The Citicorp–Travelers Group merger increased the prospects for new legislation to remove the barriers between banking and insurance, resulting in a positive wealth effect for institutions most likely to gain from deregulation. Analysis of abnormal returns surrounding the merger show that life insurance companies and large banks (excluding Citicorp and Travelers Group) have significant stock price increases, while the returns of small banks, health insurers, and property/casualty insurers are insignificantly different from 0. This analysis provides evidence that investors expect large banks and insurance companies to receive significant benefits from recent congressional legislation removing barriers to bancassurance.

The Interstate Banking and Branching Efficiency Act (IBBEA) represented a significant step in the deregulation of interstate banking and branching. The IBBEA's passage had a positive wealth effect on a sample of large Bank Holding Companies (BHCs). Cross-sectional tests of abnormal returns reveal that BHCs having characteristics associated with acquisition targets and BHCs headquartered in states that prohibited interstate branching experienced significantly higher returns. Collectively, the evidence suggests that investors anticipated that the IBBEA would provide for increased corporate control activities among banks and that a large portion of the BHC gains stems from the relaxation of interstate branching restrictions.

Forty-nine states and the District of Columbia enacted legislation reducing interstate banking restrictions between July 1982 and April 1993. For these 50 banking bills, deregulation increased the average price of bank stocks. Returns vary cross-sectionally by firm characteristics, regulatory features, and economic conditions. Returns are positively related to the characteristics of acquisition targets. Furthermore, returns are positively related to legislative features that increase the bargaining power of potential targets and economic conditions that are likely to encourage bank acquisition. These findings are consistent with the relaxation of geographic restrictions increasing activity in the corporate control market.

Using a large sample of option granting firms, some of which were investigated for option grant backdating, we develop a predictive model for such investigations and examine how the capital market responded as the backdating scandal unfolded. Firms that were investigated experienced significant stock price declines from the beginning of the Wall Street Journal's Perfect Payday series through the end of 2006. Firms predicted to have backdating problems, but not the subject of publicly revealed investigations, experienced stock price performance during the same period that was remarkably similar to that of firms with publicly revealed investigations. In contrast, firms not predicted to have backdating problems experienced normal stock price performance. Our results suggest that capital markets disciplined companies with suspicious option grant histories, often prior to, and irrespective of, any public revelation of an investigation into the matter.

In a typical IPO, insiders are “net sellers” of IPO shares; however, in a demutualizing thrift, insiders are “net buyers” of IPO shares. Using a sample of mutual depository IPOs, we find evidence consistent with earnings management prior to the conversion of mutual thrifts. We find on average that mutuals report lower ROA and increased loan loss provisions and loan loss reserves in the period prior to the demutualization. Using a two-stage approach, we also find that the level of discretionary loan loss provisions and discretionary reserves are positively related to both the level of insider participation in the IPO and the first-day returns to investors. Our results are consistent with management of mutual thrifts benefiting at the conversion from reduced pre-IPO earnings and book equity resulting from earnings management.

We investigate the determinants and consequences of the mutual holding company (MHC) structure that allows mutual thrifts to issue stock to outside shareholders while maintaining the mutual form. Capital constrained firms with greater profit opportunities are more likely to choose a full demutualization; demonstrating that the MHC choice can be used to control for over- and under-investment costs. During periods of greater regulatory constraints, MHC firms have lower offer-day returns than full demutualizations. MHC firms are also less likely to be acquired, as the MHC structure provides protection from the market for corporate control. Demonstrating a clear preference by minority shareholders for the elimination of the MHC structure, the announcement of a second-stage conversion generates a 12% return.

The mutual holding company (MHC) structure establishes a dual-class stock that creates a unique opportunity to transfer wealth from thrift depositor–owners to new minority shareholders through the disparate payment of dividends. We show that MHCs are priced higher than comparable non-MHCs and dividend policy is a significant component of this valuation. We also show that MHC thrifts pay significantly higher dividends than non-MHC thrifts and that an Office of Thrift Supervision (OTS) ruling reducing the potential for disparate dividends between the two classes of shareholders resulted in lower dividends. These results have policy implications of special significance given that the OTS reversed its position in 2000 and because of the current controversy over the use of the MHC structure in the financial service industry.