Proceedings
of the Thirteenth Annual Conference
of the
Applied Business and Entrepreneurship
Association International
Program Chair
Lisa Anderaus
Program Co-Chairs
Bahram Adrangi
Arjun Chatrath
Pamplin School of Business Administration
The University of Portland
November 2016
Las Vegas, Nevada
Articles published in this Conference Proceedings are accepted based on
the double-blind peer-review process.
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An examination of ROI on Service Industry Groupon Promotions
Jacob I. Fait, Ph.D., School of Business, Lincoln Memorial University, 6965 Cumberland
Gap Parkway, Harrogate, TN 37752, Phone : (814) 282-5788
[email protected]
Abstract
This study presents results of an exploratory study on the implications and return on investment
of utilizing Groupon as a marketing tool for service industry businesses. The study seeks to
establish a greater understanding of the Groupon mechanism and help practitioners navigate the
implications on business practices. This form of marketing presents several challenges and
benefits alike for service business owners to consider. If ignored or misunderstood, the effects
could be devastating for small and large service industry businesses alike. Historical views,
findings, implications and areas for further research are discussed.
Background
The Groupon concept grew from the idea of a Pittsburgh native Andrew Mason and launched in
the city of Chicago in November of 2008. In less than seven years the startup grew to over 500
cities worldwide with over 48 million active users and 425,000 or more active deals at any one
time(www.grouponworks.com). While the organization has seen great growth and success in the
‘deal-brokerage’ business, businesses have had mixed feelings about their experience utilizing
Groupon campaigns. Dr. Utpal M. Dholakia reported in a 2010 study that respondents(150)
experienced a profitable Groupon campaign in 66% of cases and unprofitable campaigns in 32%
of cases(Dholakia 2010). What is the differentiator between these two groups of businesses? Is
there truly a discrepancy or are service business owners not accounting for all of the ancillary
benefits afforded to them through the Groupon campaign?
The Groupon model in its simplest form is a brokerage model where Groupon connects and
facilitates the exchange of goods or services between a seller and a buyer taking a monetary
commission off the top of the transaction. In a perfect scenario all three parties involved benefit
from the transaction. The Seller would hopefully receive some if not all of the following: a sale,
a sale with consumer spend in excess of the featured deal(overspend), implicit economic profits
through a long term customer relationship and market exposure. The Buyer would receive the
opportunity to experience a service or product at a deeply discounted rate and find an
organization that they develop a loyalty to and prefer to do business with. Groupon receives a
percentage of every transaction they broker between the buyer and seller and must keep both
Buyer and Seller satisfied to continue to use the Groupon platform.
Terms Defined
 Deal: Agreed upon brokerage of the sale of a good or service between seller and buyer by
Groupon.
 Overspend: This is the amount the Groupon buyer spends in addition to the value of the
redeemed Groupon deal.
 Buyer: The individual purchasing the deal from Groupon.
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


Seller: The individual or organization offering the product or service for sale through
Groupon.
ROI: Return on Investment: (gain from investment – cost of investment) / Cost of
investment
Ancillary Benefit: Any benefit in addition to monetary compensation that a buyer
receives by participating in the Groupon deal, ie., the amount a seller is willing to pay for
the marketing, demographic information, new customers and allocation of unredeemed
Groupon deals
Review of Current Literature
In a review of current literature it was found that the body of literature in this field seems to lose
steam around the time that Groupon decided to make some changes to their business model. Up
until May of 2012, Groupon required a certain number of transactions be committed to for the
actual deal to transpire(Subramanian 2012). If this threshold was met, the deal would transpire.
Buyers would exchange currency for the seller’s product. If this threshold was not met, no deal
would transpire and monies would return to their rightful owner and the only cost involved in
this economic transaction would be the time and energy spent in researching the respective deal
by the three aforementioned parties. After May of 2012, this threshold was lifted and now
Groupon’s Merchant Account Terms and Conditions obligate Sellers to accept whatever
customer quantities Groupon provides(Edelmam et al 2014). This game changer left the seller
vulnerable if they needed to obtain efficiency from volume and economies of scale while
benefiting both Groupon and the buyer with certain and expedited sales. The seller is able to set
a ceiling for the number of Groupon deals sold in any given month. This ceiling protects the
seller from having sales in excess of their operational capacity which would compromise
consumer experience and satisfaction alike.
The body of literature suggests that there is a misalignment between Groupon and some Seller
expectations in terms of producing mutually beneficial agreements. These disconnects include
arguments such as inopportune marketing cycles, overwhelming number of buyers redeeming in
excess of operational capacity, buyers being deal seeking rather than experience seeking, low
conversion from Groupon buyer to long term customer, low spend in excess of Groupon deal and
buyers tipping service staff on the cost of the deal rather than the value of the product or service.
Dr. Utpal M. Dholakia from Rice University developed and empirically tested a conceptual
framework studying the determinants of profitable Groupons. In his survey of over 150
businesses he received the following feedback from restaurant owners (Dholakia 2011):
 ‘The consumers were cheap’ – Restaurant, Western US.
