bank acquisitions and ownership structure theory and evidence abstract in this paper we both theoretically and empirically consider the joint nature of two ownermanager conflict resolution mechanisms insider shareholdings and shareholder concentration we find evidence of a significant entrenchment effect for high low firms moreover bidder returns are found to be positive for high high firms only we utilize a switching of regression regimes model to solve for critical values of and that subdivide the universe of acquiring firms into separate and distinct ownership structure regimes i e that define high vs low levels of or

are overconfident ceos born or made evidence of self attribution bias from frequent acquirers we explore the history of mergers and acquisitions made by individual ceos our study has three main findings 1 ceos first deals exhibit zero announcement effects while their subsequent deals exhibit negative announcement effects 2 while acquisition likelihood increases in the performance associated with previous acquisitions previous positive performance does not curb the negative wealth effects associated with subsequent deals and 3 ceos net purchase of stock is greater preceding subsequent deals than it is for first deals we interpret these results as consistent with self attribution bias leading to overconfidence we also find evidence that the market anticipates future deals based on the ceo s acquisition history and impounds such anticipation into stock prices

the use of excess cash and debt capacity as a motive for merger this study explores the hypothesis that capital structure change provides bidders and tar gets a motive for merger after a brief review of theories that would support the hypothe sis the paper reports results of tests on 1 leverage in bidder and target firms and 2 change in shareholder wealth associated with change in leverage the findings support the theory of myers and majluf that slack rich bidders pair with slack poor targets to create value these results are contrary to other studies which find highly levered bid ders

supply side and demand side cost sharing in deregulated social health insurance which is more effective abstract microeconomic theory predicts that if patients are fully insured and providers are paid fee for service utilization of medical services exceeds the efficient level moral hazard effect in switzerland both demand side and supply side cost sharing have been introduced to mitigate this problem analyzing a panel dataset of about 160 000 adults we find both types of cost sharing to be effective in curtailing the use of medical services however when moral hazard mitigation is traded off against risk selection the minimum deductible supply side cost sharing option ranks first followed by the medium deductible demand side alternative making the supply side option somewhat more effective

event risk covenants and bondholder returns in leveraged buyouts abstract prebuyout bondholders on average suffer statistically significant wealth losses in leveraged buyouts bonds with strong covenant protection however gain value while those with no protection lose value the disposition of bonds after buyouts e g remained outstanding called tendered defeased is also strongly linked to type of covenant protection we also document that covenant use declines for bonds issued after 1980 finally the losses to bondholders are small compared with the gains accruing to shareholders

the effect of business risk on corporate capital structure theory and evidence under corporate and personal taxation we demonstrate that the relation between optimal debt level and business risk is roughly u shaped this result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option therefore the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options results of empirical tests offer support for the predicted u shaped relationship

black swan events and safe havens the role of gold in globally integrated emerging markets there is evidence to suggest that gold acts as both a hedge and a safe haven for equity markets over recent years and particularly during crises periods our work extends the recent literature on

an empirical examination of multinational corporate capital structure this paper examines whether there are systematic differences in the traditional capital structure determinants between mncs and dcs and if there are additional uniquely international factors that may help explain the capital structure choice of multinational corporations the results suggest that specific international factors such as political risk and exchange rate risk are relevant to the multinational capital structure decision that multinationals have higher agency costs than purely domestic firms and that international diversification does not lower earnings volatility for multinational corporations

bankruptcy risk and optimal capital structure this study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis the alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments based upon the cross sectional implications of the tax shelter bankruptcy cost hypothesis an alternative test of the irrelevance hypothesis is performed the test examines the relationship between failure rates and leverage ratios for 36 lines of business the results are inconsistent with the irrelevance hypothesis in their landmark paper modigliani and miller 26 demonstrate that under certain assumptions the market value of a firm is independent of its capital structure these assumptions include the absence of taxes transactions costs and bankruptcy costs recently miller 24 has argued that the introduction of corporate and personal taxes does not alter the capital structure irrelevance result in the absence of bankruptcy costs 1 the inclusion of bankruptcy costs generally considered in conjunction with the tax deductibility of interest payments has led others to conclude that capital structure will affect the value of the firm 2 in this case value maximizing firms may choose optimal capital structures consisting of both debt and equity there have been numerous attempts to discriminate empirically between the miller irrelevance mi hypothesis and the tax shelter bankruptcy cost ts bc hypothesis several are discussed in section i of this paper there it is argued that studies attempting to measure directly the effect of changes in capital structure on firm values are subject to serious complications and are unable to discriminate between the mi and ts bc hypotheses other studies focus on cross sectional implications of the mi and ts bc hypotheses the cross sectional tests are based on the assertion that bankruptcy costs may tend to induce firms with greater business risk to include less debt in their capital structures whereas the mi hypothesis does not predict such a relationship unfortunately the existence of positive bankruptcy costs is not sufficient to ensure that the ts bc hypothesis will predict the inverse relation

