In this paper we examine tender offer share repurchases to differentiate between the information signaling and free cash flow hypotheses. Previous work in this area has focused on announcement period returns. While we also examine announcement returns, our primary emphasis is on operating performance changes surrounding repurchases. We argue that the information contained in changes in operating performance, and its determinants, enables us to differentiate between the two hypotheses. Our primary finding is that operating performance following repurchases improves only in low-growth firms, and that these gains are generated by more efficient utilization of assets, and asset sales, rather than improved growth opportunities. Thus, repurchases do not appear to be pure financial transactions meant to change the firm's capital structure but are part of a restructuring package meant to shrink the assets of the firm. This evidence leads us to conclude that the positive investor reaction to repurchases is best explained by the free cash flow hypothesis.

Several studies hypothesize a relation between board size and financial performance. Empirical tests of the relation exist in only a few studies of large U.S. firms. We find a significant negative correlation between board size and profitability in a sample of small and midsize Finnish firms. Finding a board-size effect for a new and different class of firms affects the range of explanations for the board-size effect.

We present evidence that insured deposit financing shields banks from the full costs of market discipline. Moody's downgrades, indicators of increasing risk, are associated with negative abnormal equity returns that are increasing in the bank's reliance on insured deposits. Moreover, banks raise their use of insured deposits following increases in risk. These findings cast doubt on the ability of capital market participants to effectively discipline bank behavior within the current regulatory environment. More generally, our findings highlight the potential for regulation to undermine market discipline in regulated industries.