market forces and aircraft safety thecaseofthedc 10 the may 25th 1979 chicago dc 10 crash provides the opportunity to test an important proposition in the theory of consumer product safety can market forces provide safety when products are too complex to permit buyer prepurchase inspection this paper combines economic theory with modern finance theory to measure the cost of the crash to shareholders of the plane s manufacturer mcdonnell douglas the results indicate that the dc 10 crash resulted in a 200 million loss to mcdonnell douglas stockholders and that this amount exceeds any reasonable estimate of regulatory or liability costs

the impact of regulation on the riskiness of electric utilities abstract the impact of regulation on public utility riskiness has been investigated using common stock systematic risk stock beta we show that the stock beta confounds the relevant risk arising out of regulation with the riskiness because of other factors our illustration with a sample of electric utilities underscores the importance of this distinction and contrary to the literature does not support stigler s capture theory view of regulation

herding on fundamental information a comparative study this paper tests for herding towards the market consensus for us and uk leading stocks and to the best of our knowledge addresses a gap in the literature regarding the importance of major fundamental macroeconomic announcements the results indicate that us investors tend to herd during days when important macro data are released and that there have been herding spill over effects from the us to the uk during earlier financial crises further results reveal more differences in herding behavior between the two markets in the us we find that investors herd due to both fundamentals and non fundamentals during different crises when in the uk there is herding only due to fundamentals and only during the dotcom bubble burst these results suggest that the drivers of herding behavior are period and country specific

an analysis of bank risk and deposit rate ceilings abstract the effect of deposit rate regulation on bank solvency is an important and unresolved issue that has received only limited attention in this paper capital market data is used to assess changes in both systematic and non systematic risk of a portfolio of bank stocks at the time of deposit rate deregulation the evidence indicates that neither measure of capital market risk is significantly affected leading to the conclusion that bank solvency risk will not be increased by the deregulation of interest rates on deposits

the wealth effect and diamond risk structure of financial regulation the objective of this article was to evaluate the effect of announcements of financial regulation on risk and return in the vietnamese equity market the techniques used for the purpose of analysing risk and return include event study and non parametric tests as well as asset pricing models supplemented with interaction variables and a variety of arch like specifications such as garch tarch egarch and parch we find evidence for the wealth effect the presence of delayed response and a risk shifting behaviour in the form of diamond risk structure our results show that abnormal returns are present around the announcements of operating rules and other stock market regulations abnormal returns can also be obtained after considering legal documents such as circulars and decisions

the energy efficiency paradox revisited through a partial observability approach the present paper examines the energy efficiency paradox demonstrated in greek manufacturing firms through a partial observability approach the data set used has resulted from a survey carried out among 161 energy saving technology firm adopters maximum likelihood estimates that arise from an incidental truncation model reveal that the adoption of the energy saving technologies is indeed strongly correlated to the returns of assets that are required in order to undertake the corresponding investments the source of the energy efficiency paradox lies within a wide range of factors policy schemes that aim to increase the adoption rate of energy saving technologies within the field of manufacturing are significantly affected by differences in the size of firms finally mixed policies seem to be more effective than policies that are only capital subsidy or regulation oriented

equal employment opportunity law and firm profitability based on a sample of 260 cases reported in the wall street journal between 1964 and 1986 this study finds that the equity value of firms charged with violating equal employment opportunity eeo laws fell at the time that a suit decision or settlement was announced most dramatically the value of firms involved in class action suits fell 15 6 percent on average around the time of the suit further the average loss to shareholders exceeds the amount firms are required to spend to settle the case this may be due to the expected costs of changing employment practices or to the information about the firm s management that is revealed by the case a staggering number of statutes amendments and court decisions regulating equal opportunity in employment have been passed during the past 25 years firms found guilty of violations of equal employment opportunity laws have been required to pay millions of dollars in back pay and to alter their employment practices to comply with the laws this study measures the costs to firms resulting from government and private lawsuits and the further costs of losing those suits i address this question by examining changes in the market value of the equity of firms at the time a lawsuit is filed for a violation of an equal employment opportunity eeo law and at the time a decision of guilty or a settlement

the wealth effects of deregulation of canadian financial institutions abstract canada like other industrial countries recently introduced various financial reforms to remove the barriers separating the operations and ownership of banks from non bank financial institutions this study analyzes the wealth effects of the reforms on the banks and non bank financial institutions and the changes in their systematic risk resulting from financial deregulation over the period 1984 to 1991 the results indicate that while there was a significant cumulative gain for the insurance industry unlike a number of u s studies there was no evidence of wealth transfer among the institutions during the period of deregulation of the canadian financial system additional tests indicate that although the regulatory changes did not have a significant effect on the risk of the banks the systematic risk of the non bank financial institutions increased significantly during the period of regulatory reforms