bayesian analysis of the two part model with endogeneity application to health care expenditure this paper studies the effect of managed care on medical expenditure using a model in which the insurance status is assumed to be endogenous insurance plan choice is modeled through the multinomial probit model the medical expenditure variable the outcome of interest has a significant proportion of zeros that are handled using the two part model extended to handle endogenous insurance the estimation approach is bayesian based on the gibbs sampler the model is applied to a sample of 20 460 individuals obtained from the medical expenditure panel survey the results provide substantial evidence of selectivity copyright 2006 john wiley sons ltd

the value of quality product quality is probably undervalued by firms because there is little consensus about appropriate measures and methods to research quality we suggest that published ratings of a product s quality are a valid source of quality information with important strategic and financial impact we test this thesis by an event analysis of abnormal returns to stock prices of firms whose new products are evaluated in the wall street journal quality has a strong immediate effect on abnormal returns which is substantially higher than that for other marketing events assessed in prior studies moreover there are some important asymmetries in the effect we discuss the research managerial investing and policy implications

valuation of bankrupt firms this study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management s published cash flow projections we estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value we find that these methods generally yield unbiased estimates of value but the dispersion of valuation errors is very widethe sample ratio of estimated value to market value varies from less than 20 to greater than 250 cross sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders incentives to overstate or understate the firm s value

private insurance selection and health care use observed differences in medical utilization between the privately insured and uninsured reflect the combined effects of self selection and insurance incentives moral hazard this article provides a bayesian framework for decomposing the disparity into incentive and selection components the effect of self selection in private insurance on the number of doctor visits is estimated using a multiyear sample of the u s adult non medicare population obtained from the medical expenditure panel survey we use a flexible econometric framework based on the roy model and develop a markov chain monte carlo algorithm we estimate the distribution of treatment effects and find strong evidence indicating selection which accounts on average for 50 or more of the observed disparity in doctor visits

source versus residence based taxation with international mergers and acquisitions this paper analyses tax competition and tax coordination in a model where capital flows occur in the form of mergers and acquisitions rather than greenfield investment in this framework we show that differences in residence based taxes do not necessarily distort international ownership patterns moreover tax competition yields globally efficient levels of source based corporate income taxes if residence based taxes on capital income are absent in contrast in the presence of residence based taxes on dividends source based corporate income taxes are inefficiently high the widespread view that tax coordination is less urgent if residence based taxes are available may therefore be misguided

financial statement comparability and expected crash risk this study examines the impact of financial statement comparability on ex ante crash risk using the comparability measures of de franco et al 2011 we find that expected crash risk decreases with financial statement comparability and this negative relation is more pronounced in an environment where managers are more prone to withhold bad news we also provide evidence that comparability can mitigate the asymmetric market reaction to bad versus good news disclosures our results suggest that financial statement comparability disinclines managers from bad news hoarding which reduces investors perceptions of a firm s future crash risk

the monitoring rationale for dividends and the interaction of capital structure and dividend decisions abstract this paper develops an agency cost framework for the simultaneous determination of a firm s capital structure and dividend decisions in the model simultaneity is contingent on the applicability of easterbrook s 1984 monitoring rationale for paying dividends which in turn is hypothesized to depend on the existence of alternative sources of monitoring estimations of the rozeff 1982 specification for dividend payout for subsamples stratified according to the prevalence of non dividend monitoring mechanisms and growth induced capital market monitoring confirm the sample specific validity of the monitoring rationale a simultaneous system of equations is then estimated and consistent with our hypothesis simultaneity between capital structure and dividend decisions is observed only for the subsample in which the monitoring rationale for dividends is found applicable

financial intermediation delegated monitoring and long term relationships abstract this paper considers the consequences of enduring relationships for bank structure and policy in an information based banking model adding a richer time dimension allows repeated lending between the intermediary and borrower this contract lets a bank produce information and enforce compliance more easily than direct monitoring of the borrower s organization this implies an asymmetric banking structure banks enter long term relationships with borrowers but not with depositors next it shows how enduring relationships solve problems with loan participations and security underwriting by commercial banks

motivations for bank mergers and acquisitions enhancing the deposit insurance put option versus earnings diversification this paper examines the prices bid for target banks in the early to mid 1980s two hypotheses are examined 1 the earnings diversification hypothesis which holds that banks would bid more for merger partners that offered risk reduction opportunities and 2 the deposit insurance put option hypothesis which holds that acquirers would bid more for targets that offered opportunities to increase risk and or become too big to fail an empirical analysis of a sample of 302 mergers produces results that are consistent with the earnings diversification hypothesis and inconsistent with the deposit insurance put option hypothesis copyright 1995 by ohio state university press

employment protection and takeovers labor restructuring is a key driver of takeovers and the associated synergy gains worldwide in a difference in differences research design we show that major increases in employment protection reduce takeover activity by 14 27 and the combined firm gains synergies by over half consistent with the labor channel behind these effects deals with greater potential for workforce restructuring show a greater reduction in volume number and synergies the reforms do impede layoffs and the associated wage costs match the magnitude of synergy losses offer prices are not fully adjusted with both bidders and targets exhibiting lower returns following the reforms

