THE ENDOGENEITY OF INFORMATION ASYMMETRY AND CORPORATE FINANCING DECISIONS

Firms endogenize the extent of information asymmetry by choosing the optimal level and channels of direct communication with the capital markets. Firms choose more communication when they have a greater potential demand for external financing (characterized by higher growth, less cash, and higher leverage). We demonstrate that a higher level of communication is associated with a higher probability of equity issuance. We further document that the previously observed negative market reaction to seasoned equity offering (SEO) announcements is attributed only to low‐communication firms; high‐communication SEO firms experience no significant adverse market reaction.     

THE IMPACT OF DIVIDEND IMPUTATION ON FIRMS‘ FINANCIAL DECISIONS

This paper investigates the impact of Australia's dividend imputation system on the financial decisions to be faced by an Australian resident company. It briefly outlines the dividend imputation system as enacted, and then analyzes its economic effects on companies' dividend, financing and investment decisions.     

THE INFLUENCE OF FIRM‐ AND CEO‐SPECIFIC CHARACTERISTICS ON THE USE OF NONLINEAR DERIVATIVE INSTRUMENTS

We examine why firms use nonlinear derivatives (e.g., options). Our results suggest that option characteristics in investment opportunities and debt, the payoff structure of incentive compensation, and free cash‐flow agency problems influence the firm's choice. Investment opportunities, internally generated cash flow, business risk, and option compensation positively influence the use of nonlinear currency derivatives. Option feature in bonds positively influence the use of nonlinear interest rate derivatives, whereas bonus and stock compensation, and CEO tenure have a negative influence. In sum, nonlinear cash flow characteristics in investment opportunity, debt, and executive compensation all relate positively to nonlinear derivative usage.     

THE IMPACT OF FINANCING SOURCES ON MULTINATIONAL PROJECTS

It is shown here that market imperfections, such as corporate taxes, are not a necessary condition for a firm to have a debt denomination preference. When the stochastic nature of project cash flows and exchange rates are explicitly considered, the risk of the project is affected by the source of borrowing used to finance the project. It is also shown that the existence of income taxes causes the expected net present value and risk of a foreign project to depend on the source of the firm's borrowing. The debt denomination preference in both cases depends on project- and country-specific variables.     

BANK PRIVATIZATION AND CONVERGENCE OF PERFORMANCE: INTERNATIONAL EVIDENCE

We trace the extent of performance deviation of privatized banks from established private banks in 30 countries from 1994 to 2005 and investigate the role of bank regulatory and supervisory norms, market competition, ownership structure, deposit insurance scheme, and governance structure affecting the deviation. Evidence shows that privatization does improve the performance of banks in the first year of being privatized, but performance gradually declines, which is consistent with the government restructuring argument before the privatization. Governance, foreign ownership, banking freedom (regulations), and the deposit insurance scheme in respective economies are found to affect performance deviation significantly.     

MANAGERIAL OWNERSHIP,TAKEOVER DEFENSES,AND DEBT FINANCING

We examine the effect of agency conflicts on debt financing and show that managerial ownership and its interaction with takeover defenses affect these decisions. We find that (1) the relation between leverage and takeover defenses becomes insignificant when we control for the interaction of these defenses with managerial ownership, and (2) firms with large managerial ownership operate at high debt levels unless they have a large number of takeover defenses. Therefore, a two‐dimensional aspect of governance that includes the interaction between managerial ownership and takeover defenses is useful in understanding the effect of agency conflicts on firms' debt financing decisions.     

THE IMPACT OF POLITICAL INTERESTS UPON THE FORMULATION OF PERFORMANCE MEASUREMENTS: THE NHS STAR RATING SYSTEM

This study examines the impact of political interests of the Blair Government on the development of the NHS star rating system. It argues that the use of performance measurements (PMs) is not detached from its political context but influenced by institutional interests including in particular those of the Government. The analysis indicates that the formulation of the specifics of PM, and of performance information within the NHS star rating system, was skewed to reflect the political objectives of the Blair Government. PMs are not merely neutral instruments, but, suffused with institutional interests, serve as a coercive mechanism to impose pressures upon the NHS as well as seeking to create a public perception of performance improvement. This study concludes that PMs in the public sector are influenced by the need to serve the political interests of the Government.     

MANAGERIAL INCENTIVES AND THE USE OF FOREIGN‐EXCHANGE DERIVATIVES BY BANKS

We examine the effect of managerial compensation and ownership on the use of foreign‐exchange derivatives by U.S. bank holding companies. We focus on derivatives used for purposes other than trading to investigate derivative use in a hedging framework. We use instrumental variables probit and sample‐selection models to estimate the effects of endogenous and exogenous factors on the probability and extent of foreign‐exchange derivatives used. We find that the use of derivatives is inversely related to option awards but positively related to managerial ownership. Finally, our results suggest that ownership by large institutional shareholders provides incentive for managers to hedge.     

MARKET EXPECTATIONS AND THE VALUATION EFFECTS OF EQUITY ISSUANCE

We examine how the wealth effects of equity offers are influenced by investors' expectation of the equity type (public or private) to be issued. Firms deviating to the public market may be issuing when information asymmetry or agency costs are high, and their wealth effects are more negative than for firms that are anticipated to issue equity publicly. Firms deviating to the private market, however, may signal firm undervaluation or monitoring benefits and experience more positive wealth effects than firms that are expected to issue equity privately. For the private issues, public market accessibility appears to influence the wealth effects.     

THE IMPACT OF MARKET MAKER CONCENTRATION ON ADVERSE‐SELECTION COSTS FOR NASDAQ STOCKS

We examine the impact of market maker concentration on adverse‐selection costs for NASDAQ stocks and find that more market makers results in lower costs. Furthermore, this reduction in adverse selection exceeds the overall reduction in spreads that is attributable to market maker competition. We hypothesize that order flow internalization is increasing in market makers and allows for greater information production, and is an explanation for our findings. Our results provide an explanation for the puzzle documented by previous work that finds that adverse‐selection costs for NASDAQ tend to be lower than for the New York Stock Exchange, whereas spreads tend to be higher.     

SHORT‐TERM EFFECTS OF PRIVATIZATION ON OPERATING PERFORMANCE IN THE CZECH REPUBLIC

In this article I use a sample of 178 Czech firms that were in the first wave of voucher privatization to test changes in efficiency and profitability. Based on a previous study's methodology, nonparametric tests reveal that efficiency and profitability decreased immediately following privatization. This is in contrast to earlier studies that find privatization increases these measures. Changes in firms' operations do not vary significantly by size or ownership but do vary by industry type, with nonmanufacturing firms having more positive (or less negative) changes after privatization. Evidence indicates that in spite of the disappointing findings, positive operating performance changes are taking place, such as a decrease in employment. JEL classification: G32, L33, 052