The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Information Effects Associated with Debt‐for‐Equity and Equity‐for‐Debt Exchange Offers
Published: 06/01/1989 | DOI: 10.1111/j.1540-6261.1989.tb05065.x
MARCIA MILLON CORNETT, NICKOLAOS G. TRAVLOS
This study investigates the information effect caused by a firm's change in capital structure via debt‐for‐equity and equity‐for‐debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross‐sectional regressions do not lend support to the wealth‐transfer‐ and tax‐effect hypotheses, but they are consistent with the information‐effect hypothesis.
Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns
Published: 09/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb03921.x
NICKOLAOS G. TRAVLOS
This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment.
Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions
Published: 06/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03706.x
YAKOV AMIHUD, BARUCH LEV, NICKOLAOS G. TRAVLOS
We test the proposition that corporate control considerations motivate the means of investment financing—cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control. Our empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership.
The Effect of Long‐Term Performance Plans on Corporate Sell‐Off‐Induced Abnormal Returns
Published: 09/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb03920.x
HASSAN TEHRANIAN, NICKOLAOS G. TRAVLOS, JAMES F. WAEGELEIN
This study examines the association between long‐term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell‐off proposals. The results indicate that divesting companies with long‐term performance plans experience a more favorable stock market reaction at the announcement of sell‐off proposals relative to firms without long‐term performance plans. The findings imply that long‐term performance plans serve as an effective mechanism to motivate managers to make better decisions.
The Cadbury Committee, Corporate Performance, and Top Management Turnover
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00428
Jay Dahya, John J. McConnell, Nickolaos G. Travlos
In 1992, the Cadbury Committee issued the Code of Best Practice which recommends that boards of U.K. corporations include at least three outside directors and that the positions of chairman and CEO be held by different individuals. The underlying presumption was that these recommendations would lead to improved board oversight. We empirically analyze the relationship between CEO turnover and corporate performance. CEO turnover increased following issuance of the Code; the negative relationship between CEO turnover and performance became stronger following the Code's issuance; and the increase in sensitivity of turnover to performance was concentrated among firms that adopted the Code.
When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As
Published: 01/17/2012 | DOI: 10.1111/j.1540-6261.2011.01712.x
ANDREY GOLUBOV, DIMITRIS PETMEZAS, NICKOLAOS G. TRAVLOS
We provide new evidence on the role of financial advisors in M&As. Contrary to prior studies, top‐tier advisors deliver higher bidder returns than their non‐top‐tier counterparts but in public acquisitions only, where the advisor reputational exposure and required skills set are relatively larger. This translates into a $65.83 million shareholder gain for an average bidder. The improvement comes from top‐tier advisors' ability to identify more synergistic combinations and to get a larger share of synergies to accrue to bidders. Consistent with the premium price–premium quality equilibrium, top‐tier advisors charge premium fees in these transactions.
The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions
Published: 12/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb03962.x
JOHN DOUKAS, NICKOLAOS G. TRAVLOS
This study presents direct evidence on the effect of international acquisitions on stock prices of U.S. bidding firms. Shareholders of MNCs not operating in the target firm's country experience significant positive abnormal returns at the announcement of international acquisitions. Shareholders of U.S. firms expanding internationally for the first time experience insignificant positive abnormal returns, while shareholders of MNCs operating already in the target firm's country experience insignificant negative abnormal returns. The abnormal returns are larger when firms expand into new industry and geographic markets—especially those less developed than the U.S. economy. The evidence is consistent with the theory of corporate multinationalism, predicting an increase in the firm's market value from the expansion of its existing multinational network.
Ownership Structure, Deregulation, and Bank Risk Taking
Published: 06/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03709.x
ANTHONY SAUNDERS, ELIZABETH STROCK, NICKOLAOS G. TRAVLOS
This paper investigates the relationship between bank ownership structure and risk taking. It is hypothesized that stockholder controlled banks have incentives to take higher risk than managerially controlled banks and that these differences in risk become more pronounced in periods of deregulation. In support of this hypothesis, we show that stockholder controlled banks exhibit significantly higher risk taking behavior than managerially controlled banks during the 1979–1982 period of relative deregulation.