the structure and incentive effects of corporate tax liabilities this paper describes situations in which tax liabilities assume the form of a negative position in a call option this structure motivates an examination of the investment decisions of taxed corporations in the presence of risk it is shown that the structure of the tax liability creates an incentive to underinvest in more risky projects and an incentive for conglomerate merger these effects are then evaluated in the presence of conflicts of interest between stockholders and bondholders and under alternative assumptions about the tax code and about the timing of investment and financing decisions this paper makes an observation regarding the functional form assumed by the tax liabilities of corporations with potentially redundant deductions and evaluates its consequences for investment incentives interest and other deductions against taxable income can be taken for the most part only to the extent of that income in a single period model this gives the net tax liability a familiar structure it can be viewed as a call option where the exercise price on the call is the allowable deductions the tax paying entity holds a positive position in the assets which generate the taxable income and a negative position in a call option on those assets the analogy between options and the structure of tax liabilities calls attention to some interesting incentive effects concerning risk using their model of option valuation black and scholes 5 showed that the value of an option is increasing in the variance of the asset it is written on other authors have generalized this result and studied its implications for corporate financing see jagannathan 16 jensen and meckling 17 and green 15 the importance of the risk attributes of the underlying asset in option valuation suggests that taxation may have important incentive consequences for investment decisions involving risk it has been recognized in the public economics literature for some time that asymmetries in the tax schedule can affect risk taking behavior early papers by mossin 20 and stiglitz 25 studied individual portfolio decisions over a riskless and a risky asset our analysis differs from these in a number of respects the most important of these is our use of market valuation rather than expected utility in the decision maker s objective function this is surely a more appropri

what are the consequences of consequentiality abstract we investigate the extent to which dichotomous choice referenda responses are shaped by whether the individual believes the survey itself will ultimately impact policy using survey data from the iowa lakes project we test this supposition specifically we employ a bayesian treatment effect model in which the degree of perceived consequentiality measured as an ordinal response is permitted to have a structural impact on willingness to pay wtp for a hypothetical environmental improvement we test whether the estimated wtp distributions are the same for each value of the ordinal response in our survey data a subsample of individuals were randomly assigned supporting information suggesting that their responses to the questionnaires were important and will have an impact on policy decisions in conjunction with a bayesian posterior simulator we use this source of exogenous variation to identify the structural impacts of consequentiality perceptions on willingness to pay while controlling for the potential of confounding on unobservables we find evidence consistent with a knife edge result namely that the willingness to pay distributions are equal among those believing the survey to be at least minimally consequential and different for those believing that the survey is irrelevant for policy purposes

optimal capital structure a multi period programming model for use in financial planning abstract this paper describes a multi period chance constrained mathematical programming model to compute for each period the firm s optimal debt to equity ratio and the optimal maturity distribution of its debt the model assumes that the firm s objective is to maximize total value of the firm and that the firm operates in a world of uncertainty with corporate income taxes and bankruptcy costs finally the actual coupon rate paid by the firm which is commensurate to the risk of default is endogenously determined by the model

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

the flip side of financial synergies coinsurance versus risk contamination this paper characterizes when joint financing of two projects through debt increases expected default costs contrary to conventional wisdom separate financing dominates joint financing when risk contamination losses that are associated with the contagious default of a well performing project that is dragged down by the other project s poor performance outweigh standard coinsurance gains separate financing becomes more attractive than joint financing when the fraction of returns lost under default increases and when projects have lower mean returns higher variability more positive correlation and more negative skewness these predictions are broadly consistent with evidence on conglomerate mergers spinoffs project finance and securitization

do bad bidders become good targets this paper empirically examines one motive for takeovers to change control of firms that make acquisitions that diminish the value of their equity firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value and firms that do not become takeover targets make acquisitions that raise their equity value within the sample of acquisition by targets the acquisitions that reduce equity value the most are those that are later divested either in bust up takeovers or restructuring programs to thwart the takeover this evidence is consistent with theories advanced by marris manne and jensen concerning the disciplinary role played by takeovers

mergers and investment incentives this paper explores the effects of mergers on the investment incentives of the levered firm and on levered firm value under a fairly broad set of assumptions it is shown that most firm combinations improve investment incentives bringing about a reduction in the agency costs of underinvestment associated with risky debt the effect of the merger on debt and equity claim values is also explored if not properly anticipated the merger may create a wealth transfer from equity holders to bondholders such a wealth transfer includes but is not limited to the coinsurance effect

much ado about two reconsidering retransformation and the two part model in health econometrics in health economics applications involving outcomes y and covariates x it is often the case that the central inferential problems of interest involve e y x and its associated partial effects or elasticities many such outcomes have two fundamental statistical properties y 0 and the outcome y 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically this paper 1 describes circumstances where the standard two part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters and 2 demonstrates some alternative approaches that are likely to prove helpful in applications

liquidation costs and capital structure abstract we investigate the relation between liquidation costs of assets and composition of capital structure for firms that reorganized under chapter 11 of the bankruptcy code firms with high liquidation costs emerge from chapter 11 with relatively low debt ratios the debt of these firms is more likely to be public and unsecured and to have less restrictive covenant terms these firms are also more likely to raise new equity capital assets with high liquidation costs thus lead firms to choose capital structures that make financial distress less likely

