The Journal of Finance

Competition, Market Structure, and Bid‐Ask Spreads in Stock Option Markets

Published: 4/2002,  Volume: 57,  Issue: 2  |  DOI: 10.1111/1540-6261.00447  |  Cited by: 147

Stewart Mayhew

This paper examines the effects of competition and market structure on equity option bid‐ask spreads from 1986 to 1997. Options listed on multiple exchanges have narrower spreads than those listed on a single exchange, but the difference diminishes as option volume increases. Option spreads become wider when a competing exchange delists the option. Options traded under a “Designated Primary Marketmaker” (DPM) have narrower quoted spreads than those traded in a traditional open outcry crowd. Effective spreads are found to be slightly narrower under the DPM than in the crowd, but only since 1992, and only on low‐volume options.

How Do Exchanges Select Stocks for Option Listing?

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2004.00638.x  |  Cited by: 158

Stewart Mayhew, Vassil Mihov

We investigate the factors influencing the selection of stocks for option listing. Exchanges tend to list options on stocks with high trading volume, volatility, and market capitalization, but the relative effect of these factors has changed over time as markets have evolved. We observe a shift from volume toward volatility after the moratorium on new listings ended in 1980. Using control sample methodology designed to correct for the endogeneity of option listing, we find no evidence that volatility declines with option introduction, in contrast to previous studies that do not use control samples.

Informed Trading in Stock and Option Markets

Published: 6/2004,  Volume: 59,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2004.00661.x  |  Cited by: 639

Sugato Chakravarty, Huseyin Gulen, Stewart Mayhew

We investigate the contribution of option markets to price discovery, using a modification of Hasbrouck's (1995) “information share” approach. Based on five years of stock and options data for 60 firms, we estimate the option market's contribution to price discovery to be about 17% on average. Option market price discovery is related to trading volume and spreads in both markets, and stock volatility. Price discovery across option strike prices is related to leverage, trading volume, and spreads. Our results are consistent with theoretical arguments that informed investors trade in both stock and option markets, suggesting an important informational role for options.

The Allocation of Informed Trading Across Related Markets: An Analysis of the Impact of Changes in Equity‐Option Margin Requirements

Published: 12/1995,  Volume: 50,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1995.tb05191.x  |  Cited by: 63

STEWART MAYHEW, ATULYA SARIN, KULDEEP SHASTRI

We examine the impact of changes in equity‐option margin requirements on the liquidity of options and underlying stock markets. We find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, option spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks, but option spreads increased. Overall, our results indicate that uninformed traders are more sensitive to the margin dimension of trading costs.

The Capital Structure Puzzle

Published: 7/1984,  Volume: 39,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1984.tb03646.x  |  Cited by: 2000

STEWART C. MYERS

EARNINGS CHANGES, STOCK PRICES, AND MARKET EFFICIENCY

Published: 3/1978,  Volume: 33,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1978.tb03386.x  |  Cited by: 35

Stewart L. Brown

Outside Equity

Published: 6/2000,  Volume: 55,  Issue: 3  |  DOI: 10.1111/0022-1082.00239  |  Cited by: 303

Stewart C. Myers

Equity financing is modeled when cash flows and asset values are not verifiable. Investors have enforceable property rights to the firm's assets, but cannot prevent insiders (managers or entrepreneurs) from capturing cash flow. Insiders must coinvest and pay in each period a dividend sufficient to ensure outside investors' participation for at least one more period. Intervention by the investors must be limited by an agreement with insiders or by costs of collective action. Basic models are extended to show why firms go public and why agency costs necessarily arise when the act of investment is not immediately verifiable.

INTERACTIONS OF CORPORATE FINANCING AND INVESTMENT DECISIONS—IMPLICATIONS FOR CAPITAL BUDGETING

Published: 3/1974,  Volume: 29,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1974.tb00021.x  |  Cited by: 352

Stewart C. Myers

A NOTE ON LINEAR PROGRAMMING AND CAPITAL BUDGETING

Published: 3/1972,  Volume: 27,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1972.tb00622.x  |  Cited by: 18

Stewart C. Myers

EFFECTS OF UNCERTAINTY ON THE VALUATION OF SECURITIES AND THE FINANCIAL DECISIONS OF THE FIRM*

Published: 3/1968,  Volume: 23,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1968.tb03014.x  |  Cited by: 0

Stewart Clay Myers

SHOULD A CORPORATION REPURCHASE ITS OWN STOCK?

