“The
Effect of Managerial Ownership on the Short- and Long-Run Response to Cash
Distributions”
Keith M. Howe, Steve Vogt, Jia He
“Institutional Investors and
Information Asymmetry: An Event Study of Self-Tender Offers”
Michele O’Neill,
Judith Swisher
“Evidence on Value Creation in
the Financial Services Industries Through the Use of Joint Ventures and
Strategic Alliances”
Kimberly C.
Gleason, Ike Mathur, Roy A. Wiggins, III
“The Impact of Trust-Preferred
Issuance on Bank Default Risk and Cash Flow: Evidence from the Debt and Equity
Securities Markets”
Keith D. Harvey,
M. Cary Collins, James W. Wansley
“Adverse-Selection Costs and
the Probability of Information-Based Trading”
Kee H. Chung, Mingsheng Li
“Evidence on the Mean-Reverting
Tendencies of Closed-End Fund Discounts”
Dominic Gasbarro,
Richard Johnson, J. Kenton Zumwalt
“Trade Imbalances and Inventory
Effects in Long-term S&P 500 Index Options”
Anu Bharadwaj,
James B. Wiggins
“Creating Fama and French
Factors with Style”
Robert
W. Faff
“The
Effect of Managerial
Ownership on the Short- and Long-Run Response to Cash Distributions”
Keith M. Howe,
Steve Vogt, Jia He
Volume 38, No. 2, pp. 179-196
We examine both the short-run and long-run responses to the following
corporate cash flow transactions: dividend increases and decreases, dividend
initiations, and tender offer repurchases. Our focus is the short-run and
long-run effects of managerial ownership. We hypothesize that ownership plays
an important role in explaining the announcement effects for these events,
owing to signaling effects and the reduction of agency problems. Our short-run
results accord well with the earlier work on announcement effects for these
events and show that firms with high insider ownership exhibit higher excess
returns. Our long-term results indicate a drift over a three-year period
following the announcement, with the excess returns for the high
insider-ownership group becoming more pronounced.
Keywords: insider ownership; agency cost; signaling;
restructuring
JEL Classifications: G32/G35
Top
“Institutional Investors and Information Asymmetry: An
Event Study of Self-Tender Offers”
Michele O’Neill,
Judith Swisher
Volume 38, No. 2, pp. 197-211
Our research compares the asymmetric information costs of firms with low
levels of institutional ownership to those with high levels. We use
self-tender offers as an information event. Our results show that higher
institutional ownership, particularly a higher number of institutional
investors, is associated with a lower degree of informed trading. These
results persist even after we control for differences in trading activity
among our sample firms.
Keywords: institutions; asymmetric information; block
JEL Classifications: G14/G20/G32
Top
“Evidence
on Value Creation in the Financial Services Industries Through the Use of
Joint Ventures and Strategic Alliances”
Kimberly C. Gleason, Ike Mathur, Roy A. Wiggins, III
Volume 38, No. 2, pp. 213-234
While an extensive body of literature has examined merger, acquisition, and
consolidation activity in commercial banks and other financial services firms,
little attention has been paid to examining how these institutions use the
cooperative activities of joint ventures and strategic alliances to accomplish
their growth objectives. We analyze the effects of the use of joint ventures
and strategic alliances by a sample of firms in the banking, investment
services, and insurance industries. Our results show that commercial banks,
investment services firms, and insurance companies experience significant
abnormal returns of 0.66% on average when they announce their participation in
a joint venture or strategic alliance. These abnormal returns are
significantly positive across the four strategic motives of domestic,
international, horizontal and diversifying cooperative activities. Using a
matched sample, we also show that our sample firms enjoy significant,
positive, abnormal returns for holding periods of six, 12, and 18 months after
the announcement of the cooperative activity.
Keywords: joint ventures; strategic alliances;
long-horizon performance
JEL Classifications: G21/G29/G14
Top
“The Impact of Trust-Preferred Issuance on Bank Default
Risk and Cash Flow: Evidence from the Debt and Equity Securities Markets”
Keith D. Harvey,
M. Cary Collins, James W. Wansley
Volume 38, No. 2, pp. 235-256
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 benefit from the tax
deductibility of trust-preferred dividends. Using daily returns surrounding
the Federal Reserve’s announcement that trust-preferred securities would be
included as a component of commercial banks’ Tier I equity capital, we find
evidence to support both hypotheses.
Keywords: commercial bank; trust-preferred securities;
event study
JEL Classifications: G21/G28
Top
“Adverse-Selection Costs and the Probability of
Information-Based Trading”
Kee H. Chung, Mingsheng Li
Volume 38, No. 2, pp. 257-272
Prior studies offer various empirical models to decompose the observed bid-ask
spread into the adverse-selection and transitory (order-processing and
inventory-holding) components. There is limited evidence, however, on whether
the spread components estimated from these models indeed measure what they
purport to measure. In this study, we show that the estimates of the
adverse-selection component given by these models are positively and
significantly related to the probability of information-based trading (PIN),
after controlling for the endogeneity of the PIN and other stock attributes.
These results provide direct empirical support for the spread component models
examined in the present study.
Keywords: asymmetric information; adverse-selection
costs; components of the spread
JEL Classifications: G14
Top
“Evidence on the Mean-Reverting Tendencies of Closed-End
Fund Discounts”
Dominic Gasbarro,
Richard Johnson, J. Kenton Zumwalt
Volume 38, No. 2, pp. 273-291
Closed-end fund (CEF) discounts vary widely over time due to changes in share
price, net asset value (NAV), or both. Prior studies suggest discounts are
mean reverting. We examine the mean-reversion issue by employing cointegration
procedures. Specifically, we identify bond and equity CEFs that exhibit
stationary time-series properties and find statistically significant error
correction terms that quantify the speed of mean reversion. The results
indicate that mean reversion is caused by changes in both share price and NAVs.
However, CEFs can only provide excess returns when the discount narrows due to
share price increases.
Keywords: closed-end fund discounts;
cointegration; error-correction
JEL Classifications: C22/G12
Top
“Trade Imbalances and Inventory Effects in Long-term S&P
500 Index Options”
Anu Bharadwaj,
James B. Wiggins
Volume 38, No. 2, pp. 293-309
This article investigates how trade imbalances affect prices in the S&P 500
Long-term Equity Anticipation Securities (LEAPS) market. From 1994 to 1996,
put volume was 30 times higher than call volume, and public purchases of puts
vastly outnumbered sales. We find that LEAPS put quotes are revised following
trade imbalances by more than can be explained by information effects,
suggesting that put prices are subject to price pressure or inventory effects.
The results suggest market frictions are important in the pricing of options,
at least in settings in which arbitrage is particularly costly and public
demand leans toward one type of order.
Keywords: index options; market microstructure
JEL Classifications: G13
Top
“Creating Fama and French Factors with Style”
Robert W. Faff
Volume 38, No. 2, pp. 311-322
This paper utilizes Frank Russell style portfolios to create useful proxies
for the Fama and French (1992) factors. The proxy-mimicking portfolios are
shown to represent a pervasive source of exposure across U.S. industry
portfolios and to generally possess similar properties to those utilized in
the finance literature. Further, a set of multivariate asset-pricing tests of
the three-factor Fama and French asset-pricing (FF) model based on the proxy
factors fail to reject the model. However, they do not reveal strong evidence
of significantly positive risk premiums, particularly in the case of the size
and book-to-market factors.
Keywords: Fama and French factors; style indexes
JEL Classifications: G12
Top
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