income inequality and growth does the relationship vary with the income level abstract for three different specifications of a cross country growth model the coefficient of initial income inequality is remarkably similar for high and low income countries contrary to some recent suggestions in the literature but varies markedly across models

stock price reactions as surrogates for the net cash flow effects of corporate policy decisions abstract this paper adopts a rational market structure to examine the link between the cash flow effects of management policy decisions and the resulting stock price reactions the focus is on testing cross sectional associations between cash flow effects and the underlying characteristics of affected firms we find that it is not possible to infer the sign of association between the stock price reaction and any characteristics of the firm that are observable before management announces its decision our methodological suggestions involve exploiting either a priori assumptions or sample information about the probability distribution of unobservable decision variables underlying the management decision process

management buyouts evidence on taxes as a source of value this paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986 the median value of tax benefits estimated at the time the buyout company goes private has a lower bound of 21 and an upper bound of 143 of the premium paid to pre buyout shareholders the estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions the paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout the results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts

does the bond market predict bankruptcy settlements this study shows the extent to which deviations from the absolute priority rule increase or decrease the bankruptcy emergence payoff to traded i e usually junior claimants bondholders the data indicate that on average bondholders benefit albeit slightly from absolute priority rule apr violations this paper also examines the degree to which the bond market in the bankruptcy filing month anticipates departures from the apr and other influences on the payoff to bondholders in other words we investigate the informational efficiency of the market for bankrupt bonds overall despite the complex and lengthy nature of bankruptcy proceedings the results support efficiency the finance literature has traditionally assumed that when a firm enters bankruptcy the creditors become the owners and the value of the firm is distributed according to the absolute priority rule apr the apr states that senior creditors should be fully compensated before junior creditors receive any portion of the bankrupt firm s value and junior creditors should receive full payment before shareholders receive any compensation in practice formal bankruptcy proceedings are complex processes that often violate the apr brown 1989 captures some of the intricacies of this process in a game theoretic model showing that the solution to the bargaining process in bankruptcy can involve deviations from the apr although the solution

inequality in the globalizing asia this article investigates the impact of globalization on the inequality of asia it is the first attempt to examine 11 asian countries panel data allowing nonlinearity between globalization and inequality from 1960 to 2003 with robustness check we also survey the literature on growth globalization and inequality and reflect their endogenous relationships to our article we found the significant turning point of globalization at which inequality starts decreasing as further globalization proceeds it will offer us policy implications for the ongoing process of globalization in the asian economies

empirical evidence on dividends as a signal of firm value the role of dividends in firm valuation continues to be a theoretical puzzle as well as an empirical obsession with economists the pioneering work by modigliani and miller mm 32 29 is the archetype of the theoretical dilemma whereas the authors proved convincingly the irrelevance of dividend policy to firm value within a perfect capital market they tempered their irrelevance proposition with what is usually referred to as the information content of dividends icd hypothesis in a more scientific sense this hypothesis should be labeled as a conjecture since it is essentially an ad hoc observation that dividends may convey information to the capital market concerning a firm s future earnings potential even though the icd hypothesis was not derived from a well specified economic model it has nevertheless been subjected to a plethora of empirical studies in general these studies have focused upon the precise influence of dividend changes upon a firm s common stock price overall the results can be described as being supportive of the notion that stock price movements are positively correlated with cash dividend changes this correlation of course is consistent with the icd hypothesis

the information content of security prices a second look abstract beaver lambert and morse 1980 employ a regression of percentage change in prices on percentage change in earnings in which data are grouped by the dependent variable reverse regression offers a more intuitive and direct way to assess the information content of security prices the objective of beaver et al while grouping is asymptotically equivalent reverse regression is a more efficient way of examining the incremental explanatory power of lagged values of percentage change in price with respect to accounting earnings

development and inequality revisited three decades after the seminal article of kuznets 1955 and one decade after the empirical investigation of ahluwalia 1976b the relationship between income inequality and economic developement is still controversial this paper examines the above relationship within a time series cross section framework in a sample of countries which are representative of the non centrally planned economies of the world we use gdp per capita in real un international comparison project dollors as an indicator of a country s level of economic development the results lend support to the kuznets inverse u hypothesis although other factors relfecting the institutional setting of a country are found to affect income inequality significantly during the development process as well similar results are obtained if we exclude developed countries from the sample

