The Journal of Finance

Actual Share Reacquisitions in Open‐Market Repurchase Programs

Published: 2/1998,  Volume: 53,  Issue: 1  |  DOI: 10.1111/0022-1082.115194  |  Cited by: 639

Clifford P. Stephens, Michael S. Weisbach

Unlike Dutch auction repurchases and tender offers, open‐market repurchase programs do not precommit firms to acquire a specified number of shares. In a sample of 450 programs from 1981 to 1990, firms on average acquire 74 to 82 percent of the shares announced as repurchase targets within three years of the repurchase announcement. We find that share repurchases are negatively related to prior stock price performance, suggesting that firms increase their purchasing depending on its degree of perceived undervaluation. In addition, repurchases are positively related to levels of cash flow, which is consistent with liquidity arguments.

The Wealth Effects of Repurchases on Bondholders

Published: 3/21/2003,  Volume: 58,  Issue: 2  |  DOI: 10.1111/1540-6261.00550  |  Cited by: 203

William F. Maxwell, Clifford P. Stephens

Prior research has documented positive abnormal stock returns around the announcements of repurchase programs; several explanations of these returns have been suggested, including signaling, free cash flow, and wealth redistributions. This study analyzes abnormal stock, bond, and firm returns around repurchase announcements to examine these hypotheses. We find evidence consistent with both signaling and wealth redistribution. The loss to bondholders is a function of the size of the repurchase, and the risk of the firm's debt. We also find that bond ratings are twice as likely to be downgraded as upgraded after the announcement of the repurchase program.

DISCUSSION

Published: 5/1983,  Volume: 38,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1983.tb02277.x  |  Cited by: 1

CLIFFORD W. SMITH

Estimation Bias Induced by Discrete Security Prices

Published: 9/1988,  Volume: 43,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1988.tb02608.x  |  Cited by: 62

CLIFFORD A. BALL

Commonly, equilibrium security prices are modeled by continuous‐state stochastic processes, while observed prices are rounded into discrete units. This paper models the rounding mechanism and examines the probabilistic structure of the resultant rounded process. We provide accurate and simple estimates of the inflation in estimated variance and kurtosis induced by ignoring rounding. In particular, the maximum‐likelihood estimate of security price volatility using rounded prices is developed, and a simulation analysis is performed to examine the small‐sample properties of this estimator. For many practical applications, a simple correction for rounding becomes available.

A NOTE ON INVESTMENT ACTIVITIES AND THE GRADUATED CORPORATE TAX

Published: 3/1957,  Volume: 12,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1957.tb04104.x  |  Cited by: 0

Clifford D. Clark

True Spreads and Equilibrium Prices

Published: 10/2001,  Volume: 56,  Issue: 5  |  DOI: 10.1111/0022-1082.00390  |  Cited by: 39

Clifford A. Ball, Tarun Chordia

Stocks and other financial assets are traded at prices that lie on a fixed grid determined by the minimum tick size. Observed prices and quoted spreads do not correspond to the equilibrium prices and true spreads that would exist in a market with no minimum tick size. Using Monte Carlo Markov Chain methods, this paper estimates the equilibrium prices and true spreads. For large stocks, most of the quoted spread is attributable to the rounding of prices and the adverse selection component is small. The true spread and the adverse selection component are greater for mid‐sized stocks.

Death and Taxes: The Market for Flower Bonds

Published: 7/1987,  Volume: 42,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1987.tb04578.x  |  Cited by: 7

DAVID MAYERS, CLIFFORD W. SMITH

Certain U.S. Government securities, known as flower bonds, can be redeemed at par plus accrued interest for the purpose of paying estate taxes, if held at the time of death. Thus, a flower bond, selling at a discount, is like a straight bond plus a life insurance policy. An equilibrium derived from a rational flower bond pricing model implies the existence of clienteles: individuals with the highest death probabilities hold the deepest discount flower bonds. The empirical implication, that bonds with the deepest discount should be redeemed at the fastest rate, is tested and the results support the proposition.

The Maturity Structure of Corporate Debt

Published: 6/1995,  Volume: 50,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1995.tb04797.x  |  Cited by: 1310

MICHAEL J. BARCLAY, CLIFFORD W. SMITH

We provide an empirical examination of the determinants of corporate debt maturity. Our evidence offers strong support for the contracting‐cost hypothesis. Firms that have few growth options, are large, or are regulated have more long‐term debt in their capital structure. We find little evidence that firms use the maturity structure of their debt to signal information to the market. The evidence is consistent, however, with the hypothesis that firms with larger information asymmetries issue more short‐term debt. We find no evidence that taxes affect debt maturity.

