Search results: 50.
Herding among Investment Newsletters: Theory and Evidence
Published: 2/1999, Volume: 54, Issue: 1 | DOI: 10.1111/0022-1082.00103 | Cited by: 540
John R. Graham
A model is developed which implies that if an analyst has high reputation or low ability, or if there is strong public information that is inconsistent with the analyst's private information, she is likely to herd. Herding is also common when informative private signals are positively correlated across analysts. The model is tested using data from analysts who publish investment newsletters. Consistent with the model's implications, the empirical results indicate that a newsletter analyst is likely to herd on
Value Line's
recommendation if her reputation is high, if her ability is low, or if signal correlation is high.
Presidential Address: Corporate Finance and Reality
Published: 6/21/2022, Volume: 77, Issue: 4 | DOI: 10.1111/jofi.13161 | Cited by: 199
JOHN R. GRAHAM
This paper uses surveys to document CFO perspectives on corporate planning, investment, capital structure, payout, and shareholder versus stakeholder focus. Comparing policy decisions today to those 20 years ago, I find that companies employ decision rules that are conservative, sticky, and geared to time the market; rely on internal forecasts that are miscalibrated and considered reliable only two years ahead; and emphasize corporate objectives that focus increasingly on stakeholders and revenues. These practice of corporate finance themes can discipline academic models toward better explaining outcomes. Models of satisficing decision‐making or costly managerial biases align with many of the themes.
How Big Are the Tax Benefits of Debt?
Published: 10/2000, Volume: 55, Issue: 5 | DOI: 10.1111/0022-1082.00277 | Cited by: 1165
John R. Graham
I integrate under firm‐specific benefit functions to estimate that the capitalized tax benefit of debt equals 9.7 percent of firm value (or as low as 4.3 percent, net of personal taxes). The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline. I infer how aggressively a firm uses debt by observing the shape of its tax benefit function. Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively. Product market factors, growth options, low asset collateral, and planning for future expenditures lead to conservative debt usage. Conservative debt policy is persistent.
Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors
Published: 5/16/2006, Volume: 61, Issue: 3 | DOI: 10.1111/j.1540-6261.2006.00873.x | Cited by: 366
JOHN R. GRAHAM, ALOK KUMAR
We study stock holdings and trading behavior of more than 60,000 households and find evidence consistent with dividend clienteles. Retail investor stock holdings indicate a preference for dividend yield that increases with age and decreases with income, consistent with age and tax clienteles, respectively. Trading patterns reinforce this evidence: Older, low‐income investors disproportionally purchase stocks before the ex‐dividend day. Furthermore, among small stocks, the ex‐day price drop decreases with age and increases with income, consistent with clientele effects. Finally, consistent with the behavioral “attention” hypothesis, we document that older and low‐income investors purchase stocks following dividend announcements.
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.
Do Firms Hedge in Response to Tax Incentives?
Published: 4/2002, Volume: 57, Issue: 2 | DOI: 10.1111/1540-6261.00443 | Cited by: 676
John R. Graham, Daniel A. Rogers
There are two tax incentives for corporations to hedge: to increase debt capacity and interest tax deductions, and to reduce expected tax liability if the tax function is convex. We test whether these incentives affect the extent of corporate hedging with derivatives. Using an explicit measure of tax function convexity, we find no evidence that firms hedge in response to tax convexity. Our analysis does, however, indicate that firms hedge to increase debt capacity, with increased tax benefits averaging 1.1 percent of firm value. Our results also indicate that firms hedge because of expected financial distress costs and firm size.
Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex‐Dividend Pricing before and after Decimalization
Published: 11/7/2003, Volume: 58, Issue: 6 | DOI: 10.1046/j.1540-6261.2003.00617.x | Cited by: 117
John R. Graham, Roni Michaely, Michael R. Roberts
AbstractBy the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the effect of this change in price quotations on ex‐dividend day activity. We find that abnormal ex‐dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of ex‐day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex‐day pricing.
The Cost of Debt
Published: 11/9/2010, Volume: 65, Issue: 6 | DOI: 10.1111/j.1540-6261.2010.01611.x | Cited by: 265
JULES H. Van BINSBERGEN, JOHN R. GRAHAM, JIE YANG
We use exogenous variation in tax benefit functions to estimate firm‐specific cost of debt functions that are conditional on company characteristics such as collateral, size, and book‐to‐market. By integrating the area between the benefit and cost functions, we estimate that the equilibrium net benefit of debt is 3.5% of asset value, resulting from an estimated gross benefit (cost) of debt equal to 10.4% (6.9%) of asset value. We find that the cost of being overlevered is asymmetrically higher than the cost of being underlevered and that expected default costs constitute only half of the total ex ante costs of debt.
