Journal of Business and Behavioral Sciences Volume 23, Number 1 issn 1946-8113 Spring 2011 inthis issue
Download 1.4 Mb.
|
- Navigate this page:
- Table 2: ALPHAS AND BETAS OF STUDY SAMPLE
- E(R) = alpha + Beta (R m )
- Chart 1: AVERAGE EXCESS RETURN OVER EVENT PERIOD
- PATHWAYS TO GLOBAL MARKETS: CASE OF MC DONALD’S GLOBALIZATION David E. Smith
- CATEGORIZATION OF PRODUCTS HIGHf BOUNDED LIFESTYLE ETHNIC HOUSEHOLD NATIONAL HIGH-TECH INDUSTRIAL
- GLOBAL MARKETING (STANDARDIZATION) LOW PRODUCT CATEGORY RELATED TO STANDARDIZATION POTENTIAL Figure 1
- PATHWAY IN A CONVERGENT EVOLUTIONARY PROCESS
H20: The risk adjusted return of the stock price of the sample of firms with announced insider purchases is not significantly affected by this type of information around the purchase date as defined by the event period. H21: The risk adjusted return of the stock price of the sample of firms with announced insider purchases is significantly positively affected around the purchase date as defined by the event period. This study uses the standard risk adjusted event study methodology from the finance literature. The announcement date (day 0), obtained from http://finance.yahoo.com/, is the date of the firm‘s announcement of the insider purchase. The required historical financial data, i.e. stock prices and the 36
corresponding S&P 500 index during the event study period, were also obtained from the internet website http://finance.yahoo.com/. Table 2: ALPHAS AND BETAS OF STUDY SAMPLE
37 Asbell and Bacon Current daily return = (current day close price - previous day close price) previous day close price A regression analysis was performed using the actual daily return of each company (dependent variable) and the corresponding S&P 500 daily return (independent variable) over the pre-event period (day -180 to -31 or period prior to the event period of day -30 to day +30) to obtain the intercept alpha and the standardized coefficient beta. Table 2 shows the alphas nand betas "for each firm. 3. For this study, in order to get the normal expected returns, the risk-adjusted method (market model) was used. The expected return for each stock, for each day of the event period from day -30 to day +30, was calculated as: E(R) = alpha + Beta (Rm), where Rm is the return on the market, i.e. the S&P 500 index. 4. The Excess return (ER) was calculated as:
5. Average Excess Returns (AER) were calculated (for each day from -30 to +30) by averaging the excess returns for all the firms for given day. Average Excess Return (AER) = Total Excess Return / n, where n = number of firms is sample, i.e. 25 in this case
QUANTITATIVE TESTS AND RESULTS Did the market react to insider purchases? Was the information surrounding the event significant? A‘priori, one would expect there to be a significant difference in the Actual Average Daily Returns (Day -30 to Day +30) and the Expected Average Daily Returns (Day -30 to Day +30) if the information surrounding the event impounds new, significant information on the market price of the firms' stock (see AER graph in Chart 1 below). If a significant risk adjusted difference is observed, then we support our hypothesis that this type of information did in fact significantly either increase or decrease stock price. To statistically test for a difference in the Actual Daily Average Returns (for the firms over the time periods day -30 to day +30) and the Expected Daily Average Returns (for the firms over the time periods day -30 to day +30), we conducted a paired sample t-test and found a significant difference at the 5% level between actual average daily returns and the risk adjusted expected average daily returns over the event period. Results here support the alternate hypothesis H21: The risk adjusted return of the stock price of the sample of firms with announced insider 38 Journal of Business and Behavioral Sciences purchases is significantly positively affected around the announcement date as defined by the event period. This finding supports the significance of the information around the event since the market‘s reaction was observed. Is it possible to isolate and observe the sample‘s daily response to the announcement of an insider purchase from day -30 to day +30? If so, at what level of efficiency (weak, semi-strong, strong form according to efficient market theory) did the market respond to the information and what are the implications for market efficiency? Another purpose of this analysis was to test the efficiency of the market in reacting to the announcement of an insider purchase event. Specifically, do we observe weak, semi-strong, or strong form market efficiency as defined by Fama, 1970, in the efficient market hypothesis? The key in the analysis or tests is to determine if the AER (Average Excess Return) and CAER (Cumulative Average Excess Return) are significantly different from zero or that there is a visible graphical or statistical relationship between time and either AER or CAER. See AER and CAER graphs in Charts 1 and 2 below. T-tests of AER and CAER both tested different from zero at the 1% level of significance. Likewise, observation of Chart 2 (graph of CAER from day –30 to day +30) confirms the significant reaction of the risk adjusted returns of the sample of firms tested to the announcement of insider purchases.
