Recent bank mergers generally did not improve relative operating performance or produce positive abnormal returns to acquiring bank shareholders. We examine the relationship between mergers and CEO compensation during 1986–1995, a period marked by overcapacity and frequent mergers. We find that mergers have a net positive effect on compensation, mainly via the effect of size on compensation. Compensation generally increases even if mergers cause the acquiring bank's stock price to decline, as is typical after a merger announcement. The form of compensation affects merger decisions, since CEOs with more stock-based compensation were less likely to make an acquisition.

This study examines the effect of real exchange rate changes on multinational firms and incorporates the effect of intra-industry competition on the relation between exchange rates and firm value. To test the relation more effectively, tests are conducted using a sample of automotive firms from the United States and Japan. Consistent with theoretical predictions, there is significant exposure to exchange rate shocks. Moreover, there is evidence of time-variation in exchange rate exposure, which is consistent with changes in the competitive environment within the industry. Finally, evidence is presented that is consistent with foreign sales being a major determinant of exposure and the effectiveness of operational hedging through foreign production.

Conventional wisdom suggests that lockup options are granted by self-interested target managers to discourage competition and hand-select an acquirer, thus harming target shareholder wealth. Evidence from 2,067 deals announced during 1988–1995 suggests that lockup options inhibit competition, but on average, deals with lockup options have higher target announcement and overall returns and lower bidder announcement returns, even after controlling for shareholder anticipation and other factors. An examination of 100 merger proxies suggests lockup options are no more prevalent in privately negotiated, preemptive deals, and average target returns are higher when such deals include a lockup option. The overall evidence is more consistent with managers using lockup options to enhance bargaining power than with lockup options harming shareholder wealth.

We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. A surprising number of firms use firm risk rather than project risk in evaluating new investments. Firms are concerned about financial flexibility and credit ratings when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes.

The large number of initial public offerings (IPOs) with a 7% spread suggests either that investment bankers collude to profit from 7% IPOs or that the 7% contract is an efficient innovation that better suits the IPO. My tests do not support the collusion theory. Low concentration and ease of entry characterize the IPO market. Moreover, the 7% spread is not abnormally profitable, nor has its use been diminished by public awareness of collusion allegations. In support of the efficient contract theory, banks compete in pricing 7% IPOs on the basis of reputation, placement service, and underpricing.

The proportion of firms paying cash dividends falls from 66.5% in 1978 to 20.8% in 1999, due in part to the changing characteristics of publicly traded firms. Fed by new listings, the population of publicly traded firms tilts increasingly toward small firms with low profitability and strong growth opportunities – characteristics typical of firms that have never paid dividends. More interesting, we also show that regardless of their characteristics, firms have become less likely to pay dividends. This lower propensity to pay is at least as important as changing characteristics in the declining incidence of dividend-paying firms.