 ‘Many of the groupon user [sic] used it for only the value of the coupon (in our case $50)
and nothing more. The return business has been non-existent. It was very harmful to
our bottom line during the months we ran it.’ – Restaurant, Midwestern US.
 ‘The only downsides to Groupon are you never see of the guests return because they are
bargain shoppers, it can create a wait that negatively influences full-paying guests and it
is difficult to track/redeem’ – Restaurant, Southern US.
 ‘waiters were frustrated by low sales & low tips since guests didn’t tip on the full
amount.’ – Restaurant, Western US.
 ‘The people who bought our groupons were not out typical customer. They are only
looking for a deal.’ – Restaurant, Southern US.
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Dr. Dholakia’s survey had an impressive response rate of nearly 41.67% with 32.7% of
respondents being in the restaurant industry(Dholakia 2011).
An example of inopportune marketing cycles would be if Groupon featured and pushed the
sellers deal as the headline deal in a week that just happened to be the busiest week of the seller’s
year with or without the deal. Jessie Burke, owner of Posies Café experienced just this when her
deal launched the weekend that the neighborhood library opened. She explained: “Deals are
scheduled based on factors that optimize the deal for Groupon, not the merchant”(Agrawal
2011). Due to this inopportune scheduling she had a line out the door the entire weekend which
compromised all customers’ experience. A nail salon in Chicago had a similar experience when
4,000 manicures and pedicures were sold for their store which only had two stations to serve
customers. Similarly, many customers left angered.
Interestingly there is this notion amongst sellers with Groupon scars that Groupon buyers are
deal seeking rather than experience seeking. Essentially, the premise is that the pedigree of deal
buyer through Groupon is not the same pedigree of person that would frequent the service
normally and therefore there is little to no conversion rate into long-term or continued
relationship with the customer. Dholakia operationalized this phenomenon as: “longer-term
behavior of customers toward the firm” (Dholakia 2011). They tracked repeat purchases by
Groupon customers for two weeks directly after the Groupon Deal ended at Gourmet Prep Meals
in Houston, Texan and found that approximately 4% of Groupon users had returned(Dholakia
2011). Interestingly, it was found that these return customers spent significantly more than the
average customer on their return visit.
One other noted anomaly in current literature is that the tipping habits of Groupon buyers is
noticeably less than that of regular customers. Restaurant owners and servers alike comment that
Groupon buyers tend to tip on the check total or overspend and not the entire total of good and
service received. This anomaly creates a particularly problem for Sellers and practitioners as it
has been found that employee satisfaction with the Groupon deal is the primary driver of the
promotions profitability (Dholakia 2010).
While the previous section may have painted a dark and dismal experience for sellers utilizing
the Groupon platform, this is definitely not the testament spoken by all sellers. The body of
literature suggests a plethora of advantages: sales, advertising for start-up and entrepreneurial
ventures, new customers, conversion of Groupon customers into long-term customers, overspend
beyond the deal, key demographic information.
Dholakia & Tsabar described the exposure value received by a Houston-based startup:
For GPM, the Groupon promotions value is approximately 140% of its baseline sales
over the six month period. We also found that although the promotion itself has no
material impact on the firm’s profits, when the earnings from unredeemed Groupons are
taken into account, GPM enjoyed a substantial 30% lift in profits compared to baseline
levels. The firm lost a small amount of money on the average Groupon user, but more
than made up for it from the increased rate of purchase – which was more than three
times higher – by full price-paying customers from increased exposure(2011).
Two key deal components that need to be taken into consideration by service industry sellers in
the decision making process is overspend and percentage of unredeemed Groupons. Each time a
Groupon is redeemed in the service industry there is the opportunity to obtain overspend.
Overspend is the amount spent in addition to the deal that the buyer makes when visiting the
buyers establishment. For this reason it is essential for the seller to have staff trained and selling
additional items to Groupon buyers. The servers interaction with the buyer can be the difference
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between zero and $30 of overspend if the experience is enjoyable. Secondly, as with any coupon
or gift card there is a certain percentage of buyers that simply forget to redeem. This amount of
revenue should also be taken into account in the decision making process and can essentially be
divided across all of the redeemed Groupons in additional revenue.
The Negotiation
For a seller to become listed and utilize the Groupon platform they must reach out to Groupon
and request to become a Groupon Merchant. Groupon researches the organization or client to
ensure that there is a certain level of fit before moving into negotiating a deal between the two.
