Contributions published at Finance (Alexander Wagner)

This thesis tests the stock movement prediction capabilities of the P/E-Ratio and thereby also gives feedback on the validity of the semi-strong form of the Efficient Market Hypothesis. It finds that while the cyclically-adjusted-P/E-Ratio is no indicator for future comparative stock performance, the trailing-P/E-Ratio is. Those findings therefore negatively reflect on the concept of the semi-strong form Efficient Market Hypothesis and represent falsifying evidence to the prediciting capabilities of the cyclically-adjusted-P/E-Ratio. Data spanning from 1998 to 2015 of the FTSE 100 index has been used.

Europe is experiencing an unprecedented inflow of immigrants. Casual observation suggests that far-right parties could benefit from voters’ worries about this inflow. This update to a column from September 2012 provides empirical evidence showing that the geographic proximity of immigrants is one important causal driver behind support for the far right. The link with voting outcomes depends on the type of immigration, however, not just on the total number of immigrants.

This thesis presents a quantitative profitability framework tailored to the North American Class I freight railroads covering the industry’s most important KPIs and allowing an objective benchmarking among companies. The structure of the thesis follows the logic of the framework and concludes with the summary of chances and risks on company as well as industry level. In addition, the appendix provides a brief discussion of profitability in context of the equity market. Profitability is expressed in Return on Invested Capital (“ROIC”), which according to Koller, Goedhart and Wessels (2010) is a better KPI to measure operational performance than return on equity (“ROE”) or return on asset (“ROA”): While ROE mixes operational performance with capital structure making benchmarking among peers less meaningful, ROA includes non-operating assets and ignores the financing capability of operating liabilities. Additionally, in order to guarantee a more accurate benchmarking of operational performance, ROIC is calculated on a pre-tax basis excluding goodwill. In contrast to the commonly used KPI average revenue per carload (“ARC”), the framework is denominated in revenue ton-miles (“RTM”). This allows a clear segregation between volume and price. Moreover, ARC itself depends ultimately on ton-miles which is driven by length of haul and weight per carload. Additionally, the American Association of Railroads (2014c) is recommending using ton-miles as KPI. Opex items are denominated in gross ton-miles (“GTM”) also taking into account empty shipments. For a more detailed benchmarking and a better identification of potential bottlenecks, the opex items are further segregated, where appropriate. Endorsed by the Rail Staggers Act of 1980, railroads are fortified to apply a differential pricing strategy meaning to discriminate shippers based on their willingness and capability to pay. However, from the 39 Class I railroads existing back in 1980, merely seven remained implying a high concentration of market share. By 2014, the four largest companies accounted for nearly three quarters of market share in terms of handled carloads. When considering freight specific submarkets, frequently, only one railroad’s market share is accounting for more than a quarter of volume. In addition, more than 78% of freight rail stations and more than a third of shippers are estimated to be served by merely a single railroad (Escalation Consultants (2012) and Kimes (2011)). The combination of market concentration and a differential pricing strategy is a powerful mix. It is no surprise that shippers face surging freight tariffs: For example OxyChem, a subsidiary of Occidental Petroleum, claims its rates to have risen by 150% within just five years (Kimes (2011)). In addition, Dairyland Power, a utility, asserts having faced a 93% increase in a single year (Kimes (2011)). But also Fortune 500 companies North American Freight Railroad Industry such as DuPont were confronted with rates climbing 100% on average (Kimes (2011)). Escalation Consultants estimate more than half of all rates are exceeding the revenue to variable cost (“RVC”) ratio of 180%, which is the threshold were the Surface Transportation Board considers market dominance to be present. However, despite of the concept of revenue adequacy which guarantees a certain revenue level but should also limit excessive rates, the rate relief process is considered to be notoriously complex, costing a shipper frequently up to USD 3.5m and is spanning over several years (Fishman (2006)). This might also be the reason why since the STB’s inception in 1996, merely 50 inquiries related to excessive rates were brought to the board’s attention. Despite the high degree of unionization of employees, railroads are not expected to be confronted with labor related issues. In contrast, the highly institutionalized bargaining process protects railroads from employees resorting to extreme measures: Over the past 35 years, merely six days were lost related to nationally-handled freight railroad negotiations (American Association of Railroads (2015d)). Increasing average labor expenses per employee was largely offset by increased labor productivity. Both effects are likely to be attributable to employees working overtime. However, due to recent changes in the Railroad Retirement Act, nearly one quarter of the workforce is expected to be eligible for retirement by 2015 (Federal Railroad Administration (2015)). Consequently, avoiding loss of industry knowledge by retaining talents and at the same time recruiting young talents is a major task railroads need to face. Over the past years, the freight railroad industry has managed to increase fuel efficiency by implementing several fuel conservation initiatives including incentive programs for railroad engineers. However, some railroads such as the Canadian National Railway benefit from favorable terrain of its route network, while KSU and especially NSC operate tracks in more mountainous terrain and consequently face higher fuel consumption per GTM. Over the past years, KSU was able to procure fuel most efficiently. This is likely to be attributable to both its way of procuring fuel via online auctions (Pricelock (2015)) and its beneficial position along the Gulf of Mexico where refineries are abundant which facilitates logistics. In contrast, Canadian railroads face the highest fuel procurement price, which is likely to be attributable to increased logistic costs given their rather remote position from major refinery centers. In order to mitigate commodity price risk exposure, railroads have successfully implemented fuel surcharge mechanisms and are able to recover approximately two thirds of the costs in such manner. Despite cost of equipment ownership per GTMs having decreased for most railroads since 2009, net book values (“NBV”) of equipment have overall been inclining. Particularly North American Freight Railroad Industry pronounced is the surge of NBVs for railcars amounting to a CAGR of approximately 15% for the industry. This increase was likely to be driven by increasing demand for covered hoppers and tank cars as a consequence of an overall recovery of the economy in combination with the North American shale boom. Between 2011 and 2014, lease rates for freight cars indicated by GATX’s lease rate index representing primarily covered hoppers and tank cars have more than doubled. In addition, the NBV of one track-mile, the industry’s largest property, plant & equipment (“PPE”) item, was also increasing showing annual growth rates between 3.5% and almost 5%. While a direct impact on depreciation charges was not observable, it certainly affected asset utilization. Due to the industry’s capital intensive nature, asset utilization represents a major performance driver. In 2004, Union Pacific “estimated that each decrease of one mile an hour required 250 extra locomotives, 5,000 extra freight cars and 180 extra employees to make up for the decrease in efficiency” (Phillips (2004)). This statement implies train velocity being a major driver of asset utilization, however, while this was appropriate in the past, recent surges in volume led to congestion issues on certain routes and terminals causing higher traffic density despite slower velocity. Consequently, velocity is rather considered to measure service quality while a more appropriate KPI to measure asset utilization is ton-miles per dollar of invested capital. With the exception of both Canadian railroads the majority of Class Is failed to improve asset utilization although traffic density expressed in RTM per operated track miles has increased. As indicated in the previous sub-section this is largely attributable to increased net book values per equipment unit. Since longer shipments are more efficient than shorter ones from a railroad’s perspective, Class Is recording higher average length of haul benefit from better capital productivity. It is therefore no surprise that BNSF and UP record the highest asset utilization. Overall, the Class I companies managed to improve profitability on average by approximately 580bps over the past years. Having in mind that most companies did not manage to considerably improve asset utilization, it is no surprise that ROIC improvement was driven by higher profit margins. Although the Class I’s operating costs per GTM have increased continuously, the industry managed to improve revenue even faster. In the course of this thesis a profitability framework has been developed. The framework includes the industry’s most important KPIs and allows an objective analysis scrutinizing the industry’s profitability particularly identifying the chances and risk inherent to the North American Class I railroad industry. Despite this particular framework being tailored to railroads, the underlying

