CAMRI aims to provide a suitable research environment and sponsor research activities so as to further its stated mission and goals. The current financial research programmes at CAMRI are broadly divided into 4 areas:
1. Asset Pricing (both Empirical and Theory)
2. Market Microstructure, Financial Market Design, and Trading Strategies
3. Market Efficiency and Behavioural Finance
4. Delegated Portfolio Management
The outcomes and activities of these research programmes include equity research reports, student consulting practicum projects, disseminating research findings in the form of working papers, articles and books, organizing topical roundtables, conferences and applied research forums, teaching and educational activities, and improving pedagogy and hands-on, team-based and experiential learning at both the student and professional levels.
The various outcomes of the CAMRI research projects are listed below.
CAMRI Equity Research Project / CAMRI Applied Finance Research Grants / CAMRI Visiting Fellow Programme / Asia Asset Management - CAMRI Applied Research Prize in Asset Management / CAMRI Asia-based Case Study Grant / NUS Published Papers / NUS Business School Working Papers / CAMRI Case Studies / Student Equity Reports / Book Publication
CAMRI Multi-Factor Model (MFM) Stock Selection Equity Research Project
This project focuses on developing new multi-factor stock selection models for student fund management and classroom simulations. It is derived from company-level financial and accounting information by conjoining asset pricing theory with backtests, econometric, statistical and analytical programming methods. The quantitative factor composite groupings are Valuation, Profitability, Balance Sheet Efficiency, Earnings Revision & Momentum, and Liquidity & Size. The initial research focused on the Russell 1000 universe, which represents the top 1,000 publicly-held US companies based on total market capitalization. The model is currently being deployed for fund management, classroom simulation and training purposes at the Investment Management & Trading Lab at CAMRI. The long term objective of the project is to develop a robust, multi-factor equity model for stock selection in the Asian markets. Please click here for more details on the live Student Managed Fund (SMF).
NEW LAUNCH: CAMRI Academic-Industry Partnership Programme – MFM Monthly Commentary Initiative!
CAMRI is proud to announce the launch of the “CAMRI Academic-Industry Partnership Programme – MFM Monthly Commentary Initiative” in partnership with the prestigious Pacific Pension & Investment Institute in the US.
CAMRI Applied Finance Research Grant (AY 2016/17)
Call For Applied Finance Research Proposals (AY 2016/17)
CAMRI will continue to create and disseminate an applied finance research programme in the area of asset management and beyond through both direct and indirect support of NUS Business School’s faculty below the Full Professor rank. Based on a recent gift to CAMRI, which was provided in order to support research that will broadly benefit the investment management industry in Singapore, CAMRI is hence funding one applied finance research proposal of up to S$10,000 in the areas of:
- Delegated Portfolio Management (unit trusts, mutual funds, hedge funds, private equity)
- Commodities, Derivatives, Asset Pricing (Empirical & Theory)
- Financial Market Microstructure, Market Design, Trading Strategies
- Market Efficiency, Behavioural Finance
- Consumer Finance and Investing Research
This could include topics in the area of life-cycle saving and investing in Singapore in particular, and Asia in general, especially in the context of retirement planning, inflation-indexed products, etc. These research grants are meant to:
- stimulate original and fundamental applied finance research thinking in the area of asset management;
- improve the Singapore investment management industry’s knowledge and understanding of asset management and related issues; and
- disseminate this knowledge to a wider academic and practitioner audience, say for example, at one of CAMRI’s Applied Research Forums.
A 3-5 page applied finance research proposal grant application is all that is required. Each application will be evaluated based on the importance and quality of the proposed applied research. Although projects are not required to have a strictly Asian focus, preference will be given to research proposals with emphasis on issues relevant to the development of the asset management industry in Singapore and Asia. The research is nevertheless expected to have a global impact.
The budget may cover RA support, equipment, travel, supplies, computing time, etc., directly related to the area of research. The research grant is worth up to S$10,000 tenable over a period of one year. While we expect a working paper that is suitable for Tier 1 publication to be the ultimate outcome of this research funding exercise, a short final report is all that is required at the end of the project, along with the dissemination of the knowledge acquired from this research to a wider academic and practitioner audience.
The 3-5 page applied research proposal grant application should be submitted to:
NUS Business School
15 Kent Ridge Drive
Level 3, Mochtar Riady Building
The submission deadline is 30 June 2016. Applications should be from NUS Business School faculty below the Full Professor rank, and they will be evaluated by CAMRI’s Research Committee headed by Professor David Reeb, Research Director at CAMRI. Applicants will be informed of the outcome of the review within 2 weeks of the deadline.
CAMRI Visiting Fellow Programme
The Centre for Asset Management Research & Investments (CAMRI) at NUS Business School in Singapore has an ongoing Visiting Fellow Programme across a broad range of financial economics topics. CAMRI is funding one-week visits by select “Tier 1” scholars annually, particularly those from Hong Kong, China, India, and other countries in this region, working in Asian applied financial economics disciplines, to conduct research at CAMRI. The Fellowship will fund economy class airfare, a University-serviced apartment, and ground transportation. Our goal is bring a few visiting scholars in financial economics to Singapore each year to help build the research community and fraternity in Asia.
A 1-page statement of interest is the only requirement. While researchers are not necessarily required to have an Asian focus in their projects, preference will be given to financial economics research that is relevant to Singapore and Asia.
Statements of interest should be submitted, preferably via email, to:
Ms. Chow Pee Fun
Assistant Manager, CAMRI
NUS Business School
15 Kent Ridge Drive
Level 3, Mochtar Riady Building
Statements of interest will be evaluated by CAMRI’s Research Committee, which is co-headed by Professor David Reeb, Past Research Director at CAMRI and the Mr & Mrs Lin Jo Yan Professor in Banking and Finance, and Associate Professor Johan Sulaeman, Research Director at CAMRI, NUS Business School.
