One of the primary policy initiatives instituted in response to the Eurozone sovereign debt crisis is a requirement that all Eurozone sovereign bonds issued after January 1 2013 include provisions referred to as Collective Action Clauses or CACs. These CACs allow for a super-majority of creditors to impose restructuring terms on minority holdouts. This article assesses the likely effect of this proposal on the borrowing costs of sovereign debtors. Contrary to much of the literature, we find that the presence of CACs leads to a lower cost of capital, especially for below-investment grade bonds.

We find that firms that provide limited liability and indemnification for their directors enjoy higher credit ratings and lower yield spreads. We argue that such provisions insulate corporate directors from the discipline from potential litigation, and allow them to pursue their own interests by adopting low-risk, self-serving operating strategies, which coincidentally redound to the benefit of corporate bondholders. Our evidence further suggests that the reduction in the cost of debt may offset the costs of directorial shirking and suboptimal corporate policies occasioned by this insulation, which may explain why stockholders have little incentive to rescind these legal protections.

This paper examines the wealth impact of share repurchases that restrict participation to a particular sub-set of a firm's stockholders. Repurchases at a premium from insiders and small shareholders increase the wealth of non-participating stockholders and are therefore consistent with the shareholders' interest hypothesis. However, privately negotiated repurchases of single blocks from stockholders unaffiliated with the firm reduce the wealth of non-participating stockholders. In contrast to the evidence for general repurchases, no positive wealth effect offsets the significant repurchase premium paid to the selling stockholder. Indeed, the wealth loss to non-participating stockholders is significantly greater than the premium paid. This evidence is inconsistent with the shareholders' interest hypothesis and supports the hypothesis that managers in their self-interest use single block repurchases to eliminate threats to their control over the firm's resources.

This paper examines the temporal relationship between interest rates on Treasury securities ranging in maturity from three months to 30 years. We find strong empirical support that the seven Treasury rates selected are cointegrated, a conclusion that is insensitive to the normalization chosen. In particular, the hypothesis of noncointegration is rejeeted decisively regardless of the rate selected as the dependent variable in the cointegrating equation. To determine whether this information can be used to improve forecasts of Treasury rates, the seven rates are forecasted with a corresponding erroreorrection model that is shown to outperform an augmented VAR model that ignores the cointegration of the rates. The results are consistent with the belief that arbitrage limits the extent to which rates on different maturities of a given security diverge. In addition, the results confirm the appropriateness of imposing a common stochastic process for interest rates in equilibrium models of the term structure.

[We show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal. We examine a model in which an insider/manager allocates resources on the basis of his private information and outside information conveyed through the secondary-market price of the firm's shares. If the manager is allowed to trade, he will compete with informed outsiders, reducing the equilibrium quality of outside information. While the benefits to production of outside information are the same for society and entrepreneurs, we show that the social and private costs are different. Thus, entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed.]

This paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980-88. A simple model is presented to explain the cost of resolution. This model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies. The empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s. This evidence is consistent with the changing nature of the thrift crisis and changes in the regulator's closure rule. Our econometric evidence, moreover, is consistent with the hypothesis that, for troubled institutions, tangible net worth systematically understates market-value net worth. In addition, the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed.

This paper documents that a successful tender offer increases the combined value of the target and acquiring firms by an average of 7.4%. We also provide a theoretical analysis of the process of competition for control of the target and empirical evidence that competition among bidding firms increases the returns to targets and decreases the returns to acquirers, that the supply of target shares is positively sloped, and that changes in the legal/institutional environment of tender offers have had no impact on the total (percentage) synergistic gains created but have significantly affected their division between the stockholders of the target and acquiring firms.

This paper investigates the rationale behind interfirm tender offers by examining the returns realized by the stockholders of firms that were the targets of unsuccessful tender offers and firms that have made unsuccessful offers. Our results suggest that the permanent positive revaluation of the unsuccessful target shares [documented by Dodd and Ruback (1977) and Bradley (1980)] is due primarily to the emergence of and/or the anticipation of another bid that would ultimately result in the transfer of control of the target resources. We also find that the rejection of a tender offer has differential effects on the share prices of the unsuccessful bidding firms depending upon whether the tender offer process results in a change in the control of target resources. On the basis of these results we conclude that acquisitions via tender offers are attempts by bidding firms to exploit potential synergies, not simply superior information regarding the ‘true’ value of the target resources.