34 results for Boyle, Glenn, Scholarly text

  • The Cost of Capital: A Sceptic's View

    Boyle, Glenn (2003)

    Scholarly text
    Victoria University of Wellington

    Professor Glenn Boyle presented, The Cost of Capital: A Sceptic's View at an ISCR forum in August 2003.

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  • The Regulatory Cost of Capital II: What is the Market Risk Premium?

    Boyle, Glenn (2005)

    Scholarly text
    Victoria University of Wellington

    Professor Glenn Boyle presented The Regulatory Cost of Capital II: What is the Market Risk Premium? at the half-day Regulatory Cost of Capital II: What is the Market Risk Premium? seminar.

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  • The WACC: A Sceptic's View

    Boyle, Glenn (2004)

    Scholarly text
    Victoria University of Wellington

    Professor Glenn Boyle presented The WACC: A Sceptic's View at the ISCR Auckland seminar : Calculating the Cost of Capital: A Revisionists' Appraisal.

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  • Executive Compensation in New Zealand: the Good, the Bad & the Ugly

    Boyle, Glenn; Roberts, Helen (2004)

    Scholarly text
    Victoria University of Wellington

    Professor Glenn Boyle and Helen Roberts presented Executive Compensation in New Zealand: the Good, the Bad & the Ugly. They report on some broad trends and features of New Zealand executive compensation in the period 1997-2002.

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  • One Size Fit All? Investor Protection Regulation in Financial Markets

    Boyle, Glenn; Meade, Richard (2005)

    Scholarly text
    Victoria University of Wellington

    Professor Glenn Boyle presented One Size Fit All? Investor Protection Regulation in Financial Markets at this seminar in May 2005.

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  • Pay Peanuts and Get Monkeys? Evidence from NZ Universities

    Boyle, Glenn (2006)

    Scholarly text
    Victoria University of Wellington

    Data constraints mean that relatively little is known about the relationship between pay levels and worker quality but the recently introduced Performance Based Research Funding (PBRF) system makes the NZ tertiary sector a natural setting for examining this issue. In NZ universities academics are paid the same regardless of area of specialisation a feature that suggests university disciplines with the most valuable outside opportunities will be least able to recruit high-quality researchers and/or motivate their researchers to be productive. I use academic performance and remuneration data to address this fundamental question: does the payment of (relative) peanuts result in the hiring of monkeys? Glenn Boyle is the executive director of ISCR and a professor of finance at Victoria University of Wellington

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  • My Kingdom for a Horse: Resolving Conflicts of Interest in Asset Management

    Boyle, Glenn; Guthrie, Graeme; Gorton, Luke (2006)

    Scholarly text
    Victoria University of Wellington

    Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time care and attention. Although this potentially leads to serious conflicts of interest we find no evidence of an agency problem: in a sample of 8000 racehorses and their associated stables client-owned horses perform no worse than trainer-owned horses on average. However this outcome is not uniform across stables: the average performance advantage of client-owned horses over their trainer-owned counterparts is positive in big stables where client-owners provide much of the trainer's income but is negative in small stables with relatively few outside clients. Agents with more to lose apparently behave better.

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  • Risk, Expected Return and the Cost of Equity Capital

    Boyle, Glenn (2005)

    Scholarly text
    Victoria University of Wellington

    In applying the CAPM to cost of capital calculations practitioners treat the market risk premium as a free parameter to be estimated from data. However this process ignores equilibrium in the cash market and therefore the implications of the CAPM for the premium itself. Full equilibrium relates the premium to underlying fundamental parameters a finding that holds out the promise of identifying time-variation in the cost of capital. Unfortunately this yields extremely volatile cost of capital estimates thereby casting doubt on the risk-return tradeoff specified by the CAPM.

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  • Techniques for Estimating the Fiscal Costs and Risks of Long-term Output-based Payments

    Boyle, Glenn; Irwin, Tim (2005)

    Scholarly text
    Victoria University of Wellington

    Long-term commitments to make output-based payments for infrastructure can encourage private investors to provide socially valuable services. Making good decisions about such commitments is difficult however unless the government understands the fiscal costs and risks of possible commitments. Considering voucher schemes shadow tolls availability payments and access connection and consumption subsidies this paper considers measures of the fiscal risks of such commitments including the excess-payment probability and cash-flow-at-risk. Then it illustrates techniques based on modern finance theory for valuing payment commitments by taking account of the timing of payments and their risk-characteristics. Although the paper is inevitably mathematical it focuses on practical applications and shows how the techniques can be implemented in spreadsheets.

