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Publications (82)
Purpose
This paper aims to investigate the consequences of mergers and acquisitions (M&As) on information asymmetry in the banking sector. Specifically, the authors look at whether specific firm or deal characteristic influence information asymmetry levels between insiders and investors, as well as the impact of recent regulation such as the Dodd–F...
Using a sample of hedge fund activist events from 2001 to 2014, we assess analysts’ reaction to hedge fund activism by considering changes in their recommendations and their earnings forecast accuracy. Following the arrival of a hedge fund activist, a preponderance of recommendations move to or are reinstated at the Hold level, the accuracy of anal...
Risk in financial institutions is vitally important to regulators, policy makers, investors, and the stability of the financial system, yet some critical aspects of that risk remain poorly understood. In the case of U.S. startup banks, a critical choice that can influence risk-taking behavior is which of three regulators—with varying levels of stri...
Information asymmetry in the banking sector is important to regulators, analysts, and investors. We examine the change in the information environments of banks following large nonrecurring write-downs (baths) and find a reduction in information asymmetry in the three years following a bath. This result is conditional on the type of asset being writ...
We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff. The spinoff affects firm characteristics that influence the use of the identified compensation practices. We test for differences in the compensation practices for the pre- and post...
Households age 60 and older bear increasing responsibility for managing retirement portfolios, and they hold the majority of financial assets in the United States. Cognitive aging studies find evidence of a decline in fluid and crystallized intelligence in old age that may impact the ability to manage money effectively. Using a large sample of olde...
We investigate the role of labor unions in the performance of venture capital (VC)-backed firms. Using a large sample of initial public offering firms from 1983 to 2013, we find that VC-backed firms in highly unionized industries have lower Tobin's Q and are less likely to survive. This effect is robust to endogeneity concerns and to controlling fo...
We examine the effect of inside debt (executive pension plans and deferred compensation) on the security issuance decision. Inside debt is an unfunded and unsecured firm liability that exposes the executive to the same risk of loss in insolvency as unsecured corporate debt. Agency theory predicts that inside debt aligns the interests of managers an...
We examine the propensity of distressed firms to manage earnings and the impact of their earnings management on investor response to earnings. We find that distressed firms manage earnings upward and downward more than other firms. Distressed firms manage earnings upward significantly more than non-distressed firms after negative earnings surprises...
We examine the information environments of firms following large, non-recurring charges (“baths”). We test competing hypotheses about the consequences of a bath—a bath either improves the information environment (the transparency hypothesis) or degrades it (the opacity hypothesis). Difference-in-differences analysis suggests that after a bath (1) e...
We examine whether there are agency cost differences between public and private banks. Using financial report data, we provide evidence consistent with higher perquisite consumption and risk aversion among managers at public banks. We find weak evidence of greater value-destroying acquisitions by public bank managers. We provide strong evidence tha...
We examine the information environments of firms following large, non-recurring charges (“baths”). We test competing hypotheses about the consequences of a bath—a bath either improves the information environment (the transparency hypothesis) or degrades it (the opacity hypothesis). Difference-in-differences analysis suggests that after a bath: 1) e...
Purpose – We examine how the ownership and corporate governance of special purpose acquisition companies (SPACs) influence their short- and long-run performance.
Design/methodology/approach – By splitting our sample at the median value of different governance characteristics, we test for differences in short- and long-run performance between the lo...
Purpose ‐ The purpose of this paper is to assess whether the decision to issue warrants in an initial public offering (IPO) is subject to catering influences. Design/methodology/approach ‐ The approach used was to measure the market "warrant premium" and assess whether it relates to the probability of firms including warrants in their IPOs. Finding...
The type of firms issuing warrants has changed over the last 20 years. In the 1990s, warrants were primarily issued by firms as part of their IPOs. By 2001, firms emerging from chapter 11 bankruptcy issued the majority of warrants. The contract characteristics of the warrants issued in the two situations are different. Warrants issued during chapte...
Plenary Speech IV: Bourke Room 1 - 10.30 AM -11.15 AMFerdinand a. Gul (Monash University, Sunway Campus)"The Role and Consequences of Chief Executive Officer (CEO) and Chief Financial Officer (CFO Equity Compensation"~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Plenary Speech V: Bourke Room 1 - 11.15 AM - 12.00 NoonJohn S. Howe (Universi...