Bankruptcy, Secured Debt, and Optimal Capital Structure: Comment

Published: 3/1979,  Volume: 34,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1979.tb02085.x  |  Cited by: 91

CLIFFORD W. SMITH, JEROLD B. WARNER

CONSISTENT EMPIRICAL RESULTS WITH ALMON'S METHOD: IMPLICATIONS FOR THE MONETARY VERSUS FISCAL POLICY DEBATE

Published: 3/1978,  Volume: 33,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1978.tb03398.x  |  Cited by: 0

Charles P. Harper, Clifford L. Fry

Determinants of Corporate Leasing Policy

Published: 7/1985,  Volume: 40,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1985.tb05016.x  |  Cited by: 206

CLIFFORD W. SMITH, L. MACDONALD WAKEMAN

The existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax‐related incentives for corporate leasing policy. Our analysis suggests that taxes are important in identifying potential lessees and lessors, but are less important in identifying the specific assets leased. We provide a unified analysis of the various incentives affecting the lease‐versus‐purchase decision. We then show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering.

On Jumps in Common Stock Prices and Their Impact on Call Option Pricing

Published: 3/1985,  Volume: 40,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1985.tb04942.x  |  Cited by: 307

CLIFFORD A. BALL, WALTER N. TOROUS

The Black‐Scholes call option pricing model exhibits systematic empirical biases. The Merton call option pricing model, which explicitly admits jumps in the underlying security return process, may potentially eliminate these biases. We provide statistical evidence consistent with the existence of lognormally distributed jumps in a majority of the daily returns of a sample of NYSE listed common stocks. However, we find no operationally significant differences between the Black‐Scholes and Merton model prices of the call options written on the sampled common stocks.

Accounts Receivable Management Policy: Theory and Evidence

Published: 3/1992,  Volume: 47,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1992.tb03982.x  |  Cited by: 427

SHEHZAD L. MIAN, CLIFFORD W. SMITH

This paper develops and tests hypotheses that explain the choice of accounts receivable management policies. The tests focus on both cross‐sectional explanations of policy‐choice determinants, as well as incentives to establish captives. We find size, concentration, and credit standing of the firm's traded debt and commercial paper are each important in explaining the use of factoring, accounts receivable secured debt, captive finance subsidiaries, and general corporate credit. We also offer evidence that captive formation allows more flexible financial contracting. However, we find no evidence that captive formation expropriates bondholder wealth.

Tax Incentives to Hedge

Published: 12/1999,  Volume: 54,  Issue: 6  |  DOI: 10.1111/0022-1082.00187  |  Cited by: 319

John R. Graham, Clifford W. Smith

For corporations facing tax‐function convexity, hedging lowers expected tax liabilities, thereby providing an incentive to hedge. We use simulation methods to investigate convexity induced by tax‐code provisions. On average, the tax function is convex (although in approximately 25 percent of cases it is concave). Carrybacks and carryforwards increase the range of income with incentives to hedge; other tax‐code provisions have minor impacts. Among firms facing convex tax functions, average tax savings from a five percent reduction in the volatility of taxable income are about 5.4 percent of expected tax liabilities; in extreme cases, these savings exceed 40 percent.

Negotiated Block Trades and Corporate Control

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03769.x  |  Cited by: 283

MICHAEL J. BARCLAY, CLIFFORD G. HOLDERNESS

We identify negotiated trades of large‐percentage blocks of stock as corporate control transactions. When a block trades and the firm is not fully acquired, cumulative abnormal returns average 5.6%, and 33% of the chief executives are replaced within a year. Stock‐price increases are larger when control passes to the new blockholder, when management does not resist the blockholder's effort to influence corporate policy, and when the block purchaser eventually fully acquires the firm. These findings suggest that the specific skills and expertise of blockholders, and not just the concentration of ownership, are important determinants of firm value.