raiders or saviors the evidence on six controversial investors abstract carl icahn irwin jacobs carl lindner david murdock victor posner and the late charles bluhdorn are usually portrayed as corporate raiders the evidence here however shows that between 1977 and 1982 when it was first announced that they had purchased stock in a given firm stock prices on average increased significantly the investors activities in target firms for the two years following the initial stock purchase are likewise inconsistent with raiding we discuss two hypotheses that are consistent with the evidence first these investors improve the management of target firms second they are systematically able to identify under priced stocks

innovation regimes r d and radical innovations in telecommunications abstract by introducing the concept of innovation regimes the aim of this article is to show how the rapid pace of technological development in the telecom sector may be explained by the close links between the sector s own r d and the creation of numerous innovations many of which are radical in contemporary innovation theory a theoretical antinomy exists whereas the creation of incremental innovations is variously explained in terms of rational responses to markets dynamics of technological regimes dominant design etc radical innovations in contrast are explained in terms of serendipity chance or haphazard scientific discoveries evidence from analysis of innovations in the telecom sector suggests that innovation regimes have provided a capability of coordination direction and leadership in the creation of many of the radical technological innovations that have emerged in the sector thus one may claim that the strong innovation regimes and high r d intensity of the telecom sector at least until recently have provided a capability of creating innovations on purpose for a purpose the policy implications of this contradict some of the assumptions on which the prevailing market oriented r d governance models and policies are based and which are supported by contemporary innovation theories

the effect of two tier collective bargaining agreements on shareholder equity this study uses an event time methodology to examine the impact of two tier agreements on shareholder equity from 1981 through 1986 following announcements of two tier agreements about half of the firms in the sample had negative abnormal returns returns with values below the expected market returns and half had positive abnormal returns because the positive returns exceeded the negative returns in absolute value however there was a statistically significant increase in mean firm value the abnormal returns averaged between 2 and 4 over a 10 to 12 week period following the announcement a figure that approximately equals the transactions cost of a stock purchase the authors speculate that this rather low average gain may help explain the marked decline of new two tier agreements during the latter half of the 1980s

the competitive effects of resale price maintenance the competitive effects of resale price maintenance rpm are theoretically diverse rpm can cause allocation distortions or promote productive efficiencies in the distribution process moreover extant cross sectional empirical evidence is incapable of distinguishing among the potentially disparate effects of rpm this paper conducts hypothesis tests of the alternative theories of rpm the empirical framework relates estimates of the effects of rpm for a cross section of observations to necessary conditions of the alternative models this analysis indicates that rpm is used both to foster cartels and promote efficiencies in the distribution process this result is consistent with the growing body of case study analysis that suggests that rpm is used for a variety of reasons this result also questions the current per se illegal status of rpm in the antitrust laws evidence is also provided concerning the strategic interaction between manufacturers and dealers in the distribution process and the use of financial data in analyzing propositions in industrial organization

the economic value of military connections in turkey can financial connections to the military provide economic value in democratic environments we address this question by studying whether firms in which the turkish military had a controlling financial interest earned abnormally high stock returns on the istanbul stock exchange our findings from event studies are that this is indeed the case we infer that militaries can retain substantial power to influence economic policy from behind the scenes even after formally transferring it to democratically elected leaders the paper contributes to the literature in public choice by demonstrating econometrically that the military can be a major rent seeking actor even in democratic environments

safety net losses from abandoning glass steagall restrictions this paper evaluates the redistribution of gains surrounding regulatory relaxations in 1996 and 1997 and ultimate passage of the financial services modernization act fsma of 1999 gains in financial institution stocks may come from projected increases in efficiency increases in the bargaining power of financial institutions or greater access to the federal safety net for customers seeking improved access to capital markets gains in efficiency should result in increased benefits but increases in bank bargaining power could increase funding costs and or decrease capital market access customers may also lose as taxpayers who support the federal safety net this paper finds evidence of potential taxpayer losses and increased bank bargaining power especially vis a vis credit constrained customers for whom safety net subsidies are unlikely to be shifted forward the stock prices of credit constrained customers declined during fsma event windows and in event windows associated with regulatory relaxations

the effects of tax reform on real estate some empirical results this paper uses data on publicly traded real estate firms to examine the effects of two major tax reforms specifically we analyze the effects of the 1976 and 1986 tax reform acts tras on the risks and returns of real estate investment trusts reits and other real estate firms using intervention analysis since reits have been a dominant force in the real estate equity markets and since they are treated differently for tax purposes than corporations investing in real estate we examine the two groups of firms separately while there exists much popular press literature which discusses the impact of tax reform on real estate little empirical work has directly examined the market s response to these changes 2 most previous work undertaken to examine the potential impact of tax changes has used simulation modeling to estimate the effects on real estate firms values e g fisher and lentz 1986 hendershott follain and ling 1986 a review of the simulation literature is presented in follain and brueckner 1986 turning away from the simulation technique nourse 1987 uses appraisal data to empirically estimate how the 1976 and 1981 tax laws affect capitalization rates i e net income divided by value for real estate in contrast with the existing literature we use market data to evaluate the empirical effects of the 1976 and 1986 law changes the empirical results provide insights into the interaction between tax laws and the market for real estate assets in the next section of the paper we discuss the historical background of the 1976

