Antitakeover amendments (shark repellents) restrict the transfer of corporate control. On average, the public announcement of antitakeover amendments by 600 firms in the period 1979–1985 has an insignificant effect on the value of announcing firms' shares. However, different types of amendments have varying effects. Non-fair-price amendments have an average significant negative effect of 2.95% on share prices, while fair-price amendments have an insignificant effect. The more harmful amendments have larger insider holdings and lower institutional holdings, suggesting a partial explanation of why shareholders approve these amendments.
Fama's evidence that the term premium on Treasury securities is not monotonically increasing is found to depend entirely on the behavior of bid-asked mean returns on 9- and 10-month bills, and only during the subperiod 8/64–12/72. When transactions costs, as reflected in the bid-asked spread, are taken into account, there is found to be no way to exploit this non-monotonicity. The anomalous behavior of the quotations is attributed to the Treasury's auctions of 9-month bills during the period 9/66–10/72. The hypothesis that the term premium is a monotonically increasing function of maturity remains unrefuted.
Over the past 55 years returns on stock market indexes have on average been higher during the first half-month of calendar quarters 2 through 4 than at other times. Coincidentally, aggregate corporate earnings news arriving at the market during these half-month periods tends to be good, whereas earnings reports arriving later are more likely to convey bad news. In addition firms tend to publish bad-news earnings reports on Mondays, coincident with negative Monday effects in stock returns. The coincidence of earnings news arrival and market seasonalities leads to conjectures about informational reasons for observed seasonalities.
This paper investigates the effect of trade size on security prices. We show that trade size introduces an adverse selection problem into security trading because, given that they wish to trade, informed traders perfer to trade larger amounts at any given price. As a result, market makers' pricing strategies must also depend on trade size, with large trades being made at less favorable prices. Our model provides one explanation for the price effect of block trades and demonstrates that both the size and the sequence of trades matter in determining the price-trade size relationship.
Abnormal returns earned by target firms at the time of initial acquisition announcements are related to form of payment, degree of resistance, and type of offer. Results indicate that interdependence among these characteristics is important. Previous research suggests that tender-offer targets earn higher abnormal returns than merger targets. After controlling for payment method and degree of resistance, however, the difference in abnormal returns between tender offers and mergers is insignificant. Resisted offers are associated with insignificantly higher returns than unresisted offers. Abnormal returns associated with cash offers are significantly higher than those associated with stock offers.
In order for security prices to be informationally efficient, incentives must exist for traders to engage in costly information acquisition. This paper provides empirical evidence on this proposition. We observe that risk arbitrageurs (i.e., market participants who trade in securities of firms that are involved in mergers, tender offers, and voluntary liquidations) are able to generate private information regarding the success or failure of corporate reorganizations. Moreover, risk arbitrageurs earn substantial returns on their trading activities. These results suggest that security prices are sufficiently noisy to create incentives for costly information acquisition.
This paper presents evidence that banks provide some special service with their lending activity that is not available from other lenders. I find evidence that bank borrowers, not CD holders, bear the cost of reserve requirements on CDs. In addition, I find a positive stock price response to the announcement of new bank credit agreements that is larger than the stock price response associated with announcements of private placements or public straight debt offerings. Finally, I find significantly negative returns for announcements of private placements and straight debt issues used to repay bank loans.
Announcements of new equity issues have been seen to have a negative effect on stock prices. Potential explanations of this negative effect - the price-pressure, wealth-redistribution, and information-release hypotheses - imply different bond-price reactions to the announcements. By investigating bond-price behavior around the announcement of new equity issues this paper distinguishes the relative importance of these hypotheses. The evidence presented of a significant drop in bond prices is consistent with the information-release hypotheses.
This study examines the ex-dividend day behavior of common stock prices before the enactment of the federal income tax. On ex-dividend days during the pre-tax period, stock prices fell, on average, by the full amount of the dividend. The data are consistent with the hypothesis that (i) investors in the pre-tax period value dividends and capital gains as perfect substitutes and (ii) the differential taxation of dividends and capital gains has since caused investors to discount the value of taxable cash dividends in relation to capital gains.
We examine companies that franchise some units and centrally operate (‘own’) others. The agency problems confronting these two organizational forms are analyzed. Testable hypotheses are developed. The empirical results support the notion that owning versus franchising reflects a trade-off among agency-related problems. The cost of monitoring store managers appears to be especially important in the own/franchise decision. The level of repeat business and initial investment requirements per unit also appear to be important.