Pages: i-vii | Published: 2/2000 | DOI: 10.1111/j.1540-6261.2000.tb00829.x | Cited by: 0
Pages: v-v | Published: 2/2000 | DOI: 10.1111/1540-6261.00198 | Cited by: 0
Pages: vii-vii | Published: 2/2000 | DOI: 10.1111/0022-1082.00198 | Cited by: 0
Pages: viii-xxv | Published: 2/2000 | DOI: 10.1111/j.1540-6261.2000.tb00830.x | Cited by: 0
Pages: 1-33 | Published: 2/2000 | DOI: 10.1111/0022-1082.00199 | Cited by: 1410
Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, Robert W. Vishny
Pages: 35-80 | Published: 2/2000 | DOI: 10.1111/0022-1082.00200 | Cited by: 988
Raghuram Rajan, Henri Servaes, Luigi Zingales
We model the distortions that internal power struggles can generate in the allocation of resources between divisions of a diversified firm. The model predicts that if divisions are similar in the level of their resources and opportunities, funds will be transferred from divisions with poor opportunities to divisions with good opportunities. When diversity in resources and opportunities increases, however, resources can flow toward the most inefficient division, leading to more inefficient investment and less valuable firms. We test these predictions on a panel of diversified U.S. firms during the period from 1980 to 1993 and find evidence consistent with them.
Pages: 81-106 | Published: 2/2000 | DOI: 10.1111/0022-1082.00201 | Cited by: 844
James S. Ang, Rebel A. Cole, James Wuh Lin
We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency‐cost firm, where the manager is the firm's sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the manager's ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.
Pages: 107-152 | Published: 2/2000 | DOI: 10.1111/0022-1082.00202 | Cited by: 383
G. David Haushalter
This paper studies the hedging policies of oil and gas producers between 1992 and 1994. My evidence shows that the extent of hedging is related to financing costs. In particular, companies with greater financial leverage manage price risks more extensively. My evidence also shows that the likelihood of hedging is related to economies of scale in hedging costs and to the basis risk associated with hedging instruments. Larger companies and companies whose production is located primarily in regions where prices have a high correlation with the prices on which exchange‐traded derivatives are based are more likely to manage risks.
Pages: 153-178 | Published: 2/2000 | DOI: 10.1111/0022-1082.00203 | Cited by: 325
Benjamin S. Wilner
This paper develops optimal pricing, lending, and renegotiation strategies for companies in relationships where one firm is highly dependent on the other. Long‐term trade—creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors. Anticipating these larger renegotiation concessions, not only do less financially stable firms prefer trade credit, but all firms agree to pay a higher interest rate for trade credit. The model also explains the existence of “teaser” interest rates and convenience classes. Findings are consistent with those of the relationship‐lending literature.
Pages: 179-223 | Published: 2/2000 | DOI: 10.1111/0022-1082.00204 | Cited by: 300
Finance theory can be used to form informative prior beliefs in financial decision making. This paper approaches portfolio selection in a Bayesian framework that incorporates a prior degree of belief in an asset pricing model. Sample evidence on home bias and value and size effects is evaluated from an asset‐allocation perspective. U.S. investors' belief in the domestic CAPM must be very strong to justify the home bias observed in their equity holdings. The same strong prior belief results in large and stable optimal positions in the Fama–French book‐to‐market portfolio in combination with the market since the 1940s.
Pages: 225-264 | Published: 2/2000 | DOI: 10.1111/0022-1082.00205 | Cited by: 815
We examine how the evidence of predictability in asset returns affects optimal portfolio choice for investors with long horizons. Particular attention is paid to estimation risk, or uncertainty about the true values of model parameters. We find that even after incorporating parameter uncertainty, there is enough predictability in returns to make investors allocate substantially more to stocks, the longer their horizon. Moreover, the weak statistical significance of the evidence for predictability makes it important to take estimation risk into account; a long‐horizon investor who ignores it may overallocate to stocks by a sizeable amount.
Pages: 265-295 | Published: 2/2000 | DOI: 10.1111/0022-1082.00206 | Cited by: 1408
Harrison Hong, Terence Lim, Jeremy C. Stein
Various theories have been proposed to explain momentum in stock returns. We test the gradual‐information‐diffusion model of Hong and Stein (1999) and establish three key results. First, once one moves past the very smallest stocks, the profitability of momentum strategies declines sharply with firm size. Second, holding size fixed, momentum strategies work better among stocks with low analyst coverage. Finally, the effect of analyst coverage is greater for stocks that are past losers than for past winners. These findings are consistent with the hypothesis that firm‐specific information, especially negative information, diffuses only gradually across the investing public.