Chart 1: AVERAGE EXCESS RETURN OVER EVENT PERIOD 
Asbell and Bacon Chart 2: CUMULATIVE AVERAGE EXCESS RETURN OVER EVENT PERIOD 
The graph in Chart 2 suggests that the insider purchases did have a significant impact on the firm‘s share price starting on day -30. The evidence supports the alternate hypothesis H11: The risk adjusted return of the stock price of the sample of firms with announced insider purchases is significantly affected by this type of information on the purchase date. For the sample of firms analyzed, an investor is able to earn an above normal risk adjusted return by acting on the public announcement of the announced insider purchases. As of the announcement date, the firms‘ stock prices had not completely adjusted to the new information embedded in the insider purchase news. The evidence supports the alternate hypothesis H21: The risk adjusted return of the stock price of the sample of firms with announced insider purchases is significantly positively affected around the purchase date as defined by the event period. In fact, returns show a continuous upward trend from day -30 to day 0 suggesting evidence of pre-event trading. Likewise, this upward trend continues steadily from day 1 to day 30. While the insider purchase information had the expected positive impact on the firms‘ stock prices, the observed slow reaction to the news questions the market efficiency of this type of information. The risk adjusted return of the stock price of the sample of firms announcing insider purchases is significantly positively affected around the purchase date as defined by the event period. For the sample of firms analyzed, an investor could earn an above normal risk adjusted return before, on, and after the public announcement date of insider purchases. The observed speed of the stock price reaction to the insider purchase information is not consistent with the semi-strong form market efficiency hypothesis, suggesting that investors could 40 Journal of Business and Behavioral Sciences beat the market by buying the firms‘ stock on the announcement date. Perhaps, this type of information is not closely followed by investors. CONCLUSION This study tested the effect of announcing insider purchases on the stock price‘s risk adjusted rate of return for a randomly selected sample of 25 firms on November 26, 2008. These stocks were traded on the NYSE or NASDAQ. Appropriate statistical tests for significance were conducted. Results show a significant positive reaction after the announcement. Findings fail to support the efficient market theory at the semi-strong form level as documented by Fama (1970). Specifically, for this study, the announcement of insider purchases is viewed as a mixed signal because there is significant trading before the purchase date and a significant upward trend after the purchase date. Investors appear to receive the insider purchase news as an opportunity to buy and gain in the future from their investments. Evidence here suggests trading prior to the announcement date.
