Long- and short-term interest rates in 19 countries: Tests of cointegration and parameter instability

This paper examines the long-run relationship between short-term and long-term interest rates (both nominal and real) in 19 countries, and explores the possibility that the relationship is statistically stable using Lc, MeanF, and SupF statistics suggested by Hansen [1992]. Empirical results obtained from various cointegration techniques (Johansen, Phillips and Hansen, Stock and Watson, and Park) and quarterly data (1973–1998) show considerable support for the expectations hypothesis in all countries (except the United Kingdom). In a majority of cases, it is also found that a stable relationship exists between the short-term and long-term interest rates.     

The System of Land Rights in Nigerian Agriculture

A bstract . Land ownership in the agricultural sector of the Nigerian economy is basically communal. Under this system the land holding group is the family, clan, village or community. An important practice under communal ownership is the principle of inalienability of land. The mobility of the agricultural labor force is inhibited. Non-provincials are forbidden to plant cash crops. Property rights to land are not specific. Individualized allotments are absent and land markets non-existent. Other details of the communal system of land tenure in Nigeria are given. Reasons are sought for the persistence of custom in the practice of inalienability of land even when economic conditions have changed, enabling the right perception of land values.     

The Evidence on Product-Market Diversifying Acquisitions and Joint Ventures by U.S. Banks

We examine the acquisition and joint venture strategies of U.S. banks from 1980 to 1998 to diversify into non-banking sectors. We find that the market responds favorably to both types of expansions, with the gains being shared between acquiring banks and their targets and venture banks and their non-bank partners, respectively. Acquisitions expose acquiring banks to significant increases in nonsystematic, market, and total risk, while joint ventures result in significant decreases in the nonsystematic and total risk measures for participating banks. Our results suggest that product-market expansions, in general, provide U.S. banks with value-enhancing opportunities, and that joint ventures may improve both the return and risk characteristics of the partner banks.     

Contagion Effects from the 1994 Mexican Peso Crisis: Evidence from Chilean Stocks

The contagion, or informational spillover, effects of the 1994 peso crisis from the Mexican market to the Chilean market, and to the Chilean American Depository Receipts (ADRs) trading in the U.S., are examined. Significant excess returns are observed for Chilean stocks for the event dates of the Mexican Peso crisis, providing evidence of contagion effects. Significant excess returns on these Chilean ADRs are also observed for each of the five event dates associated with the Peso crisis, suggesting that the contagion effects spilled over to the ADRs. A multiple regression model shows that the spillover contagion effects were very efficiently transmitted from the Mexican market to the Chilean market to the Chilean ADRs. Multifactor regressions show that the most significant influence on the pricing of Chilean ADRs is the raw Chilean Index, rather than the Chilean Index expressed in U.S. dollars.     

How do bond investors perceive dividend payouts?

We explore how bond investors view corporate cash distributions through dividends and how that view influences corporate cost of debt. Explaining between 45 and 67 percent of variance in credit spreads at the time of issuance, our model reveals a non-linear association between dividend payouts and investment return expected by bondholders. In particular, while bondholders view cash disbursements in small amounts as a positive signal, large dividend payouts are viewed negatively. Our results thus provide support for both the signaling hypothesis and for the agency-cost-of-debt hypothesis. The results are robust even after controlling for firm size, growth opportunities, profitability, leverage, business risk, asset tangibility, and term structure. Exploiting the 2003 dividend tax cut as an exogenous shock, we demonstrate that our results are not vulnerable to endogeneity problems. Finally, we find no evidence of corporations timing the payouts strategically to influence the cost of debt.     

Optimal Entrepreneurial Financial Contracting

This paper studies the optimal financing (capital structure) of entrepreneurial activity in the context of risk-aversion by incorporating the deadweight costs of bankruptcy and taxes. Unlike the extreme debt ratio (corner solution) predicted by scholars using linear models, this paper provides unique interior results for risk-free as well as risky debt, irrespective of corporate taxes. The paper also shows the necessary and sufficient conditions for both forms of debt, and the pareto-optimality of one over the other. The important findings of this paper are: (i) the existence of an equilibrium, where the borrowing interest rate is greater than the lending rate, despite the violation of Fisher separation theorem (1930); (ii) wealth plays a critical role in determining the debt ratio and the equilibrium risk-free rate of interest, complementing the De Meza and Webb (1987 and 1999) studies; (iii) an explanation for the preferred stock and income bond puzzles, extending Fooladi et al. (1991) and McConnell and Schlarbaum (1991).