We use the Jin and Myers (2006) model to examine the relative opacity of
banks. Our results show that banks have less firm-specific information in their equity
returns than industrial matching firms, consistent with banks being more opaque than
industrial firms. We also provide new evidence on the opacity of specific bank assets. We
find that highe...
Calls of in-the-money warrants elicit a negative stock price reaction at the call announce- ment date and a positive price reaction at the completion date. We examine two theories that can explain this pattern of stock price behavior: liquidity costs and information effects. We find that calls that surprise the market result in a greater negative a...
Households age 60 and older bear increasing responsibility for managing retirement portfolios, and they hold the majority of financial assets in the United States. Cognitive aging studies find evidence of a decline in fluid and crystallized intelligence in old age that may impact the ability to manage money effectively. Using a large sample of olde...
Purpose
– A friendly merger can be structured as a one‐step transaction or a two‐step transaction. For a variety of reasons, such as the fast speed with which two‐step mergers are completed, there are concerns about whether target shareholders are disadvantaged by this structure in comparison with one‐step mergers. The purpose of this paper is to e...
Abstract Does it pay to voluntarily disclose the manager's private information about the firm's earnings prospects before the mandatory announcement date? This question has been a subject of much debate because prior research establishes both benefits and costs of early information disclosure. We provide evidence on the net effect of such disclosur...
We compare the governance characteristics of dual-class firms to a matched sample of single-class firms. Dual-class firms allow firms to separate voting and cash flow rights, frequently allowing management to control the voting rights while only having a small proportion of the cash flow rights. With the control of the voting rights, management has...
We examine the intra-industry effects associated with the acquisition of Dow Jones and Company by News Corporation. We test the significance of the market's reaction to news releases throughout 2007 using event study methods. We find evidence of a direct relation between the stock price reaction of Dow Jones and the stock price reaction of its comp...
The article examines analyst coverage initiations at the end of the quiet period for banking IPOs between 1990 and 2009. It is found that analyst coverage is initiated for only 15.5 percent of banks, a lower rate of initiation than for nonfinancial firms. This lower level of private sector monitoring suggests that regulation is a substitute, not a...
Public equity offerings by seasoned firms (SEOs) exhibit similar but less volatile cycles than initial public offerings (IPOs) of newly public firms. Our paper provides a comprehensive examination of the factors that cause variation in the number of firms issuing SEOs. Specifically, we use four factors from studies of IPOs as potential determinants...
The most efficient corporate governance structure will vary by firm depending on the costs and benefits of different governance mechanisms. For IPO firms, warrants might act as a substitute for other governance mechanisms (Schultz, 1993). Alternatively, warrants might serve as a signal of high quality, and thus effectively governed, firms (Chemmanu...
ABSTRACT Using more than 350,000 sell-side analyst recommendations from January 1994 to August 2006, this paper examines the predictive content of aggregate analyst recommendations. We find that changes in aggregate analyst recommendations forecast future market excess returns after controlling for macroeconomic variables that have been shown to in...
We examine how governance characteristics are related to the corporate choice between public and private debt. We find that firms with fewer takeover defenses and larger outside blockholder ownership are more likely to borrow from banks and to issue 144A debt. We also document that public debt cost is more sensitive to takeover exposure than bank d...
In this paper we examine the market reaction—price and volume—to the appearance of a firm in the Who's News column of The Wall Street Journal. We differentiate between those firms whose articles are accompanied by a picture of an executive and a control set of firms whose articles on the same day are not accompanied by a picture. The results show a...
We examine the impact of stock market liquidity on managerial payout decisions. We argue that stock market liquidity influences payout policy through a first-order effect on the share repurchase decision, and a second-order or residual effect on the dividend decision. Managers compare the tax and flexibility advantages of a repurchase against its l...
The water service industry has aggressively pursued contracts for the management or ownership of urban water utilities around the world. The industry has performed very well in terms of stock prices of publicly traded firms in comparison with the well-known stock price averages. However, there have been some widely publicized contract failures, the...
We examine the long-run common stock performance of preferred stock issuers. We find that significant abnormal underperformance is present only for 1 year after the issue. For the longer term we do not find consistently significant abnormal performance. This result contrasts with substantial underperformance of common equity and debt issuers during...
We study two motivations behind open-market share repurchases by banks. Our first hypothesis is the signaling hypothesis - banks use share repurchase announcements to signal higher future performance. Our second hypothesis is the "optimal capital ratio" hypothesis - banks use share repurchases to manage their capital ratios, and the positive announ...