Fama, E. F., Fisher, L., Jensen, M., & Roll, R. (1969). The Adjustment of Stock Prices to New Information. International Economic Review, 10, 1-21. Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25, 383-417. Finnerty, J. E. (1976). Insiders and Market Efficiency. Journal of Finance, 31, 1141-1148. Givoly, D., & Palmon, D. (1985). Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence. Journal of Business, January, 69-87. Patell, J., & Wolfson, M. (1979). Anticipated Information Releases Reflected in Call Option Prices. Journal of Accounting and Economics, August, 117-140. Personal Finance. Yahoo! Finance. 1 December 2009. http://finance.yahoo.com/personal-finance/glossary?gloss_ind=t. Ross, S., Westerfield, R. W., & Jaffe, J. (2005). Corporate Finance (7th Ed.). United States: McGraw-Hill Companies. 41 Journal of Business and Behavioral Sciences Vol 23, No 1; Spring 2011 PATHWAYS TO GLOBAL MARKETS: CASE OF MC DONALD’S GLOBALIZATION David E. Smith National University Darryl J. Mitry Norwich University/National University ABSTRACT For marketing and economic researchers, an important aspect of globalization is the degree to which various consumer behavior dimensions and consumption patterns in different parts of the world are becoming similar, and how multinational companies have identified pathways to global success. An important case study is McDonald‘s corporation, the world‘s largest fast food restaurant chain. This company has employed divergent marketing and economic strategies in both domestic and the international markets to become a leader in the global marketplace. An overview of the company‘s background, organizational structures, mission and vision illustrate McDonald‘s strategic focus on its proactive evolution from a small drive-through operation to a global fast-food giant. The strategy is based on its ability to adapt to the cultural differences of the markets that McDonald‘s serves while preserving its core competencies and branding. Development situations of the company‘s four geographic segments, North America, South America, Europe, and APMEA (Asia, Pacific, Middle East and Africa), are presented in order to fully understand how McDonald‘s influences and is influenced by its domestic and global markets. INTRODUCTION Since the 1980‘s, the term Globalization has become increasingly important in international business. Levitt‘s contribution provoked the much controversy concerning the most appropriate way by which companies should become international (Levitt, 1983). His hypothesis that survival of international companies could only be insured via the implementation of a global strategy met with both enthusiasm and harsh criticism. The two sides of this debate represented local marketing versus global marketing, and focused on the central question of whether a standardized global marketing approach or a country-specific differentiated marketing approach (multinational approach) had the most merit. The question of marketing standardization has also become a topic of relevance due, not in the least, to the growing movement towards the creation of the single European market (Dicken, 2008) year does not match refs). This Journal of Business and Behavioral Sciences question has been addressed differently by academic researchers and practitioners, as well as government leaders; however, all are interested in the degree to which global convergence is occurring with respect to various consumer dimensions. In other words, to what extent are consumption patterns in different parts of the world becoming more similar? With increasing internationalization cultural cross-fertilization, is it reasonable to believe that the industrialized societies of the world are converging in important ways. The growth of multinational and transnational (global) companies is another force for global convergence of values and behaviors (Bartlett & Ghoshal, 2002). Efforts to standardize marketing have primarily focused on the area of products (Quelch & Hoff, 1986). Industrial goods are generally characterized by a high degree of standardization, followed by consumer durables, whereas the majority of consumer non-durables and most services have been adapted specifically to local or national tastes (Boddewin, Soehl, & Picard, 1986). Apart from this categorization, goods may also be ranked hierarchically, according to the degree of standardization (see figure 1).
For example, many products fall within this group such as industrial products which are culture-free products (e.g. commercial aircraft); high-technology products such as computers, TV and video equipment; and life-style products such as Coke and Pepsi, McDonald‘s food services systems, and Levi‘s jeans all lend themselves well to standardization. Technical products with design components, such as household equipment are examples, whereas basic local products such as ethnic foods usually show relatively poor standardization potential (Meffert & Bolz, 1993). 