The problem associated with value shares is that they may remain undervalued for an extended period of time. Therefore, determining when to buy value shares has been the focus of many investors and academics. Studies have determined fundamentals provide valuable information when selecting shares while price momentum provides a decent timing indicator. This research examines a novel share selection approach which seeks to combine fundamentals with momentum to obtain a leading timing indicator.This research seeks to determine if the fundamental momentum indicator can successfully and consistently separate value winners from value losers. The value portfolios were formed using a composite valuation measure made of three separate indicators. The Value portfolio was then ranked based on the strength of the fundamental momentum indicator.This research identified that Leverage Factor and Current Ratio momentum was able to separate value winners from losers in a consistent manner. However, only Current Ratio momentum was capable of creating portfolios which could consistently outperform the market. Therefore, this research identified that fundamental momentum could be used as a timing indicator when acquiring value shares. / Dissertation (MBA)--University of Pretoria, 2012. / Gordon Institute of Business Science (GIBS) / unrestricted

This thesis explores the effects of three important factors on a firm's investment and financing decisions, using contingent claim structural model. The first essay investigates how implementation lag impacts investment timing for a levered firm. The main finding is that implementation lag can potentially have a substantial effect on a company’s investment trigger. A crucial determinant of the lag-investment relationship is the fraction of investment cost that has to be incurred upfront. If this fraction is small, investment trigger is a decreasing function of implementation lag and the effect can be economically significant. If this fraction is large, investment trigger can be either increasing or decreasing in lag, but the magnitude of the effect is not large. The second essay investigates how future uncertain growth opportunity impacts a firm's investment timing decision and optimal leverage ratio. The firm has an option to expand profits after the first investment. However, the exercise of the growth option depends not only on the underlying profit flow but also on the uncertain arrival of the growth opportunity. The model illustrates that such uncertainty can significantly impact the initial investment timing for unlevered firm in a non-monotonic way. For levered firm, the future growth uncertainty, along with debt overhang problem, can shape the firm’s financing decision at initial investment. The third essay shows how risk-compensating performance-sensitive debt can be used to mitigate the “overinvestment” agency problem. We show that properly designed performance-sensitive debt can add significant value relative to fixed-coupon debt, and identify the risk-compensation level that maximizes shareholder wealth. The optimal risk-compensation level is found to be smaller than that required to eliminate overinvestment; thus, it is optimal for shareholders to incur some agency cost of overinvestment. / Thesis / Doctor of Philosophy (PhD)

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Abstract The laws and financial structure of a country can affect firm decisions and outcomes by affecting financial constraints and agency problems. Power theories of credit suggest that the legal rights of creditors, such as the ability to grab collateral in bankruptcy, increase the willingness of lenders to extend credit. Shareholder protection can reduce information asymmetry and agency problems by mandating quality disclosures, stipulating approval procedures for potentially conflicted transactions and facilitating the private litigation process. The bank-based financial structure can reduce moral hazard by alleviating the free-rider problem in monitoring. This dissertation contains various novel results. The first essay presents evidence of an inverse relation between creditor rights and the value of cash. This is consistent with financial constraints increasing the marginal value of cash, and creditor rights alleviating financial constraints. The second essay suggests that the bank-based financial structure improves the operating performance of large investments especially for diffusely held firms, consistent with the less prevalent free-rider problem in monitoring. The third essay shows that shareholder protection raises investment hazard for the smallest firms. This is consistent with the notion that shareholder protection alleviates those asymmetric information-related problems that delay investment, such as cash flow diversion by corporate insiders. In addition to contributing to the scientific literature, the results of this dissertation can have practical implications for companies, suppliers of finance and policymakers. A value-maximizing company should take into account its legal environment when deciding on cash holdings. Suppliers of finance should consider the interplay between financial structure and ownership structure when evaluating the profitability of investments. Policymakers often encourage investments due to their effect on employment and tax income. The results of this dissertation show that investor protection increases the frequency of large investments and their profitability. / Tiivistelmä Maan lait ja rahoitusrakenne voivat vaikuttaa yrityksen päätöksentekoon rahoitusrajoitteiden ja agenttiongelmien kautta. Velkojien vaikutusvaltaan perustuvien teorioiden mukaan velkojan oikeudet, kuten oikeus vakuuteen konkurssin yhteydessä, lisäävät velanantajan lainaamishalukkuutta. Osakkeenomistajia suojaavat lait voivat puolestaan vähentää yrityksen ja sijoittajien välistä epäsymmetristä informaatiota ja agenttiongelmia esimerkiksi vaatimalla laadukkaita ilmoituksia ja hyväksymisprosesseja koskien potentiaalisesti eturistiriitoja sisältäviä transaktioita sekä mahdollistamalla yksityisen kanteen nostamisen. Lisäksi maan pankkiperusteinen rahoitusrakenne voi vähentää moraalikatoa lievittämällä vapaamatkustajaongelmaa yritysjohdon monitoroinnissa. Tämä tutkielma sisältää useita uusia tuloksia. Ensimmäisessä esseessä havaitaan käänteinen yhteys velkojien oikeuksien ja kassan arvon välillä. Johdonmukainen selitys tälle havainnolle on, että rahoitusrajoitteet lisäävät kassan marginaaliarvoa ja velkojien oikeudet lieventävät rahoitusrajoitteita. Toisen esseen tulosten mukaan pankkiperusteinen rahoitusrakenne parantaa suurten investointien vaikutusta operatiiviseen tulokseen eritysesti hajaantuneen omistusrakenteen omaavien yritysten osalta. Tämä voi johtua pankkiperusteisen rahoitusjärjestelmän vapaamatkustajaongelmaa vähentävästä vaikutuksesta. Kolmannen esseen tulosten mukaan osakkeenomistajansuoja kohottaa suurten investointien hasardifunktiota pienimpien yritysten osalta. Tämä puolestaan voi johtua siitä, että osakkeenomistajansuoja lievittää investointeja hidastavia epäsymmetrisen informaation ongelmia, kuten yrityksen sisäpiiriläisten mahdollista taipumusta ohjata yrityksen kassavirtoja heitä itseään hyödyttäviin kohteisiin. Tieteellisen kontribuution lisäksi tutkimustuloksia voidaan hyödyntää yritysten, rahoittajien ja politiikkojen päätöksenteossa. Yrityksen arvoa maksimoivan johtajan tulisi kassan suuruutta päättäessään ottaa huomioon maassa vallitseva lakiympäristö. Rahoittajien tulisi puolestaan huomioida maan rahoitusrakenteen ja yrityksen omistusrakenteen vaikutus investointien kannattavuuteen. Politiikkojen yleinen tavoite on lisätä yritysten investointeja, koska ne parantavat työllisyyttä ja synnyttävät verotuloja. Tämän tutkielman mukaan sijoittajansuoja lisää suurten investointien frekvenssiä ja kannattavuutta.

