bluuebunny/crossref_metadata_2025_split huggingface dataset:
The Choice of Call Provision Terms: Evidence of the Existence of Agency Costs of Debt
Authors: THATCHER JANET S. 
Published: April 2012

ABSTRACTAn examination of the provisions of bond issues reveals that most bonds prohibit firms from calling the issue during the initial years, after which time the bond can be called at the option of the firm. A substantial number of firms, however, also reserve the right to call the issue during this initial period for purposes other than refinancing at a lower coupon rate. The additional flexibility which accompanies the option of early redemption can be used to reduce the agency costs of debt associated with future investment opportunities, informational asymmetry, and the risk incentive problem. Using a sample of newly issued bonds, statistical tests are performed to show that there are, in fact, differences between firms which do and do not reserve the right of early redemption. This paper shows that these differences provide empirical evidence which is consistent with the hypothesis that firms use the option of early redemption to reduce agency costs.
New Tests of the APT and Their Implications
Authors: DHRYMES PHOEBUS J. , FRIEND IRWIN , GULTEKIN MUSTAFA N. , GULTEKIN N. BULENT 
Published: April 2012

ABSTRACTThis paper provides new tests of the arbitrage pricing theory (APT). Test results appear to be extremely sensitive to the number of securities used in the two stages of the tests of the APT model. New tests also indicate that unique risk is fully as important as common risk. While these tests have serious limitations, they are inconsistent with the APT.
The Integration of Insurance and Taxes in Corporate Pension Strategy
Authors: BICKSLER JAMES L. , CHEN ANDREW H. 
Published: April 2012

ABSTRACTThis paper examines the implications of the joint effects of insurance and taxes for the optimal corporate pension strategy. It is shown that neither the “mini‐max” nor the “maxi‐min” strategy advocated by previous authors is necessarily best in corporate pension management. In the presence of capital market imperfections, the analysis via a single‐period contingent‐claims model indicates that optimal corporate pension strategy in both asset‐allocation and funding decisions can be a noncorner interior solution.
On the Exclusion of Assets from Tests of the Mean Variance Efficiency of the Market Portfolio: An Extension
Authors: SHANKEN JAY 
Published: April 2012

ABSTRACTThis paper extends Kandel's [3] analysis of the testability of the mean‐variance efficiency of a market index when the return on some component of the index is not perfectly observable. In addition to information about the mean and variance of the missing asset, considered by Kandel, we explore the usefulness of information about the beta of the missing asset on the observed sub‐portfolio in an economy with a riskless asset. The results are somewhat more supportive of the notion that mean‐variance efficiency is testable on a subset of the assets.
Forward Foreign Exchange Rates, Expected Spot Rates, and Premia: A Signal‐Extraction Approach
Authors: WOLFF CHRISTIAN C. P. 
Published: April 2012

ABSTRACTIn this paper, we implement a methodology to identify and measure premia in the pricing of forward foreign exchange that involves application of signal‐extraction techniques from the engineering literature. Diagnostic tests indicate that these methods are quite successful in capturing the essence of the time‐series properties of premium terms. The estimated premium models indicate that premia show a certain degree of persistance over time and that more than half the variance in the forecast error that results from the use of current forward rates as predictors of future spot rates is accounted for by variation in premium terms. The methodology can be applied straightforwardly to the measurement of unobservables in other financial markets.
Maturity Intermediation and Intertemporal Lending Policies of Financial Intermediaries
Authors: MORGAN GEORGE EMIR , SMITH STEPHEN D. 
Published: April 2012

ABSTRACTThis paper considers the maturity intermediation and intertemporal lending decisions of risk‐averse financial intermediaries. In particular, the maturity mismatch problem and the fixed‐versus‐variable‐rate lending decision are modeled when the major source of risk involves uncertain future interest rates. The results imply that the strategy of matching the maturity of assets and liabilities is not generally optimal or even minimum risk. This is due primarily to the “built‐in” hedge that the intermediary has as a result of rolling over short‐term loans while continuing to finance long‐term loans. Intertemporal dependencies between loan demand and costs (or both) also have an effect on the optimal degree of maturity mismatching and provide one rationale for making loans at rates below current marginal cost.
The Predictive Power of the Term Structure during Recent Monetary Regimes
Authors: HARDOUVELIS GIKAS A. 
Published: April 2012

ABSTRACTI use weekly Treasury‐bill rates with maturities of one to twenty‐six weeks to examine the information in forward rates during the 1970s and 1980s. Forward rates contain better information about future changes in spot rates than the information captured by autoregressivea nd vector‐autoregressivem odels. Forward rates also have considerable predictive power, which increased after October 1979 and remained strong after October 1982. The results show no necessary connection between interest rate predictability and the degree to which the Fed adheres to interest rate targeting.
The Valuation of Sequential Exchange Opportunities
Authors: CARR PETER 
Published: April 2012

