is a game relation between accounting standards and earnings management. Based on above results, this paper concludes that the governance of earnings management is a long-term process and the revision and improvement of accounting standards will play an active role in the governance of earnings management. There are both broad and narrow definitions of the term “earnings management”. The narrowly defined earnings management refers to illegal or fraudulent manipulation of the earnings, such as deliberately overusing or misusing the accounting choice and the professional judgment to influence the book balance, or purposely fabricating transactions to adjust the book balance, which is harmful to the quality of the accounting information and must be strictly restricted so as to protect the investors’ interests, maintain the social and economic order, optimize the resource allocation, and facilitate the sustainable and healthy economic development.


Evaluation of the Economic Value of World Culture Heritage - Learning from the Example of the Great Wall of China

Yungkun Chen, National Cheng Kung University, Taiwan

Dr. Chia-Yon Chen, National Cheng Kung University, Taiwan

Tsuifang Hsieh, Taiwan Hospitality & Tourism College, Taiwan





This study assesses the economic benefit of the Great Wall of China to tourists via contingent value method (CVM) and travel cost method (TCM). This study finds that the economic benefit estimated via indirect observation data and CVM is US$12.49 and the economic benefit estimated via direct observation data and TCM is US$125.31. The recreational economic value for consumers is very high. Therefore, under the concept of sustainable resource development, the responsible agency is encouraged to enhance the core value of the Great Wall by developing its recreational value while preserving its cultural heritage.  In order to preserve the precious natural and cultural heritage of the world, in its 1972 conference UNESCO’s World Heritage Center sanctioned the Convention Concerning the Protection of the World Cultural and Heritage.  The Convention established international collaboration mechanisms for the preservation and maintenance of the world heritage. As a high-quality tourism brand, world heritage attracts tourists in a way that no other tourism resources can. Development of the tourism industry, however, has not only reinvigorated the preservation and economic growth of heritage sites, but has also severely burdened the overall environmental resources preservation of heritage sites. Therefore, maintaining a balance between heritage site preservation and tourism development has become the concern of experts, scholars and decision-makers.


Ginger Hotels: Use of IT in Budget Hotels in India

Dr. Sanjay Mohapatra, Xavier Institute of Management Bhubaneswar, India

Dr. Rajeev Roy, Xavier Institute of Management Bhubaneswar, India



 Budget, no-frills hotels are a fast growing segment in the hospitality industry. Ginger hotels were among first chains of budget hotels in India. This case explores how the IT infrastructure in Ginger Hotels is essential to their service offering. The paper also states how the IT had to be significantly changed to align with their business imperatives.  Lomanno (2004) defines budget hotels as the hotels which are the lowest priced in the markets they serve. Suggs (2004) goes a little further in listing the characteristics of budget hotels as current, functional, affordable, stylish and technological. As early as 1990, a report in the Economist indicated that there is likely to be high growth in this segment. Simmons (1995) had indicated that there was significant growth in budget hotels around the world. Bland (2002) had reported the phenomenal growth of budget hotels over the preceding 15 years.


The Effect of Role Conflict and Role Ambiguity on Job Satisfaction and Organizational Commitment: A Study in the Public and Private Sectors

Dr. Himmet Karadal, Aksaray University, Turkey

Dr. Ünal Ay, Çukurova Üniversity, Turkey

Dr. M. Turan Çuhadar, Asst. Governer, Ordu, Turkey



This study analyzed the effect of role conflict and role ambiguity on job satisfaction and organizational commitment. This study was conducted with employees from both public and private sector firms in Mediterranean Region of Turkey. The data gathered from 219 employees was analyzed to test the three hypotheses of the study. Findings indicated that both role conflict and role ambiguity were negatively related to employees’ job satisfaction and organizational commitment. This study concluded that managers must reduce the level of role conflict and role ambiguity if they want to increase job satisfaction and organizational commitment. As a result, organizational performance and effectiveness could be further improved. In addition, this study recommends that similar research be conducted on various employee groups to expand the antecedents and outcomes of role conflict and role ambiguity.   Employee job satisfaction and organizational commitment are two important criteria of organizational performance.


