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Terrorism, IPOs, Adelphia, Tax Shields, and much more!
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Jim Mahar
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Mar 03, 2003 01:04 PST
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Rising oil prices, Ahold, IPOs, globalization is good, what is the value
of a levered firm, and much much more!
FinanceProfessor News March 3, 2003
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Bringing the Real World to the Classroom and vice versa!
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Top Stories
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1. A look at IPOs
2. Catching up with Adelphia
3. Calpers and Tyco
4. Cranberry time?
5. What is the real value of interest tax shields? You will be
surprised.
6. Greenspan on the economy
7. Globalization is good for most!
8 NeuroEconomics.
9. Is Ahold Europe’s answer to Enron?
10. Why foreign firms have higher valuations if they cross list in
the US.
Hi everyone!
Thanks for the many emails this past week. The editorial on terrorism
sure brought in many emails. :-) If you have not read it, the
editorial is online:
http://www.financeprofessor.com/editorials/terrorismfeb132003.html
I am trying a slightly different format this week. Since the only
really big story is the likely war with Iraq and I am getting sick of
writing about it (oil prices are up, investors are concerned, markets
are down, and budget deficits up---how many ways can you say it?), So I
decided to make a special section on IPOs today instead.
Well, in the theme of keep it shorter, I will get out of your way.
jim
JimM-@FinanceProfessor.com
and now the news:
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Spotlight: IPOs
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There are several upcoming academic articles on IPO underpricing that
warrant some attention. Some of the most interesting:
Smart and Zutter find that dual class IPOs have less underpricing. Part
of this is that they sell at a lower price after their sale. (This
discount may be caused by a lack of voting power which increases
potential manager-shareholder conflicts). However, there is also
another explanation: Brennan and Franks (1997) suggest that underpricing
might be a means to get more shares into a diverse group of shareholders
(imagine rationing limits the ability of a few taking large positions)
which would increase management power. Now if there are dual class
shares, management already has much of the power and therefore need not
have a diverse shareholder base so there is less underpricing.
Consistent with this is less institutional ownership at non-dual class
shares as well as fewer takeovers in the years following the IPO.
http://jfe.rochester.edu/02154.pdf
A second IPO paper that deserves your attention is Demers and Lewellen
who look at internet stocks and find the number of “web hits” increases
with the degree of underpricing. This evidence, however weak, supports
the marketing aspect of underpricing which suggests that firms under
price in order to create a stir and draw attention to their name. This
is done either for operational reasons, or in order to issue a SEO later
that would be higher priced. While it still may be a reach to say that
it is worthwhile to under price (advertising might be cheaper), the
evidence is consistent with the theory.
http://jfe.rochester.edu/02166.pdf
And finally Gompers and Lerner find no abnormal long-run performance of
IPOs. This differs with several previous studies, the difference
appears to be in changing the control group, which should be no surprise
as long run tests are often model-dependent and small firms often are
especially troubling. This sample is over 3600 firms spanning
1935-1972. (BTW did you really think I could pass-up a “long run
paper” co-authored by the best marathoner in the field today? In case
you didn’t know, Paul Gompers was once a world-class (or at least
national class) marathoner!
http://www.afajof.org/Pdf/forthcoming/gompers.pdf
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Catching up with ……Adelphia.
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Well after a few months of relative quiet, Adelphia sure has been in the
news a great deal of late. If you do not remember, Adelphia was the
US’s sixth largest cable provider and was headquarter in nearby
Coudersport PA. Then due to what most see as fraud and self-serving
behavior of the Rigases, the firm was forced into bankruptcy and
delisted. The Rigases were the first of the big names to be arrested by
Federal authorities when the elder John Rigas was taken away in
handcuffs.
So just a quick update of what has happened recently.
They have hired a new executive team to what many (including former CEO
John Rigas) claim is an exorbitant contract, they are moving their
headquarters from Coudersport PA to Denver Colorado, they ended their
long term ban on “adult” channels, and they began charging significantly
higher rates (over a 100% increase in many cases) to their commercial
users.