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

taxing away m a capital gains taxation and acquisition activity abstract capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions this lock in effect increases premiums required for deal completion preventing some m as from taking place at all we estimate the effect of capital gains taxation on the quantity of realized m a deals and compute the deadweight loss related to taxing these transactions we find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1 annually for the united states this implies unrealized synergy gains of 9 3 billion each year due to capital gains taxes

on the existence of an optimal capital structure theory and evidence one of the most contentious issues in the theory of finance during the past quarter century has been the theory of capital structure the geneses of this controversy were the seminal contributions by modigliani and miller 18 19 the general academic view by the mid 1970s although not a consensus was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs no sooner did this general view become prevalent in the profession than miller 16 presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level since then there has developed a burgeoning theoretical literature attempting to reconcile miller s model with the balancing theory of optimal capital structure e g deangelo and masulis 5 kim 12 and modigliani 17 the general result of this work is that if there are significant leverage related costs such as bankruptcy costs agency costs of debt and loss of non debt tax shields and if the income from equity is untaxed then the marginal bondholder s tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing the firm s optimal capital structure will involve the trade off between the tax advantage of debt and various leverage related costs the upshot of these extensions of miller s model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage related costs are economically significant enough to influence the costs of corporate borrowing the miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage related costs trczinka 28 reports that from examining differences in average yields between taxable corporate bonds and tax exempt municipal bonds one cannot reject the miller hypothesis that the marginal bondholder s tax rate is not different from the corporate tax rate however trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive indeed buser and hess 1 using a longer time series of data and more sophisticated econometric techniques estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude more importantly they document evidence that is consistent with the existence of significant leverage related costs in the economy

deviations between china s and international gold price role of fundamentals contagion and financial shocks china has been the world s largest gold producer since 2007 and the world s largest gold consumer since 2013 however despite it being the second largest exchange traded market in the world gold

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

pyramidal groups and debt abstract this paper suggests that debt should be raised by subsidiaries in order to exploit the limited liability of the holding company however when this behavior increases the cost of funds the holding might prefer to raise debt to a point where it would also default when subsidiaries are insolvent after accounting for standard controls we find that holding companies in italian pyramids have higher leverage than subsidiaries and that the cash flow share of the entrepreneur in the subsidiary does not play a significant role these findings are consistent with the implications of our model of group capital structure

interaction of debt agency problems and optimal capital structure theory and evidence e oeg more leverage always wcfsen tbe debt ageocy problem this paper ptesents a unified analysis that acconntb for both risk shifting and nixler iiivestiiient ddbt agency problems for firms with positive marginal volatility of investment defined as the change in cash flow volatility cone ponding to a change of itwestment scale equity holders risk shifting incentive will midgate the under investment problem this inqdies that coturary to ccmventional views the total agency cost of debt does not unifcsmly increase with leverage this model fiiither predicts tbat for mg growth firms in which the under investment problem is severe the optimal debt ratio is positively related to the marginal volatility of investmenl empirical results suppmt this prediction

the wages of bmi bayesian analysis of a skewed treatment response model with nonparametric endogeneity we generalize the specifications used in previous studies of the effect of body mass index bmi on earnings by allowing the potentially endogenous bmi variable to enter the log wage equation nonparametrically we introduce a bayesian posterior simulator for fitting our model that permits a nonparametric treatment of the endogenous bmi variable flexibly accommodates skew in the bmi distribution and whose implementation requires only gibbs steps using data from the 1970 british cohort study our results indicate the presence of nonlinearities in the relationships between bmi and log wages that differ across men and women and also suggest the importance of unobserved confounding for our sample of males copyright 2008 john wiley sons ltd

the impact of merger bids on the participating firms security holders this paper investigates whether merger bids have an impact on the wealth of the participating firms bondholders and stockholders monthly and daily bond and stock returns are calculated relative to the announcement date of a merger bid for a sample of conglomerate mergers the results show that while the stockholders of target firms gain from a merger bid no other securityholders either gain or lose to provide direct evidence on the existence of diversification effects and incentive effects we test whether the bondholders returns are dependent upon the correlation between the returns of the merging firms and whether the size of the bondholders and stockholders returns in individual mergers are correlated the results are consistent with a capital market that efficiently resolves conflicts of interest between stockholders and bondholders recent empirical studies by mandelker 22 langetieg 18 dodd 6 and asquith 1 provide evidence that mergers have a favorable effect on the market value of the common stocks of merging firms the acquired firms stockholders earn large positive abnormal returns from the merger and the acquiring firms stockholders are affected little if at all although these empirical studies provide extensive evidence concerning the effects of mergers on the stockholders of the merging firms they still leave several important questions unanswered first these studies examine the returns of only one group of the firm s claimants the stockholders it is possible that the positive abnormal returns reported come at the expense of other claimants that is mergers may impose a loss on some claimants of the merging firms and the stockholders positive abnormal returns may simply reflect negative abnormal returns to these other claimants jensen and meckling 15 argue that there is an incentive for the stockholders of leveraged firms to expropriate the bondholders wealth by undertaking investment projects which increase the firm s riskiness since a merger is also a corporate investment it follows that there is an incentive for the stockholders to acquire firms which increase the variability of the firm s cashflow that is the stockholders may earn positive abnormal returns even if there is no real synergy at the expense of bondholders by increasing the firm s risk through merger the bondholders lose because of the increase in the default risk of the