Gender Bias in Automotive Negotiations

Stewart L. Tubbs, Ph.D., Erin Ottenbreit, and Sean Falk, IL



 The study explored negotiation in a dealership and the impact that gender had on the outcome. The study examined the automotive market and examined the differences that exist in the deals that are extended to both genders when purchasing a vehicle.  The sample consisted of 10 dealerships, 5 different automakers.  These automakers were Chevrolet, Ford, Chrysler, Honda and Toyota. Males were found to receive a better deal than females by an average of $1,314.87 per deal.  On July 4, 1776 this country’s Founding Father signed their names to the Declaration of Independence with the vision of a country that would guarantee basic freedoms to all its citizens.  Yet if men and women are receiving different treatment, are these principles upon which the country was founded truly being supported?  Now more than ever women are entering the workforce and commanding independence. It seems that times have changed, but have they really?  Gender is the cultural or psychological marker of the sexes – the aspects of role or identity that differentiate men from women in a given culture or society.  Genders receive different levels of power and recognition within a society through language and culture. 


The Influence of Monetary Incentive Activities on Operating Performance of Electronic Companies in Taiwan

Dr. Wei-Pang Wu, Leader University, Taiwan ROC

Dr. Hui-Ling Yang, Shih Chien University, Taiwan ROC

Dr. Shu-Hui Su, I-Shou University, Taiwan



 The main purpose of this study is to discuss the impact of monetary incentive activities on operating performance of companies in the Taiwan electronic industry. In this paper we have employed the technique of Data Envelopment Analysis (DEA) to measure the operating performance of electronic companies. We then adopted Wilcoxon matched-pairs signed-rank test to test if there is any different operating performance between two incentive groups (high and low). The results find that there is no significantly different prior profit sharing and wage to gross sales revenues for overall efficiency between two groups which represent lower and higher efficiency. Since no matter how high the ratio of profit sharing or wages is, the operating performance doesn’t make any difference. It implies that profit sharing and wages didn’t make any effect on operating performance.  As international competition intensified in the past decade, it became apparent o corporate companies that the traditional management approaches were no longer effective. People would be developed so that decisions could be made at the lowest possible level. New studies on innovative workplace practices suggest that the treatment of employees will lead to higher company performance (Ben-Ner, et al. 2000), in particular in high-tech firms (Smith, 1988; Tsao, 1999).


Microfinance: Effects of Contingent Incentive Programs on the Performance & Productivity of Loan Officers

Dr. Jamaluddin Husain, Purdue University Calumet, IN

Dr. Jay Jiwani, Purdue University Calumet, IN




 Global interest in alleviating poverty and assisting the poor through microfinance institutions (MFI) continues to grow. Since the operation of microfinance services is essentially labor extensive, the MFI industry is continuing to strive to identify productivity improvement strategies for achieving cost-reduction. Incentives are the best tools to motivate MFI employees and staff to align with their organizations’ objectives. The purpose of the study is to provide an overview of the incentive strategies available for and used by MFIs and its impact on their outcomes, with a focus on the financial motivation of extrinsic incentives to stimulate the productivity and performance of loan officers in MFIs.  The Central Intelligence Agency fact book (2007) reports there are over 6.5 billion people on this planet ( of which approximately 1.2 billion people live on less than one dollar a day, and 2.8 billion people live on less than two dollars a day (Holvoet, 2004; Stiglitz, 2002). The seminal work of Stiglitz (2002), the winner of the 2001 Nobel Prize in economics, notes that the greatest challenge to address is the growing problem of world poverty.


Research on Postmodern Curriculum

Yu-Ying Lin, Yuan-Ze University, Taiwan

Yu-Ying Lin, Chia Nan University of Pharmacy & Science, Taiwan



 This paper is trying to explore the postmodern curriculum to adapt the curriculum to the changing society and attempt to seek a kind of innovative curriculum in an open platform and background.  1.1 Pinar, Reynolds, Slattery and Taubman1 have discussed upon poststructuralism, deconstructionism and postmodern orientation in (Understanding Curriculum, 2005) as important contemporary curriculums. Besides, they have repeatedly discussed the influence of postmodernity on other curriculums during their research on orientation of such curriculums (including politics, race, gender, phenomenology, autobiography/ biography, aesthetics and divinity, etc.), namely, postmodernity can bring these curriculums creative concepts to urge them to transform. It may consider that post modern perspective on curriculum was established based on the study of pre-modern perspective on curriculum and criticism of modern perspective on curriculum. As we go deeper into the field of post modern curriculum, we find that enthusiastic and positive exploration and creation for future world and future education can be produced through this way of viewing world and education.