Die Entwicklung von Aktienkursen in der Finanzwissenschaft vorauszusagen ist eine große Herausforderung und ein wichtiges Forschungsgebiet. Diverse wissenschaftliche Arbeiten haben jedoch gezeigt, dass die Kursentwicklung von Unternehmensaktien nicht ausreichend genau berechnet werden kann. Besonders ist in diesem Zusammenhang die Arbeit von Fama (1970) zur Markteffizienz zu nennen. Aufgrund dieser Erkenntnis ist man dazu übergegangen, die Reaktionen von Aktienkursen auf Veränderungen von makroökonomischen Variablen zu untersuchen. Eine grundlegende Arbeit zu diesem Thema leistet dabei Maio & Philip (2015), die den Einfluss von diversen makroökonomischen Faktoren auf Aktienrenditen untersuchten, oder Belke & Beckmann (2015) die den Einfluss von Geldpolitik auf die Wirtschaft allgemein in unterschiedlichen Länder analysierten. Die erwartete Zinswende in den USA durch die Federal Reserve hat die Forschung nun auch deutlich stärker in den Fokus der Öffentlichkeit gerückt. Durch die Finanzkrise von 2007 befinden sich sowohl die USA wie auch Europa auf einem historisch niedrigen Zinsniveau. Dieses soll in den kommenden Monaten zum ersten Mal seit Jahren wieder angehoben werden. Der angekündigte Schritt wird derzeit kontrovers diskutiert. Auf der einen Seite steht der IWF (Internationale Währungsfond) der davor warnt die Zinswende zu schnell einzuleiten, auf der anderen Seite vertritt die BIZ (Bank für Internationalen Zahlungsausgleich) die Auffassung, dass die Zinswende schon vor langer Zeit hätte starten sollen (Bernau (2015)). Aufgrund der gegeben Ausgangslange befasst sich diese Arbeit mit dem Zusammenhang von Zinsänderungen und der Reaktion von Aktienreturns von Unternehmen aus der Realwirtschaft. Die zentrale Fragestellung der Untersuchung ist, ob Aktien von Unternehmen mit hoher Marktsensitivität tatsächlich stärker auf Zinsentscheide der europäischen Zentralbank (EZB) reagieren als Aktien von Unternehmen mit tiefer Marktsensitivität. Dabei wird außerdem untersucht, ob die Reaktionen kurzfristig auftreten oder persistent beobachtet werden können. Die Ergebnisse dieser Arbeit sollen für die anstehende Zinswende hilfreiche Informationen liefern, um potentielle Gewinne am Aktienmarkt abzuschöpfen und mögliche Verluste zu vermeiden. Als Datenmaterial dienen dazu die historischen Kursverläufe am Finanzmarkt seit dem Jahr 2007.

