Pages: i-vii | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb00274.x | Cited by: 0
Pages: viii-ix | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04806.x | Cited by: 0
Pages: x-xi | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04807.x | Cited by: 0
Pages: xii-xxxviii | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb00275.x | Cited by: 0
Pages: 447-447 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04808.x | Cited by: 0
Pages: 449-476 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04809.x | Cited by: 473
This article analyzes the timing of CEO stock option awards, as a method of investigating corporate managers' influence over the terms of their own compensation. In a sample of 620 stock option awards to CEOs of Fortune 500 companies between 1992 and 1994, I find that the timing of awards coincides with favorable movements in company stock prices. Patterns of companies' quarterly earnings announcements are consistent with an interpretation that CEOs receive stock option awards shortly before favorable corporate news. I evaluate and reject several alternative explanations of the results, including insider trading and the manipulation of news announcement dates.
Pages: 477-506 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04810.x | Cited by: 52
JEFFREY K. MACKIE-MASON, ROGER H. GORDON
The double taxation of corporate income should discourage firms from incorporating. We investigate the extent to which the aggregate allocation of assets and taxable income in the United States between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959â1986. In theory, profitable firms should shift out of the corporate sector when the tax distortion is large, and conversely for firms with tax losses. Our empirical results provide strong support for these forecasts, and imply that the resulting excess burden equals 16 percent of business tax revenue.
Pages: 507-529 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04811.x | Cited by: 305
RAGHURAM RAJAN, HENRI SERVAES
We examine data on analyst following for a sample of initial public offerings completed between 1975 and 1987 to see how they relate to three wellâdocumented IPO anomalies. We find that higher underpricing leads to increased analyst following. Analysts are overoptimistic about the earnings potential and long term growth prospects of recent IPOs. More firms complete IPOs when analysts are particularly optimistic about the growth prospects of recent IPOs. In the long run, IPOs have better stock performance when analysts ascribe low growth potential rather than high growth potential. These results suggest that the anomalies may be partially driven by overoptimism.
Pages: 531-556 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04812.x | Cited by: 245
PIERRE MELLA-BARRAL, WILLIAM PERRAUDIN
When firms experience financial distress, equity holders may act strategically, forcing concessions from debtholders and paying less than the originallyâcontracted interest payments. This article incorporates strategic debt service in a standard, continuous time asset pricing model, developing simple closedâform expressions for debt and equity values. We find that strategic debt service can account for a substantial proportion of the premium on risky corporate debt. We analyze the efficiency implications of strategic debt service, showing that it can eliminate both direct bankruptcy costs and agency costs of debt.
Pages: 557-590 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04813.x | Cited by: 251
LARS PETER HANSEN, RAVI JAGANNATHAN
Pages: 591-607 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04814.x | Cited by: 59
F. DOUGLAS FOSTER, TOM SMITH, ROBERT E. WHALEY
The development of asset pricing models that rely on instrumental variables together with the increased availability of easilyâaccessible economic timeâseries have renewed interest in predicting security returns. Evaluating the significance of these new research findings, however, is no easy task. Because these asset pricing theory tests are not independent, classical methods of assessing goodnessâofâfit are inappropriate. This study investigates the distribution of the maximal R2 when k of m regressors are used to predict security returns. We provide a simple procedure that adjusts critical R2 values to account for selecting variables by searching among potential regressors.
Pages: 609-633 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04815.x | Cited by: 43
RICHARD C. GREEN, BERNT A. ĂDEGAARD
We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit tax rates of a ârepresentativeâ investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated tax effects from the term structure. We discuss both institutional and statutory explanations for this change.
Pages: 635-654 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04816.x | Cited by: 369
Financial economists have long debated whether monetary policy is neutral. This article addresses this question by examining how stock return data respond to monetary policy shocks. Monetary policy is measured by innovations in the federal funds rate and nonborrowed reserves, by narrative indicators, and by an event study of Federal Reserve policy changes. In every case the evidence indicates that expansionary policy increases exâpost stock returns. Results from estimating a multiâfactor model also indicate that exposure to monetary policy increases an asset's exâante return.
Pages: 655-681 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04817.x | Cited by: 167
JAMES J. ANGEL
Minimum price variation rules help explain why stock prices vary substantially across countries, and other curiosities of share prices. Companies tend to split their stock so that the institutionally mandated minimum tick size is optimal relative to the stock price. A large relative tick size provides an incentive for dealers to make markets and for investors to provide liquidity by placing limit orders, despite its placing a high floor on the quoted bidâask spread. A simple model suggests that idiosyncratic risk, firm size, and visibility of the firm affect the optimal relative tick size and thus the share price.
Pages: 683-712 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04818.x | Cited by: 29
CHRISTOPHER G. LAMOUREUX, CHARLES R. SCHNITZLEIN
We report results from experimental asset markets with liquidity traders and an insider where we allow bilateral trade to take place, in addition to public trade with dealers. In the absence of the search alternative, dealer profits are largeâunlike in models with riskâneutral, competitive dealers. However, when we allow traders to participate in the search market, dealer profits are close to zero. Dealers compete more aggressively with the alternative trading avenue than with each other. There is no evidence that price discovery is less efficient when the specialists are not the only game in town.
