We provide clinical evidence of corporate restructuring at Sears, Roebuck & Co., beginning with the firm's 1981 diversification into financial services by acquiring Coldwell, Banker & Co. and Dean Witter, Reynolds Inc. The initial purchases resulted in a wealth gain to shareholders of approximately $400 million. Anticipated synergies did not materialize, however, and Sears’ retail performance deteriorated. Coincident with pressure from institutional investor activists in 1992, Sears announced the divestiture of financial services and a refocusing on retail operations. This led to a $1.113 billion gain for shareholders. Despite more than $1.5 billion in gains over the entire diversification/divestiture period, Sears’ shareholders suffered a significant opportunity loss when compared with a portfolio of focused firms.

In a recent paper, Shyam-Sunder and Myers (1999) introduce a new test of the Pecking Order Model. This comment shows that their elegantly simple test generates misleading inferences when evaluating plausible patterns of external financing. Our results, coupled with the power problem with the Static Tradeoff Model documented by Shyam-Sunder and Myers, indicate that their empirical evidence can evaluate neither the Pecking Order nor Static Tradeoff Models. Alternative tests are needed that can identify the determinants of capital structure and can discriminate among competing hypotheses.

This paper provides some first, large-sample evidence on the Swedish auction bankruptcy system. Compared to U.S. Chapter 11 cases, the small-firm bankruptcy auctions examined here are substantially quicker, have lower costs, and avoid deviations from absolute priority. Three-quarters of the firms are auctioned as going concerns, which is similar to Chapter 11 survival rates. Moreover, based on market values, creditors in going-concern auctions recover a similar fraction of face value as creditors of much larger firms in Chapter 11 reorganizations. The evidence presented here suggests that the auction bankruptcy system is a surprisingly efficient restructuring mechanism for small firms.

We examine the value and incentive effects of six nontraditional executive stock options: premium options, performance-vested options, repriceable options, purchased options, reload options, and indexed options. With reasonable parameter values, four options have lower value than a traditional option when granted, and large differences in value are evident across the types. Holding option value constant, five options create stronger incentives than traditional options to increase stock price, five create stronger incentives to increase risk, and three create stronger incentives to reduce dividend yield. Changing various option-specific parameters can produce large changes in incentive strengths.

This paper examines the costs and determinants of order aggressiveness. Aggressive orders have larger price impacts but smaller opportunity costs than passive orders. Price impacts are amplified by large orders, small firms, and volatile stock prices. To minimize the implementation shortfall, the optimal strategy is to enter buy (sell) orders at the bid (ask). Aggressive buy (sell) orders tend to follow other aggressive buy (sell) orders and occur when bid–ask spreads are narrow and depth on the same (opposite) side of the limit book is large (small). Aggressive buys are more likely than sells to be motivated by information.