Case Studies

Real Options, Volatility, and Stock Returns

This paper provides evidence that the positive relation between firm-level stock returns and firm-level return volatility is due to real options that firms possess. Consistent with the theoretical prediction that the value of a real option should be increasing in the volatility of the underlying asset, we find that the positive volatility-return relation is much stronger for firms that are more likely to have more real options. We also find that the sensitivity of firm values to changes in volatility declines significantly after firms exercise their real options. Finally, we reconcile the aggregate-level evidence of a negative relation between returns and return volatility with the positive relation at the firm level by showing that the negative relation at the aggregate level may be due to aggregate market conditions that simultaneously affect both market returns and return volatility.

Corporate Payout Policy and Product Market Competition

This paper investigates whether product market competition affects managers’ decision to distribute cash to shareholders. Using a large sample of manufacturing firms, we find that firms in less competitive industries have significantly lower payout ratios than firms in more competitive markets. Further, we find that this negative relation between industry concentration levels and corporate payouts is much stronger among those firms whose overall characteristics make them (a) more likely to have high agency costs of free cash flows and (b) less likely to be the target of predation. In general, our results are consistent with the notion that the disciplinary forces of competition induce managers to payout excess cash and with the idea that corporate payouts are the “outcome” of external factors.

Fair Value of Physician Partnership with Hospital System

Accumyn’s expert provided testimony on the dissolution of a commercial real estate development of a prominent hospital system and management partnership of physicians, based on the minority partner’s claims of breach of contract, breach of fiduciary duties, and other causes of action. The Accumyn team determined the fair value of the partnerships’ carried profit interests in nine joint-venture projects related to cargo warehouses and related office space. Fair value was determined through consideration of the company’s internally developed financial models and subsequent project appraisals.   Additional damages were derived from the expected value of continuing development and management fees.