This paper examines the relationship between the profitability of small single-market banks and the presence in the market of large banking organizations and banking organizations that operate primarily outside of the local banking market. We find that, in rural banking markets, the profitability of small single-market banks is significantly related to the presence of both large and small primarily-out-of-market banks. We also find that an increased presence of large or small primarily-out-of-market banks in rural banking markets reduces the positive effect of an increase in concentration on small single-market bank profits. This finding is consistent with theoretical predictions reported in the recent literature and has important implications for antitrust policy. In urban banking markets, we find little evidence of any relationship between the profitability of small single-market banks and the presence of large or primarily-out-of-market banks.

We examine whether the increase in the flow of capital to hedge funds over the period 1994–2005 had a negative impact on performance. More specifically, we study the relative performance of small versus large funds for each of the hedge fund strategies. Our results indicate that on an absolute return basis, small funds outperform large funds. On a risk-adjusted return basis, however, we find that large funds outperform small funds, and that large funds are also shown to hold less liquid assets and take on less systematic and idiosyncratic risk than small funds. Further, funds that experience positive liquidity shocks generally outperform those that experience negative liquidity shocks. We also find evidence that hedge fund managers that are aggressive in dealing with liquidity shocks perform better than hedge fund managers that are conservative in dealing with liquidity shocks.

This paper examines (i) whether market reactions to cross-listings differ across destination markets and (ii) to what extent the following explanations for value creation around cross-listings can account for differences in market reactions across cross-listings on various destination markets: overcoming market segmentation, increased market liquidity, improved information disclosure, and better investor protection ("bonding"). We analyze 526 cross-listings from 44 different countries on eight major stock exchanges and document significant announcement returns of 1.3% on average for cross-listings on US exchanges, 1.1% on London Stock Exchange, 0.6% on exchanges in continental Europe, and 0.5% (not significant) on Tokyo Stock Exchange. We find evidence consistent with improved disclosure and bonding creating value for cross-listings on US exchanges, while overcoming segmentation and bonding are associated with higher announcement returns on the London Stock Exchange. The evidence is mixed for continental European exchanges and for Tokyo. Our results highlight the role of the destination market in value creation around cross-listings. © 2009 Elsevier B.V. All rights reserved.

This paper examines the power of the cross-sectional and multivariate tests of the CAPM under ideal conditions. When the CAPM is true the positively weighted market portfolio is MV-efficient and securities plot on the security market line. When the CAPM is false an alternative asset pricing model determines prices. An examination of the population intercepts, slopes and R2 from cross-sectional regressions of expected returns on betas indicates that all three are unreliable indicators of whether the CAPM holds. Simulation analysis of the power of the cross-sectional tests expands on and reinforces the analysis based on the population values. The Gibbons et al. (1989) multivariate test fares much better.

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.

We study the portfolio allocation decisions of Australian households using the relatively new Household, Income and Labour Dynamics in Australia (HILDA) Survey. We focus on household allocations to risky financial assets. Our empirical analysis considers a range of hypothesised determinants of these allocations. We find background risk factors posed by labor income uncertainty and health risk are important. Credit constraints and observed risk preferences play the expected role. A positive age gradient is identified for risky asset holdings and home-ownership is associated with greater risky asset holdings. A unifying theme for many of our empirical findings is the important role played by financial awareness and knowledge in determining risky asset holdings. Many non-stockholding households appear to lack the experience and financial literacy that might enable them to benefit from direct investment in stocks.

We examine the impact of CEO turnover announcements on bondholder wealth, stockholder wealth, and overall firm value. Using publicly traded data for the period from 1973 to 2000, we find evidence consistent with both the wealth transfer and signaling hypotheses. Specifically, we find that CEO turnover events are associated with lower bondholder values, higher stockholder values, and that net changes in firm value are a function of turnover type (forced vs voluntary and outside vs inside firm replacements) and the riskiness of the firm’s debt (investment vs non-investment grade). Overall, the results contribute to the understanding of the effects of corporate governance mechanisms, of which CEO turnover is an extreme form, on bondholders.

We decompose US Treasury bid-ask spreads into inventory, adverse selection and order processing costs by using the fact that inventory trades have different effects on spreads than do proprietary trades. We exploit this asymmetry and develop a technique to identify the three components of the spread in order to test three hypotheses: dealers make larger changes to inventory (1) following macroeconomic announcements (2) at the start and toward the end of the New York trading hours, and (3) when transaction sizes are relatively large. We test these predictions using GovPX data for on-the-run 2-year and 10-year Treasury Notes. All three predictions are supported. We also assess how primary dealers react to the Federal Reserve’s open market operations (OMOs). Our findings reveal interesting intraday patterns in the inventory component for both securities.

We identify and analyze a sample of publicly traded Chinese firms that issued loan guarantees to their related parties (usually the controlling block holders), thereby expropriating wealth from minority shareholders. Our results show that the issuance of related guarantees is less likely at smaller firms, at more profitable firms and at firms with higher growth prospects. We also find that the identity and ownership of block holders affect the likelihood of expropriation. In addition, we use this sample to provide new evidence on the relation between tunneling and proxies for firm value and financial performance. We find that Tobin’s Q, ROA and dividend yield are significantly lower, and that leverage is significantly higher, at firms that issued related guarantees.