ABSTRACTSequential exchange opportunities are valued using the techniques of modern option‐pricing theory. The vehicle for analysis is the concept of a compound exchange option. This security is shown to exist implicitly in several contractual settings. A valuation formula for this option is derived. The formula is shown to generalize much previous work in option pricing. Several applications of the formula are presented.
The Impact of In‐Substance Defeasance on Bondholder and Shareholder Wealth
Authors: JOHNSON JAMES M. , PARI ROBERT A. , ROSENTHAL LEONARD 
Published: April 2012

ABSTRACTThis paper hypothesizes and tests the argument that a defeasance transaction initiates a wealth transfer from stockholders to bondholders. Our empirical tests provide compelling evidence of bondholder gains, but no support for shareholder losses when a firm defeases debt. We speculate that the insignificance of the loss to shareholders is primarily due to the size disparity between the value of defeased debt and the market value of outstanding equity, since the suggested economic merits of defeasance appear unfounded. Although we cannot prove an agency motivation for defeasance, we find a very high correlation between compensation tied to earnings and defeasing debt at a book gain.
A Re‐Examination of the Market Reaction to Failed Mergers
Authors: DAVIDSON WALLACE N. , DUTIA DIPA , CHENG LOUIS 
Published: April 2012

ABSTRACTThis study examines the revaluation of shares surrounding the cancellation of mergers over the years 1976–1985. The results are first categorized according to the party cancelling the merger and then by subsequent merger activity. The results are as expected: target firms that become involved in merger activity, subsequent to the cancellation, experience positive cumulative prediction errors (CPEs). Targets that do not become involved in subsequent merger activity have CPEs that return to pre‐merger announcement levels. These results do not vary when bidders or targets cancel the merger.
Debt‐for‐Equity Swaps under a Rational Expectations Equilibrium
Authors: ERRUNZA VIHANG R. , MOREAU ARTHUR F. 
Published: April 2012

ABSTRACTThis paper analyzes LDC debt‐for‐equity swaps under a rational expectations equilibrium. Under full information, the swap can never be strictly preferred by the LDC, the MNC, and the bank. Under the postulated informational asymmetry assumptions the same results obtain, leading to the “lemons” market in reverse. Under rational expectations, the swap can only occur if the loan is correctly valued relative to all private information in the economy. Given that some swaps do occur, future models must reflect the unique features of swaps.
Information Effects Associated with Debt‐for‐Equity and Equity‐for‐Debt Exchange Offers
Authors: CORNETT MARCIA MILLON , TRAVLOS NICKOLAOS G. 
Published: April 2012

ABSTRACTThis study investigates the information effect caused by a firm's change in capital structure via debt‐for‐equity and equity‐for‐debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross‐sectional regressions do not lend support to the wealth‐transfer‐ and tax‐effect hypotheses, but they are consistent with the information‐effect hypothesis.
Financial Investment Opportunities and the Macroeconomy
Authors: CHEN NAI‐FU 
Published: April 2012

ABSTRACTThis paper studies the relation between changes in financial investment opportunities and changes in the macroeconomy. States variables such as the lagged production growth rate, the default premium, the term premium, the short‐term interest rate and the market dividend‐price ratio are shown to be indicators of recent and future economic growth. Further, the market excess return is negatively correlated with recent economic growth and positively correlated with expected future economic growth. These results offer straightforward interpretations of recent evidence on the forecasts of the market excess return by state variable via their forecasts on the macroeconomy.
Measuring the Information Content of Stock Trades
Authors: HASBROUCK JOEL 
Published: April 2012

ABSTRACTThis paper suggests that the interactions of security trades and quote revisions be modeled as a vector autoregressive system. Within this framework, a trade's information effect may be meaningfully measured as the ultimate price impact of the trade innovation. Estimates for a sample of NYSE issues suggest: a trade's full price impact arrives only with a protracted lag; the impact is a positive and concave function of the trade size; large trades cause the spread to widen; trades occurring in the face of wide spreads have larger price impacts; and, information asymmetries are more significant for smaller firms.
A Transactions Data Test of Stock Index Futures Market Efficiency and Index Arbitrage Profitability
Authors: CHUNG Y. PETER 
Published: April 2012

ABSTRACTThis paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts. The spot value of the index is computed with transactions prices for the component shares of the index obtained from the Fitch database. The tests account for transaction costs, execution lags, and the uptick rule for short sales of stocks. Results indicate that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time.
The Success of Acquisitions: Evidence from Divestitures
Authors: KAPLAN STEVEN N. , WEISBACH MICHAEL S. 
Published: April 2012