The Stochastic Volatility of Short‐Term Interest Rates: Some International Evidence

Published: 12/1999,  Volume: 54,  Issue: 6  |  DOI: 10.1111/0022-1082.00191  |  Cited by: 96

Clifford A. Ball, Walter N. Torous

This paper estimates a stochastic volatility model of short‐term riskless interest rate dynamics. Estimated interest rate dynamics are broadly similar across a number of countries and reliable evidence of stochastic volatility is found throughout. In contrast to stock returns, interest rate volatility exhibits faster mean‐reverting behavior and innovations in interest rate volatility are negligibly correlated with innovations in interest rates. The less persistent behavior of interest rate volatility reflects the fact that interest rate dynamics are impacted by transient economic shocks such as central bank announcements and other macroeconomic news.

Futures Options and the Volatility of Futures Prices

Published: 9/1986,  Volume: 41,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1986.tb04553.x  |  Cited by: 24

CLIFFORD A. BALL, WALTER N. TOROUS

Assuming nonstochastic interest rates, European futures options are shown to be European options written on a particular asset referred to as a futures bond. Consequently, standard option pricing results may be invoked and standard option pricing techniques may be employed in the case of European futures options. Additional arbitrage restrictions on American futures options are derived. The efficiency of a number of futures option markets is examined. Assuming that at‐the‐money American futures options are priced accurately by Black's European futures option pricing model, the relationship between market participants' ex ante assessment of futures price volatility and the term to maturity of the underlying futures contract is also investigated empirically.

The Priority Structure of Corporate Liabilities

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04041.x  |  Cited by: 232

MICHAEL J. BARCLAY, CLIFFORD W. SMITH

Most discussions of corporate capital structure effectively assume that all debt is the same. Yet debt differs by maturity, covenant restrictions, conversion rights, call provisions, and priority. Here, we examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. We analyze the variation in the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred stock both as a fraction of the firm's market value and as a fraction of total fixed claims. Our evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis.

Property Rights to Client Relationships and Financial Advisor Incentives

Published: 6/3/2021,  Volume: 76,  Issue: 5  |  DOI: 10.1111/jofi.13058  |  Cited by: 34

CHRISTOPHER P. CLIFFORD, WILLIAM C. GERKEN

We study the effect of a change in property rights on employee behavior in the financial advice industry. Our identification comes from staggered firm‐level entry into the Protocol for Broker Recruiting, which waived nonsolicitation clauses for advisor transitions among member firms, effectively transferring ownership of client relationships from the firm to the advisor. After the shock, advisors appear to tend to client relationships more by investing in client‐facing industry licenses, shifting to fee‐based advising, and reducing customer complaints. Our findings support property rights based investment theories of the firm and document offsetting costs to restricting labor mobility.

A TRANSACTIONS COST APPROACH TO THE THEORY OF FINANCIAL INTERMEDIATION

Published: 5/1976,  Volume: 31,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1976.tb01882.x  |  Cited by: 56

Myron Scholes, George J. Benston, Clifford W. Smith

On the Determinants of Corporate Hedging

Published: 3/1993,  Volume: 48,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1993.tb04709.x  |  Cited by: 839

DEANA R. NANCE, CLIFFORD W. SMITH, CHARLES W. SMITHSON

Finance 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.

Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression

Published: 4/1999,  Volume: 54,  Issue: 2  |  DOI: 10.1111/0022-1082.00114  |  Cited by: 299

Clifford G. Holderness, Randall S. Kroszner, Dennis P. Sheehan

We document that ownership by officers and directors of publicly traded firms is on average higher today than earlier in the century. Managerial ownership has risen from 13 percent for the universe of exchange‐listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the increase in managerial ownership.

Value and Momentum Everywhere

Published: 5/20/2013,  Volume: 68,  Issue: 3  |  DOI: 10.1111/jofi.12021  |  Cited by: 2072

CLIFFORD S. ASNESS, TOBIAS J. MOSKOWITZ, LASSE HEJE PEDERSEN

We find consistent value and momentum return premia across eight diverse markets and asset classes, and a strong common factor structure among their returns. Value and momentum returns correlate more strongly across asset classes than passive exposures to the asset classes, but value and momentum are negatively correlated with each other, both within and across asset classes. Our results indicate the presence of common global risks that we characterize with a three‐factor model. Global funding liquidity risk is a partial source of these patterns, which are identifiable only when examining value and momentum jointly across markets. Our findings present a challenge to existing behavioral, institutional, and rational asset pricing theories that largely focus on U.S. equities.