Asia Asset Management (AAM), in collaboration with the Centre for Asset Management Research & Investments (CAMRI) at NUS Business School, launched the Annual AAM-CAMRI Applied Research Prize in Asset Management in 2015 to celebrate excellence in regional applied research. For more details on the AAM-CAMRI Annual Prize, please click here.
CAMRI Asia-based Case Study Grant (AY 2014/15)
The 2014 CAMRI Asia-based Case Study Grant funded by the generosity of CAMRI donors was awarded to Associate Professor Yupana Wiwattanakantang of the Finance Department for her proposal, "Toyota & the Toyoda Family Dynasty" and also awarded to Associate Professor Prem N Shamdasani of the Marketing Department for his proposal, "SPECS: Building a Sustainable Sports & Lifestyle Brand in Indonesia with Opportunities for Internationalization".
Call For Proposals For Asia-based Case Study Grant (AY 2014/15)
CAMRI is seeking to create and disseminate an applied finance case study awards program to directly and indirectly support the case writing efforts of NUS Business School's faculty. Based on a recent gift of S$10,000 from the generosity of CAMRI donors, which was provided in order to support annual case study proposals at CAMRI that will broadly benefit the investment management industry in Singapore, CAMRI is looking to fund applied case study research proposals of up to S$10,000 in the areas of:
1. Asset Management (unit trusts, mutual funds, hedge funds, private equity, fixed income)
3. Fund Raising (IPOs, SEOs, bonds, private placements, loans)
4. Mergers & Acquisitions
5. Financial Institutions
7. Corporate Governance
8. Shareholder Activism
9. Law and Finance
These case studies grants are meant to:
a. stimulate original and fundamental applied finance research thinking in the area of asset management;
b. improve the Singapore investment management industry's knowledge and understanding of asset management and related issues
A 1-2 page applied finance case studies grant application is all that is required. Each application will be evaluated based on the importance and quality of the proposed case study. Although projects are not required to have a strictly Asian focus, preference will be given to case study proposals with emphasis on issues relevant to the development of the asset management industry in Singapore and Asia. The research is nevertheless expected to have a global impact. Please note that case proposals that received NUS's Research Office Case Research Grants study or in the process of application to NUS's Research Office Case Research Grant cannot apply for the CAMRI case study grant.
The case study grant is worth up to S$10,000 tenable over a period of one year. If there is more than one deserving proposal, the grant amount may be shared among two or three proposals.
The 1-2 page applied research proposal grant application should be submitted to:
NUS Business School
15 Kent Ridge Drive
Level 3, Mochtar Riady Building
The submission deadline is 31 August 2014. Applications should be from NUS Business School faculty, and they will be evaluated by CAMRI's Case Grant Awards Committee headed by Professor Emir Hrnjic, Director of Education and Outreach at CAMRI. Applicants will be informed of the outcome of the review within 2 weeks of the deadline.
NUS Published Papers
"Financial Decisions, Behavioral Biases, and Governance in Emerging Markets", Emir Hrnjić, David Reeb, and Bernard Yeung, Chapter 7 in Oxford Handbook on Management in Emerging Markets (forthcoming)
Both economic incentives and behavioral biases influence the allocation and sourcing of capital. We theorize that corporate governance models in emerging countries, relative to their developed economy peers, countenance greater behavioral biases in financial decision-making. Fundamentally, emerging market governance facilitates rapid managerial choices but occurs at the cost of allowing behavioral-based distortions in both product and financial markets. Our analysis provides insights into financial market development in emerging markets by assimilating behavioral financial economics and models of corporate governance.
“The Information Value of Stock Lending Fees: Are Lenders Price Takers?”, Truong X. Duong, Zsuzsa R. Huszar, R.S.K. Tan and Weina Zhang, Review of Finance, 2017, vol. 21 (6), pp. 2353–2377
Authors find that higher stock lending fees predict significantly lower future returns after controlling for shorting demand for U.S. stocks during the period 2007–2010. These results suggest that active institutional investors on the supply side play an important role in the return predictability of fees and they not only respond to demand but also price in additional information around earnings news announcements. Overall, authors find evidence that stock lenders are informed and, together with short sellers, contribute to the price discovery process.
“Short-Term Reversals: The Effects of Institutional Exits and Past Returns”, Si Cheng, Allaudeen Hameed, Avanidhar Subrahmanyam and Sheridan Titman, Journal of Financial and Quantitative Analysis, 2017, vol. 52 (1), pp. 143-173
Return reversals depend on de facto market making by active informed investors as well as uninformed market makers. Accordingly, authors find that reversals are higher following declines in the number of active institutional investors. Price declines over the past quarter, which serve as a proxy for declines in active investors, lead to stronger reversals across the subsequent two months; indeed reversals are concentrated primarily in past quarter losers. Authors provide evidence that price pressure induced by fire sales in response to past stock price drops cannot fully account for their results. Further, the evidence is consistent with market makers reacting more quickly to changes in the number of informed investors in the more recent period, particularly for large firms.