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Since Modigliani and Miller (1958) rst pointed to the irrelevance of capital structure in perfect markets, nancial economists are questioning which real world deviations from the standard asssumptions may lead to the relevance of capital structure. The trade-o theory mentions two reasons for the relevance of capital structure, namely the tax shield and nancial distress costs. Despite the signicant tax advantages of high leverage, many companies decide in favor of modest leverage ratios. These modest ratios cannot be explained solely by nancial distress or even bankruptcy costs. While direct bankruptcy costs appear to be too low to explain the observed modest debt levels, indirect bankruptcy costs seem to prevent rms from taking on more leverage. Human capital costs are one example for indirect bankruptcy costs. As leverage increases, bankruptcy risk increases, which simultaneously leads to higher job loss risk. Hence, employees (and especially chief executive ocers who are in the center of this thesis) demand a compensation for this human capital risk in the form of higher pay. In this thesis the predictions of Titman (1984), and Berk, Stanton, and Zechner (2010) are tested by examining the eect of leverage on chief executive ocer (CEO) compensation. Chemmanur, Cheng, and Zhang (2013) do also empirically test these predictions. While their analysis covers the years 1992 to 2006, the analysis in this thesis is extended until 2013. Moreover, contrary to existing research which focuses on the impact of leverage on CEO pay, this thesis adds to literature by also considering the relevance of CEO skills. It is suggested that the impact of leverage on CEO pay is stronger for CEOs with specic skills. As specic skills are valuable for one particular rm, CEOs with specic skills face less outside options and thus, are more exposed to human capital risk. Finally, subjective compensation values are calculated to examine whether the suggested positive relation between leverage and CEO pay may only be driven by risk premiums required for the composition of wages. Risk averse employees (and especially CEOs) demand a risk premium to take on risky compensation elements.

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Based on a sample of 314 publicly listed Swiss and German companies from 1995 through 2014, it is investigated whether buy-and-hold stock returns of family firms differ systematically compared to both non-family blockholder companies and widely held corporations during and after industry shocks. Cross-sectional regression analyses reveal that family firms show significantly higher stock returns than widely held companies during industry shock phases while there is no systematic difference compared to non-family blockholder firms. However, family firms outperform their non-family blockholder and widely held counterparts over a post-shock period of 12, 24, and 36 months.

