AN EMPIRICAL EXAMINATION OF THE EXISTENCE OF A SIGNALING VALUE FUNCTION FOR DIVIDENDS

The purpose of this study is to address the reliability of dividend signals. To determine if dividend signals are followed by changes in earnings in a direction consistent with the signal, the dividend-earning relationship is examined using both Granger tests of causality and nonparametric tests. Results are consistent with the hypothesis that dividend signals are followed by unanticipated changes in earnings in the subsequent two quarters.     

THE LONG‐RUN PERFORMANCE OF COMPANIES THAT WITHDRAW SEASONED EQUITY OFFERINGS

We examine the long‐run stock price and operating performance of companies that withdraw seasoned equity offerings (SEOs). Firms that withdraw an offering provide an opportunity to examine whether markets fully adjust to the information conveyed when managers announce the intent to issue shares, independent of any agency problems that might be intensified by the completion of the offering. As in completed seasoned equity offerings, long‐horizon event‐time operating and stock price performance in sample firms is substantially lower than what is observed among control firms. Underperformance is also observed in an equally weighted calendar‐time analysis. Results are consistent with overpricing among small firms that attempt, but then withdraw, SEOs.     

SEASONED EQUITY OFFERINGS: THE CASE OF ALL-EQUITY FIRMS

Three theories have been widely proposed to explain the significant negative market response to the announcement of a new equity issue. By observing a similar negative effect in a sample of zero and near zero long-term debt firms, we are able to conclude that the capital structure hypothesis is not the sole explanation. Regressions of announcement period abnormal returns against subsequent cashflow change while controlling for price pressure effects provide evidence in support of the information hypothesis. Decomposition of the sample by issue purpose reveals a differential impact at the time of announcement consistent with an information-based explanation.     

INTEREST RATE HEDGING: AN EMPIRICAL TEST OF ALTERNATIVE STRATEGIES

For hedging, financial and agricultural futures contracts differ in their usefulness. This paper presents a new hedging approach uniquely appropriate to financial futures that better fits the typical hedging situation confronted by those wishing to hedge interest rate risk. The superiority of this new hedging strategy is demonstrated empirically by comparing the strategy with several other methods currently in use.     

ACCOUNTING FOR THE COST OF CAPITAL: AN EMPIRICAL EXAMINATION

One of accounting's oldest issues, accounting for interest costs, has become a subject of increased concern in recent years. This study empirically addresses the issue of whether the cost of equity capital should be charged against income. Fourteen measures of the cost of equity capital are examined. The empirical tests involve contemporaneous correlation of accounting betas for each income measure with market betas for a sample of 200 companies. The results of these association tests indicate that income measures, net of the cost of equity capital, may have greater information content than income as presently reported.     

SEASONED EQUITY OFFERINGS FOR NEW INVESTMENT AND THE INFORMATION CONTENT OF INSIDER TRADES

Significant negative valuation effects are widely acknowledged for firms announcing seasoned equity offerings. This result is consistent with theoretical models linking new equity issues to increased adverse-selection costs, lower management ownership in the firm, misuse of free cash flow, or expectations for earnings declines. Also increasingly evident, insiders trade around corporate announcements. We test the hypothesis that insider trading and announcements of new equity issues serve as joint signals in the market's evaluation of prospective capital investment projects. Our findings are consistent with the hypothesis that insider trading is related to market reaction to announcements of new equity issues.     

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.