The Journal of Finance

Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts

Published: 02/12/2003   |   DOI: 10.1111/1540-6261.00524

William M. Getry, Deen Kemsley, Christopher J. Mayer

Prior empirical evidence regarding the impact of dividend taxes on firm valuation is mixed. This study avoids some of the complications encountered in previous empirical work by exploiting institutional characteristics of REITs, such as their limited discretion over dividend policy and the relative transparency of REIT assets. We regress the market value of equity on the market value of assets and tax basis, which creates tax deductions that lower future dividend taxes without affecting future pretax cash flow. We find that firm value is positively related to tax basis, suggesting that future dividend taxes are capitalized into share prices.

Tests of the Relations Among Marketwide Factors, Firm‐Specific Variables, and Stock Returns Using a Conditional Asset Pricing Model

Published: 12/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05230.x

JIA HE, RAYMOND KAN, LILIAN NG, CHU ZHANG

In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time‐varying covariances between stock returns and marketwide factors and time‐varying reward‐to‐covariabilities. The model is then applied to examine the effects of firm size and book‐to‐market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book‐to‐market equity ratios. The results indicate that allowing time‐varying covariances and time‐varying reward‐to‐covariabilities does little to salvage the traditional asset pricing models.

Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act

Published: 05/23/2011   |   DOI: 10.1111/j.1540-6261.2011.01651.x

DHAMMIKA DHARMAPALA, C. FRITZ FOLEY, KRISTIN J. FORBES

The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment, employment, or R&D—even for firms that appeared to be financially constrained or lobbied for the holiday. Instead, a $1 increase in repatriations was associated with a $0.60 to $0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were well‐governed.

APPLICATION OF THE DECOMPOSITION PRINCIPLE TO THE CAPITAL BUDGETING PROBLEM IN A DECENTRALIZED FIRM

Published: 06/01/1974   |   DOI: 10.1111/j.1540-6261.1974.tb01485.x

Willard T. Carleton, Glen Kendall, Sanjiv Tandon

Institutional Ownership and Changes in the S&P 500

Published: 06/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb05070.x

STEPHEN W. PRUITT, K. C. JOHN WEI

Several recent articles have provided new evidence for the existence of price pressures by examining the price and volume effects associated with changes in the S&P 500. The present study extends this work by examining actual changes in institutional holdings following both additions to and deletions from the S&P 500. The results show that changes in institutional holdings in response to additions or deletions from the S&P 500 are positively correlated. In addition to providing further evidence for the existence of price pressure effects, the results also provide evidence of the very large institutional elasticities of demand for stock.

Institutional Trading and Soft Dollars

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00331

Jennifer S. Conrad, Kevin M. Johnson, Sunil Wahal

Proprietary data allow us to distinguish between institutional investors' orders directed to soft‐dollar brokers and those directed to other types of brokers. We find that soft‐dollar brokers execute smaller orders in larger market value stocks. Allowing for differences in order characteristics, we estimate the incremental implicit cost of soft‐dollar execution at 29 (24) basis points for buyer‐ (seller‐) initiated orders. For large orders, incremental implicit costs are 41 (30) basis points for buys (sells). However, we document substantial variability in these estimates, and research services provided by soft‐dollar brokers may at least partially offset these costs.

Caveat Compounder: A Warning about Using the Daily CRSP Equal‐Weighted Index to Compute Long‐Run Excess Returns

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.165353

Linda Canina, Roni Michaely, Richard Thaler, Kent Womack

This paper issues a warning that compounding daily returns of the Center for Research in Security Prices (CRSP) equal‐weighted index can lead to surprisingly large biases. The differences between the monthly returns compounded from the daily tapes and the monthly CRSP equal‐weighted indices is almost 0.43 percent per month, or 6 percent per year. This difference amounts to one‐third of the average monthly return, and is large enough to reverse the conclusions of a paper using the daily tape to compute the return on the benchmark portfolio. We also investigate the sources of these biases and suggest several alternative strategies to avoid them.

Thy Neighbor's Portfolio: Word‐of‐Mouth Effects in the Holdings and Trades of Money Managers

Published: 11/10/2005   |   DOI: 10.1111/j.1540-6261.2005.00817.x

HARRISON HONG, JEFFREY D. KUBIK, JEREMY C. STEIN

A mutual fund manager is more likely to buy (or sell) a particular stock in any quarter if other managers in the same city are buying (or selling) that same stock. This pattern shows up even when the fund manager and the stock in question are located far apart, so it is distinct from anything having to do with local preference. The evidence can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth.

DISCUSSION

Published: 05/01/1977   |   DOI: 10.1111/j.1540-6261.1977.tb03276.x

Bernell K. Stone, James C. Van Horne

Implications of Microstructure Theory for Empirical Research on Stock Price Behavior

Published: 05/01/1980   |   DOI: 10.1111/j.1540-6261.1980.tb02152.x

KALMAN J. COHEN, GABRIEL A. HAWAWINI, STEVEN F. MAIER, ROBERT A. SCHWARTZ, DAVID K. WHITCOMB

Differences of Opinion and the Cross Section of Stock Returns

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00490

Karl B. Diether, Christopher J. Malloy, Anna Scherbina

We provide evidence that stocks with higher dispersion in analysts' earnings forecasts earn lower future returns than otherwise similar stocks. This effect is most pronounced in small stocks and stocks that have performed poorly over the past year. Interpreting dispersion in analysts forecasts as a proxy for differences in opinion about a stock, we show that this evidence is consistent with the hypothesis that prices will reflect the optimistic view whenever investors with the lowest valuations do not trade. By contrast, our evidence is inconsistent with a view that dispersion in analysts' forecasts proxies for risk.