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

us demilitarization and global warming an empirical investigation of the environmental peace dividend abstract in the paper input output methods are used to generate ballpark empirical estimates of the implications for global warming of the projected demilitarization of the us federal budget the impact is found to be qualitatively ambiguous and highly sensitive to the manner in which the funds saved are distributed the effect is adverse where the budgetary savings are used to fund economy wide cuts in personal taxation and or deficit reduction in other cases the effect may be neutral or beneficial

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

security analyst superiority relative to univariate time series models in forecasting quarterly earnings abstract this paper provides evidence of security analyst sa superiority relative to univariate time series ts models in predicting firms quarterly earnings numbers and shows that sa forecast superiority in our sample is attributable to 1 better utilization of information existing on the date that ts model forecasts can be initiated a contemporaneous advantage and 2 use of information acquired between the date of initiation of ts model forecasts and the date when sa forecasts are published a timing advantage

overwork and the slow convergence in the gender gap in wages despite rapid changes in women s educational attainment and continuous labor force experience convergence in the gender gap in wages slowed in the 1990s and stalled in the 2000s using cps data fr

refitting the kuznets curve abstract using baltagi and li 2002 s semi parametric fixed effects regression estimator we investigate the existence of an aggregate kuznets curve in a sample of 113 countries over the 1960 2000 period our results show that misspecification of the functional form in a panel model with fixed effects and the failure to control for the endogeneity of income per capita can lead to dramatically different conclusions regarding the impact of economic development on inequality while we find observational evidence of an inverted u relationship between inequality and economic development this relationship does not seem to be causal once we account for endogeneity inequality appears to decrease monotonically with income per capita

an analysis of stock price reaction to management change in distressed firms abstract this study analyzes excess returns to shareholders at announcement of a change in senior management of distressed firms excess returns are significantly positive which is consistent with the internal corporate control hypothesis that management change following poor performance is associated with gains to shareholders cross sectional tests of the effects reveal a significant title effect and significant interactions between title and appointment of an outside successor and title and firm size these findings present new insights into the circumstances in which external vs internal markets for managers will affect shareholder wealth

is inequality harmful for growth comment endogenous growth models have reignited interest in institutional and path dependencies in the economic growth process one reason for the interest in endogenous growth models is that they may explain why countries consistently grow at different rates in this vein it has been recently proposed that greater economic inequality reduces future economic growth an important paper in this literature is by torsten persson and guido tabellini 1994 who will be referred to as pt pt s model shows why it is reasonable to expect a negative relationship between inequality and future economic growth moreover their empirical evidence is consistent with their contention if pt s findings are robust to other data sets there would be important policy implications for example they imply that policy makers should not only be concerned with the distributional implications of government policies for political and social reasons but also because income distribution has long run effects on economic growth this indicates that greater u s income inequality since the early 1970 s may have resulted in lower subsequent economic growth however pt s results are somewhat fragile to various specifications suggesting that they should be replicated with different data sets and over different time periods pt p 617 with these implications in mind this study employs data from a panel of u s states to further explore the relationship between economic growth and income inequality in what follows section i summarizes pt s study and discusses how this comment extends their findings the empirical implementation and results in section ii directly examine the link between overall income inequality and growth section iii expands the analysis to alternative measures of income distribution and government policy one emphasis in section iii is the distinction between how the overall income distribution especially at the tails influences economic growth from how the relative well being of the median voter affects economic growth section iv provides some concluding discussion

the valuation impacts of specially designated dividends this paper examines the valuation impacts of specially designated dividends sdds by analyzing the behavior of stock and bond prices on dates surrounding their announcements the evidence presented here suggests that sdds are considered positive signals by the market with most of the gains associated with their announcements accruing to stockholders in addition we present some evidence that the gain to stockholders is negatively related to the frequency of sdd announcements

ceo turnover and bondholder wealth abstract we examine the impact of ceo turnover announcements on bondholder wealth stockholder wealth and overall firm value using publicly traded data for the period from 1973 to 2000 we find evidence consistent with both the wealth transfer and signaling hypotheses specifically we find that ceo turnover events are associated with lower bondholder values higher stockholder values and that net changes in firm value are a function of turnover type forced vs voluntary and outside vs inside firm replacements and the riskiness of the firm s debt investment vs non investment grade overall the results contribute to the understanding of the effects of corporate governance mechanisms of which ceo turnover is an extreme form on bondholders