For a deal to be effective and viewed favorably by buyers Groupon likes to offer the product or
service to buyers at a greatly discounted rate. This rate is usually around 50% of the seller’s
advertised selling price. Similar to selling a house is to a realtor, it is in Groupon’s best interest
to sell in high volume, not necessarily at the largest profit margins for sellers. The deeply
discounted offering price to buyers allows them to make a sales push and hopefully entice high
sales. The 50% discounted revenue that Groupon receives from buyers is then split in some
proportion between the seller and Groupon. Obviously it is in both the Buyers and Sellers best
interest to negotiate the highest percentage possible. The seller wants a high percentage to cover
cost of goods and hopefully make a profit. Groupon also wants a high percentage to cover costs
and hopefully make a profit. This is where negotiations come into play. Groupon likes to begin
this conversation suggesting a 50:50 split between themselves and the seller of the good or
service. They utilize data on the split of similar goods or services in the region to keep their
percentage of the take as high as possible. Obviously it is in the best interests of both parties to
have their respective side of the split as high as possible.
From the seller stand point, if you have offered a product or service to buyers for a 50% discount
and then split the proceeds 50:50 with Groupon you are looking at receiving 25% of your normal
asking price on the good or service. For some sellers this 25% is above their cost of goods and
for others this is well below their cost of goods. If it is too far below the cost of goods it may not
make economic sense to pursue a relationship with Groupon. However, other ancillary benefits
should be taken into consideration (overspend, customer conversion rate, advertising obtained,
and key demographic information)
Proposed ROI Formula for Sellers
Basic financial acumen tells us that Return on Investment is equal to gain from investment minus
cost of investment divided by cost of investment. Once all is said and done, we hope that this
equation produces a positive number.
To better illustrate: (gain from investment – cost of investment) / (cost of investment).
In order to quantify gain from investment one must attempt to quantify all of the items gained
and cost of investment into a monetary format. I suggest the following:
Gain from Investment = Seller take per item + estimated profit on overspend per item +
Ancillary benefit per item
Cost of Investment = What the product or service actually costs the seller. (keep in mind, if the
seller needs to add additional staff this should be extrapolated and added to the equation.
However, if the seller would have the doors open anyways and not have to add additional staff
then this should not be added to the cost of the investment)
Two Examples
Example #1: The seller offers a Groupon deal for $15 where the consumer can enjoy a $30
steak dinner. The seller negotiated a 50:50 split of the sales price, has a cost of goods of 33%,
anticipates a $20 overspend and has determined that their ancillary benefit per sale is $2.
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The Example #1 ROI equation would look like this:
ROI = ((.5($15) + .67($20) + 2) – (.33($30) + .33($20))) / (.33($30) + .33($20))
ROI = (($7.50 + $13.40 + $2) – ($9.90 + $6.60)) / ($9.90 + $6.60)
ROI = (($22.90) – ($16.50)) / ($16.50)
ROI = 38.79% *based upon this ROI equation the seller should go through with offering the deal
Example #2: The seller offers a Groupon for a Pitcher of craft beer($15) and a pizza ($12) for
the price of $17. The seller negotiated a 70:30 split in sales price, has a cost of goods of 27%,
anticipated a $10 overspend and has determined that their ancillary benefit per sale is $3.
The Example #2 ROI equation would look like this:
ROI = ((.7($17) + .73($10) + $3) – (.27($27) + .27($10))) / (.27($27) + .27($10))
ROI = (($11.90 + $7.30 + $3) – ($7.29 + $2.70)) / ($7.29 + $2.70)
ROI = (($22.20) - ($9.99)) / ($9.99)
ROI = 122% *based upon this ROI equation the seller should go through with offering the deal
Notice how some very small differences created an ROI for Example #2 that was over three
times greater than that of the ROI for Example #1.
Assumptions & Limitations
This simplistic ROI formula holds some very apparent assumptions. These ROI model
assumptions, which include: overhead variable costs remain constant for the seller, the seller is
able to accurately predict their ancillary benefit and the seller is able to accurately predict
average overspend. In addition to the three assumptions described above, there can be numerous
other assumptions inherently implied which are fundamental in nature.
This study has a number of inherent limitations present that must be recognized in order to avoid
misinterpretation and incorrect generalization of the ROI formula. The main limitation is the
formula only being applicable to service industry sellers. Similarly, sellers will weigh the
ancillary benefits provided based upon their past experiences which can produce a bias.
Utilizing this formula outside of the service industry would produce results that are both
inaccurate and non-generalizable. Furthermore, each service organization is inherently different
and therefore may not be able to apply this proposed formula.
Areas of Future Research
With the growing technological savvy of the millennials it is without doubt that online
couponing and daily deals will only grow in popularity. However, the form of offering and the
mechanism will inevitably morph and transform overtime as we continue into the 22nd century.
This research could be expanded into a plethora of scholarly areas including: an examination of
ROI on goods sold via Groupon deals, a comparative study of the same organization utilizing
two distinctly different Groupon deals and an ROI estimate for a specific service establishment.
There is a distinct difference between Groupon deals involving goods and Groupon deals
involving service products. The most notable difference is that a Groupon deal for goods does
not have the opportunity to collect ancillary benefits such as overspend, a returning customer or
non-redeemed deals. For this reason an examination into the return on investment for goods sold
through Groupon would expand the field of study.
