Abstracts of Vol.
38, No. 2 - May 2003
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“The Effect of Managerial Ownership on the
Short- and Long-Run Response to Cash Distributions”
Keith M. Howe, Steve Vogt, Jia He
“Institutional Investors and Information
Asymmetry: An Event Study of Self-Tender Offers”
Michele O’Neill, Judith Swisher
“Evidence on Value Creation in the
Financial Services Industries Through the Use of Joint
Ventures and Strategic Alliances”
Kimberly C. Gleason, Ike Mathur, Roy A. Wiggins,
III
“The Impact of Trust-Preferred Issuance on
Bank Default Risk and Cash Flow: Evidence from the Debt
and Equity Securities Markets”
Keith D. Harvey, M. Cary Collins, James W.
Wansley
“Adverse-Selection Costs and the
Probability of Information-Based Trading”
Kee H. Chung, Mingsheng Li
“Evidence on the Mean-Reverting Tendencies
of Closed-End Fund Discounts”
Dominic Gasbarro, Richard Johnson, J. Kenton
Zumwalt
“Trade Imbalances and Inventory Effects in
Long-term S&P 500 Index Options”
Anu Bharadwaj, James B. Wiggins
“Creating Fama and French Factors with
Style”
Robert W. Faff
“The Effect of
Managerial Ownership on the Short- and Long-Run Response to Cash
Distributions”
Keith M. Howe, Steve Vogt, Jia He
Volume 38, No. 2, pp. 179-196
We examine both the short-run and long-run responses to the
following corporate cash flow transactions: dividend
increases and decreases, dividend initiations, and
tender offer repurchases. Our focus is the short-run and
long-run effects of managerial ownership. We hypothesize
that ownership plays an important role in explaining the
announcement effects for these events, owing to
signaling effects and the reduction of agency problems.
Our short-run results accord well with the earlier work
on announcement effects for these events and show that
firms with high insider ownership exhibit higher excess
returns. Our long-term results indicate a drift over a
three-year period following the announcement, with the
excess returns for the high insider-ownership group
becoming more pronounced.
Keywords: insider ownership; agency cost;
signaling; restructuring
JEL Classifications: G32/G35
“Institutional Investors and
Information Asymmetry: An Event Study of Self-Tender
Offers”
Michele O’Neill, Judith Swisher
Volume 38, No. 2, pp. 197-211
Our research compares the asymmetric information costs of
firms with low levels of institutional ownership to
those with high levels. We use self-tender offers as an
information event. Our results show that higher
institutional ownership, particularly a higher number of
institutional investors, is associated with a lower
degree of informed trading. These results persist
even after we control for differences in trading
activity among our sample firms.
Keywords: institutions; asymmetric
information; block
JEL Classifications: G14/G20/G32
“Evidence on Value Creation in the
Financial Services Industries Through the Use of Joint
Ventures and Strategic Alliances”
Kimberly C. Gleason, Ike Mathur, Roy A. Wiggins,
III
Volume 38, No. 2, pp. 213-234
While an extensive body of literature has examined merger,
acquisition, and consolidation activity in commercial
banks and other financial services firms, little
attention has been paid to examining how these
institutions use the cooperative activities of joint
ventures and strategic alliances to accomplish their
growth objectives. We analyze the effects of the
use of joint ventures and strategic alliances by a
sample of firms in the banking, investment services, and
insurance industries. Our results show that commercial
banks, investment services firms, and insurance
companies experience significant abnormal returns of
0.66% on average when they announce their participation
in a joint venture or strategic alliance. These abnormal
returns are significantly positive across the four
strategic motives of domestic, international, horizontal
and diversifying cooperative activities. Using a matched
sample, we also show that our sample firms enjoy
significant, positive, abnormal returns for holding
periods of six, 12, and 18 months after the announcement
of the cooperative activity.