And as amazing as it sounds, it seems like all of the accounting
problems are not yet over! The company just admitted they would have to
restate their 2002 earnings after certain expenses were classified as
capital expenditures.
http://www.forbes.com/home_europe/newswire/2003/02/27/rtr893110.html
http://biz.yahoo.com/rf/030220/media_adelphia_2.html
Last week Adelphia announced a new controversial pay package for the new
executives. The pay plan, which calls for $26 million to the new CEO
Michel William Schleyer and $16 million for the new COO Ronald Cooper,
has been called excessive by many shareholders, including the Rigases
themselves. The new execs both come from ATT’s Broadband unit. Since
the firm is in bankruptcy the pay plan must be approved by the
bankruptcy judge. The new CEO is saying that if the pay plan is cut, he
may not leave the firm. (personally I doubt it, but maybe). The plan
as structured has a $7.6 “severance package” (platinum parachute, which
pays him $7.6 million if Schleyer is removed from either his CEO or
Chairman of the board positions for any reason! Schleyer is threatening
to not take the job if the pay is reduced, but I think I would call his
bluff.
http://www.buffalonews.com/editorial/20030227/1019818.asp
http://abcnews.go.com/wire/Business/reuters20030224_689.html
http://biz.yahoo.com/rf/030220/media_adelphia_2.html
Adelphia is moving their corporate headquarters to Denver in a move that
will likely hurt Coudersport PA quite bad.
http://www.insidedenver.com/drmn/business/article/0,1299,DRMN_4_1759879,00.html
The sale of the Sabres appears to more likely as Thomas Golisano appears
have gotten approval to buy the team which has played poorly this year.
Stay tuned.
http://sportsnetwork.com/default.asp?c=sportsnetwork&page=nhl/news/ADN2467143.htm
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Corporate Finance
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In an upcoming JFE, Anderson, Mansi, and Reeb find that when founding
families’ have large ownership, it results in lower borrowing costs.
The hypothesized explanation is that the lenders see the family, which
is generally both poorly diversified and concerned with their
reputation, and hence more risk averse, as a means of reducing agency
costs. Of course this view may have been changed after the Adelphia
problems where a large family block of shares may have led to, rather
than solved, problems.
http://jfe.rochester.edu/02062.pdf
Uh, oh! Do we have it all wrong? We do if the new paper by Fernandez
(forthcoming in JFE), is correct. He shows that the traditional ways of
finding the present value of interest tax shield is often incorrect. In
fact the only time that the traditional VL=VU +TD is correct is when we
are valuing a no-growth perpetuity. This is because the correct “way to
estimate the value of these tax shields claims is not by thinking of
them as the present value of a cash-flow, but as the difference between
the present values of two different cash-flows: flows to the unlevered
firm and flows to the levered firm.” If you teach of take an upper
level corporate finance class, you better read this one!
http://jfe.rochester.edu/02442.pdf
Diego Garcia calls into question the famous paper by Leland and Pyle
that has private ownership being held as a signal of firm quality.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=289801
As predicted, Former K-mart executives are now in trouble ad charged
with Fraud for issuing false statements. The trouble seems to lie in
their accounting for trade allowances. (These are payments for selling
a manufacturer’s products). GAAP and the SEC each require these
allowances, if they can be cancelled, to be recorded as income on a
matched basis (when the product is actually sold), but Kmart decided to
take them all at once (thus upping income) even though they were for
several years. What makes it a fraud case are the allegations of faking
phone calls, and not sending mails in order to appease internal
auditors. (interesting!)
http://www.nytimes.com/2003/02/27/business/27SHOP.html
(also listed in accounting)
(With apologies to Paul Harvey) “No known connection” but remember the
last newsletter where we spoke of Director and Officer (D&O) insurance?