debt and taxes and uncertainty with a graduated personal tax schedule miller showed that there could be an equilibrium debt supply for the corporate sector as a whole in the presence of uncertainty there is also a unique debt equity ratio for each individual firm and this ratio is related to the firm s operational risk characteristics however if firms merge and spin off in response to tax incentives the identity of firms is ambiguous and only the corporate sector is a meaningful construct these arguments are developed in both discrete and continuous models that employ extensions of the arbitrage free pricing theory in his famous paper debt and taxes 1977 merton miller 11 showed that the original miller modigliani propositions on the irrelevance of capital structure were not necessarily overturned by considerations of taxation miller argued that with a broad enough span of progressivity in personal income taxation the corporate tax advantage to the issuance of debt would be offset by the disadvantage to investors of receiving ordinary income on personal account in equilibrium the differential rates of return on equity and debt would be such that the marginal investor would be indifferent between purchasing debt instruments or equity the margin would be determined by the total amount of debt issued by the corporate sector but in a competitive world it would be unaffected by the debt issued by any one firm as a consequence the total supply of corporate debt would be determined in equilibrium increasing to the point where aggregate corporate value was not enhanced by further debt financing but any individual firm would be looking at prices set at the margin and would find itself indifferent between issuing debt or equity the purpose of this article is to extend miller s argument by recognizing the differences between debt and equity when the environment is not certain we will not be concerned with what might be called corner questions i e with whether or not there is a marginal investor or an internal equilibrium to do so would obscure the basic points we have to make instead we will examine models that have internal equilibria and ordinary neoclassical marginal interpretations in related work de angelo and masulis 5 6 have also extended miller s analysis but their primary concern was with the effects of a more detailed treatment of the tax code and with the impact of bankruptcy we will deal with such matters only in passing our central concern is with the impact of uncertainty our main result is the finding that there is a relationship between the capital structure of the firm as induced by tax effects and ordinary beta measures

are mergers beneficial to consumers evidence from the market for bank deposits the general conclusion of the empirical literature is that in market consolidation generates adverse price changes harming consumers previous studies however look only at the short run pricing impact of consolidation ignoring effects that take longer to materialize using a database that includes detailed information on the deposit rates of individual banks in local markets for different categories of depositors we investigate the long run price effects of mergers we find strong evidence that although consolidation does generate adverse price changes these are temporary in the long run efficiency gains dominate over the market power effect leading to more favorable prices for consumers jel g21 g34 l1

optimal stock trading with personal taxes implications for prices and the abnormal january returns abstract the tax law confers upon the investor a timing option to realize capital losses and defer capital gains with the tax rate on long term gains and losses being about half the short term rate the law provides a second timing option to realize losses short term and gains long term if at all our theory and simulation over the 1962 1977 period establish that taxable investors should realize long term gains in high variance stocks and repurchase stock in order to realize potential future losses short term tax trading does not explain the small firm anomaly but predicts a seasonal pattern in trading volume which maps into a seasonal pattern in stock prices the january anomaly only if investors are irrational or ignorant of the price seasonality

corporate takeover bids methods of payment and bidding firms stock returns this study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids the results reveal significant differences in the abnormal returns between common stock exchanges and cash offers the results are independent of the type of takeover bid i e merger or tender offer and of bid outcomes these findings supported by analysis of nonconvertible bonds are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment recent studies on corporate takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms 1 substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals the existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers acquisition motivations nevertheless the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue it is observed however that mergers are usually common stock exchange offers whereas tender offers are usually cash offers given that different methods of financing a project have different signalling implications myers and majluf 39 the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing

testing theories of capital structure and estimating the speed of adjustment this paper examines time series patterns of external financing decisions and shows that publicly traded u s firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low the historical values of the cost of equity capital have long lasting effects on firms capital structures through their influence on firms historical financing decisions we also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment toward target leverage we find that firms adjust toward target leverage at a moderate speed with a half life of 3 7 years for book leverage even after controlling for the traditional determinants of capital structure and firm fixed effects

cash holdings and credit risk intuition suggests that rms with higher cash holdings are safer and should have lower credit spreads yet empirically the correlation between cash and spreads is robustly positive and higher for lower credit ratings this puzzling nding can be explained by the precautionary motive for saving cash in our model endogenously determined optimal cash reserves are positively related to credit risk resulting in a spurious positive correlation between cash and spreads by contrast spreads are negatively related to the exogenous component of cash holdings independent of credit risk factors similarly although rms with higher cash reserves are less likely to default over short horizons longer term endogenously determined liquidity may be positively related to the probability of default our empirical analysis conrms these predictions suggesting that endogenous precautionary savings are central to understanding the eects of cash on credit risk