Employee Costs of Corporate Bankruptcy
Published: 6/22/2023, Volume: 78, Issue: 4 | DOI: 10.1111/jofi.13251 | Cited by: 84
JOHN R. GRAHAM, HYUNSEOB KIM, SI LI, JIAPING QIU
An employee's annual earnings fall by 13% in the first full calendar year after her firm's bankruptcy, and the present value of lost earnings from bankruptcy to six years following bankruptcy is 87% of pre‐bankruptcy annual earnings. More worker earnings are lost in thin labor markets and among small firms. Ex ante compensating wage differentials for this “bankruptcy risk” are up to 2% of firm value for a firm whose credit rating falls from AA to BBB, comparable in magnitude to debt tax benefits. Thus, wage premia for expected costs of bankruptcy are sufficiently large to be an important consideration in capital structure decisions.
Employee Stock Options, Corporate Taxes, and Debt Policy
Published: 8/2004, Volume: 59, Issue: 4 | DOI: 10.1111/j.1540-6261.2004.00673.x | Cited by: 129
John R. Graham, Mark H. Lang, Douglas A. Shackelford
We find that employee stock option deductions lead to large aggregate tax savings for Nasdaq 100 and S&P 100 firms and also affect corporate marginal tax rates. For Nasdaq firms, including the effect of options reduces the estimated median marginal tax rate from 31% to 5%. For S&P firms, in contrast, option deductions do not affect marginal tax rates to a large degree. Our evidence suggests that option deductions are important nondebt tax shields and that option deductions substitute for interest deductions in corporate capital structure decisions, explaining in part why some firms use so little debt.
Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status
Published: 2/1998, Volume: 53, Issue: 1 | DOI: 10.1111/0022-1082.55404 | Cited by: 475
John R. Graham, Michael L. Lemmon, James S. Schallheim
We provide evidence that corporate tax status is endogenous to financing decisions, which induces a spurious relation between measures of financial policy and many commonly used tax proxies. Using a forward‐looking estimate of
before‐financing
corporate marginal tax rates, we document a negative relation between operating leases and tax rates, and a positive relation between debt
levels
and tax rates. This is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more, and have lower debt levels, than high tax rate firms.
Does Corporate Diversification Destroy Value?
Published: 4/2002, Volume: 57, Issue: 2 | DOI: 10.1111/1540-6261.00439 | Cited by: 508
John R. Graham, Michael L. Lemmon, Jack G. Wolf
We analyze several hundred firms that expand via acquisition and/or increase their number of business segments. The combined market reaction to acquisition announcements is positive but acquiring firm excess values decline after the diversifying event. Much of the excess value reduction occurs because our sample firms acquire already discounted business units, and not because diversifying destroys value. This implies that the standard assumption that conglomerate divisions can be benchmarked to typical stand‐alone firms should be carefully reconsidered. We also show that excess value does not decline when firms increase their number of business segments because of pure reporting changes.
SOME INVESTMENT ASPECTS OF ACCUMULATION THROUGH EQUITIES
Published: 5/1962, Volume: 17, Issue: 2 | DOI: 10.1111/j.1540-6261.1962.tb04270.x | Cited by: 2
Benjamin Graham
EXCHANGE RATES: BOUND OR FREE?*
Published: 3/1949, Volume: 4, Issue: 1 | DOI: 10.1111/j.1540-6261.1949.tb02334.x | Cited by: 1
Frank D. Graham
Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors
Published: 5/24/2018, Volume: 73, Issue: 3 | DOI: 10.1111/jofi.12613 | Cited by: 235
STEPHEN G. DIMMOCK, WILLIAM C. GERKEN, NATHANIEL P. GRAHAM
Using a novel data set of U.S. financial advisors that includes individuals' employment histories and misconduct records, we show that coworkers influence an individual's propensity to commit financial misconduct. We identify coworkers' effect on misconduct using changes in coworkers caused by mergers of financial advisory firms. The tests include merger‐firm fixed effects to exploit the variation in changes to coworkers across branches of the same firm. The probability of an advisor committing misconduct increases if his new coworkers, encountered in the merger, have a history of misconduct. This effect is stronger between demographically similar coworkers.
What Moves the Stock and Bond Markets? A Variance Decomposition for Long‐Term Asset Returns
Published: 3/1993, Volume: 48, Issue: 1 | DOI: 10.1111/j.1540-6261.1993.tb04700.x | Cited by: 371
JOHN Y. CAMPBELL, JOHN AMMER
This paper uses a vector autoregressive model to decompose excess stock and 10‐year bond returns into changes in expectations of future stock dividends, inflation, short‐term real interest rates, and excess stock and bond returns. In monthly postwar U.S. data, stock and bond returns are driven largely by news about future excess stock returns and inflation, respectively. Real interest rates have little impact on returns, although they do affect the short‐term nominal interest rate and the slope of the term structure. These findings help to explain the low correlation between excess stock and bond returns.
Top‐Management Compensation and Capital Structure
Published: 7/1993, Volume: 48, Issue: 3 | DOI: 10.1111/j.1540-6261.1993.tb04026.x | Cited by: 407
TERESA A. JOHN, KOSE JOHN
The interrelationship between top‐management compensation and the design and mix of external claims issued by a firm is studied. The optimal managerial compensation structures depend on not only the agency relationship between shareholders and management, but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus. We analyze in detail the optimal management compensation for the cases when the external claims are (1) equity and risky debt, and (2) equity and convertible debt. In addition to the role of aligning managerial incentives with shareholder interests, managerial compensation in a
levered
firm also serves as a precommitment device to minimize the agency costs of debt. The optimal management compensation derived has
low
pay‐performance sensitivity. With convertible debt, instead of straight debt, the corresponding optimal managerial compensation has high pay‐to‐performance sensitivity. A
negative
relationship between pay‐performance sensitivity and leverage is derived. Our results provide a reconciliation of the puzzling evidence of Jensen and Murphy (
1990
) with agency theory. Other testable implications include (1) a relationship between the risk premium in corporate bond yields and top‐management compensation structures, and (2) the announcement effect of adoption of executive stock option plans on bond prices. The model yields implications for management compensation in banks and Federal Deposit Insurance reform. Our results explain the dynamics of top‐management compensation in firms going through financial distress and reorganization.
Explaining the Poor Performance of Consumption‐based Asset Pricing Models
Published: 12/2000, Volume: 55, Issue: 6 | DOI: 10.1111/0022-1082.00310 | Cited by: 203
John Y. Campbell, John H. Cochrane
We show that the external habit‐formation model economy of Campbell and Cochrane (1999) can explain why the Capital Asset Pricing Model (CAPM) and its extensions are betterapproximate asset pricing models than is the standard onsumption‐based model. The model economy produces time‐varying expected eturns, tracked by the dividend–price ratio. Portfolio‐based models capture some of this variation in state variables, which a state‐independent function of consumption cannot capture. Therefore, though the consumption‐based model and CAPM are both perfect conditional asset pricing models, the portfolio‐based models are better approximate unconditional asset pricing models.
Asset Writedowns: Managerial Incentives and Security Returns
Published: 7/1987, Volume: 42, Issue: 3 | DOI: 10.1111/j.1540-6261.1987.tb04574.x | Cited by: 239
JOHN S. STRONG, JOHN R. MEYER
Evaluating and Comparing Projects: Simple Detection of False Alarms
Published: 12/1979, Volume: 34, Issue: 5 | DOI: 10.1111/j.1540-6261.1979.tb00068.x | Cited by: 11
JOHN W. PRATT, JOHN S. HAMMOND
THE COUPON EFFECT ON YIELD TO MATURITY
Published: 3/1977, Volume: 32, Issue: 1 | DOI: 10.1111/j.1540-6261.1977.tb03245.x | Cited by: 23
John Caks
DISCUSSION
Published: 5/1972, Volume: 27, Issue: 2 | DOI: 10.1111/j.1540-6261.1972.tb00972.x | Cited by: 1
John Lintner
BANK RESERVE REQUIREMENTS AND HOW THEIR EFFECTIVENESS AS AN INSTRUMENT OF MONETARY CONTROL MAY BE ENHANCED*
Published: 3/1956, Volume: 11, Issue: 1 | DOI: 10.1111/j.1540-6261.1956.tb00690.x | Cited by: 0
John Livingston
A NOTE ON THE GIRO TRANSFER SYSTEM
Published: 12/1959, Volume: 14, Issue: 4 | DOI: 10.1111/j.1540-6261.1959.tb00145.x | Cited by: 6
John Hein
Risk Adjusted Equity Performance Measurement
Published: 5/1982, Volume: 37, Issue: 2 | DOI: 10.1111/j.1540-6261.1982.tb03576.x | Cited by: 1
JOHN NAGORNIAK
The Case for Intervening in Bankers’ Pay
Published: 5/21/2012, Volume: 67, Issue: 3 | DOI: 10.1111/j.1540-6261.2012.01736.x | Cited by: 116
JOHN THANASSOULIS
This paper studies the default risk of banks generated by investment and remuneration pressures. Competing banks prefer to pay their banking staff in bonuses and not in fixed wages as risk sharing on the remuneration bill is valuable. Competition for bankers generates a negative externality, driving up market levels of banker remuneration and hence rival banks’ default risk. Optimal financial regulation involves an appropriately structured limit on the proportion of the balance sheet used for bonuses. However, stringent bonus caps are value destroying, default risk enhancing, and suboptimal for regulators who control only a small number of banks.