Pages: 297-354 | Published: 2/2000 | DOI: 10.1111/0022-1082.00207 | Cited by: 88
Harrison Hong, Jiang Wang
This paper studies how market closures affect investors' trading policies and the resulting return‐generating process. It shows that closures generate rich patterns of time variation in trading and returns, including those consistent with empirical findings: (1) U‐shaped patterns in the mean and volatility of returns over trading periods, (2) higher trading activity around the close and open, (3) more volatile open‐to‐open returns than close‐to‐close returns, (4) higher returns over trading periods than over nontrading periods, (5) more volatile returns over trading periods than over nontrading periods. It also shows that closures can make prices more informative about future payoffs.
Pages: 355-388 | Published: 2/2000 | DOI: 10.1111/0022-1082.00208 | Cited by: 154
David A. Chapman, Neil D. Pearson
Aït‐Sahalia (1996) and Stanton (1997) use nonparametric estimators applied to short‐term interest rate data to conclude that the drift function contains important nonlinearities. We study the finite‐sample properties of their estimators by applying them to simulated sample paths of a square‐root diffusion. Although the drift function is linear, both estimators suggest nonlinearities of the type and magnitude reported in Aït‐Sahalia (1996) and Stanton (1997). Combined with the results of a weighted least squares estimator, this evidence implies that nonlinearity of the short rate drift is not a robust stylized fact.
Pages: 389-406 | Published: 2/2000 | DOI: 10.1111/0022-1082.00209 | Cited by: 645
James L. Davis, Eugene F. Fama, Kenneth R. French
The value premium in U.S. stock returns is robust. The positive relation between average return and book‐to‐market equity is as strong for 1929 to 1963 as for the subsequent period studied in previous papers. A three‐factor risk model explains the value premium better than the hypothesis that the book‐to‐market characteristic is compensated irrespective of risk loadings.
Pages: 407-427 | Published: 2/2000 | DOI: 10.1111/0022-1082.00210 | Cited by: 124
Jonathan B. Berk
In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into, the true asset pricing model can be shown to have no explanatory power within each group.
Pages: 429-450 | Published: 2/2000 | DOI: 10.1111/0022-1082.00211 | Cited by: 136
A traditional explanation for stock splits is that they increase the number of small shareholders who own the stock. A possible reason for the increase is that the minimum bid‐ask spread is wider after a split and brokers have more incentive to promote a stock. I document a large number of small buy orders following Nasdaq and NYSE/AMEX splits during 1993 to 1994. I also find strong evidence that trading costs increase, and weak evidence that costs of market making decline following splits. This is consistent with splits acting as an incentive to brokers to promote stocks.
Pages: 451-468 | Published: 2/2000 | DOI: 10.1111/0022-1082.00212 | Cited by: 132
Armen Hovakimian, Edward J. Kane
Unless priced and administered appropriately, a governmental safety net enhances risk‐shifting opportunities for banks. This paper quantifies regulatory efforts to use capital requirements to control risk‐shifting by U.S. banks during 1985 to 1994 and investigates how much risk‐based capital requirements and other deposit‐insurance reforms improved this control. We find that capital discipline did not prevent large banks from shifting risk onto the safety net. Banks with low capital and debt‐to‐deposits ratios overcame outside discipline better than other banks. Mandates introduced by 1991 legislation have improved but did not establish full regulatory control over bank risk‐shifting incentives.
Pages: 469-485 | Published: 2/2000 | DOI: 10.1111/0022-1082.00213 | Cited by: 27
David T. Brown
This study provides evidence that highly leveraged owner‐managed properties liquidated assets during the commercial real estate decline of the late 1980s, and that this provided buying opportunities for better capitalized buyers. The analysis documents significant financial distress costs for highly leveraged firms during an industry‐wide downturn and shows that these costs are particularly large for owner‐managed firms.
Pages: 487-514 | Published: 2/2000 | DOI: 10.1111/0022-1082.00214 | Cited by: 108
Sorin M. Sorescu
I show that the effect of option introductions on underlying stock prices is best described by a two‐regime switching means model whose optimal switch date occurs in 1981. In accordance with previous studies, I find positive abnormal returns for options listed during 1973 to 1980. By contrast, I find negative abnormal returns for options listed in 1981 and later. Possible causes for this switch include the introduction of index options in 1982, the implementation of regulatory changes in 1981, and the possibility that options expedite the dissemination of negative information.
Pages: 515-520 | Published: 2/2000 | DOI: 10.1111/1540-6261.t01-1-00215 | Cited by: 0
Pages: 515-520 | Published: 2/2000 | DOI: 10.1111/1540-6261.00215 | Cited by: 0
Pages: 521-522 | Published: 2/2000 | DOI: 10.1111/1540-6261.00216 | Cited by: 0
Pages: 523-525 | Published: 2/2000 | DOI: 10.1111/1540-6261.00217 | Cited by: 0
Pages: 527-528 | Published: 2/2000 | DOI: 10.1111/1540-6261.00218 | Cited by: 0