the sources of bank productivity growth in china during 2002 2009 a disaggregation view this study investigates the sources of bank productivity growth in china over the period 2002 2009 in order to perform this research we propose an advanced index input slack based productivity index isp a model that disaggregates total factor productivity growth into each input productivity change funds capital and employees are chosen as the inputs whereas loans and other earning assets are outputs in this study our results show that technological gains transcend the efficiency regressions and result in total factor productivity growth more specifically technical progress in capital productivity reveals the dominant force behind the total factor technical change and productivity improvement in addition this paper uses these disaggregation terms to find out the competitive advantages and disadvantages of input usages for each chinese bank these findings indicate that the isp index provides more insights than traditional total factor productivity indices

on mergers divestments and options a note in this note a loss shared by the security holders of merging firms is pointed out separate corporate entities provide double protection against future negative cash flows that are part of any production process e g when customer or employee liabilities exceed future in come independent of whether or not debt is used in the corporate capital structure a merger involves a relinquishment of this double protection in return for a less valuable single protection limited liability in the merged corporation against combined negative cashflows

do tender offers create value new methods and evidence abstract conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand alone value to address these biases we develop the probability scaling method which rescales announcement date returns and the intervention method which uses returns at intervening events perceived value improvements are larger than traditional methods indicate we cannot reject the hypothesis that bidders on average pay fair prices combined bidder target stock returns are higher for hostile offers lower for equity offers and lower for diversifying offers these effects reflect revelation about bidder stand alone value not differences in gains from combination

the value of the tax subsidy on risky debt the effect of corporate taxes on the market value of a levered firm continues to be a central issue in recent contributions in finance theory e g miller 1977 deangelo and masulis 1980 kim 1982 modigliani 1982 in these and other studies e g krause and litzenberger 1973 scott 1976 brennan and schwartz 1978 kim 1978 the relationship between market value and capital structure is established by formulating a tax subsidy function that specifies the partial effect of debt on the expected tax savings at the corporate level under the existing u s tax code a working assumption in most of these studies is that both principal and interest are tax deductible this assumption is made in the spirit of the original modigliani and miller 1963 formulation in which debt is taken to be perpetual and riskless indeed it is well known that the tax shield provided by the deduction of principal in a singleperiod framework has the same value as the tax shield from interest deductions in the case of perpetual and riskless debt under this assumption it is shown that in the absence of non debtthis paper examines the relationship between leverage and the value of the firm when non debt related tax shields are available and the corporate tax is levied as an income tax in a previous paper de angelo and masulis argue that in the presence of nondebt related tax shields the relationship between debt and firm value is concave resulting in an interior optimal capital structure when there is a tax induced differential in the cost of corporate debt their result derives from the fact that they assume the payment of debt principal and non debt related depreciation charges are deductible however the former deduction is consistent with a wealth tax while the latter is consistent only with an income tax we show that if the interest alone is deductible the debt firm value function is convex resulting in corner solutions to the capital structure problem the authors wish to thank richard castanias richard green lemma senbet and especially an anonymous referee for helpful comments and richard green and robert dammon for computational assistance

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

asset volatility and capital structure evidence from corporate mergers we exploit cross sectional variation in the predictable changes in asset volatility following corporate acquisitions to identify the effect of business risk on capital structure we find that postm

risks and financing decisions in the energy sector an empirical investigation using firm level data using a sample of 102 uk energy firms over the period 1981 2009 this paper empirically examines the effects of uncertainty on firms leverage decisions the results indicate that both firms specific and macroeconomic uncertainty have negative sizeable and statistically significant impacts on the uk energy sector firms target leverage the results also indicate that the profitability of energy firms plays an important role in uncertainty leverage relationship by changing the total effect of uncertainty on leverage while more profitable firms appear to reduce their leverage by a relatively large amount in response to increased macroeconomic uncertainty they are less likely to be affected by firm specific uncertainty these results suggest that stability in macroeconomic conditions and business activity is important to the stability of the capital structure of firms in the energy sector which would in turn be conducive to stability in their investments and production

voluntary corporate liquidations abstract this paper examines possible motives for and consequences of voluntary corporate liquidations specifically the procedural and tax differences between voluntary liquidations and other control changing transaction devices are analyzed an empirical investigation of successful liquidations shows that the announcement of liquidation reduces the risk of liquidating shares that the shareholders receive substantial gains from successful liquidations and that the average gains to the acquiring shareholders are not significantly different from zero these findings suggest that the liquidating firms assets have been underutilized before liquidation and that voluntary liquidations lead to higher valued reallocations of corporate resources

