This paper compares the out-of-sample performance of no-load and load mutual funds. Unlike previous studies, this paper provides a more comprehensive analysis as it uses methodologies to incorporate loads directly into the returns. We find two important results. First, after adjusting for loads in the returns data, no-load funds are found to perform much better than load funds, with the differences found to be significant at the 1% level across many different performance metrics. Second, we find that within load funds themselves there is little significant difference in out-of-sample performance between high-load funds and low-load funds even after adjusting for loads.

Movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy. However, little is known about the magnitude of the Federal Reserve's reaction to the stock market, in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate. This paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market. We find a significant policy response, with a 5 percent rise (fall) in the S&P 500 index increasing the likelihood of a 25 basis point tightening (easing) by about a half.

Using a sample of privately held C corporations and S corporations from the motor carrier industry during 1984–92, we assess the effect of the 1986 Tax Reform Act on the amount of corporate income shareholders of privately held C corporations shifted to their personal tax bases. We estimate that the C corporations shifted a mean of $130,587 taxable income each year to shareholders (representing 29% of their mean accounting earnings before income shifting) after the 1986 tax law change. The C corporations used deductible managerial compensation and rent expense, but not interest expense, to shift income to shareholders.

We examine the effect of corporate spinoffs on the trading environment of the stock of firms that spinoff units. Spinoffs change the information environment of firms. The increased transparency following spinoffs can obviate informed traders' information or make it more valuable. We find that residual return variance increases following spinoffs. More importantly, transaction costs and the price impact of trades are also higher following spinoffs. These results are stronger for spinoffs where parent firms divest unrelated subsidiaries. Changes in the information environment associated with focusing spinoffs appear to benefit informed traders at the expense of uninformed traders.

We find mixed support for the hypothesis that a “New Economy” subperiod occurred in the late 1990s in which the relation between equity value and traditional financial variables differs from previous periods. We examine a regression model of equity value on financial variables over 25 years for a broad firm sample and for firm subsamples thought to be emblematic of the New Economy. We find the regression model's explanatory power declined in the New Economy subperiod for all firm subsamples. However, for all subsamples, the regression model's structure during the New Economy subperiod is not unusual compared to other subperiods.

This paper extends the literature on executive compensation by developing and testing a principal-agent model in the context of project selection. The model's focus on executive project selection decisions highlights the multidimensional nature of executive choices that affect the value of the firm. An executive not only makes an effort choice that determines the quality of information on which to base a decision but also sets the decision criteria for selecting projects. A project selection framework is also shown to introduce endogenous uncertainty into compensation that can influence the executive's effort choice. Using an extensive data set, our empirical work supports the main hypotheses of the model, including the significance of executive rank in determining the extent of use of incentive pay in general and equity-based incentive pay in particular.

We present a detailed view of market quality in the presence of preferencing arrangements. A unique dataset provides the opportunity to measure trading costs of marketable orders and fill rates and ex post costs of limit orders across trading venues. For market orders, we find the primary exchange provides the lowest execution costs. However, the preferencing exchanges are no worse than, and in most cases better than, the nonpreferencing regional exchanges. For limit orders, the regionals execute limit orders more frequently than the primary market and with an ex post execution cost that is not very different from the primary market.

Making use of performance data for baseball players, this article provides empirical evidence in support of Lazear’s (1998) theoretical predictions that (1) risky workers will earn a premium for their upside potential, (2) this risk premium will be higher the longer a worker’s work life, and (3) firms must enjoy some comparative advantage in the labor market to be willing to pay a premium to risky workers. The validity of Lazear’s predictions carries implications for wage differentials between young and old workers and between men and women.

The hypothesis that negative abnormal returns following an equity issue are anomalous assumes the use of the correct benchmark. The alternative hypothesis assumes that an incorrect benchmark has been used or that benchmarks change following an issue. We evaluate these assumptions by examining the performance of SEO firms during periods when there was no issue activity. Results indicate that SEO firms experience positive abnormal returns away from the issue window and that positive performance is most pronounced for small SEO firms. These and other results are inconsistent with the alternative hypothesis.

This paper analyzes the impact of US decimalization on the Canadian stocks listed on the Toronto Stock Exchange (TSE) and either the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotation System (Nasdaq) in the US. Using a sample of 126 firms, we find that the US trading of these stocks increases after decimalization, but this increase is not at the expense of TSE volume. Indeed, the TSE volume increases substantially for those securities that are traded on Nasdaq and increases marginally for those securities that are traded on the NYSE. Most of the increase in volume is in retail-sized trades. The bid–ask spreads and the quote depths decline on all exchanges, but by a greater amount in the US than in Canada. The depths on the NYSE decline from being above the TSE depths to well below the TSE depths. We also find that the decline in the TSE spread is directly related to the size of the firm and to the decline in the US spread, and is inversely related to the pre-decimalization ratio of spreads on the US exchange and the TSE. Overall, our results indicate that the US decimalization had the desired positive impact on trading in both the US and Canada, with a decrease in spreads and an increase in retail-sized trading.