Well now Chubb insurance has started an ad campaign to push their D&O
insurance
http://www.timesonline.co.uk/article/0,,630-592732,00.html
If there is one thing that we have learned so far in 2003, it is that
bankrupt firms can get out of contracts by declaring bankruptcy!
Specifics of this example include the steel companies (Bethlehem Steel)
dropping many of the retirees’ pension and health care benefits, or
Adelphia charging its customers more than their previous contracts
stated, or US Air restructuring their pilot pension plans.
http://www.boston.com/dailyglobe2/053/business/US_Airways_seeks_court_OK_to_end_pilots_pension_plan+.shtml
http://www.washingtonpost.com/wp-dyn/articles/A30410-2003Mar2.html
With the slow stock market and questions on the economy, we have seen
many fewer mergers than a few years ago. However, that may be changing
slightly as a number of potential deals are in the works.
Horizontal mergers are still known to draw more regulatory scrutiny as
being anti-competitive. A case in point is the Spanish deal between two
television providers which the EU has decided to investigate again. The
Financial Times is now reporting that the deal itself may be scrapped (I
doubt it) as a result.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1045511059698&p=1012571727310
Northland Cranberry Corp. is trying to buy Ocean Spray Cranberry
company. The horizontal deal is designed to reduce costs and allow the
combined firms to compete against larger (non cranberry) juices.
Interesting tidbit, the CEO of Northland, left ocean Spray in 1993 to
start Northland. The offer is for $800m of which about 55% would be
cash.
http://www.nytimes.com/aponline/business/AP-Northland-Ocean-Spray.html?dlbk
A few of the deals we have seen (in particular in the UK) have been
garnered much attention from rival bidders. For example a few weeks ago
we saw the hostile takeover attempt as firms lined up to try to buy UK
grocer SafewayPLC. Now we see a similar case with the motel/pub owner 6
continents. And 6 continents is showing once again that the best
defense is often to do what the bidding firms want to do. In this case
6- Continents has decided that spinning off various operations is the
correct way to go to realize cost savings and a higher valuation.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1045511209582&p=1012571727307
Sticking with grocers (always a good thing to do), we have a very
interesting look at Nash Finch. They are under investigation by the
SEC, have not files all of their finaical statements, and can not pay
their debt off and are in default on some of their loans. Rather than
declare bankruptcy, they worked out a deal with creditors where for a
fee (1.5% of principal), the debt contracts could be extended.
http://biz.yahoo.com/rf/030228/retail_nashfinch_1.html
http://biz.yahoo.com/bw/030228/285587_1.html
Who is speaking? In one of the more weird stories in some time, Analyst
Jack Grubman is reported to have been the person behind some of the
words that came out of WorldCom during their collapse last year.
http://www.nytimes.com/2003/02/27/business/27TELE.html
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Investments
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Ok, but come on? A JF article? If your friends invest in the stock
market, you are more likely to do so as well. That is the finding of a
new paper by Harrison Hong, Jeffrey D. Kubik and Jeremy C. Stein . To
which I can only ask one question: “Are you going to jump off a cliff if
your friends do?”
http://www.afajof.org/Pdf/forthcoming/Social-jf-revision.pdf
ok, quick what is a premium bond? If you said the combination of a bond
and a lottery you are correct! They were first issued in the UK in the
late 1950s and are back in vogue with a record number being sold last
month. The odds of winning a big price are about 1 in 28,500, but there
are additional smaller prizes. However, you won’t get rich if you do
not win as the average expected return is less that 3%.
http://news.bbc.co.uk/1/hi/business/2779179.stm
While we all know the stock market is down, what may have passed the
radar scope is that volume is way down too. This low volume may lead to
more volatility as there is less liquidity and trades have a greater
impact.
