EVIDENCE ON HOW COMPANIES CHOOSE BETWEEN DIVIDENDS AND OPEN-MARKET STOCK REPURCHASES

Dividends and open-market stock repurchases are by far the two most common mechanisms for distributing excess cash to shareholders. This article identifies and then tests three potentially important factors for the corporate choice between increasing cash dividends and initiating openmarket stock repurchases. More specifically, the authors argue that companies are more likely to distribute cash to investors through open-market repurchases than through dividend increases when (1) management believes its stock is undervalued, (2) management compensation packages include stock options, and (3) the company's stockholder base is dominated by institutional investors.
To test these three explanations, the authors use a matched-pair design in which each company announcing an open market repurchase program in a given year is matched with a comparable-size firm from the same industry that increased its cash dividends but did not initiate an open-market repurchase program. As predicted, the results suggest that equity undervaluation, management compensation, and the level of institutional holdings are all important contributors to corporate choices between dividend increases and open-market repurchases.     

A GUIDE TO VALUING EMPLOYEE STOCK OPTIONS WITH A RELOAD FEATURE

At first glance, executive stock options with reload provisions appear to be more complicated than conventional options, and thus the valuation of such options would appear to be more difficult. But, as the authors demonstrate in this article, such reload options provide the employee with a dominant exercise strategy—namely, to exercise the option whenever it is in-the-money. And the fact that reload options will always be exercised simplifies their valuation by eliminating a major problem—that associated with employee's risk references and uncertain early exercise—in valuing conventional options.     

TRANSFERABLE STOCK OPTIONS (TSOS) AND THE COMING REVOLUTION IN EQUITY-BASED PAY

The dominant form of equity pay in the U.S. will change dramatically when accounting rules are changed (most likely in 2005) to require companies to charge the cost of their stock option plans on their income statements. Many companies are already switching from stock options to other forms of equity pay, especially restricted stock. The most notable switcher was Microsoft, the world's largest user of stock option pay. In July 2003, partnering with J.P. Morgan, Microsoft created a onetime transferable stock option (TSO) program that allowed holders of underwater Microsoft options to sell their options to J.P. Morgan in return for restricted shares.
But the most important consequence of this transaction may not be a widespread shift by corporate America to restricted shares, but rather the creation of a more costeffective kind of stock option. By clearing the potentially messy hurdles involving taxes, accounting, SEC rules, and "transaction mechanics," Microsoft has opened the door for TSOs to be considered as an ongoing equitypay instrument, perhaps replacing standard stock options (which are not transferable). TSOs share the key advantages of restricted stock in terms of providing robust retention and ownership incentives and higher valuecost efficiency, while maintaining the key "leverage" advantage of options. In so doing, they create significant upside (and downside) while largely avoiding the "pay for pulse" problem of restricted stock. They also introduce the discipline of competitive pricing by third-party bidders. The bid prices of investment banks create nearly all of the information required for accurate estimates of option cost, which should foster greater board accountability and improved corporate governance.     

WHY IRA AND KEOGH PLANS SHOULD AVOID GROWTH STOCKS

This paper explores the effect of taxing personal income from common stocks on the return of equity portfolios held by mutual funds under IRA or Keogh plans. The expected rate of return earned by a tax-sheltered fund on any given stock is inversely related to the stock's per-share growth rate. The explanation for this effect does not rely on the standard assumption that growth decreases the effective rate of taxation. Rather, this effect holds despite heavier taxation of growth stocks because of the incomplete manner in which the return is sheltered. The implication of this finding for the optimal portfolio selection policy of tax-sheltered equity funds is inconsistent with evidence showing that such funds tend to concentrate in growth stocks. A second issue examined is the use of IRA and Keogh plans as a temporary tax shelter. Under the present 10-percent penalty on premature distribution, the critical investment period may be as short as two to three years. This finding indicates the usefulness of these plans as a general investment tool.     

CHANGING VOLATILITY AND THE PRICING OF OPTIONS ON STOCK INDEX FUTURES

This paper presents empirical results regarding the suitability of the Black model for the pricing of options on stock index futures. Whaley's technique is used to present empirical evidence regarding the pricing biases of the model. Information provided by the implied volatilities suggests that model refinements should address the changing volatility issue.     

TWO DCF APPROACHES FOR VALUING COMPANIES UNDER ALTERNATIVE FINANCING STRATEGIES (AND HOW TO CHOOSE BETWEEN THEM)

This is the sequel to the authors' 1989 article discussing the two basic discounted cash flow approaches for valuing debt-financed transactions and corporations: weighted average cost of capital (WACC) and adjusted present value (APV). The WACC method discounts all after-tax (but pre-interest) cash flows at the company's weighted average cost of capital. The APV method treats the value of a levered firm as the value of the same firm if financed entirely with equity plus the discounted value of the interest tax shields from the debt its assets will support. The authors argue that the WACC approach is more practical if the firm intends to hold its (market) leverage ratio relatively constant over time, but that the APV technique is the preferred method if the firm plans to reduce its leverage ratio according to a pre-determined schedule (as tends to be the case in highly leveraged transactions).     