bond and stock market response to unexpected earnings announcements this study examines whether earnings changes convey information in bond markets and finds a significant positive negative reaction to unexpected earnings increases decreases the results are consistent whether earnings announcements precede or follow dividend announcements thus earnings surprises convey information to bond markets and changes in firm value are split among bondholders and stockholders this is in contrast to evidence from studies examining unexpected dividend announcements where bond price reaction is asymmetric cross sectional analysis reveals that bond excess returns are positively related to earnings surprises i introduction stock market reaction to earnings announcements has received significant attention in the finance and accounting literature ball and brown 1968 brown 1978 watts 1978 aharony and swary 1980 and fried and givoly 1982 are some ofthe studies that observe a revision of stock prices associated with the release of earnings information lev 1989 provides a survey of research in this area the explanation for the above empirical findings is that unexpected earnings provide new information about future cash flows furthermore the classical discounted cash flow model predicts a revision in firm value that is the present value of expected future cash flows whether this increased firm value accrues to stockholders and bondholders is an empirical issue past research on the information content of earnings has focused solely on stock price behavior and finds at least part of the benefits accrue to stockholders in this study we examine the bond market reaction to unexpected quarterly earnings announcements the study is unique for several reasons first dividends repurchases and earnings are eonsidered primary mechanisms used by manage ment to convey information about future cash flows to securityholders recent

the small sample bias of the gini coefficient results and implications for empirical research the gini coefficient is a downward biased measure of inequality in small populations when income is generated by one of three common distributions the paper discusses the sources of bias and argues that this property is far more general this has implications for i the comparison of inequality among subsamples some of which may be small and ii the use of the gini in measuring firm size inequality in markets with a small number of firms the small sample bias has often led to misperceptions about trends in industry concentration a small sample adjustment results in a reduced bias which can no longer be signed this remaining bias rises with the dispersion and falls with increasing skewness of the distribution finally an empirical example illustrates the importance of using the adjusted gini in this example it is shown that controlling for market characteristics larger shipping cartels include a set of firms that is stochastically identical in terms of relative size to those of smaller shipp

product market competition and the cost of bank loans evidence from state antitakeover laws abstract the extant literature documents a positive relationship between a firm s takeover vulnerability and its agency cost of debt using state antitakeover laws as an exogenous measure of variation in takeover vulnerability i investigate whether product market competition has a disciplinary effect that can lower a firm s cost of bank loans after taking into account the industry composition of borrowers i find that banks charge higher spreads to borrowers that are vulnerable to takeovers but only in concentrated industries in the absence of disciplinary competitive pressure the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms firms followed by analysts firms with existing credit ratings non family firms and for borrowers with shorter maturity loans or loans with covenants and collateral in place taken together the results suggest that the effect of governance on the cost of financing is not homogenous across all industries and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems

the return of patrimonial capitalism a review of thomas piketty s capital in the twenty first century capital in the twenty first century by thomas piketty provides a unified theory of the functioning of the capitalist economy by linking theories of economic growth and functional and personal income distributions it argues based on the long run historical data series that the forces of economic divergence including rising income inequality tend to dominate in capitalism it regards the twentieth century as an exception to this rule and proposes policies that would make capitalism sustainable in the twenty first century jel d31 d33 e25 n10 n30 p16

new evidence on the valuation effects of convertible bond calls this study examines the wealth effects of convertible bond call announcements on stock holders straight bondholders and called and non called convertible debtholders we docu ment that forced conversions are associated with a significant loss in firm value the results suggest that convertible call announcements can trigger both negative signal and wealth transfer effects we show that at least part ofthe negative effect on stock prices results from wealth transfer to straight bondholders our analysis also lends empirical validity to the common contention that called convertible bondholders suffer wealth expropriation due to the elimination ofthe premium the wealth effect on non called convertible debtholders is insignificant cross sectional analysis reveals that the negative signal effect is important in explaining bond stock and firm excess returns finally we present evidence that refutes the notion that bonds are called to relieve the firm from restrictive debt covenants