Is it possible that one Groupon deal create better profitability and ancillary benefits for a service
organization than another? An analysis of the same organization utilizing two distinctly different
Groupon campaigns could shed a light on this question. If there is a distinct difference than there
is evidence that sellers should put more emphasis and thought into the deal construction and
buyer deliverable.
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An in-depth examination of a service organizations campaign where actual historical data can be
analyzed would provide a basis for the validity of the campaign. Until historic data is analyzed
the field is stuck making assumptions based upon trend data. Obtaining a study of multiple
organizations could suggest a mechanism or rubric for Groupon success from the standpoint of
the seller.
In conclusion, the field of study surrounding Groupon deals and their structure and effectiveness
as well as return on investment is still in its infancy stage. Future research holds significance to
researchers and practitioners alike as it could lead the online daily deal/coupon industry into
another delivery format as well as make the negotiation process and outcome beneficial for all
parties involved.
References
Agrawal, R. (2011). Groupon was ‘the single worst decision I have ever made as a business
owner,’ Available online at: http://techcrunch.com/2011/06/09/groupon-single-worst-decision/
Amblee, N. & Bui, T. X. (2012). Value proposition and social proof in online deals: an
exploratory study of Groupon.com.. In R. J. Kauffman, M. Bichler, H. C. Lau, Y. Yang & C. C.
Yang (eds.), ICEC (p./pp. 294-300), : ACM.
Byers, J. W., Mitzenmacher, M., Potamias, M. & Zervas, G. (2011). A Month in the Life
of Groupon. CoRR, abs/1105.0903.
Byers, J. W., Mitzenmacher, M. & Zervas, G. (2011). Daily Deals: Prediction, Social Diffusion,
and Reputational Ramifications. CoRR, abs/1109.1530.
Byers, J. W., Mitzenmacher, M. & Zervas, G. (2012). The groupon effect on yelp ratings:
a root cause analysis.. In B. Faltings, K. Leyton-Brown & P. Ipeirotis (eds.), EC (p./pp.
248-265), : ACM.
Dholakia, Utpal M. (2011), “A Startup’s Experience with Running a Groupon Promotion,”
Available online at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1828003
Dholakia, Utpal M. (2010), “How effective are Groupon promotions for businesses?” Available
online at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1696327
Dholakia, Utpal M. (2011), “What Makes Groupon Promotions Profitable for
Businesses?” Available online at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1790414
Edelman, B., Jaffe, S. & Koniners, S. D. (2014). To groupon or not to groupon: the profitability
of deep discounts. Working Paper, Harvard Business School.
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Kumar, V., Rajan, B. (2012). Social coupons as a marketing strategy: a multifaceted perspective.
Journal of the Academy of Marketing Science. (40) 120-136.
Subramanian, U. (2012). A theory of social coupons. Working Paper, University of Texas at
Dallas.
8
Market Size and Market Efficiency, Are They Related?
Tahmoures A. Afshar, School of Business, Woodbury University, 7500 N. Glenoaks Blvd.,
Burbank, CA 91504-1052, Phone: (818) 252-5170 Fax: (818) 394-3311,
[email protected]
Abstract
In this study we examined the investment behavior of 220 professional investors, both in large
publicly held investment and small closely held investment units. Professional investors were
Accounting faculty and CPA-PFSs. A survey was e-mailed to these individuals, requesting their
views on types of stock evaluation techniques: a) fundamental analysis and b) technical analysis
(following the herd). Empirical results indicated investors mostly use fundamental analysis, but
large portions of investors follow the experience of other investors to make investment decisions.
Further, investors in small closely held investments relied more heavily on the fundamental
analysis and less inclined to follow the running with herd. This indicates that small closely held
investment markets are inefficient. However, professional investors in the large publicly held
investing markets had a tendency to follow more technical analysis than fundamental analysis. It
indicates that these large markets are more efficient than small investing markets. As evidenced
from this study, the size of the market and its efficiency are related.
Introduction
Investors in stock market generally are seeking an investment strategy that insures success in
meeting their financial goals. There are three major investment strategies in the stock market to
determine the price of stocks: a) fundamental analysis; b) technical analysis; and c) buy-and-hold
approach. Eugene Fama in his 1965 seminal paper, "The Behavior of Stock Market Prices,”
presented three perspectives of stock prices: those of chartists , those of fundamentalists, and
those of the random walk advocates.
The fundamental analysis is concerned with the intrinsic value of stock by examining the factors
that help to determine these values. A stock will be chosen if its intrinsic value is higher than its
market price, thereby will provide a higher return.
The technical analysis attempts to find a stock price trend based on past price performance of a
stock. This approach believes that past prices will determine the future ones. Although the
validity of this approach in predicting future prices of stock is questionable, yet it provides useful
information to investors when to buy/sell the stock.
The buy-and-hold stock is a passive approach and basically used as benchmark against other
approaches.
