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Volume 53: Issue 3 (June 1998)

Taxes, Financing Decisions, and Firm Value

Pages: 819-843  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00036  |  Cited by: 543

Eugene F. Fama, Kenneth R. French

We use cross‐sectional regressions to study how a firm's value is related to dividends and debt. With a good control for profitability, the regressions can measure how the taxation of dividends and debt affects firm value. Simple tax hypotheses say that value is negatively related to dividends and positively related to debt. We find the opposite. We infer that dividends and debt convey information about profitability (expected net cash flows) missed by a wide range of control variables. This information about profitability obscures any tax effects of financing decisions.

Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting

Pages: 845-878  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00037  |  Cited by: 268

Mark Carey, Mitch Post, Steven A. Sharpe

This paper establishes empirically the existence of specialization in private‐market corporate lending, adding a new dimension to the public versus private debt distinctions now common in the literature. Comparing corporate loans made by banks and by finance companies, we find that the two types of intermediaries are equally likely to finance information‐problematic firms. However, finance companies tend to serve observably riskier borrowers, particularly more leveraged borrowers. Evidence supports both regulatory and reputation‐based explanations for this specialization. In passing, we shed light on various theories of debt contracting and intermediation and present facts about finance companies.

Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms

Pages: 879-904  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00038  |  Cited by: 211

Kathryn L. Dewenter, Vincent A. Warther

We compare dividend policies of U.S. and Japanese firms, partitioning the Japanese data into keiretsu, independent, and hybrid firms. We examine the correlation between dividend changes and stock returns, and the reluctance to change dividends. Results are consistent with the joint hypotheses that Japanese firms, particularly keiretsu‐member firms, face less information asymmetry and fewer agency conflicts than U.S. firms, and that information asymmetries and/or agency conflicts affect dividend policy. Japanese firms experience smaller stock price reactions to dividend omissions and initiations, they are less reluctant to omit and cut dividends, and their dividends are more responsive to earnings changes.

Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry

Pages: 905-938  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00039  |  Cited by: 306

Luigi Zingales

This paper studies the impact that capital market imperfections have on the natural selection of the most efficient firms by estimating the effect of the prederegulation level of leverage on the survival of trucking firms after the Carter deregulation. Highly leveraged carriers are less likely to survive the deregulation shock, even after controlling for various measures of efficiency. This effect is stronger in the imperfectly competitive segment of the motor carrier industry. High debt seems to affect survival by curtailing investments and reducing the price per ton‐mile that a carrier can afford to charge after deregulation.

Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions

Pages: 939-978  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00040  |  Cited by: 425

Todd C. Pulvino

This paper uses commercial aircraft transactions to determine whether capital constraints cause firms to liquidate assets at discounts to fundamental values. Results indicate that financially constrained airlines receive lower prices than their unconstrained rivals when selling used narrow‐body aircraft. Capital constrained airlines are also more likely to sell used aircraft to industry outsiders, especially during market downturns. Further evidence that capital constraints affect liquidation prices is provided by airlines' asset acquisition activity. Unconstrained airlines significantly increase buying activity when aircraft prices are depressed; this pattern is not observed for financially constrained airlines.

Hedging and Coordinated Risk Management: Evidence from Thrift Conversions

Pages: 979-1013  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00041  |  Cited by: 183

Catherine Schrand, Haluk Unal

We provide an explanation for hedging as a means of allocating rather than reducing risk. We argue that when increases in total risk are costly, firms optimally allocate risk by reducing (increasing) exposure to risks that provide zero (positive) economic rents. Our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion, consistent with their increased abilities and incentives for risk taking. They achieve this increase by hedging interest‐rate risk and increasing credit risk. We provide some evidence that risk‐management activities are related to growth capacity and management compensation structure attained at conversion.

The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry

Pages: 1015-1052  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00042  |  Cited by: 184

Peter Tufano

This paper studies the exposure of North American gold mining firms to changes in the price of gold. The average mining stock moves 2 percent for each 1 percent change in gold prices, but exposures vary considerably over time and across firms. As predicted by valuation models, gold firm exposures are significantly negatively related to the firm's hedging and diversification activities and to gold prices and gold return volatility, and are positively related to firm leverage. Simple discounted cash flow models produce useful exposure predictions but they systematically overestimate exposures, possibly due to their failure to reflect managerial flexibility.

What Are the Research Standards for Full Professor of Finance?

Pages: 1053-1079  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00043  |  Cited by: 62

Raymond P. H. Fishe

Based on a sample of 126 recently promoted faculty, different standards for full professor are observed between top 20 finance departments and lower ranked departments. Full professors affiliated with a top 20 department place an average of 1 out of 3 articles in either Journal of Finance, Review of Financial Studies, or Journal of Financial Economics compared to 1 out of 6 articles for professors at lower‐ranked schools. Total citations and cites per year are also significantly different between top‐ and lower‐ranked departments, but total articles and articles per year are not significantly different between these two groupings.