Why Do Foreign Firms Leave U.S. Equity Markets?

Published: 07/15/2010   |   DOI: 10.1111/j.1540-6261.2010.01577.x

CRAIG DOIDGE, G. ANDREW KAROLYI, RENÉ M. STULZ

Foreign firms terminate their Securities and Exchange Commission registration in the aftermath of the Sarbanes–Oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. Deregistering firms’ insiders benefit from greater discretion to consume private benefits without having to raise higher cost funds. Foreign firms with more agency problems have worse stock‐price reactions to the adoption of Rule 12h‐6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock‐price reactions to deregistration announcements are negative, but less so under Rule 12h‐6, and more so for firms that raise fewer funds externally.

Tiebreaker: Certification and Multiple Credit Ratings

Published: 01/17/2012   |   DOI: 10.1111/j.1540-6261.2011.01709.x

DION BONGAERTS, K. J. MARTIJN CREMERS, WILLIAM N. GOETZMANN

This paper explores the economic role credit rating agencies play in the corporate bond market. We consider three existing theories about multiple ratings: information production, rating shopping, and regulatory certification. Using differences in rating composition, default prediction, and credit spread changes, our evidence only supports regulatory certification. Marginal, additional credit ratings are more likely to occur because of, and seem to matter primarily for, regulatory purposes. They do not seem to provide significant additional information related to credit quality.

Holiday Trading in Futures Markets

Published: 03/01/1994   |   DOI: 10.1111/j.1540-6261.1994.tb04432.x

FRANK J. FABOZZI, CHRISTOPHER K. MA, JAMES E. BRILEY

In this paper, we find significantly higher preholiday returns in futures contracts compared to nonholiday returns. The findings are consistent with the inventory adjustment hypothesis, since higher preholiday returns associated with lower trading volume are most pronounced for exchange‐closed holidays. There is evidence of positive postholiday returns associated with higher trading volume for exchange‐open holidays. This is consistent with positive holiday sentiments. The holiday effect is uniquely independent: The magnitude of excess holiday returns is the largest among all seasonal variations.

Private Benefits of Control, Ownership, and the Cross‐listing Decision

Published: 01/23/2009   |   DOI: 10.1111/j.1540-6261.2008.01438.x

CRAIG DOIDGE, G. ANDREW KAROLYI, KARL V. LINS, DARIUS P. MILLER, RENÉ M. STULZ

This paper investigates how a foreign firm's decision to cross‐list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to cross‐list in the United States because of constraints on the consumption of private benefits resulting from such listings. Using several proxies for private benefits related to the control and cash flow ownership rights of controlling shareholders, we find support for this hypothesis with a sample of more than 4,000 firms from 31 countries.

A Rejoinder

Published: 06/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb04743.x

Nai‐Fu Chen, Raymond Kan, Merton H. Miller

The Effect of Providing Peer Information on Retirement Savings Decisions

Published: 02/24/2015   |   DOI: 10.1111/jofi.12258

JOHN BESHEARS, JAMES J. CHOI, DAVID LAIBSON, BRIGITTE C. MADRIAN, KATHERINE L. MILKMAN

Using a field experiment in a 401(k) plan, we measure the effect of disseminating information about peer behavior on savings. Low‐saving employees received simplified plan enrollment or contribution increase forms. A randomized subset of forms stated the fraction of age‐matched coworkers participating in the plan or age‐matched participants contributing at least 6% of pay to the plan. We document an oppositional reaction: the presence of peer information decreased the savings of nonparticipants who were ineligible for 401(k) automatic enrollment, and higher observed peer savings rates also decreased savings. Discouragement from upward social comparisons seems to drive this reaction.

DISCUSSION

Published: 05/01/1952   |   DOI: 10.1111/j.1540-6261.1952.tb00252.x

Reavis Cox, Avram Kisselgoff, Wallace P. Mors, Thomas W. Rogers

Global Currency Hedging

Published: 01/13/2010   |   DOI: 10.1111/j.1540-6261.2009.01524.x

JOHN Y. CAMPBELL, KARINE SERFATY‐DE MEDEIROS, LUIS M. VICEIRA

Over the period 1975 to 2005, the U.S. dollar (particularly in relation to the Canadian dollar), the euro, and the Swiss franc (particularly in the second half of the period) moved against world equity markets. Thus, these currencies should be attractive to risk‐minimizing global equity investors despite their low average returns. The risk‐minimizing currency strategy for a global bond investor is close to a full currency hedge, with a modest long position in the U.S. dollar. There is little evidence that risk‐minimizing investors should adjust their currency positions in response to movements in interest differentials.

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

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00114

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.