Women Job Satisfaction in Saudi Arabia: An Exploratory Analysis

Dr. Mourad Mansour, King Fahd University of Petroleum and Minerals, KSA


 For the past decades, management researchers have been widely examining the job satisfaction determinants. This study is attempted to investigate the determinants of job satisfaction among Saudi women employees in the governmental and private sectors and the relationship between personal characteristics and the level of job satisfaction. Overall, women workers were found satisfied with their jobs. In Saudi Arabia, the largest economy among the Gulf States, women are joining the work force and participating in the economic development. Saudi women are 51 percent of the population, but represent only 7 percent of the total workforce and work mainly in education, medical and banking fields. The Government is creating additional jobs for Saudi educated women as a step to reduce the unemployment rate among women which is estimated to be 26.3 percent of the total number of working women (Abdul Ghafour, 2007).


On the Effects of the Application of the Business Strategy to Public Colleges of Higher Education

Dr. Adil H. Mouhammed, University of Illinois at Springfield, IL



 The basic objectives of this paper are to explain the future financial squeeze of faculty members at public colleges and universities by demonstrating that there are various business forces such as online education, outsourcing, intellectual properties, and PQ that have been developed to form a business strategy aiming at reducing the future salaries of faculty members and at dismantling the tenure system in the long run. The announced basic goal behind such a business strategy is to reduce the cost of higher education. But if the tuition rates do not decline, the reduction of faculty’s salaries means higher profitability for the institutions of public higher education in the short run, assuming other elements of cost are fixed. The expected cut in faculty’s salaries and the dismantling of the tenure system are called the squeeze of faculty, launched by some public universities’ administrators for their own vested interests, that will deteriorate the quality of public higher education and deprive many young women and men from attending public colleges and universities. This will in turn deteriorate the global competitiveness of the United States of America, because it will slow down innovations and downgrade the quality of the labor force.


Quantitative Assessment in a First-year, Skill-focused College Course

Dr. Claire Bronson, Western New England College, MA

Dr. David L. Russell, Western New England College, MA



 This paper addresses the role assessment plays in college courses that focus on skills.  By way of example, a first-year course focusing on spreadsheets is presented. Techniques for quantitative assessment using pre- and post-test measures as a basis for the paired difference t-test are presented and demonstrated.  It is well established now that the central focus of the assessment movement is improvement in student learning. Questioning how well students are learning at the college level has spawned research contributing to the conceptual and methodological framework. Good assessment calls for a process providing usable, credible feedback that can be reflected upon and then acted upon. It is driven by a faculty’s own commitment to reflect, judge, and improve (Marchese, 1997).  To be effective, assessment must focus on process as well as outcomes (Pike, 1999). One approach is to investigate learning at the classroom level. Angelo and Cross (1993) provide numerous techniques that allow faculty to assess how well the course content is being learned. 


Service Quality in Retail Banking: A Cross-Cultural Perspective

Sungjip Nam, Golden Gate University, GA


 The objective of this article proposes a service quality measurement scale suitable for international retail banking.  Along with SERVQUAL’s 22 items, eight bank specific items are additionally incorporated. Efficacy of perceptions-based and disconfirmation-based service quality scales are examined from respondents representing 29 birth countries. Results have shown that the perceptions-based service quality scale better explains variations of customer satisfaction. The present study reveals four service quality dimensions.  Service quality has become an increasingly important factor in service industry in general, as well as in banking because it deals with its customers’ expectations in key service dimensions. It has also become an essential research topic because it relates to marketing strategy and financial performance (Cui, Lewis, & Park, 2003). Improving service quality is regarded as a way to strengthen competitiveness and profitability through increased customer satisfaction and loyalty behaviors by providing necessary needs thus keeping satisfied customers (Newman, 2001).


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