This paper examines the impact of capital structure changes which have no corporate tax consequences. Specifically, exchange offers involving preferred and common stock are analyzed. We find that systematic changes in firm value occur when companies announce preferred-for-common exchange offers. Consequently, we interpret our results to be consistent with a signalling hypothesis. We also find weaker evidence suggesting the existence of agency cost effects or wealth redistributions across security classes. Our findings imply that capital structure changes need not alter the tax status of the issuing firm to affect firm value.

This paper examines the impact of capital structure changes which have no corporate tax consequences. Specifically, exchange offers involving preferred and common stock are analyzed. We find that systematic changes in firm value occur when companies announce preferred‐for‐common exchange offers. Consequently, we interpret our results to be consistent with a signalling hypothesis. We also find weaker evidence suggesting the existence of agency cost effects or wealth redistributions across security classes. Our findings imply that capital structure changes need not alter the tax status of the issuing firm to affect firm value.

Eric C. Chang, J. Michael Pinegar, R. Ravichandran, International Evidence on the Robustness of the Day-of-the-Week Effect, The Journal of Financial and Quantitative Analysis, Vol. 28, No. 4 (Dec., 1993), pp. 497-513

This study considers the joint influence of contemporaneous and lagged responses to macroeconomic news in explaining US day-of-the-week effects. Macroeconomic news is measured by movements in large firms' stock prices. The average response of smaller stocks to these movements is abnormally high on Mondays, especially in down markets. After corrections for these asymmetries, the US day-of-the-week effect weakens substantially for most size-ranked portfolios in most of the six approximately equal subperiods between 1962 and 1992. These findings suggest that seasonals in processing macroeconomic news account for much of the day-of-the-week effect in equity returns.

We propose new tests to examine whether stock index futures affect stock market volatility. These tests decompose spot portfolio volatility into the cross-sectional dispersion and the average volatility of returns on the portfolio's constituent securities. Our tests show that for Nikkei stocks spot portfolio volatility increased and cross-sectional dispersion decreased compared with average volatility when Nikkei futures began trading on the Osaka Securities Exchange, but not on the Singapore International Monetary Exchange. For non-Nikkei stocks, no shift occurred when futures trading began on either exchange. These findings are consistent with the hypotheses that futures trading increases spot portfolio volatility but that there is no volatility “spillover” to stocks against which futures are not traded. However, the increase in volatility attributable to futures trading is small compared with volatility shifts induced by changes in broad economic factors.

Generally, utilities issue straight fixed-rate preferreds, industrials issue convertible fixed-rate preferreds, and financials issue adjustable-rate preferreds. The corresponding announcement-period common stock abnormal returns are economically insignificant for utilities, negative and significant at the 0.05 level for industrials, and positive and significant at the 0.10 level for financials. Information effects explain the cross-sectional results for industrial firms, but tax benefits and/or regulatory conditions are more likely explanations of the results documented for financial corporations and utilities. Returns to preferred stockholders support neither the wealth redistribution- hypothesis nor the price-pressure hypothesis.

We use data uniquely available from the Commodity Futures Trading Commission (CFTC) to document the intraweek trading patterns of large speculators in five futures markets. These markets include futures traded against the Standard and Poor's 500 stock index, Treasury Bonds, gold, corn, and soybeans. We also examine the influence of large speculator trades on the patterns of volume and volatility for the contracts in our sample. Though we detect the familiar U-shaped and inverted U-shaped patterns across weekdays for volatility and aggregate volume, the association between volume and volatility becomes stronger when we separate large speculator volume from volume associated with other traders. The coefficient on large speculator volume is much larger than the coefficient on other volume in these regressions. Compared with total volume, large speculator volume is greater on Mondays than on the other days of the week in all five markets.