The Journal of Finance

The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.

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Don't Believe the Hype: Local Media Slant, Local Advertising, and Firm Value

Published: 03/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01725.x

UMIT G. GURUN, ALEXANDER W. BUTLER

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.


Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

Published: 08/03/2006   |   DOI: 10.1111/j.1540-6261.2006.00888.x

ALEXANDER W. BUTLER, GUSTAVO GRULLON, JAMES P. WESTON

This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long‐term debt in total debt issues and future excess bond returns. Contrary to Baker, Taliaferro, and Wurgler (2006), we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm‐level data further confirm that managers are unable to time the debt market successfully.


Can Managers Forecast Aggregate Market Returns?

Published: 03/02/2005   |   DOI: 10.1111/j.1540-6261.2005.00752.x

ALEXANDER W. BUTLER, GUSTAVO GRULLON, JAMES P. WESTON

Previous studies have found that the proportion of equity in total new debt and equity issues is negatively correlated with future equity market returns. Researchers have interpreted this finding as evidence that corporate managers are able to predict the systematic component of their stock returns and to issue equity when the market is overvalued. In this article we show that the predictive power of the share of equity in total new issues stems from pseudo‐market timing and not from any abnormal ability of managers to time the equity markets.