Required Rates of Return for Corporate Investment Appraisal in the Presence of Growth Opportunities

Traditional methods of estimating required rates of return overstate hurdle rates in the presence of growth opportunities. We attempt to quantify this effect by developing a simple model which: (i) identifies those companies that have valuable growth opportunities; (ii) splits the value of shares into 'assets-in-place' and 'growth opportunities'; and (iii) splits the equity β into β for 'assets-in-place' and 'growth opportunities'. We find growth opportunities for UK companies over the 1990–2004 period to average 33% of equity value. Incorporating the effect of growth opportunities, the average cost of capital for investment purposes falls by 1.1 percentage points

Testing for inconsistencies in the estimation of UK capital structure determinants

This article analyses the determinants of the capital structure of 1054 UK companies from 1991 to 1997, and the extent to which the influence of these determinants are affected by time-invariant firm-specific heterogeneity. Comparing the results of pooled OLS and fixed effects panel estimation, significant differences in the results are found. While the OLS results are generally consistent with prior literature, the results of our fixed effects panel estimation contradict many of the traditional theories of the determinants of corporate financial structure. This suggests that results of traditional studies may be biased owing to a failure to control for firm-specific, time-invariant heterogeneity. The results of the fixed effects panel estimation find larger companies to have higher levels of both long-term and short-term debt than do smaller firms, profitability to be negatively correlated with the level of gearing, although profitable firms tend to have more short-term bank borrowing than less profitable firms, and tangibility to positively influence the level of short-term bank borrowing, as well as all long-term debt elements. However, the level of growth opportunities appears to have little influence on the level of gearing, other than short-term bank borrowing, where a significant negative relationship is observed

The betaine/GABA transporter and betaine: roles in brain, kidney, and liver

The physiological roles of the betaine/GABA transporter (BGT1; slc6a12) are still being debated. BGT1 is a member of the solute carrier family 6 (the neurotransmitter, sodium symporter transporter family) and mediates cellular uptake of betaine and GABA in a sodium- and chloride- dependent process. Most of the studies of BGT1 concern its function and regulation in the kidney medulla where its role is best understood. The conditions here are hostile due to hyperosmolarity and significant concentrations of NH4Cl and urea. To withstand the hyperosmolarity, cells trigger osmotic adaptation, involving concentration of a transcriptional factor TonEBP/NFAT5 in the nucleus, and accumulate betaine and other osmolytes. Data from renal cells in culture, primarily MDCK, revealed that transcriptional regulation of BGT1 by TonEBP/NFAT5 is relatively slow. To allow more acute control of the abundance of BGT1 protein in the plasma membrane, there is also post-translation regulation of BGT1 protein trafficking which is dependent on intracellular calcium and ATP. Further, betaine may be important in liver metabolism as a methyl donor. In fact, in the mouse the liver is the organ with the highest content of BGT1. Hepatocytes express high levels of both BGT1 and the only enzyme that can metabolize betaine, namely betaine:homocysteine –S-methyltransferase (BHMT1). The BHMT1 enzyme removes a methyl group from betaine and transfers it to homocysteine, a potential risk factor for cardiovascular disease. Finally, BGT1 has been proposed to play a role in controlling brain excitability and thereby represents a target for anticonvulsive drug development. The latter hypothesis is controversial due to very low expression levels of BGT1 relative to other GABA transporters in brain, and also the primary location of BGT1 at the surface of the brain in the leptomeninges. These issues are discussed in detail

Capital structure and its determinants in the United Kingdom – a decompositional analysis

Prior research on capital structure by Rajan and Zingales (1995) suggests that the level of gearing in UK companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. However, as argued by Harris and Raviv (1991), 'The interpretation of results must be tempered by an awareness of the difficulties involved in measuring both leverage and the explanatory variables of interest'. In this study the focus is on the difficulties of measuring gearing, and the sensitivity of Rajan and Zingales' results to variations in gearing measures are tested. Based on an analysis of the capital structure of 822 UK companies, Rajan and Zingales' results are found to be highly definitional-dependent. The determinants of gearing appear to vary significantly, depending upon which component of debt is being analysed. In particular, significant differences are found in the determinants of long- and short-term forms of debt. Given that trade credit and equivalent, on average, accounts for more than 62% of total debt, the results are particularly sensitive to whether such debt is included in the gearing measure. It is argued, therefore, that analysis of capital structure is incomplete without a detailed examination of all forms of corporate debt

