This research evaluates methods used in event studies that employ accounting-based measures of operating performance. We examine the choice of an accounting-based performance measure, a statistical test, and a model of expected operating performance. We document the impact of these choices on the test statistics designed to detect abnormal operating performance. We find that commonly used research designs yield test statistics that are misspecified in cases where sample firms have performed either unusually well or poorly. In this sampling situation, the test statistics are only well specified when sample firms are matched to control firms of similar pre-event performance.

We report that 34% of targets of unsuccessful control contents between 1983 and 1989 experience a change in top manager within two years following the contest. Management turnover is concentrated among poorly performing firms in which outside blockholders acquire an ownership stake. These blockholders appear to facilitate post-contest asset restructurings that increase the value of the target and improve operating performance. In the absence of an outsider blockholder, managers typically retain their positions despite poor pre-contest performance and the use of value-reducing defensive tactics during the control contest. We conclude that monitoring by active outside investors facilitates valuable internal control efforts.

Underwriters have an incentive to overstate investor interest in order to persuade some investors to purchase shares at a price in excess of their initial estimate of the fair value. We show that this incentive is eliminated when the underwriter commits to secondary market price stabilization. Destroying the underwriter's incentive to overstate interest reduces the total surplus captured by initial investors in initial public offerings. Further efficiency gains are associated with penalty bid systems that permit the underwriter to make the stabilization commitment selectively. Price stabilization can thus be viewed as a bonding mechanism that improves the efficiency of the primary equity market.

We examine the relation between exchange rate variability and stock return volatility for U.S. multinational firms and decompose this relation into components of systematic and diversifiable risk. Focusing on two five-year periods around the 1973 switch from fixed to floating exchange rates, we find a significant increase in volatility of monthly stock returns corresponding to the period of increased exchange rate variability, even relative to the increase in stock return volatility for three control samples. In conjunction with this increase in total volatility there is also an increase in market risk (beta) for multinational firms.

Shareholder-initiated proxy proposals on corporate governance issues became popular in the late 1980s as corporate takeover activity declined. We find firms attracting governance proposals have poor prior performance, as measured by the market-to-book ratio, operating return, and sales growth. There is little evidence that operating returns improve after proposals. The proposals also have negligible effects on company share values and top management turnover. Even proposals that receive a majority of shareholder votes typically do not engender share price increases or discernible changes in firm policies.

We examine the evidence that expected security returns can be forecasted by the term premium, default premium, and dividend yield, in light of recent findings that similar security return patterns are associated with Federal Reserve monetary policy developments. We extend Fama and French's (1989) analysis by suggesting that the monetary environment influences investors' required returns, and hence the robustness of the models they propose. Our findings indicate that Fama and French's results vary dramatically across monetary environments; that is, the behavior of the business-conditions proxies and their influence on expected security returns is significantly affected by the monetary sector.