Published: 6/1976,  Volume: 31,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1976.tb01933.x  |  Cited by: 9

Samuel S. Stewart

DISCUSSION

Published: 5/1971,  Volume: 26,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1971.tb00913.x  |  Cited by: 5

Stewart C. Myers

Biased Estimators and Unstable Betas

Published: 3/1980,  Volume: 35,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1980.tb03470.x  |  Cited by: 7

ELTON SCOTT, STEWART BROWN

MEASURING ALLOCATIVE EFFICIENCY WITH TECHNOLOGICAL UNCERTAINTY

Published: 5/1976,  Volume: 31,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1976.tb01914.x  |  Cited by: 0

Stewart Myers, Clement G. Krouse

A Theory of Takeovers and Disinvestment

Published: 3/20/2007,  Volume: 62,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2007.01224.x  |  Cited by: 109

BART M. LAMBRECHT, STEWART C. MYERS

We present a real‐options model of takeovers and disinvestment in declining industries. As product demand declines, a first‐best closure level is reached, where overall value is maximized by closing the firm and releasing its capital to investors. Absent takeovers, managers of underleveraged firms always close too late, although golden parachutes may accelerate closure. We analyze the effects of takeovers of under‐leveraged firms. Takeovers by raiders enforce first‐best closure. Hostile takeovers by other firms occur either at the first‐best closure point or too early. Closure in management buyouts and mergers of equals happens inefficiently late.

VALUATION OF THE FIRM: EFFECTS OF UNCERTAINTY IN A MARKET CONTEXT

Published: 5/1966,  Volume: 21,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1966.tb00222.x  |  Cited by: 33

Alexander A. Robichek, Stewart C. Myers

A PROGRAMMING APPROACH TO CORPORATE FINANCIAL MANAGEMENT

Published: 5/1974,  Volume: 29,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1974.tb03072.x  |  Cited by: 26

STEWART C. MYERS, GERALD A. POGUE

A Lintner Model of Payout and Managerial Rents

Published: 9/12/2012,  Volume: 67,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2012.01772.x  |  Cited by: 191

BART M. LAMBRECHT, STEWART C. MYERS

We develop a dynamic agency model in which payout, investment, and financing decisions are made by managers who attempt to maximize the rents they take from the firm, subject to a capital market constraint. Managers smooth payout to smooth their flow of rents. Total payout (dividends plus net repurchases) follows Lintner's (1956) target adjustment model. Payout smooths out transitory shocks to current income and adjusts gradually to changes in permanent income. Smoothing is accomplished by borrowing or lending. Payout is not cut back to finance capital investment. Risk aversion causes managers to underinvest, but habit formation mitigates the degree of underinvestment.

Lease Valuation When Taxable Earnings Are a Scarce Resource

Published: 9/1987,  Volume: 42,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1987.tb03923.x  |  Cited by: 9

JULIAN R. FRANKS, STEWART D. HODGES

In this paper, we examine leasing as a tax‐arbitrage instrument. Analysis of a sample of UK leases presented in this paper suggests that lessors earn large positive NPVs. Our theoretical model seeks to explain these positive NPVs in terms of a market price for a scarce resource that we identify as scarce taxable earnings. Using these prices, the model permits a lessor to determine whether the profitability of a proposed set of lease contracts can be improved by writing a different set of contracts that makes better use of the lessor's taxable earnings. There may be two reasons why an initial portfolio of contracts may be suboptimal. Either there may be clienteles or the leasing market may be inefficient. Subsequently, we discuss reasons why the leasing market may be characterized by clienteles, and, using two different samples of leases, we test whether the leasing market is segmented and efficient.