http://www.boston.com/dailyglobe2/054/business/Trading_volume_may_be_The_Street_s_biggest_weakness+.shtml
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Financial Institutions and Markets
(also Money and Banking)
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One reason the Fed’s rate cuts may not be working as well this time
around is that the longer term rates have not fallen in conjunction with
the short-term rates. Why? Well no one is sure but one reason might be
the rising Federal Deficit which will increase the supply of long-term
bonds. Another reason may be that the gains from the cut are being
offset by higher energy prices. It is for this latter reason that the
European Central Bank is expected to cut rates.
http://www.nytimes.com/2003/02/23/business/yourmoney/23VIEW.html
http://www.timesonline.co.uk/article/0,,5-597648,00.html
The new head of the SEC is William Donaldson. In his comments this past
weekend, he said he would like to reorganize the SEC into a faster more
efficient and more agile force that is proactive rather than reactive.
In case you were wondering, yes he is a former marine.
http://smartmoney.com/bn/ON/index.cfm?story=ON-20030228-000367-1011
http://www.chron.com/cs/CDA/story.hts/business/1800207
One specific thing the SEC hopes to do is to standardize the separation
of investment banking activity and research activity both in the US and
in the Europe. But any standardization will not be easy as each side
things their systems are better.
http://www.timesonline.co.uk/article/0,,5-597518,00.html
And in this corner, Alan Greenspan. The Fed Chairman spoke out against
the President’s tax cut and stimulus plan by saying the economy was
doing ok and would likely get better in the near future, and thus the
stimulus plan is not needed and the tax cuts may increase the already
rapidly expanding deficit. White House economic adviser Glenn Hubbard
however, then went public and stressed that Greenspan was entitled to
his opinion and the White House has complete faith in him. (of course,
this acknowledgement came a week after the original comments, but….)
http://www.theage.com.au/articles/2003/02/12/1044927662341.html
http://reuters.com/financeNewsArticle.jhtml?type=economicNews&storyID=2294321
Speaking of Hubbard, almost immediately after endorsing Greenspan he
decided to resign. (Have I read too many fiction books?)
http://www.dailytelegraph.co.uk/money/main.jhtml?xml=/money/2003/02/28/cnbush28.xml&sSheet=/money/2003/02/28/ixfrontcity.html
After seeing so many mergers in the banking industry, it seemed like the
small bank was almost extinct, but now it is staging a comeback and in
Buffalo and elsewhere, small banks are fighting back. While they still
do not make up much of the total market share, they are becoming more
numerous and competing on service, low fees, and locations. This brings
to mind the barbell theory of banks: the big and the small banks will be
better able to compete than the mid sized banks. This was the
explanation for many of the mergers in the 1990s to combine medium sized
banks into larger banks.
http://www.buffalonews.com/editorial/20030223/1028299.asp
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International Finance
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This one should come as no shock. Countries with greater property right
protections experience higher growth. That is the conclusion of a
forthcoming Journal of Finance article by Claessens and Laeven that
finds that this may explain the somewhat troubling fact that firms in
developing nations have higher fixed assets to total assets than in
developed nations, which goes against standard theory that growth firms
have fewer assets in place.
http://www.afajof.org/Pdf/forthcoming/Laeven.pdf
Why do foreign firms that list in the US have a higher valuation (as
measured by q values) than firms that do not list in the US? A theory
proposed by Doidge, Karolyi, and Stulz suggest that it is the
combination of better access to capital and less ability to expropriate
wealth.
http://jfe.rochester.edu/02367.pdf
In “Imagine There is No Country” by Surjit S. Bhalla, we get further
confirmation that free trade and globalization are good! The book
reports that while there are still many sections of the world very poor,
the number living on pennies a day is falling and the imbalance is
actually lessening between the haves and the have-nots. This
improvement is largely seen where countries have adopted more free
market ideas. Why does this differ with what you are used to hearing in
the popular press? In part he claims the data used in many studies is
pretty bad.