The type of strategy that an investor may choose depends on his/her view regarding whether the
stock market is efficient or inefficient. If investors believe that stock market is efficient, that is,
the market price of stock will approach its true value, then investors will decide not to pursue the
fundamental approach. If investors believe that market is inefficient there will be opportunity for
some stocks to deviate from their justified prices. That is, the market has potential to create
excess return. Thus investors will choose the fundamental and technical analysis in their
investment process.
In finance, the EMH (Efficient Market Hypothesis) asserts that financial markets are
“informational efficient.” As a result, one cannot consistently achieve returns in excess of
9
average market return on risk-adjusted basis, given that the information available at the time the
investment is made. The EMH claims that under its semi-strong form, prices reflect all
publically available information and that, prices instantly change to reflect new public
information. However, this belief that no one can beat the market and all excess returns will be
leveled out in future has been challenged. There are some market anomalies that allow investors
to gain extra returns and these anomalies cannot be explained by any standard financial theory.
Review of Literature on Testing Market Efficiency
Many financial scholars and financial professionals considered the Efficient Market Hypothesis
(EMH) as an important pillar of the modern financial theory. Fama first defined the term
“efficient market” as: a market where there are large number of rational profit maximizers
actively competing, with each other trying to predict the future market value of individual
securities, and where important current information is almost freely available to all participants
(Gertmenian and Chvakhin, 2002, p.2). Accordingly, the market is efficient if the information
quickly reflect in the price of stock such that old information cannot be used to predict the future
price movement s (Han, 2011, p.1) in efficient market available information includes:
1) Past information,
2) Current information ,
3) Forthcoming events, information can be reasonably inferred
The EMH states that the stock markets are stable and it is impossible for an investor to “beat the
market”. This is because the price of stocks reflects their true value. A market to be efficient
should have following features:
a) Market participants are price takers, that is one investor alone cannot affect the price of
an investment security
b) Information is costless and widely available to all market investors at the same time
c) Information is generated in a random fashion such that announcements are independent
from each other
d) investors react fully and quickly to the new information, causing stock prices to adjust
accordingly
The EMH takes three forms of hypothesis, depending on the availability of information.
1) The weak form which states that past prices of stock determines its current prices. The
validity of this form of the EMH has been rejected. That is, using this form is useless in
predicting future price changes.
2) The semi strong form of EMH states that all publically available information is already
incorporated in the current price of stock, so nobody can make more than average return using
this information that is available to all market participants.
3) The strong form EMH states that even using private (insider) information will not allow any
market participants to secure an abnormal returns. However, this form of the EMH has not been
confirmed in the literature (Han, 2011, p.3).
According to the random walk concept that was suggested by Fama as an extension of the EMH,
"the market cannot be consistently beaten, arbitrage is impossible, and free lunch is generally
unavailable."(Han, 2011, p.1)
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In this study, we have examined the investment behavior of 225 professionals with accounting
and financial background. These individuals are intellectual and well educated echelon of
society. Hence, their choice of chosen strategies, such as fundamental, technical, and buy and
hold analysis will shed useful information regarding their belief of the US stock market being
efficient or otherwise. More specifically, our goal in this paper is to:
e)
Explore whether and to what extent educated/professional investors ( they are
identified as accounting faculty and CPAs with a personal financial specialist) are using
fundamental analysis in their investment process
f)
Explore whether and to what extent , these investors are following other market
participants ,that is, following the herd, and
g)
Explore whether or not stock market is efficient based on their investment
experiences
Data/ Methodology
To conduct our study, we have selected 7 questions out of 14-survey questionnaire that has been
collected in Jinkens (2014) study. The 14-survey questionnaire was e-mailed to 4,791
Accounting Faculty and 4,192 CPA-FFSs (CPA-FFS are those certified Public Accountant s with
a Personal Financial Specialist) for a total of 8,983 individuals. Of these 813 were not delivered
and the remaining 8,170 surveys sent out. Of these, there were 220 respondents completed the
survey (Jinkens, 2014). “The responses were analyzed with SPSS 18 and the Levene’s SPSS
test to differentiate between variances.” (Jinkens, 2014, p. 127)
In this paper two types of investment vehicles were utilized: publically held and privately held,
where the ownership of the publically held investment is widely distributed, and the ownership
of the privately held investments is an individual or small closely aligned group of individuals.
Examples of the publically held investments whose stocks are distributed to a large number of
investors and typically they are listed in a major exchange (New York, American, etc.) Examples
of privately held investments might be a business that is initiated in partnership, sole
proprietorship, or S corporations. For privately owned businesses there is no formal market. It
is assumed that investors in these two types of investments use the same investing criteria
(Jinkens, 2014, p. 124)
Selected 7 Questions
1. Based upon your current experiences for publicly held investments, such as those that might
be listed on a major stock exchange, please indicate on a scale of 1 to 5 whether you would use
"Present Value" techniques (PV) or "Running with the Herd" techniques (RH).
i.
ii.
iii.
iv.
v.
