Dr. Julie Fitzpatrick
Two peer-reviewed journals have published articles written or co-written by School of Business Associate Professor Julie Fitzpatrick during her Fall 2018 sabbatical leave.
“Integrating Finance with Production to Determine Optimal Output,” which Dr. Fitzpatrick co-wrote with Dr. Joseph Cheng, of Lingnan University, Hong Kong, appears in the Journal of Applied Financial Research (2019), vol. 1, pages 6-16.
The authors identify the optimal level of production as one of the most important decisions made by a firm. In most corporate finance textbooks, a firm’s production level is given rather than determined endogenously, or from within the organization. The issue of optimal production is important in finance because the amount of funds required by the firm depends on the level of desired investment, which in turn depends on the level of planned production. Finance and production, as a result, intertwine in a real way in the business world.
A new approach to the optimal output decision that integrates financial theory with production management is then developed. Production management often emphasizes cost minimization while finance underscores the importance of shareholder wealth maximization.
The authors’ approach is based on maximization of the Sharpe (reward-to-risk) Ratio. While the Sharpe Ratio is widely used to determine the optimal investment allocation, it has not been used to determine a firm’s optimal production quantity. Their approach helps to illustrate the firm’s full financial planning process since the level of funds required depends on the firm’s production level.
“The Impact of CEO Activism on Shareholder Wealth: An Exploratory Event Study,” the second article, appears in the Journal of Finance and Accountancy, Vol. 25. In this article, Fitzpatrick examines to what extent, if any, does the stock market react when a CEO takes a public stand on a controversial social issue.
Fitzpatrick cites the example of Apple CEO Tim Cook who, in 2015, used Twitter as a platform to voice his firm’s opposition to Indiana’s Religious Freedom and Restoration Act (RFRA). This legislation had little to no direct effect on Apple’s operations but was criticized by opponents as allowing discrimination against the LGBT community.
The study undertaken by Fitzpatrick was the first to empirically examine the effects of CEO activism on shareholder wealth. Using an event study methodology, her analysis provides some evidence that CEO activism negatively affects short-term shareholder wealth. Although results depend on different measures of abnormal returns and event windows, the average cumulative abnormal return relative to the market from the day preceding an announcement to the day following an announcement is a statistically significant negative 1.25 percent.