readjustment potentials in industrial energy efficiency and structure abstract with the availability of input output data for 1977 it is possible to analyze the short run effects of the 1974 energy price increase as well as other factors on the energy efficiency of the industries of the economy such an analysis is conducted here using a number of measures derived through the energy input output model attention is focused on patterns of energy use changes in energy intensities through time and the factors which underlie these changes a specific measure of the degree to which energy substitution is attributable to changes in direct and indirect energy requirements is developed and estimated results show that large changes in the economy s overall industrial energy requirements are not observed between 1963 and 1977 however for individual fuels large changes in intensity values are not at all uncommon among industries

growth of regional economy and income inequality county level evidence from florida usa the purpose of this paper is to find the homogeneous groups and growth factors of florida s counties through factor analysis and cluster analysis from data sets from 1979 and 2000 and to grasp the relationship between income inequality and growth by cluster using the derived growth factors the numbers of factors divided through factor analysis were three and six groups were obtained from cluster analysis 1 the theoretical background for choosing this particular value is that a factor must have a variance at least as large as that of a single standardized original variable county level evidence of this paper indicates that gi di and sin have a strong effect and are statistically significant to the growth rate results for income inequality by county and region indicate significant differences between counties including counties where agriculture accomplishes the primary main function therefore government should adopt the following policies minimum wage unemployment insurance local or state tax po

performance pricing in bank debt contracts abstract performance pricing links bank debt interest rate spreads to a borrower s performance via two options interest decreasing performance pricing reduces spreads if credit quality improves it is more common when prepayment is more likely or costly and when adverse selection costs are higher and is less common when multiple performance measures better predict credit quality interest increasing performance pricing increases spreads if credit quality deteriorates it is more common when lenders reduce interest rates to add this provision when downgrades are more likely and when moral hazard costs are higher we find lower spreads for contracts with interest increasing performance pricing

sell side debt analysts and debt market efficiency we explore sell side debt analysts contributions to the efficiency of securities markets we document that debt returns lag equity returns less when debt research coverage exists which is consistent with debt analysts facilitating the process by which available information is impounded in debt prices the effect of debt research on the debt market s lag is incremental to but comparable in magnitude to hedge fund ownership s effect no such effect exists for credit rating agencies we also find that the dissemination of debt reports has an immediate effect on return volatility in both markets which is consistent with debt analysts providing new information to securities markets increased return covariation suggests that this information impacts the pricing of debt and equity in the same direction a large percentage of debt reports do not induce any immediate debt market return reaction but do induce an equity return reaction which is consistent with new information being provided despite the absence of a debt market reaction finally there is a systematic variation in the debt market s trading and return reactions to debt research timely reports and those by high reputation brokers induce a quicker trading response thus enhancing liquidity whereas only timely reports induce a greater return response this study illuminates the institutional underpinnings of debt market efficiency and it has important implications for information content tests in the debt market where trading is limited

pareto and piketty the macroeconomics of top income and wealth inequality abstract since the early 2000s research by thomas piketty emmanuel saez and their coauthors has revolutionized our understanding of income and wealth inequality in this paper i highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally one of the key links between data and theory is the pareto distribution the paper describes simple mechanisms that give rise to pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries for example it is in this context that the role of the famous r g expression is best understood

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

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

income inequality and economic development evidence from the threshold regression model abstract using panel data we investigate the relationship between income inequality and economic development we employ a threshold regression model that allows for endogenous income thresholds and find strong evidence of a two regime split in our sample

moral hazard and nonexclusive contracts we study equilibria for economies with hidden action in environments in which the agents contractual relationships with competing financial intermediaries cannot be monitored or are not contractible upon we fully characterize equilibrium allocations and contracts for such economies as well as discuss their welfare properties depending on the parameters of the economy either the optimal action choice is not sustained in equilibrium or if it is agents necessarily enter into multiple contractual relationships and intermediaries make positive profits even under free entry conditions the main features and implications of these environments are consistent with several stylized facts of markets for unsecured loans