ABSTRACTThis paper studies a sample of large acquisitions completed between 1971 and 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. We characterize the ex post success of the divested acquisitions and consider 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer and target) returns at the acquisition announcement are significantly lower for unsuccessful divestitures than for successful divestitures and acquisitions not divested. Although diversifying acquisitions are almost four times more likely to be divested than related acquisitions, we do not find strong evidence that diversifying acquisitions are less successful than related ones.
The Behavior of Option Price Around Large Block Transactions in the Underlying Security
Authors: KUMAR RAMAN , SARIN ATULYA , SHASTRI KULDEEP 
Published: April 2012

ABSTRACTThis paper investigates the behavior of stock and option prices around block trades in stocks. The results indicate that for both up tick and downtick block trades the stock prices adjust within a fifteen minute period after the block trade. Moreover, for uptick blocks there is no evidence of any stock price reaction before the block trade. However, the adjustment of stock price for downtick blocks begins about fifteen minutes before the block trade. We also find that option price behavior differs considerably from stock price behavior. Specifically, our results suggest that options exhibit abnormal price behavior starting thirty minutes before the block and ending one hour after the block. The pattern is more pronounced for downtick blocks and for put options. We interpret this abnormal price behavior of options before the block trade as consistent with intermarket frontrunning.
The Voluntary Restructuring of Large Firms In Response to Performance Decline
Authors: JOHN KOSE , LANG LARRY H. P. , NETTER JEFFRY 
Published: April 2012

ABSTRACTMuch of the research on corporate restructuring has examined the causes and aftermath of extreme changes in corporate governance such as takeovers and bankruptcy. In contrast, we study restructurings initiated in response to product market pressures by “normal” corporate governance mechanisms. Such “voluntary” restructurings, motivated by the discipline of the product market and internal corporate controls, will play a relatively more important role in the 1990s due to a weakening in the discipline of the takeover market. Our data suggest that the firms retrenched quickly and, on average, increased their focus. There is no evidence of abnormally high levels of forced turnover in top managers. There is, however, a significant and rapid cut of 5% in the labor force. Further, the cost of goods sold to sales and labor costs to sales ratios both decline rapidly, more than 5% in the first two years after the negative earnings. The firms cut research and development, increased investment, and also reduced their debt/asset level by over 8% in the first year after the negative earnings. We also document the reasons management and analysis reported for the negative earnings. Overwhelmingly the firms blame bad economic conditions and, to a lesser extent, foreign competition.
Market Making in the Options Markets and the Costs of Discrete Hedge Rebalancing
Authors: JAMESON MEL , WILHELM WILLIAM 
Published: April 2012

ABSTRACTIn this paper we provide empirical evidence consistent with the hypothesis that options market makers face risks in managing inventory that are unique to the options markets. In particular, we show that risks associated with the inability to rebalance an option position continuously and uncertainty about the return volatility of the underlying stock each account for a statistically and economically significant proportion of the bid‐ask spreads quoted for a sample of Chicago Board Options Exchange options.
Why Hang on to Losers? Divestitures and Takeovers
Authors: BOOT ARNOUD W. A. 
Published: April 2012

ABSTRACTWe study the divestiture decisions of managers who care about their reputations. Managers' divestiture and investment decisions are publicly observable, but managers privately observe signals with respect to the future payoff distribution of investments they have initiated. We establish that in equilibrium there is too little divestiture. These inefficiencies create the opportunity for wealth‐enhancing divestiture‐motivated takeovers. A key result is that only managers of targets with “middle of the road” asset specificity should consider the takeover threat credible. These findings suggest that uniqueness of assets is an important determinant of both agency costs and takeover activity. Our analysis leads to several empirical predictions.
The Post‐Merger Performance of Acquiring Firms: A Re‐examination of an Anomaly
Authors: AGRAWAL ANUP , JAFFE JEFFREY F. , MANDELKER GERSHON N. 
Published: April 2012

ABSTRACTThe existing literature on the post‐merger performance of acquiring firms is divided. We re‐examine this issue, using a nearly exhaustive sample of mergers between NYSE acquirers and NYSE/AMEX targets. We find that stockholders of acquiring firms suffer a statistically significant loss of about 10% over the five‐year post‐merger period, a result robust to various specifications. Our evidence suggests that neither the firm size effect nor beta estimation problems are the cause of the negative post‐merger returns. We examine whether this result is caused by a slow adjustment of the market to the merger event. Our results do not seem consistent with this hypothesis.
On the Determinants of Corporate Hedging
Authors: NANCE DEANA R. , SMITH CLIFFORD W. , SMITHSON CHARLES W. 
Published: April 2012