http://www.businessweek.com/bwdaily/dnflash/feb2003/nf20030228_1232_db065.htm
Ok, quick! Name the largest trading partner of the US. If you said
Canada, you are in the know! And on top of that they are one of, if not
the largest!, exporter of oil and natural gas to the US. (I did not
know Oil…in fact I question it, but that is what the article says.)
http://www.nationalpost.com/financialpost/story.html?id=%7B4CCBA46E-A144-4E12-84C2-57C6C83444B2%7D
Can Toshihiko Fukui the new person at the top of the Bank of Japan get
the nation’s economic ship tuned? He was selected as the top person in
a new three person team to try to pull Japan out of its economic
doldrums. The biggest problem remains the banking sector but followed
closely by deflation. If you believe foreign investors, then the answer
to the above question seems to be no. (My advice remains to
dramatically raise the money supply, provide a partial government
bailout to banks, and devalue the yen.)
http://news.bbc.co.uk/1/hi/business/2785601.stm
http://sg.biz.yahoo.com/030228/15/38dqv.html
http://reuters.com/financeNewsArticle.jhtml?storyID=2302327&type=economicNews
http://news.bbc.co.uk/1/hi/business/2807015.stm
http://www.yomiuri.co.jp/newse/20030303wo12.htm (this last article
provides an interesting description of how the new leaders were
selected)
In currency markets, the record US trade deficit helped push the dollar
higher against the Yen which led to Japanese central bank intervention
in the market in an attempt to keep the yen low.
http://www.forbes.com/personalfinance/retirement/newswire/2003/03/02/rtr894552.html
http://www.clickonsa.com/sh/money/stories/money-199320120030220-100259.html
While Venezuela is back pumping oil, it is far from capacity and the
strike did major damage to the nation’s economy.
http://www.chron.com/cs/CDA/story.hts/business/1800313
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Economics
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Greenspan maybe right, the US economy is growing faster than most had
thought. In fact, the 4th quarter GDP was again revised upwards.
http://news.bbc.co.uk/1/hi/business/2781833.stm
WOW! Game-theory aficionados have to read this one! It looks at the
new field of neuroeconomics. What is that? It looks at how the brain
physically reacts to various economic stimuli and tries to see why some
people behave “rationally” and others do not. Very interesting :-)
http://www.nytimes.com/2003/02/27/business/27SCEN.html
Inflation, in large part due to rising oil prices, came back in to the
picture, albeit only slightly, as prices from .3% in the previous month.
http://www.upi.com/view.cfm?StoryID=20030221-090524-5862r
http://news.bbc.co.uk/1/hi/business/2787865.stm
http://story.news.yahoo.com/news?tmpl=story&ncid=580&e=1&cid=580&u=/nm/20030301/bs_nm/column_stocks_week_dc
http://biz.yahoo.com/rm/030301/economy_euro_welteke_1.html
Let me preface this by saying we really do not know, but one estimate of
the cost of a potential war with Iraq is $1 trillion by 2010. This
includes the cost of reconstruction and the ripple effects of reduced
foreign investment. Of course it could be much lower, but already we
are seeing projected record deficits in the US as a result of the
build-up and continued war on terrorism. AS for the actual fighting
that may occur, the BBC article suggests that costs would escalate by
$500m per day of fighting.
http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030220/ts_nm/economy_iraq_dc_2
http://news.bbc.co.uk/1/hi/business/2805769.stm
It is always nice to see people use economics/finance to solve problems.