"A Tail of Two Cities: On the Downside Risk and Loss Profile of Asian and North American Hedge Funds", Joseph Cherian, Christine Kon and William Weng, Journal of Alternative Investments, Summer 2016, vol. 19, pp. 55-77
This paper analyses the downside risk and loss profiles of hedge funds in North America and Asia to identify any significant differences between the geographic markets and determine how these differences have converged or diverged over time. An attempt is made to understand the performance drivers that differentiate Asian from North American hedge funds. In the downside-risk analysis of 2,631 North American and 994 Asian hedge funds from January 1995 to February 2013, event-driven investment strategies for both geographic regions perform better than the other hedge fund investment strategies in relation to both risk and return, and downside risk. More diversified funds such as multi-strategy hedge funds do not necessarily perform better than single-manager strategies in relation to downside risk, while relative value strategies exhibit the most similar characteristics across the two geographies. Following their lackluster performance during the Asian Financial Crisis, Asian hedge funds improved their risk-adjusted performance, particularly during the recent Global Financial Crisis when their loss profile reached a level similar to that of their North American peers. Lastly, "nearby" funds, i.e., funds whose managers are located in the same investment geography, have slightly worse loss profiles than "distant" funds in both geographic markets, which result is slightly contrary to extant empirical evidence.
A basic intuition is that arbitrage is easier when markets are most liquid. Surprisingly, authors find that momentum profits are markedly larger in liquid market states. This finding is not explained by variation in liquidity risk, time-varying exposure to risk factors, or changes in macroeconomic condition, cross-sectional return dispersion, and investor sentiment. The predictive performance of aggregate market illiquidity for momentum profits uniformly exceed that of market return and market volatility states. While momentum strategies are unconditionally unprofitable in US, Japan, and Eurozone countries in the last decade, they are substantial following liquid market states.
“Default Correlations and Large-Portfolio Credit Analysis”, Duan Jin-Chuan and Miao Weimin, Journal of Business and Economic Statistics, 2016, vol. 34 (4), pp. 536-546
A factor model with sparsely correlated residuals is used to model short-term probabilities of default and other corporate exits while permitting missing data, and serves as the basis for generating default correlations. This novel factor model can then be used to produce portfolio credit risk profiles (default-rate and portfolio-loss distributions) by complementing an existing credit portfolio aggregation method with a novel simulation–convolution algorithm. Authors apply the model and the portfolio aggregation method on a global sample of 40,560 exchange-listed firms and focus on three large portfolios (the U.S., Eurozone-12, and ASEAN-5). Their results reaffirm the critical importance of default correlations. With default correlations, both default-rate and portfolio-loss distributions become far more right-skewed, reflecting a much higher likelihood of defaulting together. Their results also reveal that portfolio credit risk profiles evaluated at two different time points can change drastically with moving economic conditions, suggesting the importance of modelling credit risks with a dynamic system. Their factor model coupled with the aggregation algorithm provides a useful tool for active credit portfolio management.
“Local-momentum Autoregression and the Modeling of Interest Rate Term Structure”, Duan Jin-Chuan, Journal of Econometrics, 2016, vol. 194 (2), pp. 349-359
A parsimonious autoregressive model that is globally mean-reverting but locally driven by momentum is proposed. The local-momentum autoregression (LM-AR) model carries one extra parameter, and depending on the sign of this extra parameter, it can be either local momentum-preserving or momentum-building. The LM-AR model is motivated by observing US interest rate movement over many decades, which over a long time span seems to mean revert but over a period of several months or years can actually exhibit a momentum-like behaviour. Author uses the LM-AR model with a stochastic central tendency factor as the dominant global risk factor in interest rates and add a local variation component of the standard mean-reverting type to create a 3-factor risk environment. Author then derives its corresponding term structure model and empirically implement the model on US interest rates of seven maturities from January 1954 to December 2013 on a weekly frequency to establish the presence of local momentum building.
“Information, Analysts and Stock Returns Comovement”, Allaudeen Hameed, Randall Morck, Bernard Yeung and Jianfeng Shen, Review of Financial Studies, 2015, vol. 28 (11), pp. 3153-3187
Analysts follow disproportionally firms whose fundamentals correlate more with those of their industry peers. This coverage pattern supports models of profit-maximizing information intermediaries producing preferentially information valuable in pricing more stocks. Authors designate highly followed firms whose fundamentals best predict those of peer firms as bellwether firms. When analysts revise a bellwether firm's earning forecast, it changes the prices of other firms significantly; however, revisions for firms that are less intensely followed do not change the prices of heavily followed firms. Unidirectional information spillovers explain how the more accurately priced stocks might exhibit more comovement.
Authors examine the illiquidity premium in stock markets across 45 countries and present two findings. First, the average illiquidity return premium across countries is positive and significant, after controlling for other pricing factors. The premium is measured by monthly return series on illiquid-minus-liquid stocks or by the coefficient of stock illiquidity estimated from cross section Fama-MacBeth regressions. Second, a commonality exists across countries in the illiquidity return premium, controlling for common global return factors and variation in global illiquidity. This commonality is different from commonality in illiquidity itself and is greater in globally integrated markets.
This paper documents pervasive evidence of intra-industry reversals in monthly returns. Unlike the conventional reversal strategy based on stock returns relative to the market portfolio, authors document intra-industry return reversals that are larger in magnitude, consistently present over time, and prevalent across subgroups of stocks, including large and liquid stocks. These return reversals are driven by order imbalances and noninformational shocks. Consistent with reversals representing compensation for supplying liquidity, intra-industry reversals are stronger following aggregate market declines and volatile times, reflecting binding capital constraints and limited risk-bearing capacity of liquidity providers.
“Home Away from Home: Geography of Firms and Local Ownership”, Gennaro Bernile, Alok Kumar and Johan Sulaeman, Review of Financial Studies, 2015, vol. 28 (7), pp. 2009–2049
Authors develop a 10-K-based multidimensional measure of firm locations. Using this measure, authors show that firm-level information is geographically distributed and institutional investors are able to exploit the resulting information asymmetry. Specifically, institutional investors overweigh firms whose 10-K frequently mentions the investors' state even when those firms are not headquartered locally and earn superior returns on those stocks. These ownership and performance patterns are stronger among hard-to-value firms. Local investor performance increases with the degree of local bias and with the local economic exposure of portfolio firms. Overall, geographical variation in firm-level information generates economically significant location-based information asymmetry.
