In this paper, we examine how stock option usage affects total corporate payout. Using fixed-effects panel data estimators on various samples of ExecuComp firms from 1993 to 2005, we find the higher the executive stock options, the lower the total payout, ceteris paribus. We also find some evidence that firms increase payouts through repurchases in order to offset earnings per share dilution that occurs due to usage of executive and non-executive stock options. However, incentives from not having dividend protection for options appear to dominate those from antidilution, resulting in lower total payout for firms with higher options usage.

The purpose of this paper is to analyze the errors made by professional forecasters (analysts) in estimating earnings per share for a large number of firms over a number of years. We have demonstrated in a previous paper that consensus (average) estimates of earnings per share play a key role in share price determination. In this paper, we examine consensus estimates with respect to the following questions: (1) What is the size and pattern of analysts' errors? (2) What is the source of errors? (3) Are some firms more difficult to predict than others? (4) Is there an association between errors in forecasts and divergence of analysts' estimates?

D. Chinhyung Cho, Edwin J. Elton, Martin J. Gruber, On the Robustness of the Roll and Ross Arbitrage Pricing Theory, The Journal of Financial and Quantitative Analysis, Vol. 19, No. 1 (Mar., 1984), pp. 1-10

Edwin J. Elton, Martin J. Gruber, Manfred W. Padberg, Simple Rules for Optimal Portfolio Selection: The Multi Group Case, The Journal of Financial and Quantitative Analysis, Vol. 12, No. 3 (Sep., 1977), pp. 329-345

We find that among firms that file Chapter 11 those that are smaller have better operating performance, and are in higher operating margin industries spend less time in Chapter 11. Firms are more likely to emerge as going concerns and to achieve positive post reorganization profitability if they significantly reduce assets and liabilities while in Chapter 11. Higher pre-bankruptcy industry-adjusted operating margins and improvements in margin are associated with post-reorganization profitability but do not impact the decision to reorganize. These results reveal characteristics and actions associated with successful reorganizations and, furthermore, suggest that Chapter 11 allows promising firms to successfully reorganize.

This paper examines the potential benefits of security fungibility by conducting the first comprehensive analysis of global bonds. Unlike other debt securities, global bonds' fungibility allows them to be placed simultaneously in bond markets around the world; they trade, clear, and settle efficiently within as well as across markets. We test the impact of issuing these securities on firms' cost of capital, issuing costs, liquidity, and shareholder wealth. Using a sample of 230 global bond issues by 94 companies from the U.S. and abroad over the period 1996–2003, we find that firms lower their cost of (debt) capital by issuing these fungible securities. We also document that the stock price reaction to the announcement of global bond issuance is positive and significant, while comparable domestic and eurobond issues over the same time period are associated with insignificant changes in shareholder wealth.

We examine the impact of merger announcements on portfolios of acquiring firm and target firm common stock from 1919 to 1930. Despite vast changes in the economic and regulatory environment, overall acquisition profitability has remained remarkably constant over the last 70 to 80 years. Target firm shareholders in the 1920s clearly gained from takeovers, averaging abnormal returns in excess of 15%, while acquiring firm shareholders essentially broke even. Synergistic or monopolistic gains from consolidation were minimal. Unlike the more recent experience, target firm and acquiring firm abnormal returns were largely unaffected by the mode of acquisition, the means of financing, or the degree of industrial relatedness.

We distinguish among the signaling, free cash flow, and wealth transfer hypotheses in explaining the stock price reaction to specially designated dividend (SDD) announcements. In a direct test of the signaling power of SDDs, we find both a larger stock price reaction and a significant upward revision of earnings forecasts for firms with Tobin's q less than one, but not for other firms. Our results support the conditional signaling hypothesis, which predicts greater effects of favorable information for low q firms. Taken together, our results for stock price effects and earnings forecast revisions do not support either the free cash flow or wealth transfer hypotheses.

When shareholders have different plans to sell their shares, they will, in general, have different preferences concerning the firm's decision to pay out cash using dividends or share repurchase. We illustrate these different preferences and explore a model of payout policy that highlights the adverse selection costs of repurchases when managers have superior information about the value of the firm. We show that, in the absence of fixed costs to repurchasing shares, there is a separating equilibrium in which managers use taxable dividends to signal the quality of the firm, with better firms paying lower dividends, using repurchases for the remainder of the payout. With fixed costs to repurchasing, small payouts are made via dividend and large payouts are divided between repurchases and dividends, as in the no-fixed cost case. In both cases, the percentage of shares repurchased increases with the size of the payout and larger repurchases are better news.

This paper derives and numerically simulates maximum likelihood estimators for the drift in several important diffusion price models. The time series convergence properties of these estimators are compared to those of standard estimators including the geometric and arithmetic means. Merton (1980) demonstrated that it is difficult to efficiently estimate the drift in a log-normal diffusion model. We qualify and strengthen his result by noting that his estimator is the maximum likelihood estimator and by applying our simulation results. However, we also demonstrate that it is possible to efficiently estimate the drift in other useful diffusion price models. In particular, by asking just how much time is needed in order for the maximum likelihood estimators of the drift in different diffusion processes to converge, these results qualify and quantify Black's (1993) statement that “we need such a long period to estimate the average that we have little hope of seeing changes in expected return."