Journal of Applied Finance

Journal of Applied Finance is a trade journal focusing on Applied Finance

Articles from Vol. 19, No. 1/2, 2009

Additional Evidence on the Corporate Cost of Capital and the Return to Corporate Investment
We examine the corporate cost of capital and the return on corporate investment through 2005, which allows us to examine these values during the inflating and bursting of the tech bubble of the late 1990's. We examine the return on investment of tech...
A Review of Fairness Opinions and Proxy Statements: 2005-2006
The record merger and acquisition activity of 2006 and 2007 ushered in renewed criticism of fairness opinions. The focus of this research is to determine whether a fairness opinion and its accompanying proxy statement provide information required for...
Back-Door Equity Financing: Citigroup's $7.5 Billion Mandatory Convertible Issue
This paper provides a procedure for calculating the implied common equity proceeds of mandatory issues and concludes that Citigroup's November 2007 issue has likely yielded higher proceeds per share than the proceeds that would have resulted from a common...
Back to the Future Again: Private Equity after the Crisis
The private equity industry (PE) suffered a setback triggered by the financial crisis in 2007. Some have questioned its continued viability. PE is a major alternative asset class with over one trillion dollars under management.1 Consequently, its viability...
Capital Budgeting Surveys: The Future Is Now
This research is motivated by two major factors: (1) the over twenty year hiatus since the last thorough review of the capital budgeting survey literature, and (2) past appeals to the finance academic community by researchers to explore neglected areas...
Enterprise Risk Budgeting: Bringing Risk Management into the Financial Planning Process
Enterprise Risk Management (ERM) is a holistic, integrated approach to managing a company's risks, in contrast to the so-called "silo-approach" prevalent in many firms in which risks are managed independently of each other. Yet for all the risk exposures...
Financial Puzzles
In previous issues of JAF, we began publishing Financial Puzzles by Stewart C. Myers. This set (solutions 14-15) provides the answers to his fifth and final contribution.-The EditorsProposed answers for Problems 14 and 15In the Fall/Winter 2008 issue...
Holding Equity and Debt of the Same Firms Can Prove Suboptimal
Most financial institutions, such as insurance companies or pensionfunds, holddiversifiedassetportfolios. Very often these institutions try to follow or to outperform a market index for each asset class in which they invest, e.g. bonds and equities....
Interview with Myron S. Scholes: 1997 Nobel Laureate in Economic Sciences
Pioneers of Finance"For a new method to determine the value of derivatives."1On July 9th, 2009, Charles Smithson and Betty Simkins (co-editors of the Journal of Applied Finance, JAF) interviewed Myron S. Scholes for this issue of JAF. Myron Scholes,...
Letter from the Editors
This is our third issue as editors of the Journal of Applied Finance (JAF). This special "double issue" for 2009 includes a total of 18 articles and other content addressing topics on that we believe will be of interest to both academics and practitioners.Thank...
Potential Effects of Fair Value Accounting on US Bank Regulatory Capital
For many years the regulatory capital of commercial banks in the United States has been based on the book value of assets and liabilities. That has changed with the implementation of Fair Value Measurements in FAS 157. Now banks and regulators must view...
Private Equity: Panel Discussions at Drexel University's Center for Corporate Governanance
Discussants: Richard Cashin, Harry Jansen Kraemer Jr., Robert Rock, Gregory Segali, Stanley Silverman and Steven ZarilliIn 2008 and 2007, Drexel University s Center for Corporate Governance hosted two panel discussions on Private Equity - "Leadership...
The Chipotle Paradox
Chipotle Mexican Grill, Inc. Class A common stock has one vote per share and Class B common stock has 10 votes per share. In a pricing paradox, the Chipotle Class A shares with inferior voting rights have sold at a persistent price premium of as much...
The Credit Default Swap Market's Reaction to Earnings Announcements
This paper examines the CDS market's response to earnings announcements. The results indicate that earnings announcements contain valuable information with statistically significant announcement date effects. Additionally, the CDS market anticipates...
Using CLOs to Manage the Credit Risk of Corporate Loan Portfolios
Collateralized loan obligations (CLOs) are a key tool for managing the credit risk of corporate loan portfolios. Along with credit default swaps (CDSs), CLOs are the primary means of transferring credit risk from a bank loan portfolio to third-party...
Valuation Handbook: Valuation Techniques from Today's Top Practitioners
Valuation Handbook: Valuation Techniques from Today's Top PractitionersEdited by Benton E. Gup and Rawley Thomas, Forthcoming, John Wiley & SonsValuation is at the core of the study of finance. Correct valuations of investment opportunities, securities,...
Valuation: The Art and Science of Corporate Investment Decisions
Valuation: The Art and Science of Corporate Investment Decisions By Sheridan Titman and John Martin, Pearson Education: 2007, 556 pages*In Valuation: The Art and Science of Investment Decisions, co-authors Sheridan Titman and John Martin have provided...
Valuing Exotic Options Used in Underwriter Compensation
Options, often issued to the underwriter of unit IPOs, provide an interesting application of exotic option valuation. These options, which are generally for a unit or bundle of share(s) and warrant(s), are usually redeemable so that the underwriter option...
Valuing "Hard-to-Value" Assets and Liabilities: Notes on Valuing Structured Credit Products1
* In 2008 and 2009, valuation was "trendy". Former Treasury Secretary Hank Paulson signaled the importance of valuation in October 2008:... without an appropriate valuation mechanism, all the available capital in the world is unlikely to end the toxic...
Why Does DCF Undervalue Equities?
Academics and professionals frequently use the yield to maturity (YTM) as a proxy for the cost of debt when valuing firms using discounted cash flow (DCF). This paper demonstrates that this practice is incorrect because YTM is calculated based on promised...