market reaction to the thrift bailout abstract this paper examines the share price reaction of depository institutions to the financial institutions reform recovery and enforcement act firrea passed august 1989 we find a favorable share price response for thrifts which could be attributed to enhanced depositor confidence reduced risk premiums on deposits reduced agency costs or reduced loan losses among other reasons however the effects of firrea on commercial banks were negligible an intra industry analysis revealed that the variation in share price responses could not be explained by cross sectional differences in thrift capital levels

the effects of the nlra on stockholder wealth in the 1930s whereas most recent research examining the effects of the nlra on labor management relations has focused on the impact of specific provisions of the law this study provides an estimate of the impact of the passage of the nlra on 75 firms that were at great risk of being unionized in the 1930s taking changes in shareholder wealth as a measure of the shift in the balance of power caused by the nlra the authors find that the passage of the nlra caused a statistically and economically significant decline in shareholder wealth for the sampled firms specifically by april 1937 stockholder wealth in the firms was 15 9 lower than would have been expected had the nlra not been enacted t he impact of public policy on the balance of power between labor and management has always been a fundamental topic in industrial relations recent changes in many labor management relationships have renewed interest in the influence of public policy on labor relations and raised questions of how modifications in these policies might alter the behavior of the parties according to delaney lewin and sockell 1985 the empirical research on this topic has largely concentrated on specific provisions of the wagner act such as election procedures and regulation of employer unfair labor practices for example getman gold

gradual incorporation of information pharmaceutical stocks and the evolution of president clinton s health care reform abstract we examine the effect of the evolution of president clinton s health care reform proposal over january 1992 october 1993 on pharmaceutical stock prices we identify a 52 3 percent decline in market adjusted prices which we then associate with health care reform applying a new technique isotonic regression we find most of the decline occurred gradually much of the decline occurred as the clinton plan adopted strategies to contain health care costs including managed competition and implicit regulation indirect evidence suggests that the wealth lost by pharmaceutical companies may have been largely an anticipated transfer our results are relevant to understanding the likely effects of the clinton plan and more recent proposals many other policy changes are marked by gradual public revelation of information which may not be completely observable by a researcher our approach may uncover information about the anticipated effects of policies unavailable from a traditional event study

accounting earnings and future economic rents an empirical analysis abstract this study reexamines competition cost structure and growth opportunities effects on earnings response coefficients and extends this literature in several ways first it presents a more refined theoretical motivation for investigating competition and cost structure effects second it introduces new economic factor proxies that confirm prior findings with respect to competition but differ from prior findings with respect to cost structure and growth opportunities overall the evidence suggests that accounting earnings reflect information about future economic rents generated by firms assets in place the evidence also suggests contrary to prior studies that accounting earnings are not very informative about firms growth opportunities

shareholder wealth effects of legislative events the case of airline deregulation this paper presents empirical evidence about the impact on shareholder wealth of legislative events leading to the enactment of the airline deregulation act of 1978 in contrast to prior regulatory event studies this paper examines not only the final legislative enactment but also the congressional hearings that preceded it no significant effect on shareholder wealth is indicated when averaged across all airline firms and all legislative events impact of deregulation however was expected to be different for trunk airlines than for local airlines moreover market expectations likely changed with the change in the political climate during the course of deregulation deliberations from an industry financial health emphasis under a republican ford administration to a consumer welfare emphasis under a democratic carter administration we find that trunk airlines experienced significant positive abnormal returns during the ford administration but negative abnormal returns during the carter administration in contrast local airlines exhibited significant negative abnormal returns during both the ford and carter eras systematic risk of both trunk and local airlines also increased with the change in the political climate

effects of legislation events on us gaming stock returns and market turnings abstract the deregulation of casino gaming has becomea new trend across the us since the beginning of this decade but from the mid 1990s on the voice of tightened regulation is lifted up by the public while the cyber casino online gambling business is also developing its own customer base this study examines various federal and state legislation events regarding casino gaming regulation and deregulation and finds that the announcement effects on stock portfolio returns vary across different types of gaming companies on average gaming equipment suppliers and small casino operators are found to react to legislation events more significantly compared with those large casino firms furthermore since the casino gaming business is believed to be highly sensitive to the economic upturns and downturns this paper also investigates the impacts on the risk adjusted return alpha and the systematic risk beta of gaming stocks across bull up and bear down market situations the results indicate that between july 1993 and december 1997 gaming stocks on average yield a significantly lower return and a significantly greater systematic risk against the us stock market after changes in stock market conditions are controlled the systematic risk is still considerably above the market average but the excess return turns out insignificant