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  • Real Options and Transmission Investment: the New Zealand Grid Investment Test

    Boyle, Glenn; Guthrie, Graeme; Meade, Richard (2006)

    Scholarly text
    Victoria University of Wellington

    Responsibility for approving proposed transmission investment programmes in New Zealand has recently been placed in the hands of a newly-formed government regulator. In this paper we develop an analytical framework for conceptualising the investment test proposed by this regulator. Our framework reveals that the test involves a complex set of tradeoffs between economies of scale the time value of money and flexibility in the timing level and location of transmission investment assessment of which requires explicit recognition and valuation of real options.

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  • Payback Without Apology

    Boyle, Glenn; Guthrie, Graeme (2006)

    Scholarly text
    Victoria University of Wellington

    When interest rates are uncertain the net-present-value threshold required to justify an irreversible investment is increasing in the length of a project's payback period. Thus slowpayback projects should face a higher hurdle than fast-payback projects just as investment folklore suggests. This result suggests that the widely disparaged use of payback for capital budgeting purposes can be an intuitive response to correctly perceived costs and benefits.

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  • Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005

    Boyle, Glenn; Evans, Lewis; Guthrie, Graeme (2006)

    Scholarly text
    Victoria University of Wellington

    In September 2005 the New Zealand Commerce Commission (NZCC) released a document (TheWeighted Average Cost of Capital for Electricity Lines Businesses by Dr Martin Lally referred to as LINES hereafter) that estimates a weighted average cost of capital (WACC) for New Zealand electricity lines businesses and proposes a means for detecting future excess earnings. At about the same time the NZCC also began seeking submissions on another document (Draft Guide- lines: The Commerce Commission's Approach to Estimating the Cost of Capital 2005) that addresses the topic of an appropriate framework for the WACC in the New Zealand regulatory environment. Although no specific author is attributed to the latter its material content is drawn from LINES. In this paper we undertake a detailed analysis of the approach followed in LINES. We do so from the perspective of a referee who has been asked to provide a review of that report in order to assess its suitability for publication in an edited book or journal that adheres to conventional academic standards. Although LINES has not of course been submitted for publication orreview of this kind its contents and recommendations should nevertheless meet minimum standards of accuracy thoroughness and consistency. It is these criteria we use to assess LINES. Our report is motivated by a simple but important concern: although the cost of capital is a critical element of the revenue and price settings that materially determine the social net-benefit of income-control regulation there are presently no institutional arrangements in New Zealand that allow for reports such as LINES to be thoroughly reviewed and debated. On the basis of our review we conclude that such institutional arrangements are sorely needed. Our assessment of LINES comprises two parts. In Section I we provide an overview of what we consider to be the critical areas of concern in LINES. Section II then discusses specific errors in detail.

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  • A Primer on Information Markets

    Boyle, Glenn; Videbeck, Steen (2005)

    Scholarly text
    Victoria University of Wellington

    In 1988 the US Commodity Futures Trading Commission gave permission for the University of Iowa to begin operating the Iowa Electronic Market (IEM) thus ushering in the world's first information market (sometimes called a prediction market). Similar markets have subsequently appeared at the University of British Columbia and Vienna University of Technology. Outside the education sector firms such as Trade Exchange Network (tradesports.com) and a joint venture between Goldman Sachs and Deutsche Bank (economicderivatives.com) have set up public information markets while other firms such as Hewlett-Packard Lilly and Siemens have used information markets for internal purposes. Information markets are similar to standard derivatives markets in that they provide a mechanism for trading financial claims to future contingencies. However they differ in that first they are more accessible to small investors and second they offer markets on a wider range of events including politics sports legal weather business and entertainment. The increasing popularity of information markets reflects several factors. The university-based markets were initially designed to serve primarily as teaching and research tools by providing students and staff with the opportunity to study a trading environment that is more realistic than the typical laboratory setting but without the scale complexity and noise of real-world markets. More recently based on the proven ability of markets to gather and assimilate dispersed information the potential forecasting power of information markets has generated most interest.In this paper we describe the structure of some existing information marketsoutline their key features explain what they can be used for and assess theirpredictive ability. Finally we consider the possible advantages of setting up of an information market in New Zealand.

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  • Intra-Country Regulation of Share Markets: Does One Size Fit All?

    Boyle, Glenn; Meade, Richard (2005)

    Scholarly text
    Victoria University of Wellington

    A large body of evidence suggests that investor protection regulationassists the development of major stock exchanges but this leaves openthe question of whether or not the same level of regulation should beapplied to all centralised trading platforms. Allowing for regulatoryvariation permits a wider choice of investment opportunities for liquidity conscious investors lowers some firms' cost of capital and enhancesplatform competition while potentially negative spillover mechanismslack both theoretical credibility and empirical support. Overalluniformity in investor protection regulation seems designed to provide anexpensive solution to a doubtful problem.