For example, London is famous for its traffic problems, so in order to
cut down congestion, they turned to economics and are now charging a
toll to drive in the heart of the city. While there are some problems
with getting the fees collect, overall it seems to be working.
http://news.bbc.co.uk/1/hi/business/2807871.stm
http://news.bbc.co.uk/1/hi/england/2776253.stm
http://news.bbc.co.uk/1/hi/uk/2786899.stm
France reported their unemployment rate was up this past month. What is
interesting of course is up to what level. It was only up .8%, but to
over 9%. This is about 150% of the US rate. Why? A big reason is
their expensive social programs and the difficulty in letting workers
go.
http://news.bbc.co.uk/1/hi/business/2807811.stm
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Personal Finance
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It’s getting nearer to tax time in the US and the Washington Post
published an article that tells you about some of the changes in the tax
code.
http://www.washingtonpost.com/wp-dyn/articles/A19515-2003Mar1.html
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Energy Markets
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The threat of war, low supplies, cold weather, and continued production
problems in Venezuela continue to keep oil prices high. They are now at
the highest levels since the last Gulf War. Prices neared $40 a barrel
but closed the week slightly under $37 a barrel.
http://www.msnbc.com/news/876996.asp
http://www.arabnews.com/Article.asp?ID=23000
http://www.nytimes.com/2003/02/27/business/27PLAC.html
Partially as a result, gasoline prices are also climbing. MSNBC
provided an interesting article on what makes up the price of gasoline.
The second biggest factor (after the petroleum) is taxes. The third
largest cost is the actual refining practice itself. (good point in the
article about taxes likely to continue to rise to pay for rising budget
deficits at the state level.
http://www.msnbc.com/news/878211.asp
So if not oil, then what can we use for power? Many think cars of the
future will run on hydrogen or some blend based on ethanol or soybean
oil. However, whatever it will be, the future is not yet here as price
wise, nothing is yet economically feasible (this is at least in part due
to subsidies (direct and indirect) for other fuel sources.
http://story.news.yahoo.com/news?tmpl=story2&u=/usnews/20030210/ts_usnews/as_war_looms__the_search_for_new&e=3
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Money and politics
***********************************************************
Bush’s tax cut plan continues to come under fire. Including some from
Fed Chairman Alan Greenspan himself who questioned whether the economy
needed any stimulus plan and whether the deficit spending was necessary,
to Nobel Laureates and other economists who question whether cutting
dividend tax rates will have much of a net impact once the implications
of the deficit is factored in. On the other side you have those who
feel that a better plan would be to end the double taxation of wages as
well as on dividends by allowing FICA taxes to be deducted.
http://news.bbc.co.uk/1/hi/business/2779179.stm
http://news.bbc.co.uk/1/hi/business/2735269.stm
http://www.boston.com/dailyglobe2/054/business/Don_t_draw_line_at_dividends_end_wage_tax_too+.shtml
http://www.boston.com/dailyglobe2/054/business/Workers_who_spend_are_more_deserving_of_relief+.shtml
Money may not be able to buy you love, but maybe support in time of war?
That is what the US seems to be doing in some areas.
http://www.businessweek.com/bwdaily/dnflash/feb2003/nf20030228_7371_db038.htm
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Financial Service Industry
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A JP Morgan unit gets 10 days in the penalty box (no trading!) from
Japanese officials for trying to manipulate the market in exchangeable
bonds.
http://www.nytimes.com/reuters/business/business-financial-japan-jpmorgan.html?dlbk
OUCH! The NY Attorney General Elliott Spitzer is threatening to release
the documents he subpoenaed to the public regarding the state’s $1.4
Billion settlement. This would likely lead to many more lawsuits
against the investment banks.
settlehttp://www.dailytelegraph.co.uk/money/main.jhtml?xml=/money/2003/02/24/cnwall24.xml&menuId=242&sSheet=/money/2003/02/24/ixfrontcity.html
Lehman Brothers is being sued for $16 million in a compensation suit
where the employee, Bond trader Kerim Derhalli says he was never paid
the amount he was promised for working out bad loans during the Russian
crisis.
http://news.bbc.co.uk/1/hi/business/2788873.stm
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Real Estate
***********************************************************
Is there a real estate bubble or not? Well, it depends on who you ask.
One sign of trouble is that in certain areas of California, rents are
falling while people are paying over the asking price for property.