Pages: 713-735 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04819.x | Cited by: 65
LOUIS K. C. CHAN, JOSEF LAKONISHOK
We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size, and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms, while costs for trading the larger stocks are lower on NYSE. The cost differences estimated from a regression model are, however, sensitive to the choice of time period.
Pages: 737-783 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04820.x | Cited by: 6177
Andrei Shleifer, Robert W. Vishny
This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.
Pages: 785-798 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04821.x | Cited by: 28
ANTONIO E. BERNARDO, BRADFORD CORNELL
This article examines the auction of a portfolio of collateralized mortgage obligations (CMOs) to major broker dealers and institutional investors. The unique data set allows us to analyze a number of important empirical questions related to the valuation of CMOs by the bidders and the elasticity of demand for the securities. The results reveal that the valuations differ substantially implying a significant elasticity of demand.
Pages: 799-826 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04822.x | Cited by: 59
GURDIP S. BAKSHI, ZHIWU CHEN
This article studies the equilibrium valuation of foreign exchange contingent claims. Within a continuousâtime Lucas (1982) twoâcountry model, exchange rates, interest rates and, in particular, factor risk prices are all endogenously and jointly determined. This guarantees the internal consistency of these price processes with a general equilibrium. In the same model, closedâform valuation formulas are presented for currency options and currency futures options. Common to these formulas is that stochastic volatility and stochastic interest rates are admitted. Hedge ratios and other comparative statics are also provided analytically. It is shown that most existing currency option models are included as special cases.
Pages: 827-840 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04823.x | Cited by: 14
T. S. HO, RICHARD C. STAPLETON, MARTI G. SUBRAHMANYAM
The GeskeâJohnson approach provides an efficient and intuitively appealing technique for the valuation and hedging of Americanâstyle contingent claims. Here, we generalize their approach to a stochastic interest rate economy. The method is implemented using options exercisable on one of a finite number of dates. We illustrate how the value of an Americanâstyle option increases with interest rate volatility. The magnitude of this effect depends on the extent to which the option is in the money, the volatilities of the underlying asset and the interest rates, as well as the correlation between them.
Pages: 841-857 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04824.x | Cited by: 27
MYRON B. SLOVIN, MARIE E. SUSHKA
We provide evidence about the motivation for a parentâsubsidiary governance structure by analyzing valuation effects of seasoned equity offerings by publicly traded affiliated units. Our results support Nanda's (1991) theoretical model which predicts equity offerings convey differential information about subsidiary and parent value. Subsidiary equity issuance has negative valuation effects on issuing subsidiaries and positive effects on parents, while parent equity issuance reduces issuing parent wealth and increases subsidiary wealth. Our evidence suggests that a parentâsubsidiary organizational structure enhances corporate financing flexibility and mitigates underinvestment problems identified by Myers and Majluf (1984). There is no evidence of subsidiary wealth expropriation.
Pages: 859-874 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04825.x | Cited by: 369
RAFAEL LA PORTA, JOSEF LAKONISHOK, ANDREI SHLEIFER, ROBERT VISHNY
This article examines the hypothesis that the superior return to soâcalled value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5âyear period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a riskâbased explanation for the return differential.
Pages: 875-883 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04826.x | Cited by: 130
BEAD M. BARBER, JOHN D. LYON
Fama and French (1992) document a significant relation between firm size, bookâtoâmarket ratios, and security returns for nonfinancial firms. Because of their initial interest in leverage as an explanatory variable for security returns, Fama and French exclude from their analysis financial firms, thus creating a natural holdout sample on which to test the robustness of their results. We document that the relation between firm size, bookâtoâmarket ratios, and security returns is similar for financial and nonfinancial firms. In addition, we present evidence that survivorship bias does not significantly affect the estimated size or bookâtoâmarket premiums in returns. Our results indicate dataâsnooping and selection biases do not explain the size and bookâtoâmarket patterns in returns.
Pages: 885-901 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04827.x | Cited by: 160
KENNETH A. KIM, S. GHON RHEE
Price limit advocates claim that price limits decrease stock price volatility, counter overreaction, and do not interfere with trading activity. Conversely, price limit critics claim that price limits cause higher volatility levels on subsequent days (volatility spillover hypothesis), prevent prices from efficiently reaching their equilibrium level (delayed price discovery hypothesis), and interfere with trading due to limitations imposed by price limits (trading interference hypothesis). Empirical research does not provide conclusive support for either positions. We examine the Tokyo Stock Exchange price limit system to test these hypotheses. Our evidence supports all three hypotheses suggesting that price limits may be ineffective.
Pages: 903-919 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04828.x | Cited by: 0
Book reviewed in this article:
Pages: 921-922 | Published: 6/1997 | DOI: 10.1111/j.1540-6261.1997.tb04829.x | Cited by: 0