“Institutional Trading During A Wave of Corporate Scandals: “Perfect Payday”?”, Gennaro Bernile, Johan Sulaeman, and Qin Wang, Journal of Corporate Finance, 2015, vol. 34, pp. 191-209
This paper examines the role of institutional trading during the option backdating scandal of 2006–2007. Unlike their inability to anticipate other corporate events, institutional investors as a group display negative abnormal trading imbalances (i.e., buy minus sell volumes) in anticipation of firm-specific backdating exposures. Consistent with informed trading, the underlying trades earn positive abnormal short- and long-term profits. Moreover, the negative abnormal imbalances are larger in magnitude when backdating is likely a more severe issue. Local institutions, in particular, display negative trading imbalances earlier in event-time and earn consistently higher trading profits than non-local institutions. Although authors find some evidence of over-reaction following the arrival of information about the backdating scandal, these patterns are short-lived and exclusively due to the activity of non-local institutions. Overall, institutional investors behave as informed investors, particularly in local stocks, during this prolonged period of heightened uncertainty about corporate reporting and governance practices.
NUS Business School Working Papers
"Are Islamic Bonds a Good Deal? Evidence from the Malaysian Sovereign Bond Market", Minxia Chen, Joseph Cherian, Yuping Shao and Marti G. Subrahmanyam, 2017
Please click here for the PowerPoint presentation (6 April 2018).
Effectively separating clientele effects, e.g., those arising from supply/demand and tax-induced factors, from credit, liquidity and other effects, has always posed a challenge to academic researchers studying financial markets. In this paper, we are able to examine whether there is a yield spread between Malaysian Islamic and conventional government bonds, by using a novel transactions-level database on two subsets of sovereign bonds issued by the same government. We are then able to disentangle the clientele effects from the other determinants of the yield spread, including liquidity. Our sample covers the entire Malaysian sovereign bond market comprising of Islamic and conventional bonds spanning from January 2005 through December 2015. Our preliminary evidence indicates that Malaysian Islamic government bonds have consistently higher yields than Malaysian conventional government bonds, after controlling for liquidity and other factors. The residual yield spread of about 9.5 basis points has to be attributed to clientele effects, such as demand/supply factors, which warrant further investigation using additional data.
This paper introduces a new out-of-sample forecasting methodology for asset returns using the variance risk premium (VRP). While Bollerslev, Tauchen, and Zhou (2009) demonstrate that the VRP predicts short-term market returns, author shows that the monthly out-of-sample performance is comparably weak. In contrast, his new approach produces an out-of-sample forecast that is both highly statistically and economically significant. Specifically, he finds a monthly out-of-sample R-squared of 6-8% (a gain of 3-8%) and a trading strategy that produces a 0.14 gain in the annual Sharpe ratio. This new approach is motivated by the `beta representation,' which implies that the market risk premium is related to the price of variance risk by the exposure to variance risk (beta). Hence, empirically, when the slope of the contemporaneous regression of market returns on variance innovation is larger, future returns are more sharply related to the current VRP. Also, when variance shocks explain a greater fraction of market returns, the predictions are more accurate. These results suggest that the variance risk exposure is a key factor that determines whether and how returns are predictable by the VRP.
Financial misconduct (FM) rates differ widely between major U.S. cities, about as much as between industries. Although spatial differences in enforcement or firm characteristics do not account for these patterns, city-level culture appears to be very important. For example, FM rates are strongly related to other unethical behaviour in the city, involving its politicians, doctors, and (potentially unfaithful) spouses. Authors provide some causal evidence that cultural norms are contagious, i.e., transmitted through peer effects.
“Why Do Option Prices Predict Stock Returns? The Role of Price Pressure in the Stock Market”, Luis Goncalves-Pinto, Bruce D. Grundy, Allaudeen Hameed, Thijs van der Heijden and Yichao Zhu, 2017
Disagreement between the stock and options markets about the stock's value can reflect both informed trading in options and temporary price pressure in stocks. Authors document that the disagreement is strongly related to return reversals, order imbalances, and illiquidity in stocks, and weakly related to trading in options. They conclude that stock price pressure is the primary driver of disagreement and of the resultant strong option-price based predictability in stock returns. Implied volatility measures previously interpreted as capturing informed trading in options are direct transformations of the price discrepancy between the two markets and similarly capture price pressure in stocks.
The state of market returns positively predicts the size premium (or the difference in the return on small and large firms) as small stocks adjust to market returns with a delay and large firms revert following market returns. This predictability of the size premium is strongest when aggregate asset and funding liquidity is low and is linked to institutional and informational frictions that manifest as slow institutional trading in small stocks but swift trading in large stocks. For example, slow trading by mutual funds leads to predictable small stock returns in the direction of fund flows.
“Cost of Bereavement: How Does Parental Loss Affect Mutual Fund Managers?”, Tao Shu, Johan Sulaeman, and P. Eric Yeung, 2017
This study examines whether bereavement, a common life experience, affects the performance and behaviours of mutual fund managers. In a sample of 1,195 actively managed U.S. mutual funds during 1999−2013, authors find that mutual fund returns decline by 1.9 percentage points on average around the parental deaths of fund managers. This underperformance persists for one year, reflecting a long-term negative impact of bereavement on fund managers’ cognitive abilities and risk-taking attitudes. Bereaved managers become less likely to take risks: their funds exhibit higher correlations with return factors, reduced tracking errors, and lower Active Share measures. Bereaved managers also shift their portfolio holdings to larger stocks and trade less actively. The reduction in risk-taking explains about two-thirds of the observed decline in fund returns. Bereaved managers also become more impatient as they incur higher transaction costs and realize gains more quickly, and more sensitive to losses as they eliminate stocks following large negative returns. Their results identify bereavement as an underexplored life experience that can significantly influence investors’ behaviours and performance.
