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Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

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Portfolio CharacteristicsTo <strong>de</strong>scribe the firms in each portfolio different characteristics are presented. Table10 reveals that the most un<strong>de</strong>rfun<strong>de</strong>d and the overfun<strong>de</strong>d firms are smaller and tend tobe value firms. The most un<strong>de</strong>rfun<strong>de</strong>d firms portray poor financial and operatingper<strong>for</strong>mance; spend a smaller amount on advertising, research and <strong>de</strong>velopment andoperating assets; and have a higher probability of bankruptcy. The most un<strong>de</strong>rfun<strong>de</strong>dfirms appear to be overpriced and the overfun<strong>de</strong>d firms appear to be un<strong>de</strong>rpriced.Apparently size may have a role on the way market value firms. Smaller firms tend tobe less exposed and scrutinized by analysts. Quality and quantity of in<strong>for</strong>mationavailable from these firms may have an impact in the way the market evaluates them.Similarities are observed between FR and LTDR portfolios. Table 11 presentsLTDR portfolio characteristics. As the most un<strong>de</strong>rfun<strong>de</strong>d and the overfun<strong>de</strong>d portfolios,the most levered and the unlevered portfolios have on average the smallest firms of theset of LTDR portfolios. These are also the most overpriced (levered) and un<strong>de</strong>rpriced(unlevered) firms <strong>for</strong> these set of portfolios. In contrast to the FR portfolios, the LTDRportfolios one and ten portray similarities as to a poor financial and operatingper<strong>for</strong>mance and spending behavior. In sum, smaller firms may have less access todifferent sources of financing (<strong>for</strong> example bond markets). Analysts do not followsmaller firms as closer as they do with bigger firms. This may happen because of lessavailability of in<strong>for</strong>mation and less news exposure. Because of their lessen ability toraise funds, smaller firms may be more inclined to un<strong>de</strong>rfund their pension plans.Higher un<strong>de</strong>rfunding levels may be accompanied by high levels of LTD in or<strong>de</strong>r tofinance the operations and the pension plans.VI. ConclusionsThis study investigates if investors efficiently incorporate DB pension planin<strong>for</strong>mation in stock prices. Fama and French three factor (1993) and four factormo<strong>de</strong>ls results reveal that the market inefficiently incorporates DB pension planin<strong>for</strong>mation. The results are consistent with other studies (Franzoni and Marín 2006,Godwin and Key 1998).

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