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Publications (69)
We examine the determinants of liquidity and adverse selection costs in a sample of basket securities. Using Exchange Traded
Funds (ETFs), we find evidence that adverse selection costs are decreasing in the number of equities held in the underlying
portfolio, but adverse selection costs do not increase as the concentration among the securities incr...
This paper explicitly recognizes the potential differences in dividend policy between regulated and unregulated firms and focuses on agency-cost and monitoring explanations for the relevance of dividends. The purpose of this paper is to examine the role of insiders in determining dividend policy for unregulated firms, utilities, and financial-servi...
This paper examines a sample of U.S. Bank Holding Companies (BHCs) to determine if there is a relationship between managerial equity ownership (insider holdings) and the level of dividends paid out by the BHC. Given the findings of prior research, the analysis is performed using Two-Stage Least Squares (2SLS) regression with three equations. The th...
I assess the role of wealth and systemic risk in explaining future asset returns. I show that the residuals of the trend relationship among asset wealth and human wealth predict both stock returns and government bond yields. Using data for a set of industrialized countries, I find that when the wealth-to-income ratio falls, investors demand a highe...
Purpose
The purpose of this paper is to investigate how quotes originating via electronic communication networks (ECN)s affect trading costs.
Design/methodology/approach
In order to investigate the relations between trading costs and quotation venue, the bid‐ask spread is decomposed into its theoretical cost components associated with adverse sele...
Purpose - The purpose of this paper is to investigate how quotes originating via electronic communication networks (ECN)s affect trading costs. Design/methodology/approach - In order to investigate the relations between trading costs and quotation venue, the bid-ask spread is decomposed into its theoretical cost components associated with adverse s...
This research employs the residual methodology to examine whether gains to shareholders exist through international diversification. Under the assump tion that bid premiums (abnormal returns) are a proxy for expected gains in a merger, the magnitude of abnormal returns to acquired f m s in foreign and domestic mergers is determined using the market...
This paper presents the results of empirical tests on a necessary condition for the diversification service hypothesis: market recognition of the multinationality of a firm and the existence of international factors. Employing both a two- factor international market model and residual analyses, this study examines whether the US stock market consid...
Borrowers realize statistically significant, positive abnormal returns around the announcement date of line-of-credit agreements with banks, and several explanations have been proposed. Little evidence exists, however, on the influence of these agreements on the counterparty, the lending institution, and still less has examined borrower and lender...
Dividends are commonly defined as the distribution of earnings in real assets among the shareholders of the firm in proportion to their ownership. There are three parts of this definition: (1) dividends can be distributed only from earnings and not from any other source of equity, (2) dividends must be in the form of real asset, and (3) all stockho...
This chapter discusses why there is an urgent need to understand what investors and their professional advisers think about dividends and how they should be educated to overcome mistaken beliefs as part of future research to comprehend the dividend phenomenon and practice. The whole theory of modern finance in general and the notion of market effic...
This chapter empirically examines the determining factors of dividend policies. A time-series cross-sectional model is applied to individual firm data. A Vector Autoregression Model (VAR) model is used to analyze aggregate data. Under the VAR model, a system of dynamic linear equations is constructed such that a vector of dependent variables is rel...
This chapter discusses various methods adopted by firms for distributing dividends to shareholders. Both stock dividends and stock splits involve the distribution of additional shares of stock to the existing shareholders in proportion to their ownership. The accounting profession recommends treating stock distributions of greater than 20–25% as st...
Dividend policy is inconsistent with wealth maximization of the shareholder and is better explained by the addition of sociopsychological elements of behavior explicitly included in a paradigm that is set out to explain this phenomenon. Dividend payouts can be viewed as the socioeconomic repercussion of corporate evolution that causes dividends to...
This chapter focuses on dividend policy of regulated industries, measuring dividend policy based on dividend payout ratio and yield. Regardless of the rationale for dividend payment, it is generally recognized that fundamental differences exist in the dividend policies of unregulated and regulated firms. A reason for this difference in dividend pol...
This chapter discusses how the modern corporation in the United States of America evolved. The New London Society United for Trade and Commerce, established in 1732, was the first U.S. business corporation, followed in 1776 by the Union Wharf Company of New Haven. The Philadelphia Contributionship for the Insuring of Houses from Loss by Fire, the f...