The retail industry is considered to be a very competitive industry in the United States since there are so many players in the almost saturated retail markets that provide similar products and services at similar price levels to customers. Market selection has been identified as an important strategy to differentiate a retailer in this competitive market. Therefore in this thesis, we describe a conceptual framework to evaluate retailers investment opportunities in dynamic, competitive retail markets. The objective is to describe a conceptual investment analysis framework to address the strategic aspects of a retailer s investment opportunity as well as the dynamic uncertainty of a retail market in a single framework. This conceptual framework outlines a strategic view towards retail stores as flexible assets of a retail enterprise. This conceptual framework is general and can be adjusted and applied to investments options in other services. In addition, we develop an integrated investment analysis approach based on dynamic programming to explore retailers investment behaviors in dynamic markets. The objective is to determine retailers optimal investment thresholds in noncompetitive and competitive markets. We consider two retailers to illustrate our approach and use a simple game theory treatment to address competition in retail markets. We use our integrated investment analysis model based on a real options methodology to evaluate the apparent tendency for the small discount retailer invests earlier in a new developing market due to the competition effect from the large discount retailer. This early entry gives the small retail a first-mover advantage and delays the big retailer s entry into the competitive market. In addition, we conduct sensitivity analysis to characterize how significantly the values of our model parameters impact the retailers investment decisions. We also develop an integrated investment analysis approach based on contingent claims analysis to explore retailers investment behaviors in dynamic markets. The objective is to determine retailers optimal investment thresholds in noncompetitive and competitive markets. The equivalent risk neutral evaluation approach is presented in this thesis as an extended version of the contingent claims analysis approach, which facilitates the market-oriented valuation of the retailer s investment option in dynamic markets. Sensitivity analysis is conducted to study how retailers optimal investment thresholds change as the values of parameters in this equivalent risk neutral evaluation approach change. The relationship between the dynamic programming and the equivalent risk neutral evaluation approach is also summarized in this thesis to identify the similarities and the differences between these two investment analysis approaches. One of the most important objectives of this comparison is to determine in what market conditions the choice of investment analysis approach is critical and dramatically changes the retailer s optimal investment threshold. Finally, we empirically examine an important aspect of our theoretical work that the big retailer invests and opens a store relatively later in markets with a small retailer compared to markets without a small retailer. In addition, the big retailer opens a store at relatively higher retail market potential in markets with a small retailer compared to markets without a small retailer. In this thesis, we discuss some empirical evidence to support these theoretical results. We chose Wal-Mart and Dollar General as the big and small retailers, respectively, in our empirical study. Our empirical results do not validate the theory and just provide supporting evidence for our theoretical works.