Exploring the Double‐Sided Effect of Information Asymmetry and Uncertainty in Mergers and Acquisitions

We examine the joint effect of bidder and target information asymmetry and uncertainty on the payment consideration and subsequent wealth effects in a large sample of acquisitions with both listed and private targets. In line with a risk‐sharing argument, we find that acquisitions of targets characterized by higher uncertainty are more likely to be settled with stock. In contrast, higher target information asymmetry increases the likelihood of a cash payment, consistent with bidders strategically exploiting superior information. Acquirers of more opaque targets obtain a larger fraction of total acquisition gains and avoid sharing these gains with target shareholders by offering cash.     

Wrapped input selection using multilayer perceptrons for repeat‐purchase modeling in direct marketing

In this paper, we try to validate existing theory on and develop additional insight into repeat‐purchase behavior in a direct marketing setting by means of an illuminating case study. The case involves the detection and qualification of the most relevant RFM (Recency, Frequency and Monetary) variables, using a neural network wrapper as our input pruning method. Results indicate that elimination of redundant and/or irrelevant inputs by means of the discussed input selection method allows us to significantly reduce model complexity without degrading the predictive generalization ability. It is precisely this issue that will enable us to infer some interesting marketing conclusions concerning the relative importance of the RFM predictor categories and their operationalizations. The empirical findings highlight the importance of a combined use of RFM variables in predicting repeat‐purchase behavior. However, the study also reveals the dominant role of the frequency category. Results indicate that a model including only frequency variables still yields satisfactory classification accuracy compared to the optimally reduced model. Copyright © 2001 John Wiley & Sons, Ltd.     

How Might Companies Value ESOs?

There has been a steady growth in the use of employee equity compensation plans, and in the use of executive stock options (ESOs) in particular, along with a rise in shareholder and public perceptions that the values of compensation plans are not always fully disclosed. The IFSA of Australia recently called for separate reporting in financial statements of numbers and values of ESOs. Companies, when negotiating employment contracts, frequently agree to compensate an executive if a share option plan is subsequently not approved by shareholders. These facts suggest that reporting the value of an ESO plan is a useful and important exercise. We outline a model for the valuation of ESOs typically issued by Australian listed companies and illustrate the application of the model with a case study.     

The biological reserve: The future's last stand

This article addresses the societal and cultural aspects of bioreserves and environmental restoration programmes. It begins with a discussion of bioreserves, then uses the example of a Man and Biosphere (MAB) inspired study of the US Everglades to illustrate how land has been shaped historically by culture and technology. It then demonstrates how current conflicts of values and culture, from both inside and outside the region, from interest groups with both pragmatic and emotional stances, are determining the future of an environment—the Everglades. The article thereby shows how human values and perceptions impact on the development of a sustainable Everglades, using the findings of surveys and public meetings to highlight the interests of the competing communities, ethnic and interest groups involved. If bioreserves are to survive they cannot become alienated from the people in the regions in which they are located.     

Closed-form valuation of American call options on stocks paying multiple dividends

An American call option on a stock paying a single known dividend can be valued using the Roll–Geske–Whaley formula. This paper extends the Roll–Geske–Whaley model to the n dividends case by using the generalized n-fold compound option model. In this way this paper offers a closed-form solution for American options on stocks paying n known discrete dividends. Moreover, the model also offers the critical values of the early exercise boundaries at each ex-dividend date instant, making it easy to define an early exercise strategy. Numerical examples are included to illustrate this approach.     

Determinants of yield spread dynamics: Euro versus US dollar corporate bonds

This paper presents a systematic comparison between the determinants of euro and US dollar yield spread dynamics. The results show that US dollar yield spreads are significantly more affected by changes in the level and the slope of the default-free term structure and the stock market return and volatility. Surprisingly, euro yield spreads are strongly affected by the US (and not the euro) level and slope. This confirms the dominance of US interest rates in the corporate bond markets. Interestingly, I find that liquidity risk is higher for US dollar corporate bonds than euro corporate bonds. For both regions, the effect of changes in the bid-ask spread is mainly significant during periods of high liquidity risk. Finally, the results indicate that the credit cycle as measured by the region-specific default probability significantly increases US yield spreads. This is not the case for euro yield spreads.     

Trade uncertainty and the two-step procedure: The choice of numeraire and exact indexation

Summary In a small open economy it is optimal to first maximize national income and second choose the best consumption point.The same two-step procedure under (quantitative) uncertainty is suboptimal if one of the goods is used as numéraire. Optimality is restored however, if nominal prices are deflated by the exact price index. Hence there is equivalence between the appropriate two-step procedure and the introduction of a stock market under uncertainty (Diamond 1967) under ideal circumstances.I would like to thank, without implicating, Peter van Bergeijk, Steven Brakman, Willem Buiter, Richard Gigengack, Jean-Marie, Viaene, Casper de Vries and an anonymous referee for useful comments and Angelique van Haasteren and Martijn Herrmann for graphical assistance.