Keywords: joint ventures; strategic
alliances; long-horizon performance
JEL Classifications: G21/G29/G14
“The Impact of Trust-Preferred Issuance
on Bank Default Risk and Cash Flow: Evidence from the
Debt and Equity Securities Markets”
Keith D. Harvey, M. Cary Collins, James W.
Wansley
Volume 38, No. 2, pp. 235-256
Trust-preferred stock is a debt-equity hybrid that offers the
tax deductibility of dividends but is treated as equity
capital by bank regulators and rating agencies. The
purpose of this paper is to examine whether holders of
bank debt securities benefit from trust-preferred
issuance in the form of lower default premia and whether
bank shareholders benefit from the tax deductibility of
trust-preferred dividends. Using daily returns
surrounding the Federal Reserve’s announcement that
trust-preferred securities would be included as a
component of commercial banks’ Tier I equity capital, we
find evidence to support both hypotheses.
Keywords: commercial bank; trust-preferred
securities; event study
JEL Classifications: G21/G28
“Adverse-Selection Costs and the
Probability of Information-Based Trading”
Kee H. Chung, Mingsheng Li
Volume 38, No. 2, pp. 257-272
Prior studies offer various empirical models to decompose the
observed bid-ask spread into the adverse-selection and
transitory (order-processing and inventory-holding)
components. There is limited evidence, however, on
whether the spread components estimated from these
models indeed measure what they purport to measure. In
this study, we show that the estimates of the
adverse-selection component given by these models are
positively and significantly related to the probability
of information-based trading (PIN), after controlling
for the endogeneity of the PIN and other stock
attributes. These results provide direct empirical
support for the spread component models examined in the
present study.
Keywords: asymmetric information;
adverse-selection costs; components of the spread
JEL Classifications: G14
“Evidence on the Mean-Reverting
Tendencies of Closed-End Fund Discounts”
Dominic Gasbarro, Richard Johnson, J. Kenton
Zumwalt
Volume 38, No. 2, pp. 273-291
Closed-end fund (CEF) discounts vary widely over time due to
changes in share price, net asset value (NAV), or both.
Prior studies suggest discounts are mean reverting. We
examine the mean-reversion issue by employing
cointegration procedures. Specifically, we identify bond
and equity CEFs that exhibit stationary time-series
properties and find statistically significant error
correction terms that quantify the speed of mean
reversion. The results indicate that mean reversion is
caused by changes in both share price and NAVs. However,
CEFs can only provide excess returns when the discount
narrows due to share price increases.
Keywords: closed-end fund discounts;
cointegration; error-correction
JEL Classifications: C22/G12
“Trade Imbalances and Inventory Effects
in Long-term S&P 500 Index Options”
Anu Bharadwaj, James B. Wiggins
Volume 38, No. 2, pp. 293-309
This article investigates how trade imbalances affect prices
in the S&P 500 Long-term Equity Anticipation Securities
(LEAPS) market. From 1994 to 1996, put volume was 30
times higher than call volume, and public purchases of
puts vastly outnumbered sales. We find that LEAPS put
quotes are revised following trade imbalances by more
than can be explained by information effects, suggesting
that put prices are subject to price pressure or
inventory effects. The results suggest market frictions
are important in the pricing of options, at least in
settings in which arbitrage is particularly costly and
public demand leans toward one type of order.
Keywords: index options; market
microstructure
JEL Classifications: G13
“Creating Fama and French Factors with
Style”
Robert W. Faff
Volume 38, No. 2, pp. 311-322
This paper utilizes Frank Russell style portfolios to create
useful proxies for the Fama and French (1992) factors.
The proxy-mimicking portfolios are shown to represent a
pervasive source of exposure across U.S. industry
portfolios and to generally possess similar properties
to those utilized in the finance literature.
Further, a set of multivariate asset-pricing tests of
the three-factor Fama and French asset-pricing (FF)
model based on the proxy factors fail to reject the
model. However, they do not reveal strong evidence
of significantly positive risk premiums, particularly in
the case of the size and book-to-market factors.
Keywords: Fama and French factors; style
indexes
JEL Classifications: G12
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