The Financial and Operating Performance of Newly Privatized Firms: Evidence from Developing Countries

Pages: 1081-1110  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00044  |  Cited by: 412

Narjess Boubakri, Jean‐Claude Cosset

This paper examines the change in the financial and operating performance of 79 companies from 21 developing countries that experienced full or partial privatization during the period from 1980 to 1992. We use accounting performance measures adjusted for market effects in addition to unadjusted accounting performance measures. Both unadjusted and market‐adjusted results show significant increases in profitability, operating efficiency, capital investment spending, output, employment level, and dividends. We also find a decline in leverage following privatization but this change is significant only for unadjusted leverage ratios. Our results are generally robust when we partition our data into various subsamples.

Is There Private Information in the FX Market? The Tokyo Experiment

Pages: 1111-1130  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00045  |  Cited by: 181

Takatoshi Ito, Richard K. Lyons, Michael T. Melvin

We provide evidence of private information in the foreign exchange market. The evidence comes from the introduction of trading in Tokyo over the lunch hour. Lunch‐return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. We then exploit microstructure theory to discriminate between the two alternatives: private information and mispricing. Four key results support the predictions of private‐information models. Three of these involve changes in the intraday volatility U‐shape. The fourth is that opening trade causes mispricing's share in variance to fall.

Is the Risk of Bankruptcy a Systematic Risk?

Pages: 1131-1147  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00046  |  Cited by: 654

Ilia D. Dichev

Several studies suggest that a firm distress risk factor could be behind the size and the book‐to‐market effects. A natural proxy for firm distress is bankruptcy risk. If bankruptcy risk is systematic, one would expect a positive association between bankruptcy risk and subsequent realized returns. However, results demonstrate that bankruptcy risk is not rewarded by higher returns. Thus, a distress factor is unlikely to account for the size and book‐to‐market effects. Surprisingly, firms with high bankruptcy risk earn lower than average returns since 1980. A risk‐based explanation cannot fully explain the anomalous evidence.

Does the Medium Matter? The Relations among Bankruptcy Petition Filings, Broadtape Disclosure, and the Timing of Price Reactions

Pages: 1149-1163  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00047  |  Cited by: 7

Mark C. Dawkins, Linda Smith Bamber

Drawing on a comprehensive sample of 330 bankruptcy petition filings from 1980 to 1993, we find that most of the market reaction does not occur on the bankruptcy petition filing date when the information becomes publicly available. Rather, most of the reaction occurs when news of the bankruptcy filing is more widely disseminated via the Broadtape. This “Broadtape announcement effect” persists after controlling for firm size, exchange listing, and predisclosure information. These are primarily timing differences since abnormal returns cumulated over an 11–day window centered on the filing date do not differ significantly across Broadtape disclosure date classifications.

Static Hedging of Exotic Options

Pages: 1165-1190  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00048  |  Cited by: 221

Peter Carr, Katrina Ellis, Vishal Gupta

This paper develops static hedges for several exotic options using standard options. The method relies on a relationship between European puts and calls with different strike prices. The analysis allows for constant volatility or for volatility smiles or frowns.

Book Reviews

Pages: 1191-1203  |  Published: 6/1998  |  DOI: 10.1111/1540-6261.00049  |  Cited by: 0

Simon Benninga Financial Modeling

Book Reviews

Pages: 1191-1203  |  Published: 6/1998  |  DOI: 10.1111/1540-6261.t01-1-00049  |  Cited by: 0


Pages: 1205-1206  |  Published: 6/1998  |  DOI: 10.1111/0022-1082.00050  |  Cited by: 0

The following articles have been accepted for publication in The Journal of Finance and are scheduled to appear in the October 1998 issue. Abstracts of all upcoming articles and some full text articles are available on the World Wide Web which can be accessed through browsers such as Internet Explorer and Netscape Navigator. If you have a copy of one of these browsers and access to the Internet you can access the Journal homepage, including abstracts, at the following address:

Association Meetings

Pages: 1207-1208  |  Published: 6/1998  |  DOI: 10.1111/j.1540-6261.1998.tb00588.x  |  Cited by: 0


Pages: 1209-1210  |  Published: 6/1998  |  DOI: 10.1111/j.1540-6261.1998.tb00589.x  |  Cited by: 0

From the ExSec's Notebook

Pages: 1211-1212  |  Published: 6/1998  |  DOI: 10.1111/j.1540-6261.1998.tb00590.x  |  Cited by: 0