optimal debt structure and the number of creditors within an optimal contracting framework we analyze the optimal number of creditors a company borrows from we also analyze the optimal allocation of security interests among creditors and intercreditor voting rules that govern renegotiation of debt contracts the key to our analysis is the idea that these aspects of the debt structure affect the outcome of debt renegotiation following a default debt structures that lead to inefficient renegotiation are beneficial in that they deter default but they are also costly if default is beyond a manager s control the optimal debt structure balances these effects we characterize how the optimal debt structure depends on firm characteristics such as its technology its credit rating and the market for its assets

the effect of taxes and depreciation on corporate investment and financial leverage this paper provides an analysis of the effect of corporate and personal taxes on the firm s optimal investment and financing decisions under uncertainty it extends the deangelo aad masulis capital structure model by endogenizing the firm s investment decision the authors results indicate that when investment is allowed to adjust optimally the existing predictions about the relationship between investment related and debt related tax shields must be modified in particular the authors show that increases in investment related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level in cross sectional analysis firms with higher investment related tax shields normalized by expected earnings need not have lower debt related tax shields normalized by expected earnings unless all firms utilize the same production technology differences in production technologies across firms may thus explain why the empirical results of recent cross sectional studies have not conformed to the predictions of deangelo and masulis

heterogeneous impact of the seguro popular program on the utilization of obstetrical services in mexico 2001 2006 a multinomial probit model with a discrete endogenous variable objective we evaluated the impact of seguro popular sp a program introduced in 2001 in mexico primarily to finance health care for the poor we focused on the effect of household enrollment in sp on pregnant women s access to obstetrical services an important outcome measure of both maternal and infant health

the corporate propensity to save why do corporations accumulate liquid assets we show theoretically that intertemporal trade offs between interest income taxation and the cost of external finance determine optimal savings intriguingly we find that controlling for tobin s q saving and cash flow are negatively related because firms lower cash reserves to invest after receiving positive cash flow shocks and vice versa consistent with theory we estimate negative propensities to save out of cash flow we also find that income uncertainty affects saving more than do external finance constraints therefore contrary to previous evidence saving propensities reflect too many forces to be used to measure external finance constraints

the real product market impact of mergers i document sources of value creation in mergers by analyzing novel data on the quality and price of goods sold by merging firms when two competitors in a product market merge their products converge in quality and prices fall relative to the competition these effects take two to three years to be fully realized and are stronger in mature industries prices do not fall however when the acquirer is diversifying into a new product market this direct evidence of real changes induced by merger activity is consistent with consolidation by related merging firms to achieve operational efficiencies and lower costs

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

the evolution of new industries and the determinants of market structure several empirical regularities concerning firm growth rates and industry firm size distributions have been developed by studying primarily mature industries the primary purpose of this article is to bring together and extend empirical regularities on the evolution of new industries and to use these regularities to gain further insight into the forces governing industry evolution to explain these regularities a model is constructed which emphasizes how factors governing the early evolution of industries may shape their market structure at maturity it stresses how chance events and exogenous factors that influence the number of potential entrants to the industry the growth rate of incumbents and the ease of imitation of industry leaders will influence the ultimate number and size distribution of firms in the industry

taxes capital structure and bondholder clienteles despite much recent progress financial theory has yet to explain the connection if any between the u s tax code and many observed characteristics of corporate bonds empirically why is there no single tax rate equating yields on corporate bonds with yields on tax exempt municipal bonds of apparently identical risks and maturities 2 specifically why does the spread in yields between corporate and municipal bonds divided by the yield on corporates a conventional measure of the marginal tax rate on corporates decrease with increasing risk and maturity more generally why are different types of bonds evidently held by clienteles of investors in tax clienteles for corporate bonds are identified in a competitive financial equilibrium under an asymmetric corporate income tax with interest preceding principal state contingent bonds with higher coupon yields are issued by firms with higher pretax cash inflows per dollar of nondebt tax shield purchased by investors in lower tax brackets and implicitly priced at lower marginal tax rates on these bonds all investors earn tax induced surpluses by contrast all other bonds have implicit tax rates typically equal to the corporate rate and yield for many investors no tax induced surpluses we gratefully acknowledge the helpful comments of george constantinides kose john merton miller jim scott marti subrahmanyam and participants in seminars at baruch chicago columbia houston michigan nyu rutgers usc washington wharton the american finance association the western finance association and the johnson symposium on taxes and finance at wisconsin george constantinides was especially helpful 1 the most notable contribution is miller 1977 other recent papers include chen and kim 1979 kim lewellen and mcconnell 1979 deangelo and masulis 1980a 1980b taggart 1980 kim 1982 auerbach and king 1983 and talmor haugen and bornea 1985 black 1971 anticipates an equilibrium with clienteles 2 schaefer 1982a identifies tax induced clienteles of bondholders in the british gilt market van horne 1982 reports that implicit tax rates vary over time as the supply of discount bonds changes additional evidence is cited in trczinka 1982