stock market reactions to the depository institutions deregulation and monetary control act of 1980 abstract this paper evaluates the effects of events leading to the passage of the depository institutions deregulation and monetary control act of 1980 the evidence suggests that the initial proposal of the act by then president carter and the final passage of the act by the house of representatives produced positive abnormal returns to stockholders of large commercial banks stockholders of small commercial banks and small savings and loans on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faced significant negative positive abnormal returns were experienced by stockholders of large small commercial banks

concession bargaining the impact on shareholders equity this analysis of bargaining settlements in 1982 83 shows that on average shareholders in those firms that negotiated concessionary settlements enjoyed an 8 to 10 percent increase in the value of their holdings the author interprets this result to mean not that the value of the firm increased but rather that concessions enlarged the shareholders portion of the firm s value at the expense of the workers portion on the other hand concession bargaining does not seem to have reallocated business risk between shareholders and labor finally the evidence suggests that firm specific sources of risk can explain in part not only the magnitude of the concession effects but also the probability that concession bargaining will occur

the influence of voluntarily disclosed qualitative information we examine the voluntary disclosure of qualitative information about actions involving governmental agencies and managerial intentions or beliefs in r d project announcements in the wall street journal our analysis indicates that information regarding government approval and managerial intentions beliefs voluntarily disclosed in r d project announcements interacts with industry firm variables to provide significant incremental explanatory power in both the innovation and commercialization stages of r d projects our data also indicate that the biggest impact is from managerial intentions especially an intent to increase market share when coupled with being a larger firm copyright 2000 john wiley sons ltd

an examination of the impact of the garn st germain depository institutions act of 1982 on commercial banks and savings and loans this paper evaluates the effects of events leading to the passage of the garn st germain depository institutions act of 1982 the evidence suggests that the call for reform by president reagan s housing commission and the senate passage of the bill produced positive abnormal returns to stockholders of large savings and loans and commercial banks stockholders of small s ls and banks on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faded significant negative positive abnormal returns were experienced by stockholders of large small s ls and banks this study examines the impact of the passage of the garn st germain depository institutions gsgdi act of 1982 on commercial bank and savings and loan stockholder returns the gsgdi act represents one of two major revisions of the financial system over the last twenty years the other being the depository institutions deregulation and monetary control act of 19801 the proposal for such a change reflected the growing inadequacy of the regulatory structure of financial institutions to adapt to rapid changes in technology shifting consumer demands for financial services and extremely volatile interest rates efforts to reform the financial system resulted in passage of the gsgdi act of 1982 which included provisions seeking to improve both the implementation of monetary policy and the degree of equity in the regulation of financial institutions such improvements were intended to reduce the operational and financial risk of financial institutions a central issue in the economics of regulation is whether regulatory actions benefit the economic agents they are intended to benefit a large body of literature exists which examines the economic effects of regulation much of this literature has utilized the concepts and methods of welfare economics to assess the extent

an analysis of the impact of deposit rate ceilings on the market values of thrift institutions this paper examines the impact of changes in deposit interest rate regulations on the common stock values of savings and loan institutions the analysis indicates that stockholder owned savings and loans s l s have experienced statistically significant declines in equity market values at the announcement of the removal of ceilings on certain consumer small saver certificate accounts and the introduction of short term variable rate money market certificates we find the evidence to be consistent with the hypothesis that s l s have earned economic rents from restrictions on interest rates paid to small saver accounts and that relaxation of interest rate ceilings has reduced these rents a central issue in the economics of regulation is whether regulators behave in a way that primarily benefits the economic agents whose actions they are supposed to regulate the proposition that regulation is demanded and acquired by the regulated and that regulations are designed and administered primarily for their benefit was originally put forth by stigler 19 and has come to be known as the capture theory of regulation an alternative view is that regulators adopt policies which serve some other perhaps public or possibly the regulators own interest and that administration of these policies does not benefit the regulated entities this paper examines the regulation of savings and loan associations deposit interest rates and reports evidence pertaining to the impact of the administration of regulation regulation of interest rates paid to depositors in federally insured savings and loan associations began in 1966 since that time several changes in the maximum allowed interest rates deposit rate ceilings have been made these changes present an opportunity to observe the impact of one form of regulatory action on savings and loan institutions deposit rate regulation has been the subject of extensive previous research the empirical investigations have focused primarily on two issues 1 the allocational efficiency and wealth redistribution effects of rate ceilings and 2 the impact of deposit rate ceilings on the flow of funds into the residential

cross sectional association between abnormal returns and firm specific variables abstract abnormal returns market model prediction errors are the subject of many event studies in accounting and finance literature conditional on the event of interest researchers have recently used cross sectional regressions to examine relations between abnormal returns and firm specific variables this paper demostrates that non constant variences and covariances in market model residuals across firms introduced bias in the estimated slope coefficients of the independent variables i e the expected signs of the estimated slope coefficients can be predicted a priori a method is develope to removed the bias in the estimated slope coefficiets and is found to be effective this method explicitly takes the dependence among abnormal returns across firms into account methods that assume abnormal returns across firms to be independent do not control for such bias

