THE EFFECT OF TRADED OPTION INTRODUCTION ON SHAREHOLDER WEALTH

Several authors suggest that the opening of a market in traded options constitutes a “feasibility-expanding” change. In this paper evidence on changes in the price of underlying stocks at the time of option listing is examined to determine whether option listing constitutes such a change. Evidence supports the hypothesis that call option listing is feasibility expanding, that put option listing is not feasibility expanding, and that call listings closer to the initiation of organized option trading have a larger impact relative to later listings.     

THE EFFECT OF VOLUNTARY CORPORATE LIQUIDATION ON SHAREHOLDER WEALTH

This paper presents an analysis of the shareholder wealth effect of voluntary corporate liquidation, the extreme form of corporate divestiture classified as a “selloff.” For a sample of 37 firms that liquidated during the 1970–1982 period, the liquidation announcement is associated with statistically and economically significant stock price increases.     

EVIDENCE OF THE EFFECT ON SHAREHOLDER WEALTH OF CORPORATE SPINOFFS: THE CREATION OF ROYALTY TRUSTS

Corporate spinoffs and divestitures cause positive revaluation of the firm by the market. This paper examines a particular kind of spinoff, one of mineral interests into a royalty trust. Royalty trusts are associated with abnormal returns that come from positive market revalution and from special tax incentives inherent to trusts.     

SYNERGY,DIVERSIFICATION, AND INCENTIVE EFFECTS OF CORPORATE MERGER ON BONDHOLDER WEALTH: SOME EVIDENCE

The theory relating to the effects of a merger on the wealth of bondholders implies countervailing results. On the one hand, bondholders might share the benefits of operating synergies and diversification with shareholders. On the other hand, they might suffer from an incentive effect—the expropriation by the shareholders. Studies by Kim and McConnell (1977) and Asquith and Kim (1982) find that the wealth of bondholders is not significantly affected by conglomerate mergers. Using a more inclusive sample and a different methodology, this study finds that the wealth of bondholders is affected positively by merger, which implies synergies to bondholders and/or a diversification effect. Furthermore, an incentive effect would be inferred if leverage were increased substantially after merger and if the size of the increase were inversely related to bondholder gains. Since neither of these events is observed, this study finds no evidence for an incentive effect.     

ON THE WEALTH EFFECTS OF THE SUPERVISORY GOODWILL CONTROVERSY

We provide evidence on the potential wealth effects of the 1996 U.S. Supreme Court decision that the U.S. government had violated contractual obligations when, in 1989, it passed legislation prohibiting savings and loan associations from counting “supervisory goodwill” as capital. The Supreme Court decision produced large wealth gains for the savings and loan plaintiffs, as did prior court decisions in favor of these savings and loans. However, little evidence exists to suggest negative market responses to important events surrounding the 1989 legislation.     

THE IMPACT OF TARGETED SHARE REPURCHASES ON THE WEALTH OF NON-PARTICIPATING SHAREHOLDERS

This paper examines empirically whether management is acting in the best interests of non-participating shareholders when it engages in a targeted share repurchase. Over the full purchase-to-repurchase period, non-participating shareholders earn significantly positive abnormal returns, providing additional evidence that shareholders benefit from the initial investment that leads to the share repurchase. On the repurchase date, however, shareholders experience a significant decrease in their wealth position that cannot be attributed solely to a wealth transfer from the non-participating to the participating shareholders. Consequently, one cannot generalize about management's intentions for a targeted share repurchase.