Are there economies of scale in underwriting fees? Evidence of rising external financing costs

This study examines the behavior of spreads paid in firm underwrittenseasoned common stock offerings and straight bond offerings.Estimates indicate that up to 85% of the spread is variablecost and that the marginal spread is rising. Further, offeringsthat are likely to require greater underwriting services encounterhigher marginal spreads. These findings are consistent withthere being a family of U-shaped spreads, with lower qualityofferings priced on higher spreads, unlike the economies ofscale view of spreads. They agree with the views that underwritersprovide valuable services and that the marginal cost of externalfinance is rising.     

ASSESSING DAMAGES: THE 1983 ISRAELI BANK SHARES CRISIS

In 1983, Israeli bank shares collapsed following several years during which the banks had actively intervened to promote share prices and thereby contributed to a 300% rise in real terms. During the crisis the government assumed control of the banks, which they did not begin to sell back to the public until 1993. We compare 1993 bank share prices after the banks were partially relisted on the Stock Exchange with 1983 precrisis values. The 1993 time-adjusted market values were $10 billion lower than in 1983, a decline borne by precrisis shareholders ($4 billion) and by taxpayers ($6 billion). Of this latter amount, two-thirds represents a transfer from the government to shareholders, while approximately one-third represents an efficiency loss - and hence a direct cost - resulting from government ownership of the banks for 10 years following the crisis. The results highlight the risk inherent in a banking system that is both concentrated and universal and illustrates the costs associated with sustained government ownership.     

Valuation of bankrupt firms

This study compares the market value of firms that reorganizein bankruptcy with estimates of value based on management'spublished cash flow projections. We estimate firm values usingmodels that have been shown in other contexts to generate relativelyprecise estimates of value. We find that these methods generallyyield unbiased estimates of value, but the dispersion of valuationerrors is very wide - the sample ratio of estimated value tomarket value varies from less than 20% to greater than 250%.Cross-sectional analysis indicates that the variation in theseerrors is related to empirical proxies for claimholders' incentivesto overstate or understate the firm's value.     

Urban agriculture in Dar es Salaam: Its contribution to solving the economic crisis and the damage it does to the environment

This article discusses urban agriculture in the city of Dar es Salaam, Tanzania, and how it helps people to cope with the country's economic crisis. Urban agriculture is also associated with environmental degradation. The article identifies factors that encourage urban agriculture at four different levels and suggests that to check further environmental degradation, concerted efforts should be made at all four levels. Such efforts should be coordinated and integrated into a holistic view of sustainable urban development.     

Land degradation in South Africa: Conventional views,changing paradigms and a tradition of soil conservation

Land degradation is currently a major concern in South Africa. However, awareness of the problem and attitudes towards it have changed little over the past century. Soil erosion and veld degradation are continually being depicted as acute problems, and overpopulation, overstocking and poor agricultural practices are viewed as the major causal factors. Internationally, however, a new paradigm is emerging, which takes a somewhat more optimistic view of the situation in Africa. One of the basic tenets of this changing perception is that there exists an untapped wealth of indigenous knowledge about the environment and associated human potential. Within this context, this study examines and describes the local tradition of stone terracing on cropland within the former Venda in the Northern Province of South Africa. This living tradition has deep historic roots and local farmers have a remarkably well‐developed understanding of the causes and effects of erosion. While the research location is unique in many ways, this study indicates that farmer tradition and innovation in the former homelands may be more common than has been supposed, and should not be ignored but actively sought out and built upon.     

The demise of the rights issue

This article suggests that the lack of use of rights offeringsin the United States, a phenomenon referred to as the equityunderwriting paradox, can be explained by transaction-cost conditions.A sample of underwritten rights offerings provides support forthe explanation. Firms making underwritten rights offeringspaid lower underwriter fees but incurred significantly largerprice drops just prior to the offering than did firms makingunderwritten public offerings. Further analysis reveals thatthe underwritten-rights-offering price concessions are a formof transaction cost that is not found in under-written publicofferings.     

Partial anticipation, the flow of information and the economic impact of corporate debt sales

Corporate debt sales have been regarded as 'no news' eventsbecause there is no significant price reaction on average totheir announcement. We explore the hypothesis that this lackof average price reaction to debt sale announcements is explainedby the partial anticipation of debt offers. Theory suggeststhat the demand for debt capital is fundamentally related tochanges in the sources and uses of funds, and we find evidencethat earnings are significantly lower, investment growth issignificantly bigger, and, for some issuers, debt refundingrequirements are significantly greater in the period immediatelyprior to issue than in periods well before and after the issue.We find that this preissue information conditions investors'expectations of issue, thereby affecting the cross-sectionalannouncement date price reaction to debt sales in two ways.First, announcement date price reactions are negative, on average,for unanticipated offers or for those offers where prior informationsuggests that an issue is unlikely. Second, holding the probabilityof issue constant, announcement date price reactions are significantlymore negative for offers that raise more capital than investorsexpected. These results are consistent with cash flow signalingand asymmetric information models of corporate financings.