Managers, Owners, and The Pricing of Risky Debt: An Empirical Analysis
Published: 06/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb05148.x
ELIZABETH STROCK BAGNANI, NIKOLAOS T. MILONAS, ANTHONY SAUNDERS, NICKOLAOS G. TRAVLOS
This article examines managerial ownership structure and return premia on corporate bonds. It is argued that when managerial ownership is low, an increase in managerial ownership increases management's incentives to increase stockholder wealth at the expense of bondholder wealth. When ownership increases more, however, it is argued that management becomes more risk averse, with incentives more closely aligned with bondholders. This study finds a positive relation between managerial ownership and bond return premia in the low to medium (5 to 25 percent) ownership range. There is also weak evidence for a nonpositive relation in the large (over 25 percent) ownership range.
An Empirical Study of the Consequences of U.S. Tax Rules for International Acquisitions by U.S. Firms
Published: 12/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb04786.x
GIL B. MANZON, DAVID J. SHARP, NICKOLAOS G. TRAVLOS
This article examines the effect of tax factors on the equity values of U.S. multinational corporations making foreign acquisitions. Abnormal stock returns are found to be related to a tax variable that captures differences in the international tax status of acquiring firms but not related to a naive tax variable that captures differences between tax rates in target countries and the United States. Our evidence suggests that aggregate intercountry differentials in after‐tax returns are competed away, while firm‐specific, tax‐related advantages (or disadvantages) are reflected in abnormal returns around the announcement date of the acquisition.
Prospect Theory and Stock Market Anomalies
Published: 06/05/2021 | DOI: 10.1111/jofi.13061
NICHOLAS BARBERIS, LAWRENCE J. JIN, BAOLIAN WANG
We present a new model of asset prices in which investors evaluate risk according to prospect theory and examine its ability to explain 23 prominent stock market anomalies. The model incorporates all of the elements of prospect theory, accounts for investors' prior gains and losses, and makes quantitative predictions about an asset's average return based on empirical estimates of the asset's return volatility, return skewness, and past capital gain. We find that the model can help explain a majority of the 23 anomalies.
Option‐Implied Risk Aversion Estimates
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00637.x
Robert R. Bliss, Nikolaos Panigirtzoglou
Using a utility function to adjust the risk‐neutral PDF embedded in cross sections of options, we obtain measures of the risk aversion implied in option prices. Using FTSE 100 and S&P 500 options, and both power and exponential‐utility functions, we estimate the representative agent's relative risk aversion (RRA) at different horizons. The estimated coefficients of RRA are all reasonable. The RRA estimates are remarkably consistent across utility functions and across markets for given horizons. The degree of RRA declines broadly with the forecast horizon and is lower during periods of high market volatility.
What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation
Published: 03/13/2009 | DOI: 10.1111/j.1540-6261.2009.01448.x
NICHOLAS BARBERIS, WEI XIONG
We investigate whether prospect theory preferences can predict a disposition effect. We consider two implementations of prospect theory: in one case, preferences are defined over annual gains and losses; in the other, they are defined over realized gains and losses. Surprisingly, the annual gain/loss model often fails to predict a disposition effect. The realized gain/loss model, however, predicts a disposition effect more reliably. Utility from realized gains and losses may therefore be a useful way of thinking about certain aspects of individual investor trading.
Hedge Fund Risk Dynamics: Implications for Performance Appraisal
Published: 03/13/2009 | DOI: 10.1111/j.1540-6261.2009.01455.x
NICOLAS P.B. BOLLEN, ROBERT E. WHALEY
Accurate appraisal of hedge fund performance must recognize the freedom with which managers shift asset classes, strategies, and leverage in response to changing market conditions and arbitrage opportunities. The standard measure of performance is the abnormal return defined by a hedge fund's exposure to risk factors. If exposures are assumed constant when, in fact, they vary through time, estimated abnormal returns may be incorrect. We employ an optimal changepoint regression that allows risk exposures to shift, and illustrate the impact on performance appraisal using a sample of live and dead funds during the period January 1994 through December 2005.
Investing for the Long Run when Returns Are Predictable
Published: 03/31/2007 | DOI: 10.1111/0022-1082.00205
Nicholas Barberis
We examine how the evidence of predictability in asset returns affects optimal portfolio choice for investors with long horizons. Particular attention is paid to estimation risk, or uncertainty about the true values of model parameters. We find that even after incorporating parameter uncertainty, there is enough predictability in returns to make investors allocate substantially more to stocks, the longer their horizon. Moreover, the weak statistical significance of the evidence for predictability makes it important to take estimation risk into account; a long‐horizon investor who ignores it may overallocate to stocks by a sizeable amount.