[Futures contracts often include a variety of delivery options that allow participants flexibility in satisfying the contract. These options have the potential to broaden the appeal of the contract. However, if these options are valuable, they may reduce the hedging effectiveness of the contract. This article analyzes the GNMA CDR futures contract that appears to have failed because of flaws in the contract's design. For the first 6 years following its introduction, the contract attracted significant and increasing volume, but, subsequently, the volume declined to almost zero. Over the years during which the volume experienced its most dramatic decline, the Treasury-bond futures contract provided a better hedge for current coupon GNMA securities than did the GNMA CDR futures contract. And, over this same period, the value of the quality option embedded in the contract often exceeded 5 percent of the futures price and reached a level of 19 percent at one point. We interpret the evidence to indicate that the contract failed because the delivery options reduced the hedging effectiveness of the contract for current coupon mortgage securities.]

This paper presented a stochastic discounted cash flow model with which mortgage companies can assess the value of a mortgage servicing contract. The model was illustrated with data provided by a group of eight MBC's. Simulation and sensitivity analysis showed the impact of different mortgage amounts, termination distributions, and expected rates of servicing cost increases on the value of a mortgage servicing portfolio. In general, because servicing contracts are long-term fixed revenue arrangements, high rates of servicing cost increases substantially reduce the value of an MBC's servicing portfolio. To the extent that mortgage prepayments are reduced by high inflation rates, the impact of high cost increases on the value of a servicing portfolio is compounded.

This study proposes a managerial discretion hypothesis of equity carve-outs in which managers value control over assets and are reluctant to carve out subsidiaries. Thus, managers undertake carve-outs only when the firm is capital constrained. Consistent with this hypothesis, firms that carve out subsidiaries exhibit poor operating performance and high leverage prior to carve-outs. Also consistent with this hypothesis, in carve-outs wherein funds raised are used to pay down debt, the average excess stock return of + 6.63 percent is significantly greater than the average excess stock return of −0.01 percent for carve-outs wherein funds are retained for investment purposes.

This article documents the effect on share value of listing on the New York Stock Exchange and reports the results of a joint test of Robert C. Merton's (1987) investor recognition factor and Yakov Amihud and Haim Mendelson's (1986) liquidity factor as explanations of the change in share value. The authors find that, during the 1980s, stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid-ask spreads. Cross-sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing.

This paper examines the hypothesis that an important role of corporate takeovers is to discipline the top managers of poorly performing target firms. The authors document that the turnover rate for the top manager of target firms in tender offer-takeovers significantly increases following completion of the takeover and that prior to the takeover these firms were significantly under-performing other firms in their industry as well as other target firms which had no post-takeover change in the top executive. We interpret the results to indicate that the takeover market plays an important role in controlling the nonvalue maximizing behavior of top corporate managers.

Between 1993 and 2000, at least 18 countries saw publication of guidelines proposing minimum representation of outside directors on corporate boards. Underlying this movement is an apparent presumption that boards with significant outside directors will make different and, perhaps, better decisions than boards dominated by insiders. As the first-mover in this movement, the United Kingdom provides a laboratory for a “natural experiment” to examine this presumption empirically. We find that UK boards that complied with the exogenously imposed standard were more likely to appoint outside chief executive officers (CEOs). Additionally, announcement period stock returns indicate that investors appear to view appointments of outside CEOs as good news. Apparently, boards with more outside directors make different (and perhaps better) decisions.

This study analyzes corporate expenditures for property, plant and equipment (PP&E), and research and development (R&D) for over 2500 US firms from 1988 to 1994. We find no support for the contention that institutional investors cause corporate managers to behave myopically. Indeed, we document a positive relation between industry-adjusted expenditures for PP&E and R&D and the fraction of shares owned by institutional investors. This relation is robust to a variety of empirical tests, including those that account for endogeneity between institutional ownership and firm-level discretionary expenditures.

During the 1990s and beyond, countries around the world witnessed calls and/or mandates for more outside directors on publicly traded companies' boards even though extant studies find no significant correlation between outside directors and corporate performance. We examine the connection between changes in board composition and corporate performance in the U.K. over the interval 1989–1996, a period that surrounds publication of the Cadbury Report, which calls for at least three outside directors for publicly traded corporations. We find that companies that add directors to conform with this standard exhibit a significant improvement in operating performance both in absolute terms and relative to various peer group benchmarks. We also find a statistically significant increase in stock prices around announcements that outside directors were added in conformance with this recommendation. We do not endorse mandated board structures, but the evidence appears to be that such a mandate is associated with an improvement in performance in U.K. companies.

Prior studies have reported a positive correlation between insider trading and stock price changes implying that insider (i.e., informed) trades affect price discovery differently than non-insider (i.e., uninformed) trades. Based on these results, various scholars have argued for the legalization of insider trading to facilitate rapid price discovery. We analyze the trading activity of a confessed inside trader, Ivan Boesky, in Carnation's stock just prior to Nestle's 1984 acquisition of Carnation, and find that our tests are unable to distinguish the price effect of Boesky's (i.e., informed) purchases of Carnation's stock from the effect of non-insider (i.e., uninformed) purchases. Our conclusion survives extensive robustness tests and has methodological and public policy implications.