private versus public ownership investment ownership distribution and optimality examined in this paper is the choice between private and public incorporation of an asset for an entrepreneur asset owner who hires a manager with superior information about the asset s return distribution public sale of equity is shown to be the preferred alternative when a capital market issue costs are low or b the asset s idiosyncratic risk is high and the owner is either sufficiently risk averse or sufficiently optimistic about the asset s expected return thus those as sets deemed most valuable by their owners will tend to be publicly incorporated the paper also explores the impact of incorporation mode private versus public and information structure on the firm s investment policy and ownership distribution the determinants of corporate ownership structure have attracted much attention see for example demsetz and lehn 7 the recent spate of leveraged buyouts lbo s and other activities designed to consolidate ownership structure and often to take it out of the public domain have raised questions about the optimality of public ownership of corporations a related issue is the link between real output and the mode of incorporation in firms with a separation of ownership and control do privately incorporated firms have systematically different investment policies from publicly incorporated firms if so aggregate output must be a function of the cross sectional distribution of incorporation modes in the economy there is also considerable interest in the impact of insider information a topic that concerns us in this paper we have two principal objectives the first is to explore the conditions that determine an asset owner s choice of incorporation for the asset that is when would the owner prefer to keep asset ownership private as opposed to having a portion of that ownership publicly traded in particular what is the role of the owner s perception of the value of the asset in this determination are the assets being taken privately more or less valuable than those that are publicly traded insights on this score should help in understanding corporate ownership structure evolution our second objective is to examine the impact of information structure symmetric versus asymmetric information and the firm s incorporation

the capital structure puzzle revisited corporate finance researchers have long been puzzled by low corporate debt ratios given debt s corporate tax advantage this article recognizes that firm value typically reflects a growing stream of earnings while current debt reflects a nongrowing stream of interest payments debt to value is therefore a distorted measure of corporate tax shielding even with very small debt related costs this may explain the observed magnitude and cross sectional variation of debt ratios since this variation may be independent of tax shielding debt ratios provide an inappropriate framework for empirically examining the trade off theory of capital structure article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

competition and product quality in the supermarket industry this article analyzes the effect of competition on a supermarket firm s incentive to provide product quality in the supermarket industry product availability is an important measure of quality using u s consumer price index microdata to track inventory shortfalls i find that stores facing more intense competition have fewer shortfalls competition from walmart the most significant shock to industry market structure in half a century decreased shortfalls among large chains by about a third the risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality

parametric and semi parametric modelling of vacation expenditures we analyse several limited dependent variable models explaining the budget share that dutch families spend on vacations to take account of the substantial number of zero shares two types of models are used the first is the single equation censored regression model we estimate and test several parametric and semi parametric extensions of the tobit model second we consider two equation models in which the participation decision and the decision on the amount to spend are treated separately the first decision is modelled as a binary choice model the second as a conditional regression we estimate and test parametric and semi parametric specifications

inefficiencies and externalities from opportunistic acquirers abstract if opportunistic acquirers can buy targets using overvalued shares then there is an inefficiency in the merger and acquisition m a market the most overvalued rather than the highest synergy bidder may buy the target we quantify this inefficiency using a structural estimation approach we find that the m a market allocates resources efficiently on average opportunistic bidders crowd out high synergy bidders in only 7 of transactions resulting in an average synergy loss equal to 9 of the target s value in these inefficient deals the implied average loss across all deals is 0 63 although the inefficiency is small on average it is large for certain deals and it is larger when misvaluation is more likely even when opportunistic bidders lose the contest they drive up prices imposing a large negative externality on the winning synergistic bidders

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

the determinants of bank mergers a revealed preference analysis we provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework we find that merger value arises from cost efficiencies in overlapping markets relaxing of regulation and network effects exhibited by the acquirer target matching beyond our findings the revealed preference method has notable advantages that warrant its application beyond the bank merger market notably we show that the method outperforms reduced form alternatives out of sample enables sensible counterfactual experiments and can be used to evaluate private to private mergers which have been understudied because of lack of stock market data data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2245 this paper was accepted by amit seru finance

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

markup pricing in mergers and acquisitions this paper studies the relation between the premiums in takeover bids involving exchange listed target firms from 1975 91 and the pre announcement stock price runups the evidence shows that the pre bid runup and the postannouncement increase in the target s stock price the markup are generally uncorrelated with little substitution between the runup and the markup the runup is an added cost to the bidder this finding has important implications for assessing the costs of insider trading it also raises interesting questions about the role of information from public capital markets in private takeover negotiations

marginal effects of a bivariate binary choice model this paper discusses the copula based approach of a bivariate binary choice model we derive the marginal effects of explanatory variables on an outcome of interest both direct and indirect in the model we also show that the signs of the marginal effects are determined by the signs of the coefficient parameters a real data application is provided

the response of firms leverage to risk evidence from uk public versus nonpublic manufacturing firms this article empirically investigates the effects of macroeconomic and firm specific risk on firms leverage the analysis is carried out for a large panel of public and nonpublic uk manufacturing firms over the period 1999 2008 our investigation provides evidence that uk manufacturing firms use less short term debt during periods of high risk however the leverage of nonpublic manufacturing firms is more sensitive to firm specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly our investigation also shows that firms with high liquid assets reduce their leverage more less during periods of heightened firm specific macroeconomic risk jel c23 g32