Corporate debt sales have been regarded as “no news” events because there is no significant price reaction on average to their announcement. We explore the hypothesis that this lack of average price reaction to debt sale announcements is explained by the partial anticipation of debt offers. Theory suggests that the demand for debt capital is fundamentally related to changes in the sources and uses of funds, and we find evidence that earnings are significantly lower, investment growth is significantly higher, and, for some issuers, debt refunding requirements are significantly greater in the period immediately prior to issue than in periods well before and after the issue. We find that this preissue information conditions investors’ expectations of issue, thereby affecting the cross-sectional announcement date price reaction to debt sales in two ways. First, announcement date price reactions are negative, on average, for unanticipated offers or for those offers where prior information suggests that an issue is unlikely. Second, holding the probability of issue constant, announcement date price reactions are significantly more negative for offers that raise more capital than investors expected. These results are consistent with cash flow signaling and asymmetric information models of corporate financings.

This paper reassesses the apparent systematic underpricing of initial public offerings (IPOs). Investigation of the distribution of initial returns following IPOs shows that positive mean initial returns may reflect the existence of a partially unobserved left (negative) tail. Moreover, most IPOs with zero one-day returns subsequently fall in price, suggesting that underwriter price support may account for the skewed distribution and hence the phenomenon of positive average initial IPO returns, even if offering prices are set at expected market value. This paper thus challenges the presumption underlying previous research that positive average initial IPO returns result primarily from deliberate underpricing.

This paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty. The first is technical uncertainty, i.e., uncertainty over the physical difficulty of completing a project, which is only resolved as the investment proceeds. The second is input cost uncertainty, i.e., uncertainty over the prices of construction inputs or over government regulations affecting construction costs, which is external to the firm. These two types of uncertainty have very different effects on the investment decision. A simple investment rule is derived that maximizes firm value, and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s.

This paper investigates whether portfolio return autocorrelation can be explained by time-varying expected returns, nontrading, state limit orders, market maker inventory policy, or transaction costs. Evidence is consistent with the hypothesis that transaction costs cause portfolio autocorrelation by slowing price adjustment. I develop a transaction-cost model which predicts that prices adjust faster when changes in valuation are large in relation to the bid-ask spread. Cross-sectional tests support this prediction, but time-series tests do not.

Abstract. Price deviations from basic valuation models based on accounting earnings and book value of owners' equity are used to test the intrinsic value explanation of the price‐earnings and price‐book value anomalies. Relative price deviations from the implied benchmark prices are used to assign years into high and low deviation groups. Traditional zero investment hedge portfolios are formed in each year, and the returns are compared across high and low deviation years. The high deviation years show significantly larger size‐ and risk‐adjusted returns over four holding periods, providing strong evidence in favor of an intrinsic value explanation of the anomalies. The findings also indicate that the test periods chosen for earlier studies can play a role in the results generated. Résumé. Les auteurs utilisent les écarts de prix dérivés des modèles d'évaluation de base fondés sur les bénéfices comptables et la valeur comptable des capitaux propres pour vérifier l'explication des anomalies relevées dans les rapports cours‐bénéfice et cours‐valeur comptable, qui repose sur la valeur intrinsèque. Les écarts relatifs des cours par rapport aux cours de référence implicites sont utilisés par les auteurs pour classer les années selon la nature élevée ou faible des écarts. Pour chaque année sont constitués des portefeuilles traditionnels dont les placements ne font l'objet d'aucune couverture, et les rendements sont soumis à une comparaison combinée des années présentant des écarts élevés et faibles. Les années présentant un écart élevé affichent des rendements supérieurs et ajustés pour tenir compte du risque au cours de quatre périodes de détention, ce qui milite clairement en faveur de l'explication des anomalies reposant sur la valeur intrinsèque. Les résultats indiquent également que les périodes de test choisies dans les études antérieures peuvent avoir influé sur les résultats obtenus.