Authors find strong and persistent cross-sectional differences in the propensity of active mutual funds to hold mispriced stocks. Funds with high propensity to hold overpriced stocks display poor stock-picking skills as they further purchase overpriced stocks during episodes of fund inflows and significantly underperform in subsequent periods. Intriguingly, overpriced funds attract considerable capital inflows when investor sentiment is high. The positive overpricing-flow relation is concentrated in funds with high marketing expenses and skewed returns. The evidence is consistent with an innocuous matching in the preference for stock characteristics by sentiment-driven managers and optimistic investors rather than active catering to investor preferences.
The dividend-paying firms typically maintain stable, transparent and simple dividend policies due to various factors including severe and asymmetric market reactions to dividend changes. Interestingly, Singapore Airlines’ maintains an irregular, opaque, and complex pattern of dividends. They even refuse requests to provide guidance on expected dividends or their dividend policy. This case study analyzes the atypical case of seemingly erratic dividends at Singapore Airlines.
Placement in Course
This case is designed for an MBA or advanced undergraduate course in corporate finance dealing with the topic of dividend payouts. Alternatively, the case could be used in strategy class on governance or controlling shareholders.
Note on Dividend Policy (Ivey Publishing, forthcoming)
Authors: Emir Hrnjić and David Reeb, May 2018
Profit-making corporations returned cash to investors through dividends or share repurchases. Market participants labelled the fraction of the profits paid to shareholders by dividends as the “payout ratio.” However, a large fraction of firms have never paid a dividend. For instance, over half of the listed firms in the US did not pay a dividend or repurchase shares over the last decade. As a case in point, only 20 per cent of firms on the Singapore Stock Exchange consistently paid dividends over the past decade, with similar proportions observed in both US and European stock markets. The fraction of dividend-paying firms plummeted to a record-low 17 per cent in 2000. In fact, most of the “new economy” firms such as Amazon, Facebook or Google reinvest their entire earnings.
The asymmetric reactions by investors to changes in cash dividends further highlighted the importance of these consistent payments to shareholders. For instance, a cut in dividends typically led to a much larger drop in a firm’s stock price relative to the price appreciation from an equivalent dividend boost. Consequently, managers often attempted to deliver persistent dividends and only increased them when they are confident they can be maintained. Investors relied on dividends to evaluate the investment prospects of the firm. A common view was that an opaque dividend policy created concerns and uncertainty among investors in the firm. Arguably, investors have used corporate dividends to evaluate and forecast the future of the firm. A plethora of research on corporate payout policies documented several regularities. Yet, it seemed that we didn’t have complete understanding of corporate motivations and investor expectations about dividends. Various academics offered different theories.
WH Group: A Failed IPO in Hong Kong (Ivey Publishing, 02/2017, 9B17N002)
Author: Emir Hrnjić, February 2017
In July 2014, WH Group faced the issue of attempting to launch an initial public offering for the second time, after having previously failed to list its shares on the Hong Kong Stock Exchange. WH Group originated from a merger between two meat-processing companies: China’s Shuanghui International—a global leader in animal protein and the world’s largest pork producer—and Smithfield Foods from the United States. Both Shuanghui and Smithfield Foods commanded top market shares of pork consumption in their respective countries; Shuanghui controlled 2 per cent in China and Smithfield Foods captured 26 per cent in the United States. With many challenges ahead, WH Group had some decisions to make about the company’s future. Should the company try again to launch an initial public offering? Or should the company remain private?
This case is suitable for graduate or advanced undergraduate programs in corporate finance, as well as courses on the preparation and launch of an initial public offering (IPO), especially in regard to a subsequent launch after an earlier attempt has failed. After completion of the case, students should be able to do the following:
- Discuss the prospects and issues related to raising funds via a second IPO attempt, after the first IPO attempt has failed
- Evaluate potential reasons why an IPO attempt might fail
- Understand the basics of the IPO process, including the decision, timing, and pricing of an IPO
- Analyze various available options after a failed IPO attempt
Alibaba's Bonds Dilemma: Location, Timing, and Pricing (Ivey Publishing, 02/2017, 9B17N001)
Author: Emir Hrnjić, February 2017
In 2014, Alibaba—the Chinese e-commerce giant who, in September 2014, completed the largest initial public offering (IPO) in New York Stock Exchange (NYSE) history—was preparing itself for an additional round of capital fundraising. This time, Alibaba focused its efforts on a new, large bond issue. Its chief executive officer would lead Alibaba’s finance team in meetings with investors in Hong Kong, Singapore, and London to gather information about this pending bond issue. Although Alibaba was listed on the NYSE, an overwhelming majority of its revenues originated in China. Most U.S. investors had not heard of Alibaba until just a few months prior to its IPO in September 2014. Also, being a high-tech company, Alibaba was subject to the potential for large swings in valuations typical for the industry. Fluid valuations and matters related to country risk premia meant pricing the bond issue was going to be a challenge. How would Alibaba estimate the bonds’ pricing? Further, how should the firm determine the location and timing of the new bond issue?
This case is designed for an MBA or advanced undergraduate course in corporate finance, dealing with the topic of raising funds by issuing bonds. After completion of this case, students will be able to
- assess the complexities related to issuing bonds, especially complexities related to risk, pricing, timing, and location of bonds issue;
- understand emerging markets (in particular, China) and bond pricing differences (country risk premia) between China and the United States; and
- evaluate the potential effect of certain governance structures (specifically, dual class ownership structures and VIEs).