43 Smith and Mitry Consumer preferences have been considered a major factor when designing marketing strategies aimed at developing global appeal for consumers, or life-style products and advantages of standardization (Buzzell, 1968). The concept of global convergence was not commonly recognized, until 1983 with the article arguing that world markets, because of technology and communication advances were growing increasing more homogeneous (Levitt, 1983). Moreover, aspects of this strategic marketing affect the consumer perceptions and actually alter consumer choices (Quelch & Hoff, 1986). The interactive process produces an evolutionary development towards convergence across consumer markets. By the end of the 1980‘s, Porter‘s network on the competitive advantages of a nation served to codify these factors (Porter, 1990). The availability of highly educated engineers and the companies‘ focus on manufacturing quality became a new line of explanation. The growth of suppliers in related industries and increasingly demanding consumers served to explain an increasingly rate of new product innovation. The existence of rival producers and intense competition helped to enhance the firms‘ attention to customer satisfaction (Womack, Jones, & Roos, 1990). PATHWAY IN A CONVERGENT EVOLUTIONARY PROCESS Contemporary global marketing is narrowing consumer differences across international markets. With globalization and cultural cross-fertilization, it is reasonable to believe that societies are converging in many ways (Usunier & Lee, 2009). The increasingly omnipresent brand identities and product labeling is indicative of the degree to which global convergence is occurring with respect to various consumer behavioral dimensions, particularly when considering the extent to which the consumption patterns are becoming more similar in different parts of the world (Bartlett & Ghoshal, 2002). In other words, it is the specific image and the product branding that is finding a broader global market as the variations in consumption patterns narrow and converge. The marketing of Mc Donald‘s is an interesting example of this phenomenon. The visceral experience of the papillae of the tongue that we commonly call ―taste buds‖ may be interpreted differently among peoples, but the important fact is that consumer preferences are converging on image and branding. For example, many global products have small variations in content when distributed to one area of the world or another. This is certainly true of the more common products such as soft drinks and toothpaste (Kustin & Mitry, 2003). No one argues or questions whether or not beverages such as Coke and Pepsi are global products, even though both of these cola drinks do exhibit slight variations in the amount of sweetener used in different regional markets (Weitz & Wensley, 2002), they are still global products. It is very important to realize that the word ―taste‖ has often been used to mean the same as the word preference, but the word taste can also mean the tongue‘s papillae signaling sensory experience to the brain and as this is further 44 Journal of Business and Behavioral Sciences filtered and interpreted by previous individual experiences and habits that are recorded at the cellular level. On the other hand, the word preference refers to blatant and more reasoned choices that may go beyond actual physical sensation. This distinction seems obvious but the literature has often used these two words, taste and preference, as if they were totally interchangeable when they are not. The distinction is highly substantive and crucial to proper data analysis, interpretation and understanding of product identity. Consumers purchase products that satisfy not simply their sensory experience but people often purchase products that they believe express their own identities or chosen aspirations (Berger & Heath, 2007; Kleine, Kleine, & Kernan, 1993). This is where branding and labeling are important. The convergence of consumer preference is for the image and of the product, which separates the product from substitute products. Similarly, the establishment of a brand is the process of attaching a specific image to a single distributor, and the labels are used to signal brand preferences to consumers (Erdem, Swait, & Valenzuela, 2006; Purohit & Srivastava, 2001). Experiments have shown that brand knowledge of a drink dramatically influences consumer behavioral preferences, and is actually detectable as measured responses in consumers‘ brain activity (McClure et al., 2004). This association of product identity, as messaged by branding, is at the very core of marketing functions, and the identity forms the opportunity for the development of similar preferences across consumer target markets irrespective of geographical boundaries (Johansson, 2009). The evidence of such factors of convergence with respect to consumer preferences, amid different cultural experiences, is related to the success of marketing messages. For example, even a casual observation shows how people around the world are selecting and wearing the same type of clothing, they are paying to see many of the same films, watching much of the same type of programs on television, and they are playing the same digital games on computers (Kjeldgaard & Askegaard, 2006). These product experiences and their global success are determined according to the commonality of perceived desirability (McClure et al., 2004). Such perceptions are often established and reinforced by media, whether in print, radio television, or the Internet. The consumer preference is based on perceived desirability by association, and it is often not based on modest inherent distinctions or the physical initial sensory response. In a sense, this is related to the common phenomena of a change in habit and it is what people mean when speaking of ―acquired taste.