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

using stock price data to measure the effects of regulation the interstate commerce act and the railroad industry this article usesjinancial data to measure the effects of the passage of the interstate commerce act of 1887 and subsequent legislative and judicial developments on firms in the railroad industry the results indicate that the interstate commerce act had a significant positive impact on railroad stock prices and that court decisions in the 1890s which severely restricted the powers of the interstate commerce commission caused negative stock price reactions thesefindings offer support for the revisionist view of regulatory history according to which the railroads welcomed regulation as a means offacilitating the enforcement of cartel like agreements

property rights and competing for the affections of demos the impact of the 1867 reform act on stock prices the 1867 reform act in britain extended the electoral franchise to the skilled but propertyless urban working classes using stock market data and exploiting the fact that foreign and domestic equities traded simultaneously on the london market this paper finds that investors in british firms reacted negatively to the passage of this act we suggest that this finding is consistent with investors foreseeing future alterations of property rights arising from the pressure that the large newly enfranchised group would bring to bear on government policy we also suggest that our findings appear to be more consistent with the tory political competition explanation for the act rather than the whig threat of revolution explanation

the economic incidence of the interstate commerce act of 1887 a theoretical and empirical analysis of the short haul pricing constraint the public and private interest hypotheses permeate contemporary regulatory analyses both theories are used to explain the inception of the first major federal regulatory agency the interstate commerce commission icc according to the public and private interest hypotheses the regulations promulgated by the icc benefited either railroads or shippers this paper presents an alternative view consistent with the multiple interest theory of regulation it is demonstrated that the major regulatory instrument of the icc the short haul pricing constraint shpc altered the equilibria of railroad markets in a way which benefitted the class of shippers short haul shippers facing monopolistic railroad markets the shpc also benefitted some railroads by increasing the correspondence between unregulated cooperative and regulated noncooperative levels of long haul shipments the proposition that the icc benefited short haul shippers and railroads is supported by an empirical analysis of the effects of the inception of federal regulation and implementation of the shpc on stock prices the results of the paper indicate that the public and private interest interpretations of the icc are neither contradictory nor complete but instead are complementary a theoretical and empirical analysis of the chief regulatory mechanism of the icc provides this synthesis

the valuation effects of the 1977 community reinvestment act and its enforcement abstract we examine the wealth effects of the passage of the community reinvestment act cra of 1977 for commercial banks and savings and loan associations we find significantly negative average excess returns for small nyse amex banks and sl in contrast there is no evidence that large nyse amex institutions or nasdaq institutions experience wealth losses we also study the effects of individual cra protests against institutions and find they produce significantly negative excess returns which are not reversed when the protests are resolved our results have implications for proposed changes to cra and for the future consolidation of the financial services industry the results also demonstrate the difficulties associated with studying returns from the early years of the nasdaq market

election returns as a signal of changing regulatory climate abstract this paper considers the effects of changes in regulatory climate on the expected future profitability of regulated electric utilities previous researchers addressing issues relating to regulatory environment have examined the determinants of investor perceptions of regulatory climate the effect that the method of commissioner selection in particular has on regulatory climate and the effects of regulatory climate on the cost of capital to the regulated firm this paper seeks to ascertain the importance of regulatory climate by examining the stock market performance of regulated electric utilities at the time of an unanticipated change in regulatory environment these results indicate that in those states in which the change in regulatory climate was most clearly unanticipated an adverse change in the regulatory environment did result in negative abnormal returns to utilities operating in those states thereby indicating a reduction in the expected future profitability of the regulated firms in addition our results provide support for the proposition that the firm s systematic risk is lower when enforcement of regulation is more stringent

evidence of the impact of mandatory changes in accounting principles on corporate loan agreements abstract the theory in this paper predicts that mandatory changes in accounting princples can affect the measurement rules defined in restrictive covenants in firms lending agreements consequently those mandatory changes can have an impact on the value of a firm s equity even if the changes appear to be merely cosmetic this contracting cost theory is tested by examining of both event related and cross sectional abnormal performance of the equity of a sample of firms when the accounting princples board changes accounting princples for business combinations the theory provides at best in incomplete explanation of the observed abnormal performance

