Flattening of Bond Yield Curves for Long Maturities

The paper presents a theoretical proof that flattening of yield curves for par bonds is inevitable for long maturities. This proof implies that behavioral explanations of flattening are unnecessary. The proof also implies that the use of yields to maturity of couponbearing bonds to estimate the true term structure (as well as forward rates) for long maturities has potentially infinite bias, suggesting that a greater effort should be made to directly estimate the true term structure in empirical work.     

A Review of Acquisition Valuation Models

The article critically examines two methods of acquisition valuation. The first concentrates on a comparison of the earnings per share of the combined companies with that of the acquiror alone on a present value basis. The second method is discounted cash flow model which is based on several established normative models of share price valuation. The article concludes that because of the difficulties in computing an accurate weighted average cost of capital for the combined group and the differences in cash flow and reported earnings, the earnings per share approach is not valid, and therefore the cash flow approach is to be preferred and adopted.     

Moody's and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields

We examine the relative impact of Moody's and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody's ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate between the two ratings and assign more weight to the ratings from Moody’s, the more conservative rating agency. Moody's becomes more conservative after 1998 and the impact of a superior Moody's rating becomes stronger. Furthermore, the differential impact of the two ratings is more pronounced for the more opaque Rule 144A issues.     

SCALE ECONOMIES AND POLICE DEPARTMENT CONSOLIDATION: EVIDENCE FROM LOS ANGELES

This paper tests for scale economies for police departments operating in Los Angeles County. Intergovernmental sharing in providing police services prevails within the county, suggesting that scale economies exist in producing this public good. Empirical analysis here rejects the hypothesis that police output is produced under increasing returns, which would be an efficiency explanation for the large degree of consolidation found within the county.     

The Effect of Voluntary Spin-off Announcements on Shareholder Wealth

This paper presents estimates of the effect of a voluntary spin-off announcement on shareholder wealth. The results show that spin-off announcements have a positive influence on stock prices and that the relative increase in share price is greater for large spin-offs than for small ones.