This chapter traces the historical evolution of corporate dividend policy from its origins in The Netherlands and the United Kingdom. Precursors of the modern corporation occurred in 14th-century Italy, where merchants formed loose federations for limited purposes. Joint stock companies evolved from these merchant associations as a result of the hi...
A large body of theoretical models and empirical research analyzes the effect of the market imperfection of taxes on corporate dividend policy. Tax-adjusted models surmise that investors require and secure higher expected returns on shares of dividend-paying stocks. The imposition of a tax liability on dividends causes the dividend payment to be gr...
This chapter focuses on the emergence of dividend payment patterns and trends throughout the history of the modern corporation. Corporate dividend payments to shareholders began more than 300 years ago and have continued as an acceptable, if not required, activity of corporate managers, despite the apparent contradictory economic nature of these pa...
Common stock theory proponents maintain that the safety and total return from dividends and capital gains of common stock will exceed bond return over the long term. Common stocks are able to sustain purchasing power more effectively than bonds because as commodity prices increase, purchasing power decreases and the bond income and par value return...
This chapter presents various features of preferred stocks, how they originated, and how their stockholders are treated. The adjective “preferred” in preferred stock implies that the holders of such shares are preferred when it comes to the distribution of income. This would mean that before common stock can receive any cash dividend distribution,...
The free cash flow hypothesis combines attributes of both signaling and agency costs paradigms, where the payment of dividends can decrease the level of funds available for perquisite consumption by corporate managers. A stock price change resulting from a change in dividend payout because of the informational content of dividends represents differ...
This chapter discusses various factors that lead to firms paying dividends to stock holders, and what will happen if they do not pay dividends. Financial officers of firms know well that the market “punishes” firms that either reduce quarterly dividends or skip payment altogether. Some firms pay dividends because they want to be included in “legal...
This chapter focuses on the features of dividend reinvestment plans (DRIPs), which have their roots in the late 1920s. About more than 1500 firms with DRIPs, representing all walks of life in corporate America, are listed on the internet. In practicality, the DRIP allows small investors to use dollar averaging, bypassing the broker and saving on po...
This chapter empirically tests in a rigorous statistical framework what the preponderance of models that attempt to explain empirically the dividend puzzle show or do not show. The categorical data analysis method (CDAM) determines whether the method of analysis, observation frequency, and sample period can be used to predict and explain the result...
The book has three objectives. First, to provide a historical perspective of dividends from the emergence of the modern corporation in Great Britain, the Netherlands, and America.
Second, to trace the evolution of academic models of dividend policy.
Lastly, to propose new ways of thinking about the dividend "puzzle," and other means of wealth distr...
The literature on asset markets has devoted surprisingly little attention to trading volume. [see Harris and Raviv (1993)]. We seek to fill a portion of this gap by examining the determinants of trading volume for individual securities in two distinct markets: the New York Exchange and the NASDAQ market. We are particularly interested in using this...
Dividend Policy explores the puzzle presented by dividends: irrational and subject to fashion, yet popular and desirable, they remain a priority among managers, even while perceived as largely symbolic. After exploring the history of dividend payments, from the emergence of the modern corporation to current perspectives, it traces the evolution of...
Trust-preferred stock is a debt-equity hybrid that offers the tax deductibility of dividends but is treated as equity capital by bank regulators and rating agencies. The purpose of this paper is to examine whether holders of bank debt securities benefit from trust-preferred issuance in the form of lower default premia and whether bank shareholders...
Dividend policy Theory and practice
This paper investigates the impact of Electronic Communication Networks (ECNs) on the magnitude and composition of bid-ask spreads during different levels of market stress. Our finding that ECNs significantly decrease bid-ask spreads is consistent with the results of Barclay et al. (1999) and Simaan et al. (1998). Furthermore, quoted inside bid-ask...
We study the determinants of bank growth in a two-stage logistic regression model. We first compare banks that branch, Bank Acquire, or Product Expand with banks that do not grow externally. Banks that are federally chartered, in states with higher income growth, and with higher labor prices are less likely to grow externally. Larger banks are more...