capital market response to emission rights returns evidence from the european power sector prior studies on the distributional effects of the european union s emission trading scheme eu ets have so far only relied on supply and demand data empirical evidence from capital markets has been missing we address this gap and measure the ets s economic consequences using the expectations of investors towards the regulatory impact on firm value employing a multifactor model we show that returns on common stock of the largest affected industry power generation are positively correlated with rising prices for emission rights this implies that the market predicts that firms are not only able to pass on their share of the regulatory burden to customers but even achieve windfall profits by overcompensating for the costs

the regulation of electricity results from an event study in this paper event study methods are used to compare the stock market returns for the recs with general stock market returns to test the hypothesis that the regulatory package shows symptoms of capture by special interest groups over the 1991 95 period the results show that some capture by the recs may have occurred as they have earned abnormal market returns however regulatory events are heterogeneous in nature and actions taken over prices by the director general of electricity supply dges in 1995 appear to have reduced abnormal returns as part of the study we examine the impact on shareholders returns of the dges s controversial announcement in march 1995 of plans to tighten price controls on the recs the regulatory package appears to work reasonably well on balance

market forces and commercial aircraft safety this paper investigates the wealth impact on aircraft manufacturers of crashes involving their aircraft the author attempts to separate out the regulatory tort law and endogenous market components of these costs using stock market data the results indicate that on average the manufacturer suffers a wealth loss of 21 3 million as the result of a fatal crash in which the structural integrity of the aircraft is at issue the analysis suggests that not all of this amount can be attributed to regulatory or tort law mechanisms and that market forces play a role in providing air travel safety copyright 1987 by blackwell publishing ltd

stock price effects of u s trade policy responses to japanese trading practices in semi conductors over much of the last decade the united states and japan have been embroiled in a trade dispute over access to japanese markets for semiconductors and downstream products this study examines stock price reactions for firms affected by a subset of events commencing with the filing of a section 301 petition by the u s semiconductor industry association alleging unfair practices by the japanese and culminating in the 1986 trade agreement the evidence suggests that u s semiconductor consumers as well as producers benefited from these events

estimating the structure of market reaction to news information events and lumber futures prices we develop a new event study technique the distributional event response model derm appropriate to relatively slowly evolving information events we apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases a monthly housing starts estimates b aperiodic administrative and judicial announcements about u s canada trade disputes and c novel and unprecedented court decisions related to the endangered species act esa the information releases are different in ways that predict their relative speeds of impoundment in prices we find that housing start events are absorbed more quickly than trade events which are absorbed more quickly than esa events

court decisions and equity markets estimating the value of copyright protection abstract we construct a database of u s federal court decisions pertaining to copyright and changes in federal statutory copyright law and use this database to assemble indices measuring changes in the breadth of copyright protection we combine our indices with information on excess returns to equity from a quarterly panel of firms and estimate how the breadth of copyright affects the market valuation of firm equity a typical statute that increases copyright breadth generates an increase in a firm s excess return to equity of 40 209 basis points depending on the exact time frame the size of the firm and the importance of the change in statutory law a typical high court decision expanding copyright generates a 13 105 basis point increase in excess returns our results are robust across 4 5 year subsamples and the size distribution of firms our statutory findings are strongest in the most recent portion of the sample

the effects of the international banking act on domestic bank profitability and risk the passage of the international banking act of 1978 was the first major step towards imposing consistent and uniform federal regulations on the growing number of foreign banks entering the united states prior to this date foreign banks had been subject to a patchwork of state laws of varying degrees of stringency covering their entry expansion and portfolio behavior see white 1982 and walker 1983 the net result of this patchwork of state regulation was that by 1978 foreign banks had developed certain competitive advantages over domestic banks these advantages emanated from the fact that foreign bank branches and agencies i were not required to meet federal reserve determined reserve requirements on liabilities such as large cds and ii they were not subject to federal laws governing interstate banking the 1927 mcfadden act and activity diversification the 1933 glass steagall act and the 1956 bank holding company act including its 1970 amendments however foreign banks were also subject to certain disadvantages compared to domestic banks in particular they were inhibited from entering into retail banking markets by being ineligible for fdic insurance and being denied access to fed services such as check collection and the discount window to eliminate these discrepancies in relative regulation the international banking act iba was introduced in the house of representatives in february 1978 re

wealth effects of regulatory reform abstract this paper investigates the effect of california s proposition 103 on the market value of publicly traded property and liability insurance companies the passage of this referendum on november 8 1988 moved california from a market oriented to a heavily regulated insurance pricing system during the period surrounding the election the average stock price of insurance companies doing business in california declined by 6 91 the decline is positively related to the proportion of a firm s premiums affected by the referendum and the proportion generated in other states where insurance regulation is likely to change and negatively related to the firm s profitability