The valuation of European financial firms

We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France, Germany, Italy, Netherlands, Switzerland and the UK. Not only are these crucial industries worthy of study in their own right, but unusual accounting practices, and inter-country differences in those accounting practices, provide valuable insights into the accounting-value relationship. Our sample consists of 7,714 financial firm/years observations from 1,140 companies drawn from 1989-2000. Sub-samples include 1,309 firm/years for banks, 650 for insurance companies, 1,705 for real estate firms, and 3,239 for investment companies. In most countries we find that the valuation models work as well or better in explaining cross-sectional variations in the market-to-book ratio for financial firms as they do for industrial and commercial firms in the same countries, although Switzerland is an exception to this generalization. As expected, the results are sensitive to industrial differences, accounting regulation and accounting practices. In particular, marking assets to market value reduces the relevance of earnings figures and increases that of equity

The growth companies puzzle: can growth opportunities measures predict firm growth?

While numerous empirical studies include proxies for growth opportunities in their analyses, there is limited evidence as to the validity of the various growth proxies used. Based on a sample of 1942 firm-years for listed UK companies over the 1990-2004 period, we assess the performance of eight growth opportunities measures. Our results show that while all the growth measures show some ability to predict growth in company sales, total assets, or equity, there are substantial differences between the various models. In particular, Tobin's Q performs poorly while dividend-based measures generally perform best. However, none of the measures has any success in predicting earnings per share growth, even when controlling for mean reversion and other time-series patterns in earnings. We term this the 'growth companies puzzle'. Growth companies do grow, but they do not grow in the key dimension (earnings) theory predicts. Whether the failure of 'growth companies' to deliver superior earnings growth is attributable to increased competition, poor investments, or behavioural biases, it is still a puzzle why growth companies on average fail to deliver superior earnings growth

Target company cross-border effects in acquisitions into the UK

We analyse the abnormal returns to target shareholders in crossborder and domestic acquisitions of UK companies. The crossborder effect during the bid month is small (0.84%), although crossborder targets gain significantly more than domestic targets during the months surrounding the bid. We find no evidence for the level of abnormal returns in crossborder acquisitions to be associated with market access or exchange rate effects, and only limited support for an international diversification effect. However, the crossborder effect appears to be associated with significant payment effects, and there is no significant residual crossborder effect once various bid characteristics are controlled for

A Mathematical model for Astrocytes mediated LTP at Single Hippocampal Synapses

Many contemporary studies have shown that astrocytes play a significant role in modulating both short and long form of synaptic plasticity. There are very few experimental models which elucidate the role of astrocyte over Long-term Potentiation (LTP). Recently, Perea & Araque (2007) demonstrated a role of astrocytes in induction of LTP at single hippocampal synapses. They suggested a purely pre-synaptic basis for induction of this N-methyl-D- Aspartate (NMDA) Receptor-independent LTP. Also, the mechanisms underlying this pre-synaptic induction were not investigated. Here, in this article, we propose a mathematical model for astrocyte modulated LTP which successfully emulates the experimental findings of Perea & Araque (2007). Our study suggests the role of retrograde messengers, possibly Nitric Oxide (NO), for this pre-synaptically modulated LTP.Comment: 51 pages, 15 figures, Journal of Computational Neuroscience (to appear

Decoupling management inefficiency: Myopia, hyperopia and takeover likelihood

Using combinations of accounting and stock market performance measures, we advance a comprehensive multidimensional framework for modelling management performance. This framework proposes “poor” management, “myopia”, “hyperopia” and “efficient” management, as four distinct attributes of performance. We show that these new attributes align with, and extend, existing frameworks for modelling management short-termism. We apply this framework to test the management inefficiency hypothesis using UK data over the period 1988 to 2017. We find that takeover likelihood increases with “poor” management and “myopia”, but declines with “hyperopia” and “efficient” management. Our results suggest that managers who focus on sustaining long-term shareholders' value, even at the expense of current profitability, are less likely to be disciplined through takeovers. By contrast, managers who pursue profitability at the expense of long-term shareholder value creation are more likely to face takeovers. Finally, we document the role of bidders as enforcers of market discipline

Information about bank intangibles, analyst information intermediation, and the role of knowledge and social forces in the ‘market for information’

Although developments in the sell-side analyst literature have revealed the role of intellectual capital (IC) in analysts’ work, the whole information intermediation progress of IC remains a “black box”. This paper develops an analyst information intermediation model, illustrating how ‘soft’ information changes through analyst acquisition, processing and disclosure of information. Bourdieu’s ideas of habitus, field and capital are used to develop our explanation of the analyst information intermediation model. We argue that the combination of empirical evidence and theoretical explanation provides a new and more comprehensive way to improve understanding of the role of analysts within knowledge and social contexts