the effect of dividend changes on stock and bond prices this study examines stock and bond price reactions to dividend changes the positive stock market response to dividend increases has several potential explanations two of the more commonly discussed being information content and wealth redistribution between stockholders and bondholders the evidence presented supports the wealth redistribution hypothesis but does not rule out the information content hypothesis typically we find that the bond price reaction to announcements of large dividend changes is opposite to the stock price reaction our results differ from those of handjinicolaou and kalay this paper examines the impact of dividend changes on both the stock and bond markets this topic is interesting because of the possibility of distinguishing between two important hypotheses the information content hypothesis and the wealth redistribution hypothesis although each of these hypotheses is consistent with a positive stock price reaction to a dividend increase the predicted bond price reactions are different information content implies bond prices should increase when dividend increases are announced and wealth redistribution implies bond prices should fall although these two hypotheses have different implications for the bond price reaction to dividend changes they are not mutually exclusive handjinicolaou and kalay 1984 analyze bond returns around dividend changes and report that bond prices are not affected by dividend increases but react negatively to dividend reductions p 59 they argue their data support the information content hypothesis woolridge 1983 gets similar results but since he includes multiple bonds for the same firm the t statistics may be overstated inasmuch as returns will not be independent across bonds jayaraman and shastri 1988 find insignificantly negative bond price

efficient market tests of the informational content of dividend announcements critique and extension in recent years a major controversy has formed in the finance literature regarding the empirical evidence of the informational content of dividends despite considerable support for the position of dividend nontriviality by various studies the work by watts 13 represents a formidable challenge because of the close proximity of the firm s earnings and dividend announcement dates the major issue of the dispute has centered on the identification and control of contemporaneous earnings information in an attempt to settle this controversy the present study evaluates and extends watts methodology

budget reallocation and the peace dividend energy and pollution tradeoffs abstract despite the attention received during times of crisis energy conservation policy and pollution abatement strategies are seldom considered in the formulation and implementation of government expenditure decisions not directly related to energy use and pollution emissions this paper deals with measurement of the energy and pollution costs associated with various budgetary categories including defence education and other non defence components of expenditure in deciding between alternatives such knowledged provides a broader decisionmaking context potentially useful in assessing the major alterations in defence and non defence expenditures that may soon take place as tensions between the usa and the ussr diminish empirical estimates show that budgetary reallocation away from defence can result in important reductions in energy use and pollution emissions

the impact of ceo turnover on equity volatility this study investigates the effect on stock price volatility of a significant event in the life of the firm a change in its ceo we find significant long lived increases in volatility following ceo turnover after controlling for firm characteristics and marketwide volatility these increases are larger after forced departures and outside successions following voluntary departures stock prices also respond more strongly to earnings announcements following turnovers these results are consistent with more informative signals of value driving the increased volatility helping resolve two sources of uncertainty possible changes in the firm s strategy and doubt about the successor ceo s ability

the intra industry effects of going private transactions we demonstrate that bids to take firms private generate significantly positive valuation effects for industry rivals of target firms these valuation effects cannot reflect either synergy or monopoly since no consolidation of operating firms is involved in such transactions participation by buyout specialists in the bid does not significantly affect these gains bids by outsiders and bids by incumbent managers generate similar valuation effects for industry rivals the effect on share prices of industry rivals is inversely related to the capitalized values of rival firms relative to the target firm we also report valuation effects for target firms we examine the implications of going private bids for the valuation of horizontal rivals of target firms we hypothesize that going private transactions reflect in part private information held by the bidder about the target firm we argue that if the financial market perceives that elements of this private information are industry wide rather than firm specific the value of the target firm s horizontal rivals should change in response to the goingprivate bid announcement 1 unlike interfirm mergers and acquisitions going private transactions do not involve a consolidation of separate operating firms consequently changes in the value of rival firms induced by goingprivate bids are due neither to the demonstration of synergies associated with a consolidation of operating firms nor to the effects of induced monopoly or collusion 2 we also report valuation effects on target firms we find that announcements of going private bids generate statistically significant positive intra industry effects industry rivals of targets of goingprivate bids receive a positive 2 day average excess return of 1 32 which is statistically significant the average 2 day excess return to target firms is 17 35 and is statistically significant we test whether participation of