CAPITAL BUDGETING AND THE CAPITAL ASSET PRICING MODEL: GOOD NEWS AND BAD NEWS

Published: 5/1977,  Volume: 32,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1977.tb03272.x  |  Cited by: 218

Stewart C. Myers, Stuart M. Turnbull

CONCEPTUAL PROBLEMS IN THE USE OF RISK‐ADJUSTED DISCOUNT RATES*

Published: 12/1966,  Volume: 21,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1966.tb00277.x  |  Cited by: 48

Alexander A. Robichek, Stewart C. Myers

VALUATION OF FINANCIAL LEASE CONTRACTS: A NOTE

Published: 5/1978,  Volume: 33,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1978.tb04877.x  |  Cited by: 40

Julian R. Franks, Stewart D. Hodges

TERM STRUCTURE WITH UNCERTAIN INFLATION

Published: 5/1977,  Volume: 32,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1977.tb03268.x  |  Cited by: 2

Stewart C. Myers, Richard Brealey, Stephen Schaefer

Stealth Acquisitions and Product Market Competition

Published: 6/26/2023,  Volume: 78,  Issue: 5  |  DOI: 10.1111/jofi.13256  |  Cited by: 34

JOHN D. KEPLER, VIC NAIKER, CHRISTOPHER R. STEWART

We examine whether and how firms structure their merger and acquisition deals to avoid antitrust scrutiny. There are approximately 40% more mergers and acquisitions (M&As) than expected just below deal value thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve financial and governance contract terms that afford greater scope for negotiating and assigning lower deal values. We also show that the equity values, gross margins, and product prices of acquiring firms and their competitors increase following such acquisitions. Our results suggest that acquirers manipulate M&As to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming other corporate stakeholders.

VALUATION OF FINANCIAL LEASE CONTRACTS

Published: 6/1976,  Volume: 31,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1976.tb01924.x  |  Cited by: 196

Stewart C. Myers, David A. Dill, Alberto J. Bautista

DISCUSSION

Published: 5/1975,  Volume: 30,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1975.tb01821.x  |  Cited by: 0

M. J. Brennan, Willard T. Carleton, Stewart C. Myers

Competition Enforcement and Accounting for Intangible Capital

Published: 2/6/2026,  Volume: 81,  Issue: 3  |  DOI: 10.1111/jofi.70028  |  Cited by: 1

JOHN D. KEPLER, CHARLES G. MCCLURE, CHRISTOPHER R. STEWART

Antitrust laws mandate review of mergers and acquisitions (M&As) that exceed an asset size threshold based on accounting standards that exclude most intangible capital. We show that this exclusion leads to thousands of intangible‐intensive M&As being nonreportable. Acquirers in nonreportable deals achieve higher equity values and price markups, especially when consolidating product markets. Furthermore, nonreportable pharmaceutical deals are three times more likely to involve overlapping drug projects, which are subsequently 40% more likely to be terminated. Our results suggest that the growth of intangible assets may exacerbate market power through nonreportable consolidation of the sectors most concerning for consumers.

The Internal Governance of Firms

Published: 5/23/2011,  Volume: 66,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2011.01649.x  |  Cited by: 287

VIRAL V. ACHARYA, STEWART C. MYERS, RAGHURAM G. RAJAN

We develop a model of internal governance where the self‐serving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, in which dividends are paid by self‐interested CEOs to maintain a balance between internal and external control.

Naïve Buying Diversification and Narrow Framing by Individual Investors

Published: 4/7/2023,  Volume: 78,  Issue: 3  |  DOI: 10.1111/jofi.13222  |  Cited by: 18

JOHN GATHERGOOD, DAVID HIRSHLEIFER, DAVID LEAKE, HIROAKI SAKAGUCHI, NEIL STEWART

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification, NPD) or, in contrast, equally balance the values of same‐day purchases of multiple assets (naïve buying diversification, NBD). We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. Evidence suggests that NBD arises due to stock picking behavior and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction, as well as portfolio, framing.

An Empirical Analysis of the Role of the Medium of Exchange in Mergers

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02503.x  |  Cited by: 60

WILLARD T. CARLETON, DAVID K. GUILKEY, ROBERT S. HARRIS, JOHN F. STEWART

In empirical studies of differences between firms which are acquired and those which are not, researchers typically divide firms into two groups‐acquired and nonacquired. In this paper, we argue that cash takeovers may be sufficiently different from noncash acquisitionst hat failure to distinguish between them may lead to inappropriateg eneralizations. We provide evidence from the mid 1970s that three categories of firms can be distinguished:n onacquireda, cquiredi n a cash takeover, and acquired in an exchange of securities.