1 = PV only
2 = PV mostly
3 = PV and RH equally
4 = RH mostly
5 = RH only
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Where, PV denotes present value, which indicates the use of ‘Fundamental Analysis’. Under
this approach, investors try to obtain the true (intrinsic) value of invested security by taking the
PV of all cash flow generated by this security over its life time. Then, they compare this value
with its market value to find underpriced stock/securities to secure a decent return on their
investments.
RH denotes ‘running with the herd’ which represents the use of ‘Technical Analysis’. Under this
approach investors try to invest on those securities which were chosen or recommended by
security analysts or a leader in the market. .
When investing in small, closely held private investments (e.g. rental real estate or a business)
there is no formal market (such as the New York Stock Exchange, or the like) to establish
market/selling prices. Accordingly, these investors cannot “Run with the Heard” because there is
no herd (i.e. an exchange). Each investment is essentially unique. Past similar experiences are
used to estimate future cash flow. Present values can be calculated based upon acceptable
discount rates chosen from various alternatives, and these are compared to the selling prices to
determine whether to buy or sell a particular investment or other assets. The alternative discount
rates would be various rates of return available to investors.
For these types of purchases (sales) this paper tests if financial fundamentals are still valid. This
brings us to our second question. For closely held private investments and other assets, do
investors use financial fundamentals for deciding upon whether to buy or sell, or do they “Run
with the Herd”? Respondents were asked the following question (Jinkens, 2014, p. 125).
When investing in small, closely held private investments (e.g. rental real estate or a business)
there is no formal market (such as the New York Stock Exchange, or the like) to establish
market/selling prices. Accordingly, these investors cannot “Run with the Heard” because there is
no herd (i.e. an exchange). Each investment is essentially unique. Past similar experiences are
used to estimate future cash flow. Present values can be calculated based upon acceptable
discount rates chosen from various alternatives, and these are compared to the selling prices to
determine whether to buy or sell a particular investment or other assets. The alternative discount
rates would be various rates of return available to investors.
For these types of purchases (sales) this paper tests if financial fundamentals are still valid. This
brings us to our second question. For closely held private investments and other assets, do
investors use financial fundamentals for deciding upon whether to buy or sell, or do they “Run
with the Herd”? Respondents were asked the following question (Jinkens, 2014, p. 125).
2. Based upon your current experiences for closely held investments, such as rental real estate or
a business, please indicate on a scale of 1 to 5 whether you would use "Present Value"
techniques (PV) or "Running with the Herd" techniques (RH).
i. 1 = PV only
ii. 2 = PV mostly
iii. 3 = PV and RH equally
iv. 4 = RH mostly
v. 5 = RH only
To find the PV of cash flow, investors need an appropriate discount rate. One way to calculate
the discount rate is to add the associated risk premium of the security and/or investors with risk
free interest rate. Jinkens claims that the risk premium is subjectively determined rather than
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estimated from models, such as CAPM (Capital Asset Pricing Model) (Jinkens 2014, p.125).
This leads us to the third and the fourth question. Do investors, or their advisors, subjectively
estimate risk premiums rather than using those calculated by models?
3. How do you measure risk? (Jinkens, 2014, p. 126)
i. 1 = only subjectively
ii. 2 = mostly subjectively
iii. 3 = an equal balance of subjectivity and economic models
iv. 4=mostly based upon economic models
5 = only based upon economic models
4. Based on your current experiences, are US government bond rates a reasonable substitute for
the risk-free inflation adjusted rate of return? That is, do you consider such bonds to be risk-free
and compensate for (include) inflation? (Jinkens, 2014, pp.125-126)
i.
1= poor substitute
ii.
2= mostly a poor substitute
iii. 3= fair substitute
iv.
4= mostly a good substitute
v.
5= good substitute
5. During the last 8 years, have you significantly changed how you evaluate investments over
time?
i.
Yes
ii.
No
iii. Year
6. If you have answered “yes” that you have changed how you evaluate investments, please
indicate whether your methods have become more PV or more RH.
i.
1 = a lot more PV
ii.
2 = a little more PV
iii. 3 = no change
iv.
4 = a little more RH
v.
5 = a lot more RH
“Finally, since investments exist in order for investors to earn returns, and since investors’
opinions may be greatly influenced by whether the values of their portfolios have changed
significantly, this brings us to a seventh question. Over the last 8 years, have investors
experienced a significant change in their portfolio values?”(Jinkens, 2014, p.127)
7. Over the last 8 years, have you experienced a significant change in your portfolio value?
i.
1 = significant loss
ii.
2 = some loss
iii. 3 = no gain or loss
iv.
4 = some gain
v.
5 = significant gain
13
Results and Findings
For the first and second questions, which compared publicly held and closely held investments,
on a scale of 1 to 5, where 1 equaled “Financial Fundamentals” and 5 equaled “Running with the
Herd,” the results were as follows:
 for publicly held investments:
 the mean was 2.63 (53% from PV to RH)
 the standard deviation was 0.89; and
 for closely held investments
 the mean was 1.99(40% from PV to RH)
 The standard deviation was 1.04.
 Levene’s test for equality of variances indicated that the variances were not significantly
different (F=0.027, sig. = 0.869).