refitting the kuznets curve using a gender specific threshold model abstractprevious studies have reached mixed conclusions regarding the relationship between inequality and per capita income these studies however fail to consider gender differences in income inequality and how these may impact on the relationship between income inequality and per capita income using australian taxation statistics we derive three sets of gini coefficients i e female male and total for the period 1950 2013 we then examine the relationship between inequality and real per capita income and find that a gender specific threshold panel regression outperforms three other conventional models our findings suggest that one set of coefficients does not fit all in that the use of aggregate and constant coefficients may mask variations within and between gender inequality over time

ceo compensation after deregulation the case of electric utilities the 1992 national energy policy act nepa intensified competition in the electric utility industry by allowing nonutility generators to produce and sell power in wholesale energy markets congress expected nepa to lead to improved operating efficiencies by substituting market forces for regulation a data set that is unique to the utility industry allows us to test how and whether utility firms reallocated resources to improve efficiencies and more important for this study whether ceo compensation changed in accordance with agency theory predictions that ceo compensation would become more incentive based and more equity based in the competitive operating environment

event risk an analysis of losses to bondholders and super poison put bond covenants ten percent of the investment grade industrial bonds that were associated with major capital restructurings between 1 983 and 1988 had already been downgraded to speculative grade as of august 1989 in response to these downgrades and the corresponding wealth losses for bondholders over 40 percent of recently issued investment grade industrial bonds are protected from this type of event risk by virtue of specialized covenants these event risk convenants may have initially reduced interest costs for borrowers by roughly 20 to 30 basis points however the magnitude of the effect appears to have declined along with the general decline in corporate restructurings the wave of corporate restructurings in the 1980s and the accompanying expansion of debt gave rise to a marked deterioration in credit quality in the corporate bond market the financing of the restructurings typically included new debt with a priority equal to or higher than that of the firm s outstanding bonds as a result of the increase in risk billions of dollars in outstanding bonds were downgraded from investment grade to speculative grade in the process investors became increasingly concerned with event risk the risk of a substantial decline in the market price of a firm s outstanding bonds arising from an unforeseen and major change in its capital structure since late 1988 several corporate bond offerings have included event risk covenants as a safeguard against leverage induced losses most of the covenants are super poison puts which give investors the right to sell their bonds back to the issuer at par in the event of a leveraged restructuring and subsequent downgrading to speculative grade

going private transactions bondholder returns and wealth transfer effects abstract we examine how buyout activity and deal characteristics drive bondholder returns and the wealth transfer effects between bondholders and stockholders in going private transactions from 1981 to 2006 we find that various deal characteristics are major determinants of the cross sectional variation in bondholder returns in particular a single private equity acquirer mitigates bondholder losses on the other hand bondholders have larger losses when a reputable buyout firm is involved in the deal bondholders experience losses in the 1980s and 2000s but enjoy gains in the 1990s our findings remain robust to consideration of deal financing relative cost of credit and level of market overheating we find a negative and significant relationship between stockholder and bondholder wealth effects which supports the wealth transfer hypothesis

the kuznets process and the inequality development relationship abstract in his classic paper on economic growth and income inequality kuznets discussed the process of population shift from traditional to modern activities as the basis for a theory of distributional change during the course of development in this paper we present a formalization of the kuznets process conduct a general analysis of distributional change under this process and derive the functional forms of and conditions for a turning point in the inequality development relationship for six commonly used indices of inequality the functional form appropriate to each index is then estimated using cross section data on 60 developing and developed countries finally some extensions to the initial formalization of the kuznets process are considered

when does the bond price reaction to earnings announcements predict future stock returns abstract in this paper i show that the bond price reaction to earnings announcements has predictive power for post announcement stock returns and that this predictive ability is driven by the bonds of non investment grade firms i find that bonds predictive ability is more pronounced in firms that have a lower level of institutional shareholder ownership and whose bonds are more liquid this paper enhances our understanding of the relation between the stock and bond markets and complements the literature which documents whether and under what circumstances various accounting based measures and financial statement components predict post announcement stock returns

is income inequality persistent evidence using panel stationarity tests 1870 2011 using data on inequality for 21 oecd countries over the period 1870 2011 this paper tests the piketty hypothesis that income inequality is likely to grow in the 21st century it is shown that the null hypothesis of trend stationarity of inequality cannot be rejected at conventional significance levels suggesting that shocks to income inequality are likely to be temporary