Toyota's Innovative Share Issue (Ivey Publishing, 06/2016, 9B16N008)
Author: Emir Hrnjić, June 2016
On June 16, 2015, Akio Toyoda, President and CEO of Toyota Motor Corporation (Toyota) arrived to Toyota's annual shareholders' meeting. The meeting agenda included the proposal of Toyota's new share issue. Named "Model AA" shares after the company's first passenger car, shares would offer investors new hybrid securities. This proposal created a lot of controversy among existing shareholders. "No one will be disadvantaged by these shares," Toyoda told the annual shareholders' meeting.  However, it remained unclear how many shareholders had confidence in this assurance by company's CEO. Similarly, the share issue that would potentially comprise up to 5 per cent of Toyota's total outstanding shares would require two-thirds majority of shareholders support. Potentially long and contentious deliberation lied ahead of Toyoda. New shares looked like ordinary shares with a "lock-up" period or preferred shares with voting rights. At the same time, "Model AA" shares resembled convertible debt issue with voting rights (with a conversion ratio to be determined later).
Placement in Course
This case is designed for a course in Corporate Finance on the topic of raising funds via innovative share issue. Named "Model AA", this share issue exemplifies the hybrid securities issue – a blend of 5-year convertible bond issue and ordinary share issue (with a "lock-up" period). The case includes the pricing of AA shares. Furthermore, the case also allows discussion of Asian markets (in particular, Japan) and differences between Japanese and international investors.
Toyota Motor Corp.: Heir Steers Carmaker out of Crisis (INSEAD Publishing, 01/2016-6189)
Authors: Morten Bennedsen, Brian Henry, Yupana Wiwattanakantang, January 2016
(This case was funded under the CAMRI Asia-based Case Study Grant - AY 2014/15.)
In 2008-09, Toyota Motor Corp. became engulfed in a perfect storm: oil prices spiked, the global financial crisis brought car loans to a halt, the dollar tanked against the yen, and millions of Toyota vehicles in North America were recalled. Toyota posted its first ever loss since 1950. The case describes how Akio Toyoda, scion of the dynasty behind the Toyota empire, ascended to the top job in 2009, and turned the struggling carmaker around. It also tells the story of the Toyoda family, whose 8% ownership stake has enabled it to maintain control of one of the world’s most successful companies and steer it through one of the most difficult periods in its history.
The case highlights the role of a powerful Japanese dynasty in managing a global multinational company for nearly 80 years, in particular how the heir single-handedly restored the company values and legacy at a crucial moment in its history. It offers an opportunity to discuss the role of professional managers who are vital for the sustainability of family-run enterprises. The case encourages students to view global companies such as Ford, Fiat and VW as more than industrial giants but as family-run businesses, each with a different approach to management.
Suntech Power: Competition and Financing in China's Solar Industry (Ivey Publishing, 10/2015, 9B15N019)
Authors: Emir Hrnjić and Sunil Gupta, October 2015
The case study presents the difficult situation that Suntech Power Holding (Suntech), a technology intensive firm, finds itself in 2011. The company operates in a very competitive market (the solar power industry in China). To add to the complications, differentiation in the industry is rather hard to achieve, because many people see solar panels as a generic product. On top of everything, demand is highly volatile as it depends on many factors, including the government policy regulations. Furthermore, the financial structure of the firm confounds the problem. In the light of these dilemmas in May 2011, Dr. Zhengrong Shi, the founder and chief executive officer of Suntech, hires David King as the firm's chief financial officer. Shi and King have to face the arduous task of turning the company around.
Placement in Course
In a corporate Finance course (at the MBA or undergraduate level), the case can be used to discuss following topics: product market competition, capacity constraints, convertible debt and financial structure. In a corporate strategy class (at the MBA or undergraduate level), this case could also be used to discuss competition and industry structure as a determinant of average firm profitability.
Fairfax and Thomas Cook India: Permanent Capital, Private Equity, and Public Markets (Ivey Publishing, 10/2015, 9B15N016)
Authors: Emir Hrnjić, Nupur Pavan Bang, Vikram Kuriyan and Sanjay Bakshi, October 2015
On March 1, 2012, Harsha Raghavan, CEO of Fairbridge, rushed to the meeting in his office in Mumbai, India. Top management team of Fairbridge pondered how to evaluate the potential acquisition of Thomas Cook (India) (NSE ticker symbol: THOMASCOOK). Raghavan couldn't help feeling that Thomas Cook's two segments had different growth potential. Analysts predicted a tremendous growth potential in travel segment, while financial segment had limited potential. Company changed ownership several times in a short time period, while stock price plummeted from recent high of INR 61.95 to the low of INR 33.30.
Thomas Cook India had a 150 year history of profitable operations in India. Nevertheless, the company had changed ownership several times in a short time period, with Thomas Cook Plc selling the Indian subsidiary in 2006, buying it back in 2008 and putting it up for sale again in 2012.
CEO Harsha Raghavan had to think long and hard whether the company fits the value investing philosophy rigorously followed by his superior – Fairfax's CEO Prem Watsa, also known as 'Canadian Warren Buffett.' Should Fairbridge bid for Thomas Cook? How much should they bid? Is the company worth more with two segments or it is better off by demerging segments? Should they delist Thomas Cook or keep it public? Raghavan raised more questions than answers.
This case is designed for a course in Corporate Finance on the topic of acquisition, private investment in public equity (PIPE), or a comparison between private and public equity investment. The case also allows discussion of emerging markets (in particular, India) and differences between the US and Indian financial markets. It can also be used in the course on finance strategy.