‖ This break in the tie with initial sensory experience indicates that marketing messages can and do thwart the impact of some cultural traditions because the consumer choices are greatly affected by advertising and intelligent market-messaging. Therefore, cultural traditions are not impenetrable, and can be made to evolve in a determined pattern. The advent of contemporary marketing and the process of globalization necessitate that culture is not static, but it is dynamic and 45 Smith and Mitry changing the way people perceive their lifestyle choices and select purchases, slowly but perceptibly. Therefore, this is at the core of a process that has been a developing trend of consumer convergence. The standardized marketing strategies, branding, lifestyle imaging, and availability of global consumer products are the drivers of such cultural change. In the past, political movements and government policies played the largest role in influencing cultural factors, but now it is the growth of global business that has become a key driver of cultural influence. The observation that people everywhere are adopting many of the same products is not as important as the observation that marketing strategies are influencing cultural change (Johansson, 2009). Therefore, this type of cultural convergence is the direct result of the rapid growth of mass communications and marketer‘s use of the media to promote product identity as associated with perceived desirability. Moreover, the result of this continuing marketing process is not only increasing awareness of products that would otherwise be unknown to many regions of the world, but it is also a force for convergence of consumer preferences across former cultural and territorial boundaries. The process shows evidence of creating changes in consumers‘ previous culturally anchored behavior and this appears to serve as a evolutionary formation of global market convergence (Hofstede, 2003). Examples of this can be found in the products of the fast food industry. Over time, the evolutionary process appears as global trends in consumer preferences. A particularly interesting example is the case of Mc Donald‘s. The demand for this consumer product is dependent on the array of variables within preference and not exclusively on the experience of the immediate sensory perception of the tongue, which we call commonly refer to as taste. The marketing process is selling image identity and effect, both in appearance and consequence. The marketing not only increases awareness of the product but is also the propeller for convergence of consumer preferences across former cultural boundaries. The process creates evolutionary changes in consumers‘ previous purchasing decisions. Similarly, the primary target markets are defined by the same criteria in order to appeal to the same types of market segments in various countries. Marketers continue to hone and improve the practice of coordinating the global marketing mix to develop marketing programs in order to reach target segments. The fast food industry illustrates the extent of this process. Like most of the fast food giants, which started in the United States, Mc Donald‘s is one of the most successful; McDonald‘s Systems was started in Des Plaines, Illinois, but now has a global presence (McDonald‘s, 2009). The production and marketing vary only slightly according to national regulatory restraints, but the products are largely similar with a great deal of standardization as the company follows an overall global market penetration. In the 21st century, globalization is embraced by large corporations and the by small-to-medium-sized businesses as well. The motivation is straightforward, accessing the opportunity to increase profitability 46 Journal of Business and Behavioral Sciences by expanding to foreign regions of the world. The motive of profit maximization is the very basis of capitalism. However, pathway is unclear for many businesses hoping for to tap into the global marketplace successfully. New initiates into global business are interested in knowing the answers to fundamentally important questions. Questions such as: What activities need to be centralized and managed in the same manner the worldwide? Should the brand identity and/or product characteristics be exactly the same in every region of operations? Globalization of business has been possible due to the decrease in difficulties associated with geographical distance, the shrinking of spatial and cultural distance caused by advances in transportation and telecommunications technology. Global brands and products are influencing local culture. Everywhere things are beginning to appear similar, irrespective of the geography. Business and national economies are blending into an integrated global economic system (Mitry & Smith, 2009) Global marketing activities are well known among marketing scholars and practitioners alike, and yet many companies fail to identify the best path to global success. There is not a single model of global business, but upon further examination, there are commonalities that appear to be keys to success for specific types of commerce. The evidence suggests answers to the most important questions of how to envision and prepare for the pathway to success. McDonald‘s Systems is a case in point. Lauded by Business Week as one of the top-ten global businesses, this company reigns as the supreme global restaurant model. This company‘s activities and structure can be used as a type of beacon to shed light on the path to global consumer markets.
Directory: files files -> Answer True False 2 points Question 2 files -> Integer programming and game theory files -> 4 Integer Programming files -> Bpa vehicle Window Repair Scenario #1 task: Procure vehicle window relacement. Objective files -> Pop Warner History files -> North Carolina Inclusion Initiative Mapping Where Children with ieps are Being Served Purpose files -> Fall 2013 Spring 2014 Program Data: Standard 1 Exhibit 4d files -> Hanban – asia society confucius classrooms network 2010 request for proposal files -> Northern England’s set-jetting locations Download 1.4 Mb. Share with your friends:
|