Our paper extends prior work on abandonment and replacement policies by analyzing the effects of both the Darby and the Fisher interest rate hypotheses. In most of the new cases developed, the effect of increased inflation on economic life is ambiguous. In the abandonment problem, we find a greater tendency under the Fisher hypothesis than under the Darby hypothesis for increased inflation to result in an extension of economic life. In contrast, for the replacement problem, there is a greater tendency under the Fisher hypothesis (than under Darby) for inflation to shorten the asset holding period.

Yitzhaki [19] recently developed two portfolio selection criteria (EG and EΓ) based on the mean and Gini's mean difference. Similar to mean-variance(EV), the EG criterion uses two summary statistics to describe the probability distribution of a risky prospect, the mean and one-half Gini's mean difference. Gini's mean difference is defined as the average of the absolute differences between all possible pairs of observations of a random variable. Yitzhaki's development concentrated on the theoretical aspects of EG and EΓ and the theoretical relationships among EG, EΓ, EV, and stochastic dominance (SD) selection criteria. He did not address either the empirical properties of EG and EΓ or the relationship between the empirical efficient sets of EG and EΓ and other portfolio selection criteria. Yitzhaki suggested that the next step in the development and application of his proposed selection criteria should be an empirical investigation of how the EG and EΓ criteria compare with other selection criteria.

Numerous studies in recent years have emphasized the importance of accounting properly for abandoment value in capital budgeting (see [1], [4], [7], [10], and [11]). For a variety of reasons, a project need be neither physically exhausted nor have negative cash flows to be abandoned. Robichek and Van Home [10] suggested that a project should be abandoned in any period in which the present value of future cash flows does not exceed its abandonment value. In a modification of this rule, Dyl and Long [4] proposed that the firm give consideration to all possible future abandonment opportunities. They argued that abandonment need not occur at the earliest possible date that the abandonment condition is satisfied, but rather at the date that yields the highest NPV over all future abandonment possibilities. A generalization of these models was offered by Bonini [1], who developed a dynamic programming model to analyze investment projects with abandonment possibilities and uncertain cash flows. More recently, Gaumnitz and Emery [7] compared the abandonment decision to the like-for-like replacement decision and noted that the correct model for a particular case depends on the suitability of the assumptions.

We develop a model of the dynamic interaction between CEO overconfidence and dividend policy. The model shows that an overconfident CEO views external financing as costly and hence builds financial slack for future investment needs by lowering the current dividend payout. Consistent with the main prediction, we find that the level of dividend payout is about one-sixth lower in firms managed by CEOs who are more likely to be overconfident. We document that this reduction in dividends associated with CEO overconfidence is greater in firms with lower growth opportunities and lower cash flow. We also show that the magnitude of the positive market reaction to a dividend-increase announcement is higher for firms with greater uncertainty about CEO overconfidence.

Students will find this presentation of the economic and institutional arrangements that surround the area of public utilities helpful in understanding current regulations and possibly suggesting solutions for future problems. The eight sections of the text cover: (1) an introduction to the nature and types of services provided by public utilities; (2) economic characteristics; (3) legal concepts; (4) traditional issues in regulation; (5) independent regulatory commissions; (6) a critique of public-utility regulation; (7) pricing and the regulation of consumer demand; and (8) capital budgeting and finance. 490 references, 37 figures, 38 tables. (DCK)

We develop a model of corporate cash holdings that incorporates CEO beliefs. An optimistic CEO views external financing as excessively costly but expects this cost to moderate over time. The optimistic CEO thus delays external financing while funding current investments with existing cash and maintaining a lower cash balance than rational CEOs. We find that, relative to rational CEOs, optimistic CEOs hold 24% less cash, hold lower cash to fund the firms' growth opportunities, and save less cash out of incremental cash flow.

While much of the prior research on short selling around announcements of seasoned equity offerings (SEOs) has focused on manipulation, it is unclear whether there is also informed short selling around these announcements. We test for informed short selling around SEO announcements by examining the relation between i) pre-announcement short selling and the announcement-period return and ii) changes in short interest around the SEO announcement and the long-term operating and stock price performance following the equity issue. We find that firms with large increases in short interest prior to the SEO announcement exhibit lower (i.e., more negative) announcement-period returns, and that firms with large increases in short interest around the SEO announcement experience inferior long-term operating and stock price performance following the equity issue. We also find that the negative relation between large increases in short interest and long-term operating and stock price performance is more pronounced among shelf offers. This result highlights the informational role of short sellers in identifying opportunistic market timers of equity issues among shelf filers. Our overall results indicate the presence of informed short selling around SEO announcements.

We develop a measure of public information flow to financial markets and use it to document the patterns of information arrival, with an emphasis on the intraday flows. The measure is the number of news releases by Reuter's News Service per unit of time. We find that public information arrival is nonconstant, displaying seasonalities and distinct intraday patterns. Next we relate our measure of public information to aggregate measures of intraday market activity. Our results suggest a positive, moderate relationship between public information and trading volume, but an insignificant relationship with price volatility.