the effect of discretionary price control decisions on equity values abstract the macro literature presents conflicting evidence on the effects of price controls in this study the fact that the macro economic effect of wage and price controls is the aggregation of the micro economic effects is used to implement a different approach to measure the effects of price controls the effect of price controls is inferred from examining the impact of discretionary regulatory decisions on the equity values of individual firms during phase ii of nixon s economic stabilization program the empirical results indicate that violators of the regulations incurred significant abnormal losses that were unrelated to the explicit penalties this suggests that implicit penalties were imposed on offending firms the analysis of price increase decisions provides weak evidence that these price commission decisions had an impact on equity values

the tylenol incident ensuing regulation and stock prices the much publicized tylenol incident in 1982 led to stringent packaging regulations for over the counter pharmaceutical drugs the sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations the market value of common stock of johnson johnson makers of tylenol declined by approximately 29 percent amounting to 2 31 billion although other firms in the industry also suffered significantly their share price decline did not occur around the tylenol incident but occurred around the subsequent packaging reg ulation proceedings on average 28 other pharmaceutical firms analyzed in this study experienced a decline of 310 million per firm or a total of about 8 68 billion the results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry

the competitive effects of horizontal mergers in the hospital industry a closer look abstract woolley 1989 attempted to analyze the competitive impact of horizontal hospital mergers using the event study method woolley characterized his results as consistent with traditional oligopoly theories of market behavior we scrutinize in detail a large number of his events however and find that most either generated concentration increases too small to plausibly produce market power or could not have conferred monopoly returns on firms improperly characterized as rivals accordingly any observed abnormal returns are likely attributable to some other cause we suggest some alternative interpretations of his results our paper highlights the need for care in the selection of events and the identification of rivals when applying the event study method to the analysis of mergers

does the japanese stock market price bank risk evidence from financial firm failures the ability of the japanese stock market to appropriately price the riskiness of japanese financial firms has been frequently questioned particularly in light of japan s widespread financial distress in recent years and poor disclosure requirements this paper examines the response in equity returns of japanese banks to the failure of four commercial banks and two securities firms between 1995 and 1998 using event study methodology the analysis finds that share prices of surviving banks on the whole responded unfavorably to the failures and that financially weaker survivors were more adversely affected this suggests that despite the distress and alleged opaqueness bank shareholders were able to use available indicators of financial condition both to incorporate new information quickly into stock prices and to differentiate among banks

the impact of the 1980 depository institutions deregulation and monetary control act on market value and risk evidence from the capital markets the depository institutions deregulation and monetary control act of 1980 brought about major changes in the banking industry this study employs capital market data to examine the act s impact on the relative competitive positions of distinct classes of firms within the industry the evidence supports the hypothesis that federal reserve system banks profited from the regulatory change at the expense of nonmember banks and savings and loans copyright 1988 by ohio state university press

does it pay to change your company s name a stock market perspective a company s name is commonly considered to be an integral part of its image just like the quality of its products or the quality of its technical services changing a company s name is a major policy decision contemplated by many firms and actually implemented by some each year this paper attempts to examine albeit indirectly whether a name change can improve the profit performance of a firm and what type of firm is more likely to succeed in doing so we use the event study methodology developed in finance to examine the above questions with respect to 58 corporations that changed their names in 1981 1985 our findings are that for most of the firms name changes are associated with improved performance and that the greatest improvement tends to occur in firms that produce industrial goods and whose performance prior to the change was relatively poor evidence that industrial good producers are also heavy users of corporate advertising lends further credence to this finding our findings do not support however the contention that the new name per se will enhance demand for the firm s products rather it seems that the act of a name change serves as a signal that other measures to improve performance such as changes in product offerings and organizational changes will be seriously and successfully undertaken the rationale behind why such a signal is sent and why it is believed is discussed

a market based evaluation of the election versus appointment of regulatory commissioners this paper examines the elected versus appointed commissioner dichotomy from a market value perspective previous empirical analysis tends to concentrate on rates rather than examining the impact on shareholders wealth we examine life insurance industry data during the period surrounding the passage of california s proposition 103 the primary impact of the referendum on life insurers is to change the method of commissioner selection from appointment to popular vote we find that this change significantly reduced the value of life insurers doing business in california this result is consistent with the recent findings of boyes and mcdowell 1989 and smartt 1994 using alternative evaluation procedures for firms in other regulated industries this implies that the change to a popular election of commissioners either increases the level of risk and or decreases the expected cash flows of regulated firms

the incidence of regulatory rents in the motor carrier industry this article focuses on two questions in the debate over motor carrier regulation first did regulation create eliminate or have no effect on monopoly rents in the trucking industry second ifthere were rents what was their incidence were they received by owners oftrucking firms dissipated through higher costs or captured by the teamsters union data on share price responses to deregulation announcements reveal declines in expected profits of 8 19 of totalfirm value this suggests that regulation created monopoly profits and indicates that at least some of these rents accrued to owners of trucking firms firms responses to regulatory change are modelled as functions of company s operating characteristics and measures of unionization operating efficiency and service characteristics are shown to affect the impact of deregulation on share values