We provide new evidence on the sequential financing explanation for the use of warrants. Consistent with sequential financing, capital spending starts increasing in the year of the call and peaks three years after the call. In addition, both equity and debt financing increase significantly in the year of the call and remain at high levels. Warrant...
Some warrants are issued with a scheduled increase in their exercise price. This increase, referred to as a 'step up' in exercise price, occurs after the warrant is issued but prior to its expiration. The price behaviour of warrants and common stock at the scheduled step up date is examined. The evidence suggests that the market correctly anticipat...
We investigate the evolution of dividend policy in the banking sector over the period 1984 2003. We find evidence of the "disappearing dividends" phenomenon previously documented for nonfinancial firms. Unlike nonfinancial firms, there are positive catering incentives for banking firms to pay dividends. Yet we find no sensitivity of dividend pol...
We examine three corporate governance characteristics of preferred stock issuers relative to non-issuers: managerial equity ownership, board size, and block shareholder ownership. We find that the preferred issuers have significantly lower managerial equity ownership than their controls. The finding is consistent with our expectation that the use o...
This article examines two effects of the passage of the REIT Modernization Act (RMA) of 1999: its impacts on REIT shareholder wealth and changes in REIT systematic risk in the period following its passage. The results indicate a modest positive wealth effect associated with the legislative events leading to its enactment. Our estimates of the wealt...
Some warrants are issued with a scheduled increase in their exercise price. This increase, referred to as a 'step up' in exercise price, occurs after the warrant is issued but prior to its expiration. The price behaviour of warrants and common stock at the scheduled step up date is examined. The evidence suggests that the market correctly anticipat...
We examine warrant agreements and identify three provisions of these contracts that allow managers to time the raising of capital: the right to call the warrants, to extend the life of the warrants, and to lower the exercise price of the warrants. We argue that these provisions are costly yet frequently used. We find a robust positive association b...
Some warrants are issued with a scheduled increase in their exercise price. This increase, referred to as a "step up" in exercise price, occurs after the warrant is issued but prior to its expiration. We examine the price behavior of warrants and common stock at the scheduled step up date. The evidence suggests that the market correctly anticipates...
Previous studies reach no consensus on the relationship between risk and return using data from one market. We argue that the world market factor should not be ignored in assessing the risk–return relationship in a partially integrated market. Applying a bivariate generalized autoregressive conditional heteroscedasticity in mean (GARCH-M) model to...
We document that the opening volatility of American depositary receipts (ADRs) is lower when the trading of the underlying asset overlaps trading of the ADR on the New York Stock Exchange (NYSE). This lower volatility is consistent with the notion that price discovery on the NYSE is enhanced by concurrent trading in the underlying market. We also f...
We investigate why firms include warrants in their initial public offerings (IPOs). We use a data set of Australian IPOs to examine two hypotheses about the inclusion of warrants in an IPO. The agency-cost hypothesis emphasizes the need for sequential financing for relatively young firms, because sequential financing reduces the opportunities for m...
Managers can decide to reduce a warrant's exercise price. A reduction in exercise price can induce exercise (a conversion-forcing reduction) or not (a long-term reduction). Conversion-forcing firms show an abnormal return of −1.53% on the announcement day but they perform well over the three years following the announcement. This finding suggests t...
We investigate why firms include warrants in their initial public offerings (IPOs). We use a data set of Australian IPOs to examine two hypotheses about the inclusion of warrants in an IPO. The agency-cost hypothesis emphasizes the need for sequential financing for relatively young firms, because sequential financing reduces the opportunities for m...
This paper examines the warrant price reaction and stock price reaction to the announcement of a discretionary reduction in warrant exercise price. The firms making these announcements are small and young. They derive much of their value from growth opportunities, exhibit high levels of information asymmetry, and are experiencing poor operating per...
Using classical and modified rescaled range analyses (R/S analysis), this study examined the equity markets of Japan, Australia, Hong Kong, Singapore, Korea, and Taiwan. Using the classical rescaled-range method of analysis, we documented the presence of a long-range nonlinear deterministic structure in the returns of the Japanese, Singaporean, Kor...
We examine the intra-industry information effects of announcements of dividend initiations. Our results indicate that the stock prices of industry competitors do not react to dividend initiations. Further, analysts do not revise their earnings forecasts for nonannouncing, rival firms. These findings are not sensitive to the manner in which we estim...
