THE USE OF ACQUISITIONS AND JOINT VENTURES BY U.S. BANKS EXPANDING ABROAD

We examine international bank expansions, which are classified as banking (scale related) or nonbanking (complementary) moves into developed or developing markets. The market responds favorably to expansions through joint ventures by U.S. banks, and insignificantly to expansions through acquisitions. Accounting and operating performances (for joint venture banks) and long‐period holding returns (for acquisitions) show improvement in the two years following the announcement. Systematic risk declines for the sample overall, for acquisitions, and for expansions into developing countries. In general, scale or developing expansions are better pursued through acquisitions, whereas complementary or developed expansions are best pursued through joint ventures.     

MARKET SEGMENTATION AND INTERNATIONAL ASSET PRICES: EVIDENCE FROM THE LISTING OF WORLD EQUITY BENCHMARK SHARES

This article provides an empirical analysis of the announcement effect of the listing of the seventeen World Equity Benchmark Shares (WEBS) on the returns of the corresponding market index returns and closed‐end country fund premiums. I find that the announcement of the listing of the WEBS resulted in a positive market price reaction for the market indexes. Furthermore, there was a significant decline in premiums for closed‐end country funds. The findings are consistent with models of international asset pricing under market segmentation and they illustrate that the listing of internationally tradable securities is an effective mechanism for integrating international capital markets. JEL classification: G14, G15     

JOINT VENTURES IN CHINA: PROBLEMS AND SOLUTIONS

The author reviews problems associated with joint ventures in China and discusses new regulations designed (1) to give more decision-making rights to joint ventures, (2) to help reduce project expenses, and (3) to provide more loans for joint ventures' short-term revoling funds. The author also suggests changes in labor management, raw materials management, financial management, and export orientation to ensure the success of joint ventures in China.     

THE RELATIONSHIP BETWEEN EARNINGS YIELD AND MARKET VALUE: EVIDENCE FROM THE AMERICAN STOCK EXCHANGE

This paper provides new evidence on the empirical anomalies known as the earnings/price (E/P) effect and the size effect in the pricing of common stock. Previous authors have arrived at contradictory conclusions regarding the existence and relative importance of the anomalies, and the intent of this paper is to help clarify the issues. An empirical method used in a previous study of these issues is replicated and applied to a new set of firms—those traded on the American Stock Exchange (AMEX). This approach assures comparability with previous results and provides a sample with different market value and E/P distributions. The results from the AMEX suggest that the size effect and the E/P effect both exist and that the size effect is predominant. These results persist even after accounting for the January effect.     

THE VALUE ADDED BY BANK ACQUISITIONS: LESSONS FROM WELLS FARGO'S ACQUISITION OF FIRST INTERSTATE

Wells Fargo's recent acquisition of First Interstate Bancorp represents one of the relatively uncommon cases in which the economic values of both the acquiring and acquired banks increased sharply upon announcement of the deal. The transaction is also one of the few cases where the bidder in a major bank acquisition chose purchase instead of pooling accounting–despite the fact that the deal was openly hostile and that Wells Fargo had to fight off a competing bid from First Bank Systems.
Based on the stock market's reaction to this merger battle, as well as the results of their study of 153 bank mergers over the period 1985–1991, the authors argue that the most promising mergers are those presenting large opportunities to reduce costs by eliminating redundant operations. The stock market is much less responsive to other merger rationales such as diversification or entry into new markets in pursuit of growth.
The Wells case also suggests that a preoccupation with the accounting treatment of a merger is a mistake if it becomes the primary reason for turning down a deal that creates economic value, or if it prevents the bidder from choosing the lowest-cost method of financing the deal. Throughout the bidding contest for First Interstate, the stock market responded positively to the success of Wells Fargo's efforts, even though purchase accounting would have a large adverse impact on reported earnings.
But if the stock market does not appear to care about the accounting treatment of a merger, the method of financing does appear to matter to investors. In general, acquisitions financed with cash are viewed more favorably by the market than stockfunded transactions. The evidence also suggests, however, that acquiring firms can reduce the negative impact of stock deals by making conditional offers (those in which the number of shares depends on the stock price performance of the acquirer) and by combining such offers with stock repurchase programs.     

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.     

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.     

LABOR MARKET CONSEQUENCES FOR BUSY DIRECTORS: EVIDENCE FROM INTERNATIONAL MERGERS AND ACQUISITIONS

Using 13,233 acquisitions from 57 countries, we examine merger and acquisition (M&A) decisions made by busy boards. We find that few busy acquirers originate from emerging markets and that they tend to undertake cross‐border mergers, favor public targets, finance with cash and equity, pursue nondiversifying mergers, avoid targets with multiple bidders, and long‐term underperform relative to nonbusy acquirers. Importantly, we discover a nonlinear relation between an acquirer's board busyness and merger announcement returns. We find that the labor market penalizes directors who approve bad acquisitions but does not reward them for good mergers. We find a similar nonlinear relation between an acquirer's board busyness and its long‐term performance along with a suggestion of an optimal board busyness.     

THE EXAMINATION OF DIRECTORS‘ REPORTS BY AUDITORS: FURTHER EVIDENCE

Knowledge of the practices of auditors in examining directors' reports of their Australian client corporations should provide useful insights for users of directors' reports, legislators and the professional accounting bodies.     

THE EFFECTS OF THE ANNOUNCEMENTS OF DIVIDEND INCREASES ON STOCK RETURN VOLATILITY: THE EVIDENCE FROM THE OPTIONS MARKET

This paper examines the impact of the announcements of dividend increases on the volatility of underlying stock returns implied by option prices, and analyses whether the impact is related to the label associated with the dividend increase. The results suggest that the announcements of labelled dividend increases are accompanied by a decrease in implied volatility, while the announcements of unlabelled increases in dividends are associated with no change in implied volatility. These results are consistent with the hypothesis that signal implicit in the announcements of dividend increases provides noisy information about the firm's volatility.