Changes in bank market performance are compared for banks that choose not to grow, to branch, bank acquire, product expand, or some combination. Using the change in market value-to-book value ratios, banks that include acquiring other banks as part of their growth strategy have significantly positive changes in performance. Positive performance by...
This study examines the direct (out-of-pocket) flotation costs of new capital issues by bank holding companies between 1980 and 1986 and the total costs including any market effects of security issuance. A regression model is developed that relates the direct selling costs to the type of security being issued, the exchange on which the parent bank...
Recent studies have shown that the level of insider holdings and firm value are related in a nonlinear manner. Other studies find that the level of debt in a firm's capital structure declines with increases in its growth options. The principal-agent relationship maintains that an increase in the equity stake of insiders reduces the agency costs of...
In this paper we explore price and volume effects associated with the 1991 creation of Standard & Poor's MidCap 400 index. Prior work on changes in the composition of existing indices finds a significant price response to the announcement. Various authors link the effect to price pressure, information, an outwardly shifting demand curve for securit...
The addition of antitakeover provisions to corporate charters restricts the options of shareholders in the disposition of the firm's ownership. At the state level, previous research has produced mixed findings regarding stockholder wealth effects. The purpose of this study is to investigate the wealth effects of Pennsylvania Act 36 on banking firms...
Previous work shows that firms earn statistically significant, positive abnormal returns when they announce favorable revisions of line-of-credit agreements with banks, and many explanations have been proposed. Conspicuously absent is evidence of the impact of these agreements on the other party to the transaction, the lending institution. This pap...
Recent modeling using the asymmetric information framework suggests that the magnitude of a market response to dividend change announcements should be related to the timing of the dividend announcement vis-a-vis the earnings release and to the stability of those earnings. The announcement effects of regular quarterly dividend changes are tested and...
This paper examines the announcement effects of CreditWatch placement and reratings upon a sample of preferred stock issues that were placed on CreditWatch and later rerated or affirmed by Standard & Poor's. Results indicate that CreditWatch provides information to market participants and may have reduced the surprise associated with subsequent rer...
In this study, the impact of security issuance by bank holding companies is examined in light of two hypotheses: the regulation or asymmetry reduction hypothesis and the bank capital hypothesis. Announcements of the issuance of common stock are associated with a significant negative effect, and the magnitude of this effect is similar to that found...
Unlike prior work in the area of bank failure prediction, this article focuses on misclassifications: the individual banks that were predicted by a model to fail and yet have not, and those predicted to survive and yet have failed. The concern here is with the profile of these misclassified banks and the causes of their success or failure. Linear a...
The observed pricing of when-issued securities would seem to violate the laws of one price in financial economics. Generally, when-issued shares sell at a premium over the original shares during the short time when both are traded. This paper examines whether this observed premium could be due to a nonsynchronous trading problem, to the intensity o...
This paper examines the impact on stock returns of changes in the Standard & Poor's (S&P) 500 index. S&P states that firms are not added to or deleted from the index for valuation reasons but rather to maintain or improve the index's representative character. Results from market response tests indicate that stocks added to (deleted from) the index...
This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when management of the bidding firm believes its own stock to b...
The purpose of this study is to present the Cox proportional hazards model and to apply this model to the prediction of bank failures. The Cox model, which has been used extensively in biomedical applications, has not been previously employed in the finance literature. The principal advantage of the Cox model over other classification techniques is...
This study examines securityholder returns around nine major repurchase announcements and 10 other repurchase-related announcements by the Teledyne Corporation between 1972 and 1984. Statistically significant positive excess returns to common stock and convertible preferred stockholders are documented. Contrary to prior research that investigated t...
This paper examines the equity returns and bond prices of firms around the dates of their placement on CreditWatch by Standard and Poor's. Bond prices and equity returns for companies listed on CreditWatch are compared with a set of firms whose debt was rerated during the same time period but were never placed on CreditWatch. The evidence indicates...
This paper considers the empirical assessment of the relationship between prices and number of firms in local markets in geographic or, more generally, characteristic space and its use as evidence in merger cases. It outlines a structural, semi-nonparametric econometric model of competition in such markets, examines its testable implications in ter...