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  • Emotion, Fear and Superstition in the New Zealand Stockmarket

    Boyle, Glenn; Hagan, Andrew; O'Connor, R. Seini (2004)

    Scholarly text
    Victoria University of Wellington

    We analyse the reaction of the New Zealand stock market to five economically-neutral events that psychology research indicates have varying degrees of influence on emotion and mood. Contrary to behavioural finance principles only one of these events is associated with mean or median returns that are statistically different from those on non-event days and even this disappears in the post-1984 period. However several events offer returns that differ from those on non-event days in an economically significant manner. Moreover the variance of returns for event days is typically much greater than the variance for non-event days. Contrary to what theory would suggest the market's propensity to react to economically-neutral events is largely independent of the mid-1980's market reforms.

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  • Valuing Employee Stock Options: Implications for the Implementation of NZ IFRS 2

    Boyle, Glenn; Clyne, Stefan; Roberts, Helen (2005)

    Scholarly text
    Victoria University of Wellington

    From 2007 New Zealand firms must report the cost of granting employee stock options (ESOs). Market-based option pricing models assume that options are continuously tradable and thus that option holders are indifferent to the specific risk of the firm. ESOs by contrast cannot be traded and so their cost depends on the risk aversion and under-diversification characteristics of the recipient. Using hypothetical ESOs we show that ESO cost is extremely sensitive to employee characteristics thereby casting doubt on the usefulness of any market-based model. Incorporating early exercise in the latter does nothing to resolve this problem because the optimal exercise policy is itself dependent on holder characteristics which are typically unobservable. Vesting restrictions help reduce the magnitude of error.

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  • Valuing Managerial Flexibility: A Child's Guide to Real Options

    Boyle, Glenn; Irwin, Tim (2004)

    Scholarly text
    Victoria University of Wellington

    Our consulting experiences indicate that many New Zealand businesses and their managers are increasingly aware of the shortcomings of conventional methods for evaluating capital investment projects particularly in situations where there is considerable flexibility subsequent to the project's commencement. With the busy executive in mind we offer a brief and intuitive introduction to recently developed methods of project evaluation that explicitly incorporate managerial flexibility.

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  • Human Capital and Popular Investment Advice

    Boyle, Glenn; Guthrie, Graeme (2005)

    Scholarly text
    Victoria University of Wellington

    Popular investment advice recommends that the stock/bond and stock/wealth ratios should rise with investor risk tolerance and investment horizon respectively prescriptions that are difficult to reconcile with the simple mean-variance model. Canner et al. (1997) point out that the first piece of advice can potentially be explained by human capital considerations but only by invalidating the second piece of advice. We show that extending the mean-variance model to include human capital without any other modifications can simultaneously justify both recommendations so long as the correlation between human capital returns and stock market returns lies within a range determined by market and investor-specific parameters. Historical data from 11 countries generally satisfy this requirement although the statistical precision of our estimates is fairly weak.

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  • Deposit Insurance and the Stock Market: Evidence from Denmark

    Boyle, Glenn; Bartholdy, Jan; Stover, Roger (2004)

    Scholarly text
    Victoria University of Wellington

    Previous studies of the relationship between deposit insurance and bank market values have usually been limited to consideration of minor changes in bank regulations but the 1987 initiation of deposit insurance in Denmark permits examination of a potentially major policy shift. We find that the market values of large Danish banks exhibited a modest positive reaction to the announcement of insurance but that small risky banks responded negatively. These results partially contrast with those previously found for the United States an outcome that seems likely to reflect the interaction of deposit insurance with the particular characteristics of the pre-existing Danish regulatory system.

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  • Hedging the Value of Waiting

    Boyle, Glenn; Guthrie, Graeme (2006)

    Scholarly text
    Victoria University of Wellington

    We analyze the optimal hedging policy of a firm that has flexibility in the timing of investment. Conventional wisdom suggests that hedging adds value by alleviating the underinvestment problem associated with capital market frictions. However our model shows that hedging also adds value by allowing investment to be delayed in circumstances where the same frictions would cause it to commence prematurely. Thus hedging can have the paradoxical effect of reducing investment. We also show that greater timing flexibility increases the optimal quantity of hedging but has a non-monotonic effect on the additional value created by hedging. These results may help explain the empirical findings that investment rates do not differ between hedgers and non-hedgers and that hedging propensities do not depend on standard measures of growth opportunities.

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