The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers

Despite high levels of asymmetry of information, firms that issue seasoned equity offerings (SEOs) within a year of their initial public offering (IPO) (follow‐on SEOs) are able to offer shares at a lower discount as compared to more mature firms. We provide evidence that this seeming contradiction can be explained by a very high degree of demand for the follow‐on offering. We find that the likelihood of issuing a follow‐on SEO is significantly related to the level of institutional demand and that discounts are lower for follow‐on SEOs in which institutional demand is high. We also consider the joint effect of cash holdings and follow‐on SEOs on discounts since firms that have recently gone public tend to hold high levels of cash. Underpricing is higher for firms with elevated preoffer levels of cash, which is consistent with market timing predictions. However, this relation is mitigated for both follow‐on SEOs and issues that also have high share demand.     

Legal Liability as an Environmental Policy Tool: Some Implications for Land Markets

This article considers the use of legal liability as a tool for internalizing environmental externalities, considering specifically the implications for land markets. The discussion focuses on liability under CERCLA. A simple model of land markets is used to evaluate alternative assignments of liability in terms of their impacts on decisions to buy and sell property and to invest in pollution abatement. The results suggest that the existence of a land market can alter the effect of the liability rule. In some cases the land market can eliminate an inefficiency that would otherwise exist, while in other cases it can create one.     

How do consumers evaluate risk in financial products?

Decision-making processes consumers use in investing lump sums are reviewed, focusing on how investment risk is perceived and assessed. Primary research was undertaken with investment customers to explore the role played in evaluation of investment risk by risk perceptions and risk propensity. Both the literature review and the research findings indicate the central role risk perceptions play in financial decisions. Sitkin and Weingart's risk model is used as a research framework. Risk propensity and risk perception were found to be negatively correlated, however, deposit accounts were selected for investment irrespective of how risky a respondent considered them to be. Risk perceptions and expected return were positively correlated for all asset types apart from property. Further investigation revealed that experts exhibited positive correlation in risk return judgments but novices showed no correlation. There was no correlation between risk and return for either novices or experts for property. Return expectations were positively correlated with investment allocation. Provision of past performance information appears to create an expectation for future returns around the same level as past returns. Research findings suggest that outcome history is a predictor variable, with a Positive outcome history leading to higher risk Propensity. The level of risk customers are assuming shows a significantly increasing trend.     

Do boards know when they hire a CEO that is a good match? Evidence from initial compensation

Are CEO initial compensation packages based on variations in the expected match quality of the hiring firms? Using CEO tenure as a proxy for expected match quality, and a sample of CEO turnovers between 1992 and 2006, we find that CEOs that experience good matches, defined as tenures exceeding four years, have higher initial compensation packages. We also find evidence from exogenous switching regression models that inside CEOs receive a higher good match premium than outside CEOs. To account for economic and regulatory changes across our sample period, we divide our sample into three subsamples: 1992–1997, 1998–2002, and 2003–2006, and repeat our analyses. Even though the positive relation between expected match quality and initial compensation persists across all periods, we find that the good match premium for inside and outside CEOs does not differ in the post-2002 period. We attribute this result to increased board independence and changes in regulation (Sarbanes–Oxley) in the post-2002 sample period.     

A Reexamination of the Corporate Demand for Reinsurance

This study examines the effect of the state of the international reinsurance market on the demand for reinsurance by U.S. insurers using data from the years 1993 through 2000. Both the overall demand for reinsurance and the utilization of foreign reinsurance by U.S. insurers are explored. In addition to supporting the findings of prior literature related to the traditional motives for the corporate demand for insurance, evidence indicates that the state of the U.S. reinsurance industry impacts the amount of reinsurance demanded by U.S. insurers. The study also investigates reasons why U.S. insurers utilize a reinsurance program composed of both U.S. and foreign reinsurers. The results indicate that the decision to utilize some percentage of foreign reinsurance is driven primarily by the financial and operational characteristics of the ceding company such as firm size, group affiliation, and organizational form. However, no support is found for the hypothesis that possible differences between the foreign and U.S. reinsurance markets impact the decision to utilize foreign reinsurance.     

The Depositor Behind the Discipline: A Micro-Level Case Study of Hamilton Bank

Though uninsured depositors are recognized as a source of market discipline, the possible disciplinary effect of decisions made by fully insured depositors have gone largely unexamined. Using proprietary administrative deposit data at the account level, this paper analyzes depositor behavior at a recently failed institution. The results suggest that although uninsured deposits exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual, joint, and trust accounts were relatively high. Uninsured business account owners were highly sensitive to the bank's deteriorating condition. In contrast, owners of uninsured individual retirement accounts effectively exerted no market discipline. The opinions expressed in this paper are ours and do not necessarily reflect those of the Federal Deposit Insurance Corporation. All errors are our own.     

Party realignments and the growth of federal economic regulation, 1861–1986

This article explains when and why the federal government passed laws with the intended goal of maintaining or improving a particular industry or segment of an industry. The adoption of regulatory laws across time will be described, and the surges and declines in the distribution explained. The empirical analysis covers the years 1861–1986.This article is an abbreviated version of a paper prepared for the 1988 Conference Perspectives on Banking Regulation, Federal Reserve Bank of Cleveland, November 3–4, 1988. I am very indebted to George J. Benston who allowed me to revise the paper in response to his criticisms.     

The Value of Olympic Sponsorships: Who is Capturing the Gold?

In recent years, corporate sponsorship has become anincreasingly important element of the marketing communicationsmix. This paper uses data from the 1996 Atlanta Summer OlympicGames to measure the value of Olympic sponsorship. Using stockreturn data, we find that the shareholders of sponsoring firmsearn negative average abnormal returns around announcement ofOlympic sponsorship agreements. This finding, consistent withan agency cost explanation of corporate investment practices,is robust to variation in a number of firm- and sponsorship-specificvariables. In addition, cross-sectional analysis supports themonitoring hypothesis, as significant equity ownership by institutionalinvestors is positively related to abnormal returns around announcement.Our results suggest that utilizing Olympic sponsorships in themarketing communications mix may not be value-enhancing.     

Intercultural Competency Development in Conjunction With a Short Term Study Away Experience： Changes in Undergraduate Students

The purpose of this research was to examine whether undergraduate business students who participated in a short term study abroad course and intercultural competence building coursework demonstrated a significant increase in intercultural competence over those who only enrolled in the study abroad course. The 20 participants attended a small liberal arts College in Midwestern United States. The Intercultural Development Inventory （IDI） was administered to the participating students before and after their study away experience. The IDI （v.3） is based on the theoretical framework of the Developmental Model of Intercultural Sensitivity （DMIS） introduced by Milton Bennett. The DMIS is based on the assumption that intercultural competence can be strengthen through the development of intercultural knowledge and experience with people from other cultures. The IDI has been used in numerous scholarly studies and has demonstrated valid and reliable results. It is a self-administered 50-item series of statements in which participants are asked to rate the level of their agreement with statements that address their relationship to and evaluation of cultural difference. In the model, people progress in a linear developmental fashion through six stages： defense, denial, polarization, minimization, acceptance, and adaptation. This study was designed to determine if students who studied away and completed intercultural coursework （prior intercultural knowledge and an intercultural experience） would increase their level of intercultural competency more than those students who just studied away （intercultural experience only） as measured by the change in their IDI scores. The results of this small sample show that intercultural coursework in conjunction with a short term study away experience can have a positive impact on individual intercultural development.