financial analysts forecasts of earnings a better surrogate for market expectations abstract the specification of the market expectation of accounting numbers is a common feature of many empirical studies in accounting and finance givoly and lakonishok 1979 found that financial analysts forecasts have information content this study evaluates the quality of analysts forecasts as surrogates for the market expectation of earnings and compares it with that of prediction models commonly used in research results indicate that prediction errors of analysts are more closely associated with security price movements suggesting that analysts forecasts provide a better surrogate for market expectations than forecasts generated by time series models the study also identifies factors that might contribute to the performance of the financial analysts forecasts the broadness of the information set employed by analysts and to a lesser extent their reliance on information released after the end of the fiscal year appear to be important contributors to their performance

takeover defenses and wealth effects on securityholders the case of poison pill adoptions abstract this is the first study to examine the valuation effects of any antitakeover amendment on both bondholders and stockholders we present new evidence documenting that on average there is a significant wealth loss experienced by bondholders at poison pill adoption announcement while stockholders are unaffected our finding of significant bondholder losses is consistent with the proposed negative signal hypothesis we document results which indicate that bondholders correctly anticipate the degree of leverage increase at the time of the announcement we also show that the proportion of insider ownership is negatively related to bondholder wealth effect at announcement this supports the notion that higher insider manager ownership leads to a greater alignment of manager stockholder interests while increasing the stockholder bondholder agency costs long run analysis of leverage and performance measures reveal that pill adopting firms are not under leveraged as compared to their industry rivals however supporting the negative signal hypothesis the leverage of sample firms rises significantly after the pill adoption performance measures reveal that sample firms significantly underperform their industry cohorts this result suggests that poison pill adoptions are motivated by poor managers attempting to immunize themselves from the disciplinary actions of the corporate control market

controlling the conflict of interest in management buyouts a controversial aspect of the management buyouts that were popular throughout the 1980s is the potential for a conflict of interest to arise when a manager bids to acquire the firm he manages this study examines 184 management buyouts and reports three findings first returns to prebuyout shareholders are greater when managers must bid against outside acquirers second bid revisions in the face of competition exceed revisions due to shareholder litigation and negotiations with boards third the incidence of competition is negatively related to the prebuyout share holdings of managers coauthors are ronald f singer anju seth and darla f lang copyright 1994 by mit press

an empirical test of the redistribution effect in pure exchange mergers merger transactions involve differing degrees of change in capital structure and asset distribution as a result different forms of merger could have different effects on security values of the firms involved previous empirical studies primarily used samples that included all types of mergers the present study examines the effect of one type of merger pure stock exchange on the values of the debt and equity of the firms involved

dividend changes and security prices this paper analyzes the effect of unexpected dividend changes on the values of common stock preferred stock and bonds two potential effects are identified a wealth transfer effect and a signalling effect previous studies have shown that positive negative dividend change announcements produce positive negative common stock price changes whereas these findings have been attributed to the signalling aspect of dividends they are also consistent with the wealth transfer hypothesis based on the announcement day returns of common and preferred stock and bond holders it is demonstrated that the primary factor influencing security returns in response to dividend changes is market signalling a wealth transfer effect is not necessarily ruled out but if it exists it is dominated by the signalling effect financial decisions may have at least two distinct effects on the distribution of total firm value among different classes of securities first if claim holders are inadequately protected by me first rules a financing decision may result in wealth transfers among different classes of securities second if the market possesses imperfect information a financing decision may signal information to the market concerning firm value and thereby influence the values of all security classes many recent empirical studies have demonstrated that a significantly positive relationship exists between the direction of dividend changes and announcement day common stock returns in each case the authors attribute this relationship to the information conveyed to the market in dividend change announcements however this relationship is also consistent with the hypothesis that dividend changes under certain conditions may result in wealth transfers between debt and equity holders in this study the information and wealth transfer effects are discussed as they pertain to dividend payments and the influence of dividend decisions on the value of different security classes is investigated empirically

capital and wealth in the twenty first century abstract in capital in the twenty first century thomas piketty uses the market value of tradable assets to measure both productive capital and wealth as a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth which have grown enormously over the last 300 years thus the constancy of the wealth income ratio as portrayed in his data is an illusion further the types of wealth that he does not measure are more equally distributed than tradable assets the approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective