The Journal of Finance

Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets

Published: 6/2002,  Volume: 57,  Issue: 3  |  DOI: 10.1111/1540-6261.00463  |  Cited by: 520

Hendrik Bessembinder, Michael L. Lemmon

Spot power prices are volatile and since electricity cannot be economically stored, familiar arbitrage‐based methods are not applicable for pricing power derivative contracts. This paper presents an equilibrium model implying that the forward power price is a downward biased predictor of the future spot price if expected power demand is low and demand risk is moderate. However, the equilibrium forward premium increases when either expected demand or demand variance is high, because of positive skewness in the spot power price distribution. Preliminary empirical evidence indicates that the premium in forward power prices is greatest during the summer months.

Book‐to‐Market Equity, Distress Risk, and Stock Returns

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/1540-6261.00497  |  Cited by: 554

John M. Griffin, Michael L. Lemmon

This paper examines the relationship between book‐to‐market equity, distress risk, and stock returns. Among firms with the highest distress risk as proxied by Ohlson's (1980) O‐score, the difference in returns between high and low book‐to market securities is more than twice as large as that in other firms. This large return differential cannot be explained by the three‐factor model or by differences in economic fundamentals. Consistent with mispricing arguments, firms with high distress risk exhibit the largest return reversals around earnings announcements, and the book‐to‐market effect is largest in small firms with low analyst coverage.

Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis

Published: 7/15/2003,  Volume: 58,  Issue: 4  |  DOI: 10.1111/1540-6261.00573  |  Cited by: 902

Michael L. Lemmon, Karl V. Lins

We use a sample of 800 firms in eight East Asian countries to study the effect of ownership structure on value during the region's financial crisis. The crisis negatively impacted firms' investment opportunities, raising the incentives of controlling shareholders to expropriate minority investors. Crisis period stock returns of firms in which managers have high levels of control rights, but have separated their control and cash flow ownership, are 10–20 percentage points lower than those of other firms. The evidence is consistent with the view that ownership structure plays an important role in determining whether insiders expropriate minority shareholders.

Employee Stock Options and Investment

Published: 5/23/2011,  Volume: 66,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2011.01657.x  |  Cited by: 67

ILONA BABENKO, MICHAEL LEMMON, YURI TSERLUKEVICH

Exercises of employee stock options generate substantial cash inflows to the firm. These cash inflows substitute for costly external finance in those states of the world in which the demand for investment is high. Using the fact that the proceeds from option exercises exhibit a distinct nonlinearity around the point where options fall out of the money, we estimate that firms increase investment by $0.34 for each dollar received from the exercise of stock options. Firms that face higher external financing costs allocate more of the proceeds from option exercises to investment.

Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure

Published: 7/19/2008,  Volume: 63,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2008.01369.x  |  Cited by: 1374

MICHAEL L. LEMMON, MICHAEL R. ROBERTS, JAIME F. ZENDER

We find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature of leverage is largely unexplained by previously identified determinants, is robust to firm exit, and is present prior to the IPO, suggesting that variation in capital structures is primarily determined by factors that remain stable for long periods of time. We then show that these results have important implications for empirical analysis attempting to understand capital structure heterogeneity.

Long‐Run Performance following Private Placements of Equity

Published: 12/2002,  Volume: 57,  Issue: 6  |  DOI: 10.1111/1540-6261.00507  |  Cited by: 284

Michael Hertzel, Michael Lemmon, James S. Linck, Lynn Rees

Public firms that place equity privately experience positive announcements effects, with negative post‐announcement stock‐price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long‐term averages.

Multimarket Trading and Liquidity: Theory and Evidence

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01272.x  |  Cited by: 125

SHMUEL BARUCH, G. ANDREW KAROLYI, MICHAEL L. LEMMON

We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross‐listed stocks. The model predicts that the trading volume of a cross‐listed stock is proportionally higher on the exchange in which the cross‐listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non‐U.S. stocks cross‐listed on major U.S. exchanges.

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.

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.

Securitization and Capital Structure in Nonfinancial Firms: An Empirical Investigation

Published: 7/18/2014,  Volume: 69,  Issue: 4  |  DOI: 10.1111/jofi.12128  |  Cited by: 59

MICHAEL LEMMON, LAURA XIAOLEI LIU, MIKE QINGHAO MAO, GREG NINI

Contrary to recent accounts of off‐balance‐sheet securitization by financial firms, we show that asset securitization by nonfinancial firms provides a valuable form of financing for shareholders without harming debtholders. Using data from firms’ SEC filings, we find that securitization is attractive to firms in the middle of the credit quality distribution, which are the firms with the most to gain. Upon initiation, firms experience positive abnormal stock returns and zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization minimizes financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.

THE FINANCIAL BEHAVIOR OF HOUSEHOLDS: SOME EMPIRICAL ESTIMATES

Published: 6/1975,  Volume: 30,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1975.tb01847.x  |  Cited by: 7

Patric H. Hendershott, Richard C. Lemmon

PAPERS AND PROCEEDINGS FIFTY‐SECOND ANNUAL MEETING AMERICAN FINANCE ASSOCIATION

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb03995.x  |  Cited by: 0

MICHAEL C. JENSEN, MICHAEL KEENAN

Minutes of the Annual Membership Meeting

Published: 7/1989,  Volume: 44,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1989.tb04392.x  |  Cited by: 0

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 7/1989,  Volume: 44,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1989.tb04393.x  |  Cited by: 0

Michael Keenan

THE INFORMATION CONTENT OF LARGE INVESTMENT HOLDINGS

Published: 12/1975,  Volume: 30,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1975.tb01054.x  |  Cited by: 5

Michael Firth

Report of the Executive Secretary and Treasurer for the Year Ending September 30, 1989

Published: 7/1990,  Volume: 45,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1990.tb05116.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1996,  Volume: 51,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1996.tb02716.x  |  Cited by: 1

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 7/1996,  Volume: 51,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1996.tb02717.x  |  Cited by: 0

Michael Keenan

From the ExSec's Notebook

Published: 12/1998,  Volume: 53,  Issue: 6  |  DOI: 10.1111/0022-1082.00094  |  Cited by: 0

Michael Keenan

The Relationship Between Stock Market Returns and Rates of Inflation

Published: 6/1979,  Volume: 34,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1979.tb02139.x  |  Cited by: 65

MICHAEL FIRTH

Report of the Executive Secretary and Treasurer

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb04013.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04044.x  |  Cited by: 0

Michael Keenan

A NOTE ON DIVIDEND IRRELEVANCE AND THE GORDON VALUATION MODEL*

Published: 12/1971,  Volume: 26,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1971.tb01752.x  |  Cited by: 15

Michael Brennan

Report of the Executive Secretary and Treasurer

Published: 7/1993,  Volume: 48,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1993.tb04032.x  |  Cited by: 0

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 8/1999,  Volume: 54,  Issue: 4  |  DOI: 10.1111/1467-6419.00062-i1  |  Cited by: 0

Michael Keenan

Report on the 1987 Membership Survey

Published: 7/1988,  Volume: 43,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1988.tb04609.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1990,  Volume: 45,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1990.tb05115.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1993,  Volume: 48,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1993.tb04031.x  |  Cited by: 0

Michael Keenan

AN INVESTIGATION OF FACTORS ASSOCIATED WITH VARIATIONS IN THE RELATIVE IMPORTANCE OF COMMERCIAL‐BANK RESIDENTIAL REAL‐ESTATE LOANS*

Published: 9/1968,  Volume: 23,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1968.tb00859.x  |  Cited by: 0

Michael Palmer

A Simple Nonparametric Approach to Derivative Security Valuation

Published: 12/1996,  Volume: 51,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1996.tb05220.x  |  Cited by: 227

MICHAEL STUTZER

Canonical valuation uses historical time series to predict the probability distribution of the discounted value of primary assets' discounted prices plus accumulated dividends at any future date. Then the axiomatically‐rationalized maximum entropy principle is used to estimate risk‐neutral (equivalent martingale) probabilities that correctly price the primary assets, as well as any predesignated subset of derivative securities whose payoffs occur at this date. Valuation of other derivative securities proceeds by calculation of its discounted, risk‐neutral expected value. Both simulation and empirical evidence suggest that canonical valuation has merit.

Minutes of the Annual Membership Meeting

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03778.x  |  Cited by: 0

Michael Kennan

Report of the Executive Secretary and Treasurer

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03779.x  |  Cited by: 0

Michael Keenan

Does Borrowing from Banks Cost More than Borrowing from the Market?

Published: 10/30/2019,  Volume: 75,  Issue: 2  |  DOI: 10.1111/jofi.12849  |  Cited by: 134

MICHAEL SCHWERT

This paper investigates the pricing of bank loans relative to capital market debt. The analysis uses a novel sample of loans matched with bond spreads from the same firm on the same date. After accounting for seniority, lenders earn a large premium relative to the bond‐implied credit spread. In a sample of secured term loans to noninvestment‐grade firms, the average premium is 140 to 170 bps or about half of the all‐in‐drawn spread. This is the first direct evidence of firms' willingness to pay for bank credit and raises questions about the nature of competition in the loan market.