However, the counter argument is that low interest rates have allowed
the housing market to stay strong.
http://story.news.yahoo.com/news?tmpl=story&ncid=580&e=1&cid=580&u=/nm/20030301/bs_nm/bizrealestate_california_dc
A similar story is playing out in the UK housing market where there is
fear of a bubble bursting and seeing the values of houses fall.
http://news.bbc.co.uk/1/hi/business/2781833.stm
Even with some sniffs of inflation on the horizon, mortgage rates in the
US fell to 30 year low. 15 year loans are now below 5.2%!
http://www.msnbc.com/news/762857.asp
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Accounting News
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Is this going to be Europe’s Enron? An accounting problem at Royal
Ahold (the grocery store giant who owns Tops, Giant, and MANY others)
lost 63% after admitting to overstating profits. The company fired its
CEO and CFO as a result and now there is a report (unsubstantiated to
date) that this is just the tip of the ice berg. (see Washington Post
article)
http://www.washingtonpost.com/wp-dyn/articles/A57863-2003Feb24.html
http://www.thestreet.com/_tsclsii/markets/stockwatch/10070318.html
http://www.nytimes.com/2003/02/27/business/worldbusiness/27GROC.html
http://news.bbc.co.uk/1/hi/business/2797097.stm
http://www.washingtonpost.com/wp-dyn/articles/A30409-2003Mar2.html
http://biz.yahoo.com/djus/030301/1600000053_1.html
Given the many stories of aggressive practices and even fraud, here is
somewhat surprising paper by Ross Watts of the University of Rochester.
He finds that conservatism is still alive and well in accounting.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=371820
Slate has a good article looking at the two sets of books that firms
keep. One set for reporting to shareholders and one for tax purposes.
And the differences can be amazing. Take Enron (please!). They
reported record earnings year after year through the late 1990s and yet
were paying almost zero in taxes.
http://slate.msn.com/id/2078581/
A look inside the former Arthur Andersen. Wow. It was like a cult.
Talk about your strict corporate culture and indoctrination.
http://www.nytimes.com/2003/02/23/business/yourmoney/23VALU.html
As predicted, Former K-mart executives are now in trouble ad charged
with Fraud for issuing false statements. The trouble seems to lie in
their accounting for trade allowances. (These are payments for selling
a manufacturer’s products). GAAP and the SEC each require these
allowances, if they can be cancelled, to be recorded as income on a
matched basis (when the product is actually sold), but Kmart decided to
take them all at once (thus upping income) even though they were for
several years. What makes it a fraud case are the allegations of faking
phone calls, and not sending mails in order to appease internal
auditors. (interesting!)
http://www.nytimes.com/2003/02/27/business/27SHOP.html
(also listed in accounting)
This may be taking full disclosure a bit too far! You have to read at
least some of this 8K filing from Expediators International. They tell
you what they think, why, and why they may be wrong. And in a funny
matter to boot. Some parts are hilarious! Definitely the most
entertaining SEC filing I have ever seen!
http://biz.yahoo.com/e/030220/expd8-k.html
http://www.edgar-online.com/brand/yahoo/search/?sym=EXPD
CALPERS, the Giant pension fund for California Employees, is pushing for
firms who have moved their headquarters out of the US in order to avoid
taxes, to move them back to the US. First on their target list? Tyco.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/02/22/BU182361.DTL
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FinanceProfessor.com Site of the Week
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Financial Engineering news. I know I named it before, but it has been a
while. The site rally is good. Check out the recent interview with
Frank Partnoy (of FIASCO fame) on greed and what caused the corporate
governance crisis. (Incidentally, but no doubt not coincidently,
Partnoy has a new book coming out. It is on this exact topic. I look
forward to reading it.)
http://fenews.com/
http://fenews.com/fen30/one_on_one_interview/one_on_one_partnoy.html
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Teaching Ideas
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Use current events in class whenever possible. They are interesting,
give students an appreciation of the real business world, and
Night tests, while a major headache, give the students more time and you
can give a longer (more complete) test.
