We find that the average stock-market reaction to announcements of poison pills is positive when the board has a majority of outside directors and negative when it does not. The probability that a subsequent control contest is associated with an auction is also positively related to the fraction of outsiders on the board. These results are largely driven by directors who are retired executives from other companies. The evidence suggests that outside directors serve the interests of shareholders.

We study the effects of barriers to capital flows using data from the Stock Exchange of Thailand, which segments local and foreign trading of securities that have reached foreign ownership limits. Cross-sectional differences between local and foreign prices are correlated with proxies for the severity of foreign ownership limits, liquidity, and information availability. Time-series variability in the spread between local and foreign returns is consistent with differences in risk exposures and expected risk premiums, suggesting effective capital market segmentation. The results have numerous implications for portfolio and direct investment activity in developing countries.

We study the aftermarket for 72 initial public offerings (IPOs) using comprehensive trade and quote-change data from every market maker for the first three days of trading. Underwriters quote higher bid prices than other market makers for issues that commence trading at or below the offer price. Underwriters repurchase large quantities of stock in the aftermarket without risk by overselling the issue by the amount of the overallotment option. If the IPO is hot, the overallotment option is exercised. If not, the short position is covered with aftermarket selling. We discuss several reasons for underwriter support.

When trades are executed inside the posted bid-ask spread, the posted spread is no longer an accurate measure of transactions costs faced by investors. Using two samples of market orders, one based on orders submitted by retail brokers and one based on orders submitted electronically to the NYSE, we document a significant difference between the posted spread and the effective spread paid by investors. For most orders, the effective spread averages half the posted spread. In addition, when the posted spread widens, only 10 to 22% of the increase appears in the effective spread. These results have significant implications for any empirical work that uses the posted spread as a measure of the cost of trading. Our findings also document a significant difference in the expected execution price across exchanges. This finding is robust to controls for the type of order, and implies that U.S. equity markets are not completely integrated

We test six term structure models in the Heath, Jarrow, and Morton (1992) class using Eurodollar futures and options data from 1987∗1992. We study the time series of implied interest rate volatilities from these models. Using one-day lagged implied volatilities, our one-and two-parameter models simultaneously price an average of 18.5 options each day with an average absolute error of one-and-a-half to two basis points. Although the models fit well, we document systematic strike- price and time-to-maturity biases for all models. We also implement simple trading strategies to test whether the models identify genuine biases.

We present empirical evidence on the relation between changes in managerial wealth and tender offer characteristics. Changes in managerial wealth resulting from a tender offer are negatively related to the likelihood of managerial resistance to a tender offer and positively related to the likelihood of tender offer success. We also document that the abnormal returns to tender offers are lower for hostile than for friendly offers if we control for the tender offer premium. Finally, we find that the top executive gains, whereas outside shareholders do not gain, from management's decision to resist the tender offer.

This study provides evidence on quotations and bid-ask spreads in the wholesale foreign exchange market, and introduces a method to document variation in the placement of quotes relative to asset value. I find that spreads widen with proxies for inventory-carrying costs, including forecasts of price risk and a measure of liquidity costs. Increases in spreads before nontrading periods can also be attributed to inventory costs. The location of currency quotes in relation to value is not constant, and the outcome of hypothesis tests regarding changes in currency value can be sensitive to allowances for variation in quote location.

Suppose that a firm receives a cash windfall which does not change its investment opportunity set or, equivalently, its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of eleven firms with such windfalls in the form of a won or settled lawsuit. We examine a variety of decisions of the firm to shed light on alternative theories of corporate financing and investment. Our evidence is broadly inconsistent with the perfect capital markets model. The results need to be stretched considerably to fit the asymmetric information model in which managers act in the interest of shareholders. The evidence supports the agency model of managerial behavior, in which managers try to ensure the long-run survival and independence of the firms with themselves at the helm.

Several Eastern European countries have initiated mass privatization programs to transfer state-owned assets to the general population. We show that the decision to pursue mass privatization and even the specific design of the programs are largely dictated by politics. Nonetheless, politically feasible programs can also be made attractive from an economic standpoint in terms of maximizing value, fostering free and efficient markets, and promoting corporate governance. In general, the design of economic institutions is critically shaped by political factors, although satisfactory economic results can be achieved in spite of political constraints.

This study uses intraday when-issued rate quotes to examine the rewards and risks of the Treasury coupon auctions for bidders who face different tradeoffs between the winner's curse and quantity risk. The data indicate that markups of auction average rates over bid when-issued rates at auction times average 3/8 basis point. I also find that when-issued rates react as strongly to bidding aggressiveness at auctions before the auction results are announced as theydo afterward, and that quantity risk is as important as the winner's curse.