 The t-test for equality of means indicated that the means were significantly different (df =
178, t = -4.48, sig. = 0.00).
“This indicates that on a scale of only using “Financial Fundamentals” to only using
“Running with the Herd,” investors rely more on “Financial Fundamentals” for closely held
investments than do those who invest in publicly held investments, but both rely, to some extent
on “Running with the Herd.”(Jinkens, 2014, p.128)
On the third question of whether investors estimated risk subjectively or used economic models,
the SPSS mean was 2.83 (57% from only subjective to only models) with a standard deviation of
1.00. This indicates that most investors rely slightly more on economic models than on
subjectivity (Jinkens, 2014, p.128).
On the fourth question, substitute was significantly different from being a good substitute (df =
219, t = -23.31, sig. = 0.00).
On the fifth question of whether investors have changed how they evaluate investment in the last
8 years, 29.68% of the respondents said “yes.”
On the sixth question, the investors who stated they had changed how they evaluated investments
were asked if they had changed more towards “Financial Fundamentals” or more towards
“Running with the Herd” during the last 8 years. The results were as follows:
 Mean: 2.52 (50%)
 Standard Deviation: 1.05.
 72% from less risky to more risky)
 Standard Deviation: 1.13.
This indicates that investors have begun to use “Financial Fundamentals” more, and that they
consider investments to be a more risky. (Jinkens, 2014, p. 128)
14
On the seventh question of whether investors had a significant gain or loss in their portfolio
values, the results were:
 Mean: 3.27 (65% from loss to gain)
 Standard Deviation: 1.20.
This indicates a gain in portfolio values. (Jinkens, 2014, PP.127-128)
Summary and Conclusion
The result of analysis investigated in this paper supports the Efficient Market Hypothesis
(EMH). As indicated, the publicly held investment market which represents the large US Stock
Market has shown to be more efficient than a smaller privately held market. As was expected,
investors in the publicly held market have a tendency to follow more the ‘herd’ rather than
heavily rely on fundamental analysis, based on their belief that the market is efficient. Although,
the investors in this type of investment sector still follow the ‘fundamental analyses as a backup
for their sound investment decision making process. However, the investors in the privately held
type of investment preferred performing ‘fundamental analyses as a way to come up with
justified stock choices. This indicates that, small and privately held market in this study is
inefficient.
References
Art of Saving. (2012). http://www.artofsaving.com
Fama, E. F. (Jan., 1965). The Behavior of Stock-Market Prices. The Journal of Business. 38 (1)
pp. 34-105.
Fama, E. F. (1976). Foundations of Finance. Basic Books, Inc., Publishers. pp. 169-175.
Han, Alvin, Efficient Market Hypothesis (2011). http://alvinhan.com.articlesfinance.info/understanding-investor-behavior-in-stock -market/
Gertmenian and Chuvakhin, (2002). Does Market Efficiency Trump Behavior Bias in Finance
Decisions?http:gbr.pepperdine.edu/2010/08/does-market-efficiency-trump-behavioral-bias-infinance….
Investopedia. (2012). CFA Exam Guide, Level 1.http://www.investopedia.com/exam-guide/cfalevel-1
Jinkens, Robert (2014). Are Financial Fundamentals Used to Value Investments or Do Investors
Follow the Market? Pre and Post 2008Findings Are Compared. Journal of Applied
Business and Economics vol.16 (2)
Portfolio Management. (2012).http://www.investopedia.com/exam-guide/cfa-level-1/portfoliomanagement/rate-of-return-basics.asp#ixzz1vq6YGO1M
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Simple and Compound Interest Rates. (2012).
http://www.getobjects.com/Components/Finance/TVM/iy.html
16
Learning for Entrepreneurship: An Integrative Competency-based
Framework for Graduate Entrepreneurship Education
Ana Azevedo, Deborah Hurst, Faculty of Business, Athabasca University,
201, 13220 St. Albert Trail, Edmonton, Alberta, T5L 4W1
Phone: (780) 257-2911, E-Mail: [email protected]
Abstract
This paper has two primary aims. The first is to introduce an integrative conceptual framework
for promoting the development of entrepreneurial competencies from the beginning to the end of
a graduate study program. The second aim is to discuss critical findings from a longitudinal pilot
study implemented within an online MBA program in Western Canada. The three and a half year
pilot study was designed to examine key competencies that are being developed during the first
phase of this graduate business program and to identify which specific curriculum activities best
support the development of these competencies. Competencies investigated in this study were
selected from a detailed review of the academic literature, with special emphasis on conceptual
frameworks that have been applied in graduate business programs. Considering the overlap
between entrepreneurial and generic competencies, the authors proposed an integrative
conceptual framework for meaningfully linking them in first and second phase MBA courses,
thus supporting entrepreneurial thinking and development throughout the program’s duration.