The research on the eect of Mergers and Acquisitions (M&A) on abnormal performance as well as shareholder wealth is well-documented, especially for short-term analyses surrounding the announcement of a transaction in order to asses market eciency or detect insider trading activities. Additionally, a smaller part analyses the long-term post-merger performance and long-term wealth eects and often, only little attention was paid to the results obtained in those studies due to believing in market eciency (Agarwal and Jae, 2000). Considering the motives of M&A transactions, they are very often conducted to create value for the company's shareholders, to realise synergistic gains or to eliminate redundant functions, among others (Koller, Goedhart, and Wessels, 2010). Nevertheless, some empirical studies report a signicant and negative abnormal performance following completion dates providing evidence of an underperformance, of negative wealth eects, and of evidence against market eciency. Moreover, the results reveal that the motives and intentions of M&A transactions are often not accomplished. Fama (1998) refers to such ndings as being anomalies which are often chance results and which tend to disappear in combination with improved measurement techniques. As a result, this contribution reassesses the abnormal performance of US domestic acquiring rms and the impact of deal- and rm-specic characteristics on long-term post-merger performance by means of improved techniques and statistical procedures.

Proxy advisory [PA] firms have become increasingly important players in the financial market. The theoretical analysis of their conflicts of interest and different payment methods could influence their recommendations and the way they interact with competitors. The proposed model on fee structures concludes that the selection between a fixed fee and a shareholder-value-contingent fee has been proven to incentivize PAs to put more effort and to avoid misreporting. Moreover, the introduction of a social PA could prove to be more of a compliance mechanism, due to price competition and subsidization, rather than a solution to the conflicted nature of PAs.

The general research question of this thesis is whether equity grants provide CEO risk-taking incentives, and if yes, how exactly they aect rm policies and rm risk. I focus my study on the largest 100 listed Swiss companies, analysing the period from 2007 to 2013. In the context of the ongoing debate about manager compensation, the topic of equity grants to manage exec- utive incentives is highly relevant, especially since the outburst of the nancial crisis. However, while there exists a large body of literature investigating the association between managerial compensation and risk-taking for US companies, empirical evidence for Switzerland is missing so far. In order to examine the relationship between executive compensation and rm policies, researchers use various measures of executive motives. Most recently, many studies focus on how managers benet from an increase in stock price (delta) when considering any corresponding changes in rm risk (vega). The common belief is that vega implements riskier investment and nancing decisions while results on delta are ambiguous. A high sensitivity to stock price induces a manager to work harder because he prots from an increase in stock price, but also enhances the CEO's exposure to rm risk, potentially making him more risk averse. However, there is a recent debate about the appropriateness of vega and delta to measure executive motives, since these metrics are derived from the Black and Scholes (1973) model. Bettis, Bizjak, and Lemmon (2005) argue that the value of employee stock options for a CEO is lower than the value of freely tradable market options, mainly referable to their non-transferability and shorter expected maturity. Alternative ways to evaluate incentives provided by equity grants used in prior studies include CEO ownership, the number of shares and options held by the CEO, or the delta of the intrinsic value of equity instruments. As indications of the extent of risk inherent in the rm's policies, prior studies use risk measures, such as R&D expenditures, CAPEX, leverage, rm focus, or accruals. Thereby high investments in R&D, high leverage, and a high extent of misreporting are regarded as aggressive and risky policies, whereas high CAPEX is seen as low-risk investment. In general, results of prior studies indicate a positive relation between vega and risk-taking, whereas ndings on the association between delta and risk-taking are ambiguous.

Takeovers often yield negative returns for the acquirer and positive returns for the target. This outcome cannot be solely explained by synergy motives. By means of the relation between target and total gain, and target and acquirer gain, this thesis aims to distinguish among rationales in takeovers based on the methodology introduced by Berkovitch and Narayanan (1993). The empirical examination of U.S. takeovers between 2005 - 2014 suggests that positive total gain takeovers are primarily motivated by synergy combined with hubris, while the negative total gain takeovers’ primary rationale is agency alongside hubris.

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Die vorliegende Arbeit untersucht die Entwicklung des Krankenversicherungswesens und zeigt Lösungsansätze auf, welche zu einer besseren Bewirtschaftung der Gesundheitskosten führen sollen. Auf die historische Entwicklung und den Status quo der Krankenkassen folgt die Untersuchung der steigenden Gesundheitskosten. Anschliessend werden die wichtigsten Einflussfaktoren auf die Entwicklung des Krankenversicherungswesens und die damit ver-bundenen Krankenversicherungskosten und Krankenkassenprämien analysiert. Im letzten Teil der Arbeit werden Lösungsansätze präsentiert und analysiert. Dabei werden sowohl zukünfti-ge, als auch gegenwärtige Herausforderungen berücksichtigt, wobei die jeweiligen Vor- und Nachteile diskutiert werden. Auch die aus den Experteninterviews gewonnenen Erkenntnisse fliessen umfassend in die Arbeit ein.

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