the impact of strikes on shareholder equity from an analysis of data for 1962 82 the authors find that strikes substantially affect shareholder equity as measured by the change in stock prices associated with strikes over that period the a

the value of administered protection a capital market approach the focus of this paper i s on the escape clause petitions filed under the trade act of 1974 section 201 first the capital marketevent study method is used to analyze the effects of protection decisions then cross section regressions are performed to examine the influence of key variables on the observed market reaction the authors conc lude that while protection is beneficial to beleaguered industries the extent o f such benefits is quite narrowly circumscribed and is conditional on internal v ariables for each firm protection is thus not the panacea that its advocates cl aim copyright 1986 by mit press

convertible call policies an empirical analysis of an information signaling hypothesis abstract this paper tests an information signaling hypothesis as a potential explanation for corporate convertible bond call policies and for the negative share price reaction to the announcement of the calls we test this hypothesis by trying to ascertain whether the information signaled is realized our results show an unexpected decline in the firm s performance subsequent to the call we also find significant negative cumulative returns during a sixty month period following the calls

the rise and fall of railtrack plc an event study forming railtrack was a key part of the privatization of british rail br railtrack took over the ownership of br s fixed infrastructure in april 1994 and its parent company the railtrack group was floated in may 1996 on the london stock exchange lse despite the group posting some excellent financial results in the early years railtrack s record on infrastructure improvement and safety was frequently criticized this apparent inconsistency between shareholder interests and public service obligations culminated in railtrack being placed in administration in october 2001 in view of this apparent inconsistency and the high court claim for additional compensation brought against the government by a group of 49 000 small investors the reaction of the stock market to 19 key events is modelled among other things we find when railtrack announced after the fatal derailment of a high speed train near the hertfordshire town of hatfield that there would be a 6 month programme of emergency track repairs t

an analysis of intra industry differences in the effect of regulation the case of deposit rate ceilings abstract this study examines the impact of deposit rate ceiling changes on the market value of commercial banks and stock savings and loan associations statistically significant increases in market value are found on announcement of the removal of ceilings on large denomination certificates of deposit in contrast retail commercial banks and savings and loans experienced declines in value on announcement of the elimination or relaxation of deposit rate ceilings on small denomination consumer accounts in addition for all events analyzed significant differences were found in the effect of ceiling changes on the market value of wholesale and retail commercial banks

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

policy shocks and market based regulations evidence from the renewable fuel standard the renewable fuel standard mandates large increases in u s biofuel consumption and is implemented using tradable compliance credits known as rins in early 2013 rin prices soared causing the regulator to propose reducing future mandates we estimate empirically the effect of three policy shocks that reduced the expected mandates in 2013 we find that the largest of these shocks decreased the value of the fuel industry s 2013 compliance obligation by 7 billion we then study the effects of the shocks on commodity markets and the market value of publicly traded biofuel firms results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel we argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the rfs and discuss alternative policy designs to address the problems that arose in 2013

investor response to health care cost containment legislation is american health policy designed to fail two failed congressional attempts to control escalating health costs are examined the data show that investors apparently anticipated their failure with the implementation of a policy encouraging market competition however investors expected larger firms to benefit and firms with previously high profit growth rates to lose from the viewpoint of the politics of structural choice it appears that identifiable structural flaws were deliberately designed into both laws in ways that would promote failure and protect key interest groups

the effect of voluntary sell off announcements on shareholder wealth sell off activities arise when a firm sells part of its assets e g a segment a division etc but continues to exist in essentially the same form this study investigates the effect of voluntary sell offs on stock returns from a sample of over 1000 sell off events first public announcements the evidence shows that both sellers and buyers earn significant positive excess returns from these transactions the excess returns earned by buyers are smaller than those earned by sellers there is also evidence that sell off announcements are preceded by a period of significant negative returns for the sellers which suggests that the sellers on average performed poorly prior to their sell off activities substantial research has been undertaken in recent years on mergers acquisitions tender offers capital structure changes and other financial planning topics this research has considerably expanded our knowledge about the association of these decisions with the welfare of the stockholders involved in these transactions selling a portion of the firm s assets is another important financial planning decision 2 this paper investigates the effect of voluntary sell off announcements on shareholder wealth a sell off is defined as selling part of a firm s assets e g a segment a division etc while the firm continues to exist in essentially the same form as that prior to the sell off this study does not examine the effects of involuntary ordered by the government sell offs and other similar activities such as spin offs leveraged buy outs liquidations reorganizations etc 3