SOME EVIDENCE THAT BANKS USE INTERNAL CAPITAL MARKETS TO LOWER CAPITAL COSTS

To the extent raising external capital is especially costly for banks (as the preceding article suggests), bank managers have incentives to manage their internal cash flow in ways that minimize their need to raise external equity. One way to accomplish this is to establish bank holding companies that set up internal capital markets for the purpose of allocating scarce capital across their various subsidiaries. By “internal capital market” the authors mean a capital budgeting process in which all the lending and investment opportunities of the different subsidiaries are ranked according to their risk-adjusted returns; and all internal capital available for investment is then allocated to the highestranked opportunities until either the capital is exhausted or returns fall below the cost of capital, whichever comes first. As evidence of the operation of internal capital markets in bank holding companies, the authors report the following set of findings from their own recent studies:

• ? For large publicly traded bank holding companies, growth rates in lending are closely tied to the banks' internal cash flow and regulatory capital position.
• ? For the subsidiaries of bank holding companies, what matters most is the capital position and earnings of the holding companies and not of the subsidiaries themselves.
• ? The lending activity of banks affiliated with multiple bank holding companies appears to be less dependent on their own earnings and capital than the lending of unaffiliated banks.

The authors also report that, after being acquired, previously unaffiliated banks increase their lending in local markets. This finding suggests that, contrary to the concerns of critics of bank consolidation, geographic consolidation may make banks more responsive to local lending opportunities.     

CULTURE,CORPORATE GOVERNANCE,AND DIVIDEND POLICY: INTERNATIONAL EVIDENCE

We find that Hofstede's cultural dimensions—uncertainty avoidance, masculinity, and long‐term orientation—remain significant in the determination of firms’ dividend policies, even after controlling for corporate governance. We also show that this association varies with the strength of corporate governance, measured by the degree of investor protection. Hence, national culture and investor protection independently affect firms’ dividend payouts but also interact with each other, such that strong investor protection induces higher dividend payouts in high uncertainty avoiding and/or highly masculine cultures. Our results provide strong evidence that cultural differences matter and offer additional power in explaining variations in dividend policies.     

AUSTRALIAN CORPORATE DIVIDEND POLICY: EMPIRICAL EVIDENCE

This paper provides Australian evidence on the validity of the lintner (1956) dividend model. This model suggests corporate dividends are a function of current and past earnings. Regression tests are carried out. In these tests the basic Lintner model performs better than some other dividend models examined. In addition, the ability of the model to predict dividend changes is examined and compared to forecasts of various naive models. The forecasting test results generally indicate that a simple no-change model predicts as well as more complex regression models.     

DIVIDEND POLICY AND ITS RELATIONSHIP TO INVESTMENT AND FINANCING POLICIES: EMPIRICAL EVIDENCE

In this paper it is argued that dividend policy is not determined as a residual, but rather that firms adopt independent dividend and investment policies. Empirical evidence, based on a questionnaire survey, supports this view. Independent dividend and investment policies are possible because debt finance is usually raised in sufficient quantities to accommodate the financial demands created by dividend and investment decisions.     

DIVIDEND POLICY AND CAPITAL STRUCTURE UNDER THE IMPUTATION TAX SYSTEM: SOME CLARIFYING COMMENTS

This paper analyses the effects of the imputation and capital gains taxes on the dividend and financing decisions of Australian companies. We develop a framework, consistent with Miller's [1977] approach, in which interactions between dividend and financing decisions can be explored. The significance of these interactions depends on both corporate dividend policy and on the relationship between personal and corporate income tax rates. We conclude that under imputation, dividend decisions are more important relative to capital structure decisions, than under the classical tax system.     

THE EFFECTS OF INSIDER TRADING RESTRICTIONS: EVIDENCE FROM HISTORICAL DIVIDEND INITIATIONS AND OMISSIONS

We investigate whether insider trading restrictions had their intended effects during the 1960s and 1970s. We examine insider trading and stock market behavior before dividend initiations and omissions announced between 1935 and 1974. Contrary to existing research and commentary, we show that restrictions had meaningful effects. During the 1960s and 1970s, insiders sold less frequently before dividend omissions, and the average profitability of insider trades declined. In addition, the positive (negative) stock price runup before dividend initiations (omissions) decreased after 1961. The results provide some vindication for the Securities and Exchange Commission's adjudicative approach toward insider trading regulation.     

INVESTMENT OPPORTUNITIES AND MULTINATIONALITY: EVIDENCE FROM CAPITAL STRUCTURE CHANGES

I examine shareholder valuation effects of capital structure changes for multinational (MNC) and domestic (DC) corporations. The internalization theory of foreign direct investment posits that MNCs create value by internalizing the market for their assets across national borders. If the financing decision is related to the rents from future investments, MNCs may have differential valuation effects to capital structure changes vis-à-vis DCs. I find that MNCs have lower (greater) excess returns for debt-for-equity (equity-for-debt) exchanges than DCs. The cross-sectional analyses show that the valuation effects are differentially related to the investment opportunities of MNCs and DCs.     

THE DIVIDEND PAYOUTS OF PRIVATE FIRMS: EVIDENCE FROM TAX COURT DECISIONS

To study the dividend payouts of private firms we extend the agency cost/external financing cost trade-off model of dividend payouts to include the accumulated earnings tax (AET). The firm's optimal dividend policy trades off the benefits from lower agency costs against external financing costs and the AET. Information from tax court records reveals that private firms' payouts are influenced by both agency costs and the AET.     

COSKEWNESS,DIVIDEND YIELD AND CAPITAL ASSET PRICING

The coskewness and dividend yield effects on capital asset prices have been established in two separate literatures. Neither literature controls for the variable in the other, nor for other potentially confounding factors such as size of the firm and the January effect on returns. Using stock return data for 1969–1978, this study provides evidence of coskewness, size, yield and January effects on stock returns. Coskewness appears to be a surrogate variable for dividend yield. When yield is controlled for, the coskewness effect cannot be detected. Hence, the significance of coskewness seems to result from the presence of the uncontrolled factor, dividend yield.     

STATISTICAL PROPERTIES OF DAILY RETURNS: EVIDENCE FROM EUROPEAN STOCK MARKETS

This paper attempts to model the distributional properties of daily stock returns on several European Stock Exchanges. The empirical findings reveal the presence of non-linear dependencies that cannot be captured by the random walk model. A model of return-generating process that fit the data empirically is the Generalized Autoregressive Conditional Heteroskedastic GARCH (1,1) process with a conditional student- t distribution.