In 1993 and 1994, FreeportMcMoRan Copper and Gold issued two series of gold-denominated depositary shares to finance the expansion of its mining capacity in Indonesia. The pricing of these securities reflected their enhanced credit quality, which arose from the positive correlation between the value of the firm and the value of the securities. This feature of the securities effectively bundles a gold hedge with financing. A bundled hedge avoids wealth transfers to senior bondholders, since junior bondholders can effectively net their bond-related claims on the firm against their hedge-related liability to the firm. Such securities cannot be replicated by conventional hedging strategies, and they also mitigate the asset substitution problem.

This paper examines the financing decisions of firms in response to changes in investments and profits. We find that information frictions play important roles in firms' financing decisions. However, we find no evidence that asymmetric information about the value of a firm's assets causes equity to be used only as a last resort. Indeed equity is the predominant source of finance in situations, such as profit shortfalls, investment in intangible assets, and internally generated growth opportunities, where informational asymmetries and agency costs are likely to be high. We also find that firms respond asymmetrically to positive and negative profit shocks. In financing fixed assets, high asymmetric information firms use more short-term debt and less long-term debt, whereas firms with high potential agency problems use significantly more equity and less long-term debt and cash.

Barnett's Divisia monetary aggregates were derived to be elements of Diewert's class of superlative quantity index numbers. Relative to aggregation theory, Barnett's resulting monetary aggregates are strictly preferable to the official sum monetary aggregates, since the component monetary assets are not perfect substitutes. Formal empirical tests based on the relevant aggregation-theoretic criteria have likewise uniformly favored the Divisia monetary aggregates. The current article compares the Divisia with the sum monetary aggregates relative to numerous conventional policy-relevant criteria. The Divisia monetary aggregates, especially at high levels of aggregation, usually perform best in these tests.

William Barnett, Edward Offenbacher, Paul Spindt, New Concepts of Aggregated Money, The Journal of Finance, Vol. 36, No. 2, Papers and Proceedings of the Thirty Ninth Annual Meeting American Finance Association, Denver, September 5-7, 1980 (May, 1981), pp. 497-505

We study the mutual relationships between institutional ownership, analyst following and share prices. We show that the pressure on firms to set lower share prices to attract analysts is attenuated by institutional monitoring. Our theory refutes the assumed causal relation between share price and institutional ownership, attributed to the share price–liquidity relation, and we show empirically that share prices and institutional ownership are positively related after controlling for liquidity. Our study provides a rationale for why better firms generally maintain higher share price levels, and offers new insights into the puzzling empirical linkages observed between nominal share price levels and firm fundamentals.

We examine the relation between stock price performance and the identity of the investors buying the shares in private placements of equity. We find that although the shareholders not participating in the placement experience post-issue negative long-term abnormal returns, the participating investors purchase the shares at a discount and earn normal returns. For the non-participating investors, both announcement and long-term abnormal returns are significantly higher when the shares are placed with affiliated than only with unaffiliated investors. Additionally, when we exclude financially-distressed firms, we find insignificant announcement returns followed by negative long-term abnormal returns in placements to unaffiliated investors. On the other hand, consistent with affiliated investors having a certification effect, we find positive announcement returns and normal long-term returns following placements to affiliated investors. Thus, the disparity found in private placements between the positive announcement period and the negative post-issue long-term abnormal returns disappears when we control for financial distress and participating investor identity.

We provide evidence of a link between firm dividend policy and stock market liquidity. In the cross section, owners of less (more) liquid common stock are more (less) likely to receive cash dividends. Predictions of the proportion of dividend payers based on 1963–1977 cross-sectional estimates account for most of the declining propensity of firms to pay dividends as documented by Fama and French (2001). Furthermore, historic liquidity is an important determinant of dividend initiations and omissions. Finally, we show that sensitivity of firm value to aggregate liquidity declines after dividend initiations, suggesting that investors view stock market liquidity and dividends as substitutes.