OCBC Versus Hedge Fund: Acquisition of Wing Hang Bank (Ivey Publishing, 07/2015, 9B15N010)
Authors: Emir Hrnjić and Han Dong, July 2015
On 1st April 2014, Oversea Chinese Banking Corporation (better known as OCBC) (SGX: O39, OTC Pink: OVCHY), the second largest financial services group in Southeast Asia, offered HK$125 (U$16.12) per share (U$5 billion in total) to acquire Wing Hang Bank, the eighth largest lender in Hong Kong. The offer represented a 49 per cent premium on Wing Hang's share price. Three months later, on 4th July, 2014, the Wall Street Journal reported that Elliott Management, a U$25 billion hedge fund, had accumulated 7.8 per cent of the family-owned Hong Kong bank.
According to Hong Kong's securities law, OCBC would have to acquire 90 per cent of Wing Hang's shares by 29th July 2014 to successfully take the Hong Kong bank private. Yet, 25 days to the deadline, OCBC had solicited only 50.4 per cent. If OCBC fell short, it would have to resell a sizable portion of Wing Hang's shares back to the market, probably at huge discount, to comply with Hong Kong's 25 per cent minimum float requirement. Credit Suisse predicted a 40 per cent fall in Wing Hang's share price if the deal fell through. Investors around the world waited for OCBC's CEO Samuel Tsien's countermeasure over the weekend.
Placement in Course
This case is designed for a course in corporate finance on the topic of cross-border (bank) acquisition and shareholder activism. The material also allows for a discussion of Singapore, China and Hong Kong financial markets. Alternatively, the case could be used in a module on financial corporate strategy.
Shanda Games: A Buyout of a Chinese Family Firm (Ivey Publishing, 04/2015, 9B15N002)
Authors: Emir Hrnjić and David Reeb, April 2015
On January 26, 2014, a controlling shareholder of the NYSE-listed Chinese gaming company Shanda Games (Shanda) (Nasdaq: GAME) offered a buyout at USD6.90 per American Depository Share (ADS); each ADS consisted of two ordinary shares. The offer provided a premium of 22 per cent to the stock's Friday close. Throughout 2013, Shanda Games' ADS typically traded in the range of USD2.74 to 6.25 . USD3 to 4.50.
As Shanda Games' independent directors tried to evaluate the offer, they wondered: Should the shareholders accept it as it is? Should they ask for a higher price? Or should they look for the alternatives?
Placement in Course
This case is designed for an MBA or advanced undergraduate course in Corporate Finance on the topic of "going private" through MBO/LBO, especially in the case with a controlling shareholder/family. The case also allows discussion of emerging markets – in particular, China – and of the differences in the gaming industry between China and the United States. Alternatively, the case could be used in a module on valuation or corporate strategy.
Suit Wars: Men's Wearhouse versus Jos. A. Bank (Ivey Publishing, 03/2015, 9B15N001)
Authors: Emir Hrnjić, David Reeb and Wee Yong Yeo, March 2015
On October 9, 2013, Jos. A. Bank made a hostile offer to buy Men's Wearhouse for U$2.3 billion. With the support of a major shareholder activist with stakes in both companies, Eminence Capital, Men's Wearhouse made counteroffer to acquire Jos. A. Bank for U$1.6 billion on January 6, 2014 in what is known as pac-man defense. Jos. A. Bank responded by adopting a poison pill and announcing the planned acquisition of Eddie Bauer, including a break-up fee of U$48 million dollars.
What started out as a simple offer from Jos. A. Bank to buy its bigger rival Men's Wearhouse, turned into a contest with multiple counter offers and witnessed the deployment of several takeover defenses. Now that the mêlée had progressed, how should Eminence Capital, as the largest shareholder in both firms, react? How should Jos. A. Bank respond to this latest offer? If Jos. A. Bank were to reject this latest offer, would Men's Wearhouse give up this cat-and-mouse game? Several dilemmas lingered ahead.
Placement in Course
This case can be taught in Corporate Finance MBA class and Advanced Corporate Finance undergraduate class. Alternatively, it can be used in Mergers and Acquisitions course (especially on the topic of hostile takeovers and merger defenses), Valuation course, and Corporate Strategy course. Students are expected to value each company as a standalone firm as well as a combined (merged) company using comparables, precedent transactions, and DCF model.
Focus Media Holding Ltd. (Darden Publishing, UVA-F-1722)
Authors: Emir Hrnjić, Lianting Tu, Pedro Matos, 2014
In November 2011, Muddy Waters, a U.S. short-seller fund, accused Focus Media of overstating the size of its business. Focus Media's stock price fell sharply at first but then rebounded as the company countered the attacks. In March 2012, however, the U.S. Securities and Exchange Commission launched its own investigation and pressured Focus Media to amend some of its filings. A few months later, CEO Jiang partnered with a group of private equity (PE) firms, to take Focus Media private in a deal valued at more than $3.7 billion, China's largest-ever buyout. In the following months, several Chinese companies followed suit and delisted from the NASDAQ. In mid-2014, the PE firms in the consortium wanted to cash out of their equity positions, and Jiang faced the difficult decision of what to do next.
Alibaba's IPO Dilemma: Hong Kong or New York (Ivey Publishing, 12/2014, 9B14N035)
Author: Emir Hrnjić, December 2014
Alibaba's founder, Jack Ma, was named the Financial Times' 2013 Person of the Year, joining the likes of Steve Jobs, Barack Obama and Google co-founders Sergey Brin and Larry Page. Even though Jack Ma had experienced a cult-like following in China similar to that of Steve Jobs in the US, he was relatively unknown outside of China. Only after Alibaba Group started its preparations for the long-awaited initial public offering (IPO) and began negotiations with different stock exchanges, this vivacious leader started making global headlines. While Jack Ma had been getting all the press attention, Alibaba's executive vice president, Yale-educated Joe Tsai, led efforts for Alibaba's IPO. In April 2014, Tsai faced several decisions regarding the IPO. Should Alibaba maintain its rigid stand on its proposed governance structure despite HKEx resistance? When would be the best timing for its IPO? Finally, how to price the shares in one of the most anticipated IPOs of 21st century?