DISCUSSION
Published: 5/1981, Volume: 36, Issue: 2 | DOI: 10.1111/j.1540-6261.1981.tb00443.x | Cited by: 0
JOHN LINTNER
Competition and Misconduct
Published: 4/12/2023, Volume: 78, Issue: 4 | DOI: 10.1111/jofi.13227 | Cited by: 18
JOHN THANASSOULIS
Misconduct is widespread. Practices such as misselling, pump and dump, and money laundering cause harm while raising profits. This paper presents a mechanism that can determine what sorts of misconduct can be sustained in competitive equilibrium in concentrated markets, oligopoly settings, and markets with many small competing firms. The model studied allows general demand and distinguishes types of ethical dilemma using current psychological understanding. The paper shows, for example, that markets with many small competing firms are not vulnerable to misconduct if firms respond to entry with niche strategies or if the ethical dilemma draws an emotional response.
WEALTH, WELFARE, AND THE PRICE OF RISK
Published: 5/1972, Volume: 27, Issue: 2 | DOI: 10.1111/j.1540-6261.1972.tb00970.x | Cited by: 12
John Long
INFLATION AND SECURITY RETURNS*
Published: 5/1975, Volume: 30, Issue: 2 | DOI: 10.1111/j.1540-6261.1975.tb01809.x | Cited by: 64
John Lintner
THE COST OF CAPITAL AND OPTIMAL FINANCING OF CORPORATE GROWTH
Published: 5/1963, Volume: 18, Issue: 2 | DOI: 10.1111/j.1540-6261.1963.tb00725.x | Cited by: 35
John Lintner
Risk‐Shifting Incentives and Signalling Through Corporate Capital Structure
Published: 7/1987, Volume: 42, Issue: 3 | DOI: 10.1111/j.1540-6261.1987.tb04573.x | Cited by: 33
KOSE JOHN
This paper examines optimal corporate financing arrangements under asymmetric information for different patterns of temporal resolution of uncertainty in the underlying technology. An agency problem, a signalling problem and an agency‐signalling problem arise as special cases. The associated informational equilibria and the optimal financing arrangements are characterized and compared. In the agency‐signalling equilibrium the private information of corporate insiders at the time of financing is signalled through capital structure choices which deviate optimally from agency‐cost minimizing financing arrangements, which in turn induce risk‐shifting incentives in the investment policy. In the pure signalling case the equilibrium is characterized by direct contractual precommitments to implement investment policies which are riskier than pareto‐optimal levels. Empirical implications for debt covenants and the announcement effect of investment policies and leverage increasing transactions on existing stock and bond prices are explicitly derived.
TOWARD A THEORY OF WORKING CAPITAL MANAGEMENT
Published: 5/1955, Volume: 10, Issue: 2 | DOI: 10.1111/j.1540-6261.1955.tb01259.x | Cited by: 23
John Sagan
CORPORATE DEBT DECISIONS: A NEW ANALYTICAL FRAMEWORK
Published: 12/1978, Volume: 33, Issue: 5 | DOI: 10.1111/j.1540-6261.1978.tb03421.x | Cited by: 4
John Caks
Efficient Funds in a Financial Market with Options: a New Irrelevance Proposition
Published: 6/1981, Volume: 36, Issue: 3 | DOI: 10.1111/j.1540-6261.1981.tb00653.x | Cited by: 13
KOSE JOHN
Under the same assumptions that Ross used to assert the existence of an efficient fund (on which a spanning set of options can be written) we prove that almost any portfolio is an efficient fund. From a constructive point of view, a randomly chosen vector of portfolio weights yields an efficient fund. When the Ross assumptions are relaxed, a limited notion of efficiency‐maximal efficiency‐is the best attainable. The maximally efficient funds are also everywhere dense in the portfolio space. Some implications are discussed and illustrative examples given.