STRATEGY AND SHAREHOLDER VALUE CREATION: THE REAL OPTIONS FRONTIER

The current interest in real options reflects the dramatic increase in the uncertainty of the business environment. Viewed narrowly, the real options approach is the extension of financial option pricing models to the valuation of options on real (that is, nonfinancial) assets. More broadly, the real options approach is a way of thinking that helps managers formulate their strategic options—the future opportunities that are created by today's investments—while considering their likely effect on shareholder value. But if the real options framework promises to link strategy more closely to shareholder value creation, there are some major challenges on the frontier of application. In the first part of this paper, the authors tackle the question, “What is really new about real options, and how does the approach differ from other wellestablished ways to make strategic decisions under uncertainty?” This article provides a specific definition of real options that relies on the ability to track marketpriced risk. Using examples from oil exploration and pharmaceutical drug development, the authors also show how specific features of the industry and the application itself determine the usefulness of the real options approach. The second part of the paper addresses the question: Given the many differences between real and financial options, how should a real options application be framed? The authors examine the use of real options in the valuation of Internet companies to demonstrate the required judgment and tradeoffs in the framing of real options applications. The case of Webvan, an online grocer, is used to illustrate the inter‐action between strategy, execution, and valuation.     

银行和保险公司如何在现有环境下携手合作

银保合作是银行业和保险业双赢的金融创新举措,在发达国家已十分盛行。但是,我国银保合作还处于初级阶段,作者在回顾国内银保合作的现状、揭示其存在的问题的基础上,着重就在现有金融和法律环境下,银保如何携手合作的问题,提出了一系列政策建议和实施措施,以期促进这项金融创新在我国的顺利发展。     

OPTIONS LISTING, MARKET LIQUIDITY AND STOCK BEHAVIOUR: SOME CANADIAN EVIDENCE

This study examines the price behaviour, trading volume and liquidity of stocks in the Canadian market at the time of options listing. Unlike some studies examining similar effects in the United States, the present one finds no evidence to indicate that either daily return volatility or trading volume is affected by the listing. Similarly, liquidity, as measured by the bid-ask spread, is unaffected. At the same time, cross-sectional tests indicate an inverse relationship between before-to-after trading volume and the before-to-after bid-ask spread.     

组建金融控股集团的方式及其风险防范

金融控股集团是指母公司通过控股手段参与各个有限责任子公司(包括商业银行与非银行组织)的经营管理而组成的公司形态.在竞争日益激烈的背景下,混业经营的金融控股集团的优势就在于有效地将产业风险分解至各行业,同时将个体所拥有的客户资源实现共享,从而提高收益率及市场占有率.在混业经营成为国际银行巨头共同选择的主流趋势下,入世后我国商业银行不可能长期游离于国际金融格局之外,作为能有效阻断风险传递的金融控股集团将是国内商业银行的必然选择.本文提出这一构想其目的也出于此.本文还对成立金融控股集团的有关法律障碍、组建方式以及风险防范等问题进行了论述.     

FIRST-MOVER (DIS) ADVANTAGE AND REAL OPTIONS

Fear of losing first-mover advantages has caused many corporate strategists to ignore real options analysis and simply go ahead with any project that they think is expected to have a positive net present value. But first-mover advantages are not nearly as valuable as most strategists tend to assume. This article weighs the expected value of first-mover advantages against the benefits of the real option arising from delay and flexibility. The real options model recognizes the value of delaying projects until important sources of uncertainty and risk can be resolved.
After reviewing two well-known cases of successful second movers—the triumph of VHS over Betamax in VCRs and Microsoft's remarkable late software entries—the authors go on to present more broadly based historical evidence for their view that first-mover advantages often fail to confer lasting value. The article closes with an assessment of first-mover advantages in the new economy, including a brief look at recent developments in the Internet and telecom sectors.     

SMALL FIRM AND VALUE EFFECTS IN THE CANADIAN STOCK MARKET

We examine the relation among average returns, market beta, firm size, and book-to-market value for Canadian stocks during 1975–92. We document a negative relation between average return and the market capitalization of firms, but find no relation between average return and market beta. While the small firm effect is significant during a period of reduced capital gains tax, it is noticeably lower than during the period leading up to the change. We find that average returns are positively related to book-to-market value especially during the period of lower capital gains tax.