The role of effective corporate decisions in the creation of efficient portfolios

J. B. Guerard, Jr.H. MarkowitzG. XuChief executive officers and chief financial officers seek to implementcorporate financial decisions that maximize the stock price andstockholder wealth. Real assets may be tangible, such as machineryor factories, or intangible, such as technical expertise or patents.These real assets must be paid for. To finance the real assets, thefinancial manager makes decisions regarding the magnitude ofcommon stock issuance and stock repurchases, long-term debtissuance, and debt repurchases. Cash flows are generated by realassets, and the stockholders receive dividend payments based onthe net income generated by the corporation. Empirical evidenceshows that the dividend payment decision and stock and debtrepurchase decisions can increase stock prices and returns.A variable, denoted as corporate exportsVwhich incorporatesthe amount of dividends, net stock issuances, and net debtrepurchasesVis used as an expected return to create an initialefficient frontier. A stock selection model is used as a constraint inthe portfolio process in conjunction with the corporate exportsvariable to further increase returns. We use a data miningcorrections test for establishing the statistical significance of ourportfolio returns.Introduction

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