Placement in Course
This case is designed for a course in Corporate Finance on the topic of raising funds via initial public offering (IPO). The case also allows discussion of emerging markets (in particular, China) and differences among Hong Kong and New York stock exchanges. Alternatively, the case could be used in a module on corporate governance and ownership structure; specifically, dual-class share structure. It can also be used in the course on finance strategy along with the case "Financing Alibaba's Buyout: Syndicated Loan in Asia" (Ivey Publishing, 06/2014, 9B14N011).
Financing Alibaba's Buyout: Syndicated Loan In Asia (Ivey Publishing, 06/2014, 9B14N011)
Authors: Emir Hrnjić and David Reeb, June 2014
Alibaba is the world's largest online trading platform with higher revenues in 2012 than Amazon and eBay combined. Its 2012 syndicated loan was the first sizable loan for a Chinese technology company with few tangible assets. Creative loan covenants stated that the subsidiaries would repatriate 100 per cent of the distributable profits for debt service. The loan was partially used for the buyback of Yahoo!'s stake in Alibaba. In the agreement, Yahoo! would sell half of its stake back to Alibaba immediately and an additional 10 per cent during Alibaba's IPO in the next few years, and divest the remainder sometime after that. Now, Alibaba thinks it is time to tap the debt market in order to pay off the $4 billion in loans it received in 2012 and to finish the payments owed to Yahoo! for the stock repurchase.
Placement in Course
This case is designed for a course in Corporate Finance on the topic of raising funds via syndicated loans. It also allows the instructor to discuss the issues of capital structure and the right structure of the loan as preparation for a potential IPO. Additionally, it can be used in Portfolio Management or Fixed Income classes that deal with the topic of pricing the loans. The case also allows discussion of emerging markets (in particular, China). Alternatively, the case could be used in a module on Corporate Strategy that focuses on strategic financing choices.
Emirates Airline: A Billion-Dollar Sukuk-Bond Issue (Ivey Publishing, 04/2014, 9B14N002)
Authors: Emir Hrnjić, Harun Kapetanovic and David Reeb, April 2014
Emirates Airline (EA) needs to fund the purchase of 30 new A380 aircraft. On March 11, 2013, EA announced plans to issue US$1 billion of Islamic bonds (sukuk) and $750 million of regular bonds. These bonds arguably share similar risks and seniority even though the sukuk bonds sold with a lower implied yield. This difference in pricing for securities with similar default risks seems at odds with conventional finance thinking. Against this backdrop, the EA treasury department must decide on the appropriate funding for this next batch of A380 airplanes.
This case is designed for a course in corporate finance or financial management that covers funding investments or raising capital. Additionally, it can be used in courses on portfolio management or fixed income that involve bond pricing. Alternatively, the case could be used in a module on corporate strategy that focuses on strategic financing choices. The case facilitates discussions on Islamic finance and emerging markets (in particular, Dubai).
East Meets West: Rothschild's Investment in Indonesia's Bakrie Group (INSEAD Publishing, 12/2013-6030)
Authors: Morten Bennedsen, Emir Hrnjić and Yupana Wiwatannakantang, December 2013
This case describes the challenges encountered by Nathaniel Rothschild after making a US$3 billion investment in 2010 in a family-owned business group in Asia. Scion of the Rothschild banking dynasty and private equity fund manager, Rothschild and his business associates created a LSE-listed shell company, Bumi PLC, which acquired PT Bumi Resources and Berau Coal. These were among Indonesia's largest coal mines and the largest coal exporters in the world, and were controlled by the Bakries, a powerful Indonesian family whose patriarch was a candidate for the presidency in 2014.
After losing at least 70% of his investment in three years, Rothschild eventually requisitioned an extraordinary general meeting in February 2013, attempting to remove the Bakries and their associates from Bumi's management team. Despite western-style corporate governance manoeuvres, the PE investors found it challenging to control the politically connected family in Indonesia.
Placement in Course
The case is designed for courses in Corporate Finance on the topic of family business and/or raising funds, or courses in International Finance or Investment in Emerging Markets (particularly Indonesia). Alternatively, it could be used in a course on Corporate Governance on the topic of shareholder activism and board monitoring.
Personal Financial Planning
Authors: Fong Wai Mun and Benedict Koh
Singapore : Prentice Hall, 2011
Personal Financial Planning is the most comprehensive textbook on the subject in Singapore. The main objectives of the book are to encourage individuals to plan their finances in a systematic manner, taking into account their needs, financial circumstances and constraints. Financial advisors can also benefit from using the book to update their financial knowledge and as a basis for giving advice to their clients. Some of the topics covered by the book include time value of money, cash budgeting, credit management, buying a property, insurance, portfolio management and income tax planning. The authors, who are leading instructors in the field of personal finance, are also actively involved in wealth management consulting to many banks and financial institutions in Singapore. A new edition of the book, which research was partially funded by CAMRI, has just been published and includes many new topics that are of practical relevance to individuals seeking to manage their wealth.
March 2016 Update: Finance Professor, Dr. Fong Wai Mun of NUS Business School has won the 2015 Brandes Institute Research Prize for his paper, “Profitability, Dividends and Life-cycle Investing”. Drawing on behavioural finance principles, Prof Fong Wai Mun’s paper shows that long-term investors can obtain superior investment outcomes by substituting cap-weighted market indices with stocks that have high dividend yield and high gross profitability. The benefits of this “Profitable Dividend Yield” (PDY) strategy is demonstrated using simulations in the context of lifecycle investing for retirement wealth accumulation. For more information on his award, please click here.