MONETARY POLICY AND EXTERNAL SURPLUSES: THE GERMAN EXPERIENCE, 1955–61*
Published: 9/1963, Volume: 18, Issue: 3 | DOI: 10.1111/j.1540-6261.1963.tb02855.x | Cited by: 0
John Hein
Nontransferable Interest‐Bearing National Debt
Published: 9/1980, Volume: 35, Issue: 4 | DOI: 10.1111/j.1540-6261.1980.tb03518.x | Cited by: 2
JOHN BRYANT
A NOTE ON THE USE OF INDEX CLAUSES ABROAD
Published: 12/1960, Volume: 15, Issue: 4 | DOI: 10.1111/j.1540-6261.1960.tb02768.x | Cited by: 0
John Hein
SECURITY PRICES, RISK, AND MAXIMAL GAINS FROM DIVERSIFICATION*
Published: 12/1965, Volume: 20, Issue: 4 | DOI: 10.1111/j.1540-6261.1965.tb02930.x | Cited by: 440
John Lintner
The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging
Published: 4/2002, Volume: 57, Issue: 2 | DOI: 10.1111/1540-6261.00442 | Cited by: 340
John D. Knopf, Jouahn Nam, John H. Thornton
We use estimates of the Black—Scholes sensitivity of managers' stock option portfolios to stock return volatility and the sensitivity of managers' stock and stock option portfolios to stock price to test the relationship between managers' risk preferences and hedging activities. We find that as the sensitivity of managers' stock and stock option portfolios to stock price increases, firms tend to hedge more. However, as the sensitivity of managers' stock option portfolios to stock return volatility increases, firms tend to hedge less.
DISCUSSION
Published: 5/1970, Volume: 25, Issue: 2 | DOI: 10.1111/j.1540-6261.1970.tb00508.x | Cited by: 0
John P. Shelton
THE INTERNATIONAL ECONOMIC POSITION OF MEXICO, 1900 TO 1949*
Published: 12/1952, Volume: 7, Issue: 4 | DOI: 10.1111/j.1540-6261.1952.tb02490.x | Cited by: 0
John William Simpson
MONETARY POLICY AND THE FORWARD EXCHANGE MARKET
Published: 12/1961, Volume: 16, Issue: 4 | DOI: 10.1111/j.1540-6261.1961.tb04236.x | Cited by: 1
John H. Auten
INVESTOR EXPERIENCE IN CORPORATE SECURITIES: A NEW TECHNIQUE FOR MEASUREMENT*
Published: 3/1964, Volume: 19, Issue: 1 | DOI: 10.1111/j.1540-6261.1964.tb00744.x | Cited by: 0
John P. Herzog
Signaling and Takeover Deterrence with Stock Repurchases: Dutch Auctions versus Fixed Price Tender Offers
Published: 9/1994, Volume: 49, Issue: 4 | DOI: 10.1111/j.1540-6261.1994.tb02458.x | Cited by: 34
JOHN C. PERSONS
This article presents a model of repurchase tender offers in which firms choose between the Dutch auction method and the fixed price method. Dutch auction repurchases are more effective takeover deterrents, while fixed price repurchases are more effective signals of undervaluation. The model yields empirical implications regarding price effects of repurchases, likelihood of takeover, managerial compensation, and cross‐sectional differences in the elasticity of the supply curve for shares.
ON BERNOULLI, SHARPE, FINANCIAL RISK AND THE ST. PETERSBURG PARADOX
Published: 6/1976, Volume: 31, Issue: 3 | DOI: 10.1111/j.1540-6261.1976.tb01938.x | Cited by: 4
John T. Sennetti
THE AVAILABILITY OF CREDIT AND CORPORATE INVESTMENT*
Published: 6/1970, Volume: 25, Issue: 3 | DOI: 10.1111/j.1540-6261.1970.tb00541.x | Cited by: 0
John H. Hand
CONSUMER CREDIT INSURANCE IN NEBRASKA*
Published: 3/1960, Volume: 15, Issue: 1 | DOI: 10.1111/j.1540-6261.1960.tb04846.x | Cited by: 1
John B. Minick
Resolving the Puzzling Intertemporal Relation between the Market Risk Premium and Conditional Market Variance: A Two‐Factor Approach
Published: 4/1998, Volume: 53, Issue: 2 | DOI: 10.1111/0022-1082.235793 | Cited by: 329
John T. Scruggs
The existing empirical literature fails to agree on the nature of the intertemporal relation between risk and return. This paper attempts to resolve the issue by estimating a conditional two‐factor model motivated by Merton's intertemporal capital asset pricing model. When long‐term government bond returns are included as a second factor, thepartialrelation between the market risk premium and conditional market variance is found to be positive and significant. The paper also helps explain the convoluted empirical relation between the market risk premium, conditional market variance, and the nominal risk‐free rate previously reported in the literature.