The pilot study methodology included an initial phase of 13 interviews with key stakeholders,
followed by longitudinal surveys with twenty-two MBA students. After an initial pretest phase,
student surveys were collected with three different MBA cohorts, both at the beginning and the
middle of the study program. Survey findings revealed significant differences in graduate
students’ capability ratings of key generic competencies at these two specific times. In addition,
content analysis of the 13 interviews with students, alumni, employers and faculty indicated that
specific curriculum activities such as participation in online discussion forums, case studies and
applied projects were considered critical in promoting students’ competency development during
their first phase of core courses. Implications for future research and curriculum development are
discussed.
17
THE ERIE FOOD HUB PROJECT
Bruce A. Kibler, PhD, [email protected],
Amber Costello, Student Project Leader, Student Sub-Group Leaders: Lisa Gropler, Marisa Guyton, Sydney
Spaeder, Gannon University, 109 University Square, Erie, PA 16541
ABSTRACT
The following case study is the product of a student service learning project in the management capstone
course. The students were tasked with working with various stakeholders, deploying wholesale and retail
surveys and performing an overall feasibility of establishing a Food Hub in downtown Erie, PA. Downtown
Erie, PA currently has seven food deserts and downtown residents have no access to fresh food, i.e., only
access to highly processed packaged and canned foods.
A new Erie Metropolitan Transit Authority (EMTA) headquarters is being built. The building will have three
floors, two of them being dedicated to EMTA operations and one will be designed to partially alleviate a Food
Desert in downtown Erie by providing a fresh food market. The total area being dedicated to the possible food
hub is about 19,000 square feet and there will be customer parking.
The project sponsor is the CEO of the Erie Downtown Partnership and the project owner is Bruce A. Kibler,
PhD, professor of our business capstone course. There have been a total of twenty students assigned to work on
the Food Hub. The graduate project team has six members and they have completed all of the benchmarking for
the project. The undergraduates are split up into three groups, a commercial group, a marketing group, and a
finance group. The project teams have fourteen students total and they have been responsible for completing the
core of the project. Nothing has been determined yet for the food hub other than its location. The team has
provided a confidential business management consulting service throughout the semester to determine the
feasibility of the establishment of a fresh food market in downtown Erie, PA.
18
Business Modelling and Planning for Born Global Firms: Starting Them Small and
Growing Them Big
Nonso OCHINANWATA & Patrick Oseloka EZEPUE
Statistics and Information Modelling Research Group, Sheffield Hallam University, UK
Tel: +447446823469; Email: [email protected]
Tel: +447772632150; Email: [email protected]
Abstract
Objectives: Despite the examples of global firms such as Google, Apple, Amazon and Starbucks
in UK and other parts of the world, there have not been enough integrative studies on the kind of
business modelling and planning which underpin the development and profitable growth of such
born global firms (BGFs). This is even more important for developing countries such as Nigeria
and Sub-Saharan Africa, given that there are very few visible home-grown BGFs in these places.
This paper conceptually outlines how to use an Integrated Born Global Business Model
(IBGBM) to establish and profitably grow BGFs. The paper therefore explores what it takes to
start such firms small and grow them big.
Prior Work: Theoretically, the paper utilises seminal research on such themes as strategy,
entrepreneurship, e-commerce and digital strategies, business modelling and planning, and
profitable growth.
Approach: The anticipated research data and methodology will include information on growth
prospects of BGFs in selected industry sectors, linked to social media and the above research
themes, case studies of such GBFs which serve as experimental hotbeds for building the model,
and newly structured BGFs which will be grown over the period of the research using the
IBGBM, and an evidence base by way of Google website traffic and analytics.
Results: The key findings from the paper consist in the development of the IBGBM and its
validation of the growth prospects for spin-out BGFs.
Implications: This is the first time that such a research is being conducted with a view to
spinning out sustainable BGFs with detailed guidelines on how different stakeholders can use the
IBGBM to develop such businesses. These stakeholders include individual entrepreneurs, staff of
organisations who work intrapreneurially in creating exceptional value-added, higher educational
institutions, private sector and government organisations.
Value: The primary value of the research is in capacitating these entities to create additional
entrepreneurial value in their various locations, a goal that is sorely needed in developing
countries.
19
The Effect of Securitization Announcements on Vacation Ownership
Firms’ Shareholder Wealth
James Drake, Department of Hospitality, Tourism, and Events, Metropolitan State University
of Denver, Campus Box 60, PO Box 173362, Denver, CO 80217 Office Ph: 303.556.4840
[email protected]
Abstract
The emphasis of this study deals with the vacation ownership industry, or otherwise known as
the timeshare industry. The study examines the effect on shareholder wealth of the
announcement of the sale of asset-backed securities in the timeshare industry. The cumulative
abnormal returns of publicly traded lodging corporations that operate in the timeshare industry
are calculated and analyzed for the study. The impact of mortgage-backed securitization
announcements of lodging firms that have timeshare operations had significant, positive effects
on the shareholder wealth of these firms. While similar event studies have been performed in the
lodging sector, there is a lack of event study research in the timeshare industry.
20