ABSTRACTFinance theory indicates that hedging increases firm value by reducing expected taxes, expected costs of financial distress, or other agency costs. This paper provides evidence on these hypotheses using survey data on firm's use of forwards, futures, swaps, and options combined with COMPUTSTAT data on firm characteristics. Of 169 firms in the sample, 104 firms use hedging instruments in 1986. The data suggest that firms which hedge face more convex tax functions, have less coverage of fixed claims, are larger, have more growth options in their investment opportunity set, and employ fewer hedging substitutes.
Tax‐Induced Intra‐Year Patterns in Bonds Yields
Authors: HOCHMAN SHALOM J. , PALMON ODED , TANG ALEX P. 
Published: April 2012

ABSTRACTThe ratio of the yields on short‐term tax‐exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax‐exempt bonds may benefit from tax‐related timing strategies for investing in these bonds. Issuers may benefit from tax‐related timing strategies for scheduling interest payments.
The Irrelevance of Margin: Evidence from the Crash of '87
Authors: SEGUIN PAUL J. , JARRELL GREGG A. 
Published: April 2012

ABSTRACTFollowing the crash of 1987, one contentious regulatory issue has been whether margin activity exacerbated the decline in equity values. We contrast the crash behavior of NASDAQ securities eligible for margin trading with the behavior of ineligible ones. Consistent with the hypothesis that margin‐eligible securities were more frequently subjected to margin calls and forced sales, we find that abnormal volumes were uniformly larger for eligible securities. However, there is no evidence that this activity provoked additional price depreciation. Margin‐eligible securities actually fell by one percent less than the ineligible securities over the period.
Alternative Information Sources and the Information Content of Bank Loans
Authors: BEST RONALD , ZHANG HANG 
Published: April 2012

ABSTRACTThis paper examines the information content of bank loan agreements. We differentiate borrowers according to financial analysts' percentage earnings forecast errors and most recent forecast revisions. The empirical results suggest that banks rely on other indicators as initial screening devices to determine where to best deploy their evaluation and monitoring efforts. If these other indicators are reliable and signal‐improving prospects, banks do little further investigation. However, if the indicators are noisy and signal‐declining prospects, banks have incentives to expend resources to investigate the borrowers, resulting in the production of valuable information.
Robust Financial Contracting and the Role of Venture Capitalists
Authors: ADMATI ANAT R. , PFLEIDERER PAUL 
Published: April 2012

ABSTRACTWe derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information, and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed‐fraction contract, where he always receives a fixed fraction of the project's payoff and finances that same fraction of future investments. This contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds.
An Analysis of the Recommendations of the “Superstar” Money Managers at Barron's Annual Roundtable
Authors: DESAI HEMANG , JAIN PREM C. 
Published: April 2012

ABSTRACTWe examine the performance of common stock recommendations made by prominent money managers at Barron's Annual Roundtable from 1968 to 1991. To avoid survivorship bias, we examine the performance of recommendations by all the participants. The buy recommendations earn significant abnormal returns of 1.91 percent from the recommendation day to the publication day, a period of about 14 days. However, the abnormal returns are essentially zero for one to three year postpublication day holding periods. Thus, an individual investing according to the Roundtable recommendations published in Barron's would not benefit from the advice.
Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements
Authors: BAJAJ MUKESH , VIJH ANAND M. 
Published: April 2012

ABSTRACTThis article examines the price formation process during dividend announcement day, using daily closing prices and transactions data. We find that the unconditional positive excess returns, first documented by Kalay and Loewenstein (1985), are higher for small‐firm and low‐priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid‐ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax‐related ex‐day trading. Rather, the price behavior is related to the absorption of dividend information.
Stock Volatility and the Levels of the Basis and Open Interest in Futures Contracts
Authors: CHEN NAI‐FU , CUNY CHARLES J. , HAUGEN ROBERT A. 
Published: April 2012

ABSTRACTThis article tests a theoretical model of the basis and open interest of stock index futures. The model is based on the differences between stock and futures in terms of investors' ability to customize stock portfolios and liquidity. Empirical evidence confirms the model's prediction that increased volatility decreases the basis and increases open interest.
Initial Shareholdings and Overbidding in Takeover Contests
Authors: BURKART MIKE 
Published: April 2012

ABSTRACTWithin the context of takeovers, this paper shows that in private‐value auctions the optimal individually rational strategy for a bidder with partial ownership of the item is to overbid, i.e., to bid more than his valuation. This strategy, however, can lead to i) an inefficient outcome, and ii) the winning bidder making a net loss. Further, the overbidding result implies that the presence of a large shareholder increases the bid premium in single‐bidder takeovers at the expense of reducing the probability of the takeover actually occurring.