SEC probes Krispy Kreme accounting and Donuts are not a health food

SEC probes Krispy Kreme accounting - Jul. 29, 2004: "Krispy Kreme Doughnuts Inc. announced Thursday that the Securities and Exchange Commission was conducting an informal, non-public probe into the company's accounting."

The stock, which is down over 67% since last August, fell about 15% on the news.

This just continues a very bad year for the firm. In May the company's executives were sued

Leverage decision and manager compensation with choice of effort and volatility

Leverage decision and manager compensation with choice of effort and volatility

Cadenillasa, Cvitani and Zapatero (CCZ) in an upcoming Journal of Financial Economics (JFE) paper, model the incentive effects of paying executives with either levered, or unlevered, equity.

Their model, which is probably too complex to use in most undergraduate classes, separates managers based on ability

Lifting the Veil: An Analysis of Pre-Trade Transparency at the NYSE by BOEHMER, SAAR, AND YU

Lifting the Veil: An Analysis of Pre-Trade Transparency at the NYSE by BOEHMER, SAAR, AND YU

Boehmer, Saar, and Yu give us an interesting look at how transparency affects trading. Specifically they examine how trades happen at the NYSE after the 2002 adoption of OpenBook. OpenBook is "allows traders off the NYSE floor to observe depth in the book in real time at each price level for all

A look at what happens when sport stars do good and when they do bad

Have you ever wondered what happens to the stock of a sponsoring firm when the endorser does well? How about when the endorser does bad? For example, when Kobe Bryant was arrested, what happened to the firms whose products he endorsed (namely Nike, McDonalds and Coke (the owner of Sprite))? I did and this past year I got talking about it with some students and we could not find much evidence so

And you think Enron was bad? A look at Yukos

Sure US investors have seen their share of fraud cases (Adelphia, Enron, Worldcom etc.) However, with the seemingly imminent collapse of Russian Oil giant Yukos, it is worthwhile to remember that the US and Europe do not have a monopoly on fraud and corruption--in fact, it may be worse elsewhere!

Background:  As you proabbly know the Russian Oil giant Yukos owes an estimated $7 billion in back

Dividend Policy, Agency Costs, and Earned Equity by DeAngelo, DeAngelo, and Stulz

In a well done and interesting work, DeAngelo, DeAngelo, and Stulz tie dividend policy and agency costs (particularly the free cash flow problem) together. Their main point is that if firms did not pay dividends, managers would have too much cash at their disposal.

The authors begin by asking the question "why do firms pay dividends." To answer the question they examine what would happen if

Enron Sites for class use!

HoustonChronicle.com - Hot Topic: Enron: "ENRON COVERAGE FROM BEGINNING TO END"

Looking for Enron coverage? Given the recent arrest of Ken Lay, the problems facing Jeff Skilling, and Lea Fastow's jail time, it is worthy to look back to see how the story has developed.

So my top three list:

1. The Houston Chronicle continues to have the best coverage of the collapse of Enron and a

Readings, Teaching ideas, and non finance stuff etc

Sorry I had not posted for a few days, but it is summer here, which is vacation time right?  ;) lol.
 
Ok, so this will be my once a week, not strictly finance post.  But I will start off with a finance type question.  "What interesting ideas or strategies do you use to make classes more interesting?" or if you are a student "what would you like to see your FinanceProfessors do in class?"  Email

Home Field Advantage: the Finance experience!

Home field advantage: Lambeau Field, Adelphia Coliseum, Reilly Center, Cameron Indoor Stadium, and the Korean Stock Market?

Do domestic investors have an edge?
The trading experience of foreign investors in Korea
Choe, Kho, and Stulz show that home field advantages do not just exist in sports, but also in finance!

They look at all trades on the Korean stock exchange for a two year period

BBC NEWS | Business | Five months in jail for Stewart

BBC NEWS Business Five months in jail for Stewart: "Five months in jail for Stewart"


Yahoo's page


more later...sorry, no time

SSRN-Which Institutional Investors Monitor? Evidence from Acquisition Activity by Lily Qiu

SSRN-Which Institutional Investors Monitor? Evidence from Acquisition Activity by Lily Qiu: "Which Institutional Investors Monitor? Evidence from Acquisition Activity by LILY QIU "


There has been quite a bit of evidence of late that all shareholders do not do equal jobs of monitoring management. For example Barclay, Holderness, and Sheehan find that private placements (which have been long

Proof of a clientele effect: evidence from Taiwan

Taxes and Dividend Clientele: Evidence from Trading and Ownership Structure By Lee, Liu, Roll, and Subrahmanyam



Lee, Liu, Roll, and Subrahmanyam (LLRS) provide convincing evidence that a dividend clientele effect does exist. While previous researchers (for example Scholz-1992, Dhaliwal, Erickson, and Trezevant-1999, and Graham and Kumar-2003) have also found the existence of a clientele

Reaction speed: good news is incorporated faster. A look at the Market Reaction to Annual Earnings Announcements by Louhichi Wael

SSRN-Market Reaction to Annual Earnings Announcements: The Case of Euronext Paris by Louhichi Wael: "Market Reaction to Annual Earnings Announcements: The Case of Euronext Paris "

As I am considering doing a paper on event studies, I have been looking at a few event study papers of late. In this research I stumbled upon this paper by Louhichi Wael. Wael looks at abnormal returns following

Another look at retirement planning. Are equities the way to go?

As hoped and expected, the recent post on Ahmet Tezel's article in the Journal of Financial Planning on how much a retiree could safely take out of his/her retirement account has sparked further discussion.

SSRN-Irrational Optimism by Elroy Dimson, Paul Marsh, Mike Staunton: "Although the probable rewards from equity investment are attractive, stocks did not and cannot offer a guaranteed

The inefficiency of internal capital markets: another part of the diversification discount ?

SSRN-Corporate Diversification and Internal Capital Markets: Evidence from the Turkish Business Groups by Halit Gonenc, Ozgur Berk Kan, Ece Karadagli:

Gonenc, Kan, and Karadagli make use of an interesting data set to give more confirmation to the view that external capital markets are more efficient than internal capital markets. They "compare the performance of firms affiliated with

SSRN-Does Governance Affect the Performance of Closed-End Funds? by Gordon Gemmill, Dylan Thomas

SSRN-Does Governance Affect the Performance of Closed-End Funds? by Gordon Gemmill, Dylan Thomas

In the most recent newsletter there was a discussion of the SEC's recent vote to require independent chairman for mutual fund companies. While I concluded that an independent chairman was a good idea, the conclusion was based more on theory than empirical evidence. Unbeknownst to me at the time,

Do we have a new explanation of the conglomerate discount!!!!!!!

SSRN-Loyalty Based Portfolio Choice by Lauren Cohen


Are you loyal to your company? Your answer may depend on whether your company is a single division company or a conglomerate. As the University of Chicago's Lauren Cohen writes "Evidence from Social Psychology suggests that loyalty to the firm develops at the divisional level." Yeah yeah, so what does Social Psychology have to do with finance?

You win some, you lose some....Dominos lists on NYSE, Google to List With Nasdaq. Nasdaq pulls out of Canada

The New York Times > Technology > Google to List With Nasdaq: "In an amended regulatory filing with the Securities and Exchange Commission, Google said it would list with Nasdaq"

Today's scorecard:

NYSE 1 win 1 loss
Nasdaq 1 win 1 loss


Yes, the NYSE lost the big one. Sure, it may have been expected, the Nasdaq was the favorite from the start, but many at the NYSE hoped that the search

SSRN-When Labor Has a Voice in Corporate Governance by Olubunmi Faleye, Vikas Mehrotra, Randall Morck

SSRN-When Labor Has a Voice in Corporate Governance by Olubunmi Faleye, Vikas Mehrotra, Randall Morck

This one will definitely make class!!!

Faleye,Mehrotra,and Morck study firms where there are large blocks of employee owned shares that ARE VOTED. Their findings may surprise some people:

"Relative to otherwise similar firms, labor-controlled publicly traded firms invest less, take fewer

Blowing way bubbles?--Maybe the NASDAQ Bubble wasn't a bubble

So maybe there wasn't an internet bubble. Several academic papers are trying to justify the high valuations that existed in the late 1990s.

For instance Pastor and Veronesi (P&V) examine the question and allow for uncertainty in future earnings and, unlike similar work by others, they conclude that the NASDAQ was not necessarily overvalued.

Possible the best way to understand their

SSRN-Going Private via LBO - Shareholder Gains in the European Markets by Andre Betzer, Christian Andres, Mark Hoffmann

SSRN-Going Private via LBO - Shareholder Gains in the European Markets by Andre Betzer, Christian Andres, Mark Hoffmann


Betzer, Andres, and Hoffmann investigate what happened to European public firms that went private in the 1996-2002 period. Using classic event study methodology, they find "a positive and significant return...Of about 13.83% at the announcement day." (Don't you love the "

Are men and women that different when it comes to trading?

SSRN-An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity by Richard Deaves, Erik Lueders, Rosemary Guo Ying Luo

Do you remember the findings during the internet wave that female investors showed more patience and did not suffer from the same overconfidence that afflicted some male investors? Well, work by Deaves, Luenders, and Luo now draw that into question.

Is it where you live, or how much you make and what you know? A look at the Geography of Mutual Fund Investing

This one should come as no surprise, but it is interesting none-the-less. Malloy and Zhu have a working paper that "provide[s] evidence that individual investors located in less affluent, less educated, and ethnic minority neighborhoods invest more in mutual funds with expensive load fees." Which I would wager that you would all have expected.

A more interesting question (and much more

MSNBC - Michael Rigas fraud case ends in mistrial

MSNBC - Michael Rigas fraud case ends in mistrial: "The case against former Adelphia Communications Corp. Operations chief Michael Rigas ended in a mistrial Friday with jurors deadlocked on 17 counts against him"

I am surprised. Having written (with Carol Fischer) 2 cases on the problems at Adelphia, I guess I am somewhat of an expert on this and I thought they all would be found guilty. So

FPA Journal - Contribution: Sustainable Retirement Withdrawals

FPA Journal - Contribution: Sustainable Retirement Withdrawals: "investors' sustainable withdrawal in retirement depends not only on expected real returns in the future, but also on the variability of returns, the planned withdrawal horizon, the willingness and ability to run out of funds before the planned horizon, and the desire to leave some wealth to one's heirs"

While I flat out refuse to

FPA Journal - Focus: According to Form: Choosing the Right Business Entity

FPA Journal - Focus: According to Form: Choosing the Right Business Entity: "Different motivations result in different business-entity selections."

Virtually every corporate finance class and most entrepreneurial classes cover the standard organizational forms very early in the course. The timing is somewhat unfortunate as most students are not yet warmed up to finance. In part as a result,

SSRN-Are Large Boards Poor Monitors? Evidence from CEO Turnover by Olubunmi Faleye

SSRN-Are Large Boards Poor Monitors? Evidence from CEO Turnover by Olubunmi Faleye

Faleye who reports that large boards of directors are less likely to replace existing CEOs and if the CEO replaced, less likely to find a successor from outside the firm.

Moreover, when firms announce smaller boards, the firm's stock return is positive. Thus Faleye concludes: "suggest that a large size

A good day for international trade!

Two news items today that strengthen the belief that trade is good.

First, the US and China agreed to end their dispute over Chinese tax breaks on computer chips. If nothing else it shows that the WTO can be used effectively to solve disputes.
http://edition.cnn.com/2004/BUSINESS/07/08/china.trade.reut/
http://washingtontimes.com/business/20040708-094843-6754r.htm

the second story, which for

Finally a New Newsletter!

July Newsletter

Well it took Ken Lay and John Rigas to get me to get the newsletter finished, but after about 20 false starts I finally finished a Newsletter. Be sure to take a look at it!

Enron ex-boss pleads 'not guilty'

BBC NEWS | Business | Enron ex-boss pleads 'not guilty': "Enron ex-chairman Kenneth Lay has pleaded 'not guilty' to 11 criminal charges over the collapse of the former US energy giant.
The charges against Mr Lay include bank fraud, share trading fraud and making false statements."

I have had several people ask me "Why did it take so long?" My best answer is that prosecutors wanted to be sure

I'm back! and Happy July 4th!

Hi again....took a small vacation to Virginia and Gettysburg PA. It was fun. Biked 118 miles on Monday. Very pretty course from Abingdon Virginia.

On the way back stopped at JMU and PSU. Both the schools and the surrounding areas are testimony to why I hate sprawl. What had been great college towns are turning into cities with traffic problems and chain stores everywhere :(

I should