Minutes of the Annual Membership Meeting

Published: 7/1986,  Volume: 41,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1986.tb04542.x  |  Cited by: 0

Michael Keenan

THE COST OF CAPITAL AND VALUATION OF A TWO‐COUNTRY FIRM: REPLY

Published: 9/1977,  Volume: 32,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1977.tb03335.x  |  Cited by: 1

Michael Adler

Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt

Published: 3/2/2005,  Volume: 60,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2005.00751.x  |  Cited by: 213

MICHAEL FAULKENDER

This paper examines whether firms are hedging or timing the market when selecting the interest rate exposure of their new debt issuances. I use a more accurate measure of the interest rate exposure chosen by firms by combining the initial exposure of newly issued debt securities with their use of interest rate swaps. The results indicate that the final interest rate exposure is largely driven by the slope of the yield curve at the time the debt is issued. These results suggest that interest rate risk management practices are primarily driven by speculation or myopia, not hedging considerations.

FROM THE EXSEC'S NOTEBOOK

Published: 12/1997,  Volume: 52,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1997.tb02740.x  |  Cited by: 0

Michael Keenan

ON RISK‐ADJUSTED CAPITALIZATION RATES AND VALUATION BY INDIVIDUALS

Published: 9/1970,  Volume: 25,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1970.tb00556.x  |  Cited by: 3

Michael Adler

Municipal Bond Liquidity and Default Risk

Published: 6/13/2017,  Volume: 72,  Issue: 4  |  DOI: 10.1111/jofi.12511  |  Cited by: 257

MICHAEL SCHWERT

This paper examines the pricing of municipal bonds. I use three distinct, complementary approaches to decompose municipal bond spreads into default and liquidity components, and find that default risk accounts for 74% to 84% of the average spread after adjusting for tax‐exempt status. The first approach estimates the liquidity component using transaction data, the second measures the default component with credit default swap data, and the third is a quasi‐natural experiment that estimates changes in default risk around pre‐refunding events. The price of default risk is high given the rare incidence of municipal default and implies a high risk premium.

Report of the Executive Secretary and Treasurer

Published: 7/1986,  Volume: 41,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1986.tb04543.x  |  Cited by: 0

Michael Keenan

THE COST OF CAPITAL AND VALUATION OF A TWO‐COUNTRY FIRM

Published: 3/1974,  Volume: 29,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1974.tb00028.x  |  Cited by: 15

Michael Adler

Report of the Executive Secretary and Treasurer

Published: 8/1998,  Volume: 53,  Issue: 4  |  DOI: 10.1111/0022-1082.00059  |  Cited by: 0

Michael Keenan

SYNERGISM IN MERGERS: SOME BRITISH RESULTS*

Published: 5/1978,  Volume: 33,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1978.tb04878.x  |  Cited by: 7

Michael Firth

Bank Capital and Lending Relationships

Published: 2/13/2018,  Volume: 73,  Issue: 2  |  DOI: 10.1111/jofi.12604  |  Cited by: 374

MICHAEL SCHWERT

This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and credit provision. I find that bank‐dependent firms borrow from well‐capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank‐dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.

REGULATION OF THE NEW YORK STATE CONSUMER FINANCE INDUSTRY*

Published: 9/1965,  Volume: 20,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1965.tb02921.x  |  Cited by: 0

Michael Kawaja

Investor Recognition of Corporation International Diversification: Comment

Published: 3/1981,  Volume: 36,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1981.tb03543.x  |  Cited by: 5

MICHAEL ADLER

Report of the Executive Secretary and Treasurer: for the Year Ending September 30, 1986

Published: 7/1987,  Volume: 42,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1987.tb04587.x  |  Cited by: 0

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04045.x  |  Cited by: 0

Michael Keenan

The Use of Electronic Funds Transfers to Capture the Effects of Cash Management Practices on the Demand for Demand Deposits: A Note

Published: 12/1985,  Volume: 40,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1985.tb02397.x  |  Cited by: 6

MICHAEL DOTSEY

The rapidly increasing use of more sophisticated cash management practices is a factor influencing the demand for money that is not considered in standard models of money demand. Within the framework of an inventory theoretic model of money demand, this paper provides theoretical grounds for using the number of electronic funds transfers as an indication of increasing cash management sophistication. Specifically, the demand for demand deposits is determined from the solution of a simultaneous equation system that also determines the optimal level of cash management. Therefore, the level of cash management services influences transactions costs, implying that transactions costs are endogenous. The number of electronic funds transfers is closely linked to the level of cash management services and is therefore related to transactions costs. Models of money demand that treat transactions costs as exogenous and fixed are therefore misspecified and will not perform well when transactions costs are changing. By explicitly incorporating the changing nature of transactions costs through the use of electronic funds transfers, the problems of instability and poor predictive power associated with the demand for money in the 1970's are overcome.

CLO Performance

Published: 4/10/2023,  Volume: 78,  Issue: 3  |  DOI: 10.1111/jofi.13224  |  Cited by: 32

LARRY CORDELL, MICHAEL R. ROBERTS, MICHAEL SCHWERT

We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk‐adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk‐based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed‐end structure, long‐term funding, and embedded options to reinvest principal proceeds.