Do Firms Buy Their Stock at Bargain Prices?

To return cash to shareholders, firms choose between issuing dividends and repurchasing share. There are many reasons to choose to repurchase rather than issue dividends. For one, dividends are believed to be sticky, in that a dividend cut is taken as a sign of weakening fundamentals and often leads to a sell-off in the market. Few companies follow a dividend policy that mimics corporate earnings or free cash flows. Second, when executives believe their company’s share price to be unrealistically . . .

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Typical MBA finance curriculum is falling behind

A professor at the Indian Institute of Management has written a paper that concludes that the typical MBA finance curriculum is falling behind (emphasis added):

Finance has come in for a great deal of criticism after the global financial crisis of 2007 and 2008. Clearly there were serious problems with finance as it was practiced in the years before the crisis. To the extent that this was only a gap between theory and practice, there is a need for finance . . .

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The Investment Behaviour of Public and Private Firms

It is perhaps not surprising that public and private firms exhibit different investment characteristics. What is surprising however is the magnitude of these differences and the reasons for them. In a new NBER working paper, Comparing the Investment Behavior of Public and Private Firms, researchers identify the different characteristics and give a corporate governance explanation. PhD candidate Claire Brunel says the following about the study (emphasis added):

First, private firms invest substantially more than public firms of their size and . . .

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Private Equity and Employment

A new NBER working paper, Private Equity and Employment, analyzes the effect of private equity on employment, with some interesting conclusions (emphasized below in the abstract):

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of . . .

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The Real Effects of Financial Markets

In a new NBER working paper, The Real Effects of Financial Markets, researchers Philip Bond, Alex Edmans, and Itay Goldstein investigate the interaction between the stock market and the real economy. 

On this site we frequently discuss the intrinsic value of firms as the discounted value of future cash flows, and we note (as nonbelievers in the Efficient Market Hypothesis) that individual security prices often diverge quite dramatically from this true value. Determining why this occurs is an unresolved quest, but . . .

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