The Board of Directors: We Pay Them To Do What?

A company’s board of directors acts as the official representative of shareholders interests within the company. It is not feasible for management to deal with a shareholders individually, especially in the case of large corporations with a diverse shareholder base and varying opinions. The board is thus charged with the responsibility to determine the best interests of shareholders and then ensure that the firm is operating with the objective of furthering these interests. Directors are often compensated generously for this . . .

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The Persistent Financial Losses of US Airlines

A recent study by the NBER searches for the reasons behind the persistent industry-wide losses for airlines in the United States. The following chart from the paper does a good job of illustrating the problem:

Airline Industry Net Income per Available Seat-Mile

Here’s the abstract:

U.S. airlines have lost nearly $60 billion (2009 dollars) in domestic markets since deregulation, most of it in the . . .

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The Role of Expectations in Value and Glamour Stock Returns

A new study shows the divergent behaviour of value and glamour stocks following an earnings miss. The results are pretty interesting. Here’s the abstract, for a brief summary:

What happens when value and glamour stocks miss earnings expectation targets? Although, as expected, prices for glamour stocks have historically fallen, prices for value stocks have gone up—even when business fundamentals deteriorated based on results found in this study of global equities. These results suggest the superior returns delivered by value stocks . . .

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What we can learn when firms issue or repurchase shares

Robin Greenwood and Samuel Hanson of Harvard Business School have a new paper published in The Journal of Finance called Share Issuance and Factor Timing. They sought to determine what can be learned from share issuances and repurchases. The results are interesting (emphasis added):

In this paper we show that corporate equity issuance can be used to  forecast characteristicbased factor returns. We show that firms issue prior to periods when other stocks with similar characteristics perform poorly, and . . .

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Eric Falkenstein discovers value investing

Eric Falkenstein, economist/hedgie who writes the excellent Falkenblog (and author of Finding Alpha: the Search for Alpha when Risk and Return Break Down) recently showed the returns associated with buying companies in December 2008 that were selling for less than the cash on their balance sheets. Some correctly point out that he ignored associated debt (net cash would have been appropriate for many of these companies that were having trouble servicing the debt), but it is an interesting . . .

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