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Why Do Firms Issue Equity after Splitting Stocks?
Ranjan D'Mello, Oranee Tawatnuntachai, Devrim Yaman
Dividend
Initiations and Asymmetric Information: A Hazard Model
Sanjay Deshmukh
IPO
Prospectus Information and Subsequent Performance
Harjeet S. Bhabra, Richard H. Pettway
A Reduced Form Coefficients
Analysis of Executive Ownership, Corporate Value, and Executive Compensation
Marsha Weber, Donna Dudney
Stock Splits and Liquidity:
The Case of the Nasdaq-100 Index Tracking Stock
Patrick Dennis
New Evidence on Optimal Asset
Allocation
Gerald R.
Jensen, Jeffrey M. Mercer
First and Second Moment
Exchange Rate Exposure: Evidence from U.S. Stock Returns
Gregory Koutmos, Anna D. Martin
Profit
Possibilities in Currency Markets: Arbitrage, Hedging, and Speculation
Dilip K. Ghosh,
Augustine Arize
Why Do Firms Issue Equity after Splitting Stocks?
Ranjan D'Mello, Oranee Tawatnuntachai, Devrim Yaman
Volume 38, No. 3, pp.
323-350
This paper examines
the motivations of firms that conduct seasoned equity offerings (SEOs) after
splitting stocks. We find no difference in equity announcement and issue
period returns between these firms and other equity-issuing firms suggesting
that firms do not split stocks to reveal information and reduce adverse
selection costs at the subsequent SEO. However, because investors react
positively to split announcements, firms that issue equity after splitting
stocks sell new shares at a higher price and raise more funds. We also find
that firms split stocks to make the subsequent SEO more marketable to
individual investors who are attracted to low priced stocks.
Keywords: seasoned equity issues; stock splits;
marketability hypothesis
JEL Classifications: G14/G30/G32
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Dividend Initiations and Asymmetric Information: A Hazard Model
Sanjay Deshmukh
Volume 38, No. 3, pp. 351-368
This paper
investigates the dynamics of dividend policy using a hazard model.
Specifically, the paper examines dividend initiations for a sample of firms
that went public between 1990 and 1997. These dividend initiations are
examined in the context of an alternative explanation based on the pecking
order theory. The results indicate that the probability or the hazard rate of
a dividend initiation is negatively related to both the level of asymmetric
information and growth opportunities and positively related to the level of
cash flow. These results are consistent with a pecking order explanation but
inconsistent with a signaling explanation.
Keywords: dividend policy; dividend initiations;
asymmetric information; pecking order theory; hazard model
JEL Classifications: G35
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IPO
Prospectus Information and Subsequent Performance
Harjeet S. Bhabra, Richard H. Pettway
Volume 38, No. 3, pp.
369-397
Initial public
offerings underperform in the long run; however, there is very little evidence
on their cross-sectional variation. Using a random sample of IPOs from 1987
through 1991 and gathering their prospectus data, we show that financial and
operating characteristics as well as offering characteristics have a limited
relation with the one-year stock returns. We also find that firms that
subsequently reissue equity or merge outperform their matched-firm benchmarks
over three years. Underperformance is most severe for the smaller and younger
firms. We find that prospectus information is more useful to predict
survival/failure compared to subsequent equity offerings or acquisitions.
Keywords: IPOs; prospectus; performance
JEL Classifications: G3/G32
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A Reduced Form Coefficients Analysis of Executive
Ownership, Corporate Value, and Executive Compensation
Marsha Weber, Donna Dudney
Volume 38, No. 3, pp.
399-413
Most simultaneous
equations studies analyze the coefficients from the structural forms of the
models, which provide estimates of the direct effects of independent variables
on the dependent variables in each equation, but ignore the indirect effects
these independent variables have on dependent variables in other equations.
This paper modifies the work of Chung and Pruitt (1996) by extending the model
to include board composition and institutional ownership variables and then
estimating the structural and derived reduced form coefficients for the
extended model. The signs and significance of the reduced form coefficients
differ in several material respects from the results of the structural form
coefficient analysis, which suggests that analysis of only the structural form
coefficients is incorrect and potentially misleading.
Keywords: executive ownership; Tobin's Q; executive
compensation; simultaneous equations
JEL Classifications: G30/G34/C30
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Stock Splits and Liquidity: The Case of the Nasdaq-100
Index Tracking Stock
Patrick Dennis
Volume 38, No. 3, pp.415-433
In an attempt to
disentangle the signaling effect from the liquidity effect of stock splits, I
examine the liquidity changes following the two-for-one split of the
Nasdaq-100 Index Tracking Stock. Since there can be no signaling with an
index stock split, any difference between pre- and post-split trading may be
driven by liquidity but not signaling effects. I find that though the
post-split relative bid-ask spread is higher and daily turnover is unchanged,
the frequency, share volume, and dollar-volume of small trades all increased
after the split, indicating that the split improved liquidity for small
trade-sizes.
Keywords: stock splits; signaling; liquidity;
index-tracking stock
JEL Classifications: G15/G29
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New Evidence
on Optimal Asset Allocation
Gerald R. Jensen, Jeffrey M. Mercer
Volume 38, No. 3, pp.
435-454
Brocato and Steed
(1998) showed that portfolio rebalancing based on NBER business cycle turning
points substantially improves in-sample Markowitz efficiency. In a similar
vein, we investigate potential improvements from rebalancing based on turning
points in the monetary cycle. We find that the monetary cycle has greater
influence than the business cycle on the variance/covariance structure of
multiple asset classes. Furthermore, we find substantial improvements in
in-sample efficiency beyond a buy-and-hold strategy and the business-cycle
approach. Importantly, our indicator of monetary cycle turning points has a
practical advantage over NBER business cycle turning points, in that it relies
only on ex ante information. In out-of-sample tests, we continue to find
superior portfolio performance after transactions costs using the monetary
cycle to time portfolio rebalancing.
Keywords: asset allocation; variance/covariance
structure; Markowitz efficiency
JEL Classifications:
G11/G12/E32/E52
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First and Second Moment Exchange Rate Exposure: Evidence
from U.S. Stock Returns
Gregory Koutmos, Anna D. Martin
Volume 38, No. 3, pp.
455-471
This study
investigates the impact of first- and second- moment exchange rate exposure on
the daily returns of nine U.S. sectors from 1992 to 1998. In 17.8% of the
cases we detect significant first-moment exposure when contemporaneous
exchange rates are used. Moreover, 25.0% of the significant exposures are
asymmetric. When the model utilizes one-day lags, 42.2% of the cases are
significant and 79.0% are asymmetric. Regarding second-moment exposure, the
financial sector displays pervasive sensitivity to exchange rate volatility
when using contemporaneous and lagged models. This result is reasonable,
assuming that revenues from the sale of derivative products increase with
currency volatility.
Keywords: exchange-rate exposure; asymmetric exposure;
second-moment exposure
JEL Classifications: F31
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Profit
Possibilities in Currency Markets: Arbitrage, Hedging, and Speculation
Dilip K. Ghosh,
Augustine Arize
Volume 38, No. 3, pp.
473-496
This paper
reviews and extends the existing literature on covered arbitrage, delineates
the conditions for profitable arbitrage with the hedging instruments of
forward and options contracts in the foreign exchange markets, and defines the
maximum possible profits out of a given market environment. Next, the simple
rules on speculation are articulated with and without transaction costs, and
then we show how speculation can be covered with options and forwards.
Finally, speculation is integrated with arbitrage and hedging, and further
compounding of profit possibilities is illustrated.
Keywords: arbitrage; hedging; speculation
JEL Classifications: F310
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