AN EMPIRICAL INVESTIGATION OF STOCK MARKET VALUATION OF CORPORATE PROJECTED PENSION LIABILITIES

This study extends the work of Landsman (1986) by making use of the newly available projected benefit pension obligations (PBO) information. Our analysis documents that investors perceive pension assets and pension liabilities, respectively, as corporate assets and liabilities. We also developed and tested a decomposition model of pension obligations by examining the market valuation of the three components of PBO: vested, non-vested and future salary progression. Our results indicate that future salary progression is indeed considered by market participants as a liability of the firm. The results of the study have important implications for accounting policy making.     

THE RELATIONSHIP BETWEEN THE VARIABILITY OF INFLATION AND STOCK RETURNS: AN EMPIRICAL INVESTIGATION

Several researchers find a negative correlation between the rate of inflation and stock returns. This phenomenon may be explained by the variability hypothesis, which posits that the negative correlation is caused by the combination of a positive relation between the rate of inflation and the variability of inflation and a negative relation between the variability of inflation and stock returns. An autoregressive conditional heteroscedastic model of inflation is used to measure the variability of inflation. Empirical results do not support the ability of the variability hypothesis to explain the negative correlation between stock returns and inflation.     

AN EMPIRICAL TEST OF AN EX-ANTE MODEL OF THE DETERMINATION OF STOCK RETURN VOLATILITY

The assumption that changing expected cash flows and discount factors affect a security's return is at the foundation of many financial models. This study examines empirically the hypothesis that expected stock return variability is a function of cash flow and discount rate uncertainty. Maximum likelihood estimation techniques and expectational data are employed. Strong, positive relationships are found, verifying the foundations of the ex-ante models with ex-ante data and providing a better understanding of security markets by explaining, in part, the causes of expected stock price variability.     

AN EMPIRICAL EXAMINATION OF FINANCIAL LIBERALIZATION AND THE EFFICIENCY OF EMERGING MARKET STOCK PRICES

The efficient markets hypothesis in finance suggests that as equity markets are liberalized and made more open to the public, equity prices should reflect the increased availability of information and be more efficiently priced. In this paper, we examine whether emerging market equity prices have become more efficient after financial liberalization. Using two sets of financial liberalization dates, a battery of econometric tests, and data from sixteen countries and three composite portfolios, we find that in spite of theory suggesting the opposite, liberalization does not seem to have improved the efficiency of emerging markets. In fact, most of our statistical tests indicate that the markets were already efficient before the actual liberalization.     

AN EMPIRICAL INVESTIGATION OF THE AUDIT EXPECTATION GAP: AUSTRALIAN EVIDENCE

This paper examines the existence and nature of the expectation gap in Australia and whether recent changes to the wording of audit reports have affected that gap. A mail questionnaire was completed by auditors, accountants, directors, creditors, shareholders and undergraduate students. There was a gap between auditors and the various user groups under the old report wording prior to the issuance of the revised AUP 3. The modified wording in the revised AUP 3 had a significant impact on beliefs about the nature of an audit and the relative responsibilities of auditors and management. The modified wording eliminated some of the differences, but also created some new differences in beliefs about the messages communicated through audit reports. The auditing profession's fears about an expectation gap appear to be justified.     

AN INVESTIGATION OF PREFERRED STOCK FINANCING BY BANK AND NONBANK FINANCIAL INSTITUTIONS

We investigate the shareholder wealth effects of announcements of preferred stock issues made by financial institutions. Fixed-rate straight preferred stock and convertible preferred stock issue announcements result in insignificant common share price responses. However, the average stock price reaction to announcements of adjustable-rate preferred stock issues is positive and significant for banking firms. Our findings suggest that banks' common shareholders react positively to adjustable-rate preferred stock issue announcements because such securities provide a relatively low-cost way of increasing the primary capital used to satisfy legal minimum capital requirements without diluting common equity voting rights.     

THE SLOPE OF THE TERM STRUCTURE OF CREDIT SPREADS: AN EMPIRICAL INVESTIGATION

In this article we analyze the slope of the term structure of credit spreads. We investigate the explanatory role of interest rate, market, and idiosyncratic equity variables that the recent empirical literature highlights as important determinants of credit spread levels. This study extends the analysis and assesses its effect on credit slopes for a sample of corporate bonds. We find that these factors affect credit spreads at short and long maturities in a significantly different way. A closer inspection of the credit spread slope also reveals that it is a useful indicator of the direction of changes in future short‐term credit spreads. This evidence has important implications for the trading and risk management of portfolios of bonds with different maturities.