Using classical and modified rescaled range analyses (R/S analysis), this study examined the equity markets of Japan, Australia, Hong Kong, Singapore, Korea, and Taiwan. Using the classical rescaled-range method of analysis, we documented the presence of a long-range nonlinear deterministic structure in the returns of the Japanese, Singaporean, Kor...
We examine trading activity, bid-ask spreads, and potential arbitrage opportunities for market makers in the period around conversion-forcing calls of convertible preferred securities. We find an increased turnover in the called convertible preferred stock, which is consistent with a clientele effect. We also find a decrease in the average bid-ask...
In this paper, we examine the foreign exchange exposure of a sample of U.S. and Japanese banking firms. Using daily data, we construct estimates of the exchange rate sensitivity of the equity returns of the U.S. bank holding companies and compare them to those of the Japanese banks. We find that the stock returns of a significant fraction of the U....
This paper examines the warrant price and stock price reactions to the extension of the expiration date of in-the-money warrants. The warrant prices increase significantly in response to the announcement, consistent with option pricing theory. Shareholders experience no significant abnormal returns at the announcement contrary to the conjecture tha...
In this paper, we examine the warrant price and stock price reactions to the announcement of warrant life extensions by REITs. As predicted by option pricing theory, warrant prices increase in response to these extensions. The stocks of REITs making the extension announcement experience average abnormal returns that are not significantly different...
A vector autoregressive (VAR) model is used to examine the relation between aggregate insider transactions and stock market returns. Consistent with the extant literature, there is some predictive content associated with aggregate insider transactions, but its magnitude is slight. In contrast, market returns have substantial influence on the aggreg...
In this paper, the authors examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. The authors' principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns...
This paper examines changes in volatility associated with the listing of US firms' stocks on overseas exchanges. Implied volatilities are calculated for 40 firms that had exchange-listed options at the time of their international listing. The analysis documents significant increases in anticipated volatility following the overseas exchange listing,...
This paper examines trading by corporate officers and directors ("insiders") in the 12 months prior to management buyouts (MBOs) and third-party leveraged buyouts (LBOs). The investigation is motivated by the widely held belief that, in a management buyout, the firm's managers exploit shareholders by acting on inside information not possessed by th...
Extant theories of the bid-ask spread posit a positive relationship between the level of information asymmetry and the magnitude of the spread. As suggested by dividend signaling and agency theories, the payment of dividends conveys information to the market, thereby reducing asymmetry. Thus, dividend policy may influence the bid-ask spread. Based...
In this paper, we examine the impact of international listing on common-stock risk. While previous research has used event study methodology, our research focuses on permanent shifts in risk. Different measures of risk are estimated to test for intertemporal shifts in risk attributable to an overseas listing. No significant shifts in risk from inte...
In this article, we examine whether the performance of real estate investment trusts (REITs) is correlated with advisor type. Seven categories of advisors are used in the analysis. All categories exhibit zero or negative performance measures and the average abnormal returns across advisor types are significantly different from each other. We conclu...
In this paper, the authors examine the profitability of insider trading in firms whose securities trade in the OTC/NASDAQ market. Although the evidence suggests timing and forecasting ability on the part of insiders, high transaction costs (especially bid-ask spreads) appear to eliminate the potential for positive abnormal returns from active tradi...
In this paper, the authors examine the stock price reactions to announcements of new security offerings b y real estate investment trusts. Real estate investment trusts offer a unique setting in which to study these events because they do not p ay taxes at the firm level. Theory suggests that the net tax gain to corporate borrowing is unambiguously...
In this paper, we analyze some of the ethical dimensions of going private transactions (GPTs), wherein publicly traded firms are taken private. Financial theory suggests that efficiencies may be realized in these transactions such that outside shareholders are made better off. Empirical evidence supports this theory. We therefore argue that GPTs ar...
This paper studies price reactions of OTC stocks that are added to and deleted from the Federal Reserve Board's Official List of OTC Margin Stocks. We interpret any price reactions as economic effects related to the Fed's security credit regulatory activities under the 1969 Amendment to the 1934 Securities Exchange Act. We test for three effects: (...
This article explores the price behavior of a sample of corporate securities in which trading was temporarily suspended by the SEC. Suspensions are found to coincide with substantial devaluations of the suspended securities. Further, significant and prolonged negative abnormal returns are observed in the postsuspension period, an apparent violation...
Abstract Inthe 1980s, a number of states adopted anti-takeover laws to limit hostile takeovers and hence