Participation policies seem to work much better than attendance policies
in building class discussion.
Try to build an alumni base that will come in and talk =to your classes.
It is a great way to bring experience into the class room and the
students really enjoy it and learn form it. (see below)
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What I am reading
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Finished the Lexus and the Olive Tree. I had started it and gotten
distracted before. It is good. It is very good at making the
globalization issue (both pro and con) understandable to someone new to
the international (finance) scene. Indeed I have already used some of
his analogies and examples in class.
http://www.amazon.com/exec/obidos/ASIN/0385499345/finpapers/104-9378365-5272442
I am about 20% into River Town by Peter Hessler. It is about 2 Peace
Corps volunteer teachers who go to China in the mid 1990s. Although
still early, it really is interesting and definitely makes me glad for
all of the freedom of the US! And Hessler is a serious runner! :-)
http://www.amazon.com/exec/obidos/ASIN/0060953748/finpapers/104-9378365-5272442
I just finished ristening to the TimeLife book on The Magnificent
Mayans. It was OK. Really didn’t know much about the region so I
figured I would give it a try. Several things really stood out: they
were very active foreign traders and quite advanced in many ways.
However, from our perspective they were also very much behind the times
even for their times: no wheel, performed human sacrifices, and some of
their “games” ended with the losers being killed.
I am midway through 101 Questions and Answers on Islam. I have learned
quite a bit.
http://www.amazon.com/exec/obidos/ASIN/0517220938/finpapers/104-9378365-5272442
I am still trying to find time for three Civil War books, but the last
few weeks have been a bit much. So I will list them Grant’s Memoirs,
Sherman’s Cavalry, and Lincoln and his Generals. I doubt I will have
any of them done anytime soon!
While not a book, I did go to see the movie Gods and Generals. (I had
read the book). While it is a very long movie, I liked it.
http://www.amazon.com/exec/obidos/ASIN/0345422473/finpapers/104-9378365-5272442
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Quotes of the week:
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All greatness is achieved while performing outside of your comfort
zone---Greg Arnold
History has demonstrated that most notable winners usually encountered
heartbreaking obstacles before they triumphed. They won because they
refused to become discouraged by their defeats.---B.C. Forbes
How would you act were all the world looking at you? Act
accordingly.---Thomas Jefferson.
Give up money, give up fame, give up science, give up the earth
itself…rather than do an immoral act---Thomas Jefferson
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Editorial
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Few things I have done in the past year have created as much discussion
as my recent editorial on fighting terrorism using financial theory and
things we learned from the US Civil War. If you haven’t read it, please
do.
http://www.financeprofessor.com/editorials/terrorismfeb132003.html
What I said was not new but it is a growing area. Take this week’s
report from Africa and how nations there are trying to improve the
economy as a means of increasing stability and ending the breeding
grounds for terrorism. Gee, that sounds familiar.
http://news.bbc.co.uk/1/hi/business/2797405.stm
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Thanks for reading! I hope you liked it and learned something (or even
many things) from it! I was not thrilled by some parts of this. Maybe
it is just too late. I need to find a way to stay on task with it a bit
more. Oh well.
If you have any ideas for the site or the newsletter please let me know.
For those of you on spring break, have a safe time! Bring back heat
with you when you come :-)
Jim
JimM-@FinanceProfessor.com
Who was surprised the Bills Franchised Peerless Price. I hope they can
trade him.
Who is VERY disappointed about some of the stories coming from the Bona
Basketball team.
http://www.voy.com/13956/
Where spring seems a very very very long time off.
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Oh and a final favor…pass this on to someone you think would like it….a
fellow student, a past teacher, your current teacher, your parents,
anyone who it might help. Thanks!
Thanks for forwarding this so much. That is the only way I know this
newsletter is growing so fast. :-)
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copyright 2003 FinanceProfessor.com
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