The Temporal Price Relationship between S&P 500 Futures and the S&P 500 Index

This paper empirically examines the intraday price relationship between S&P 500 futures and the S&P 500 index using minute-to-minute data. Three-stage least-squares regression is used to estimate lead and lag relationships with estimates for expiration days of the S&P 500 futures compared with estimates for days prior to expiration. The results suggest that futures price movements consistently lead index movements by twenty to forty-five minutes while movements in the index rarely affect futures beyond one minute.     

The Effects of Inflation and Money Supply Announcements on Interest Rates

This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short-term interest rates. The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of a liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement.     

A classification of mergers and acquisitions by motives: Analysis of market responses*

Abstract. This study classifies mergers and acquisitions (M&A) into three target groups: (i) those that choose M&A as an alternative to bankruptcy, (ii) highly liquid target firms, and (iii) the remainder of M&A. Each of these categories yields different market responses: stockholders of bankrupt-predicted target firms have the lowest abnormal returns while stockholders of highly liquid targets have the highest. These results are consistent with the free-cash-flows hypothesis for M&A and are robust to possible confounding effects, such as size, method of payment, and whether the takeover is a merger or a tender offer. Résumé. Les auteurs classifient les fusions et les acquisitions selon trois groupes, savoir: i) les entreprises qui choisissent la fusion ou l'acquisition comme solution de rechange à la faillite, ii) le entreprises cibles qui ont un degré élevé de liquidité et iii) les autres cas de fusions et d'acquisitions. Chacun de ces groupes suscite des réactions différentes du marché: les actionnaires d'entreprises cibles dont la faillite est prévisible enregistrent les rendements anormaux les plus faibles tandis que les actionnaires des entreprises cibles ayant un degré élevé de liquidité enregistrent les rendements les plus élevés. Ces résultats sont conformes à l'hypothèse des flux monétaires libres relative aux fusions et aux acquisitions et résistent aux effets contradictoires possibles, tels que la taille, le mode de paiement et la nature de la prise de participation (fusion ou offre publique d'achat).     

The Wormking Time Debate in Western Europe

High unemployment levels in western Europe have stimulated calls for reorganizing working time. Some reductions in working time as well as more explicit work-sharing initiatives have occurred; results from these initiatives have been disappointing. Obstacles include attitudes of the different parties involved and little indication of work-sharing following simulated or actual hours reductions. A greater work-sharing effect can be anticipated where hours reductions are greater, when they occur in nonrecessionary periods, and where job-retention as well as job-creation effects are evaluated.     

The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management

This paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management. First, we analytically develop the mean and variance of the distribution of absolute discretionary accruals, and show that the expected value is an increasing function of the variance in the underlying error term from the first‐stage discretionary accrual estimation model. Second, we highlight several firm characteristics that are related to the error variance in discretionary accrual estimation models. Using simulations, we show that correlation between the earnings management partitioning variable and these firm characteristics leads to an overrejection of the null hypothesis of no earnings management. Third, we provide research design suggestions to help researchers mitigate the potential bias arising from the use of unsigned measures of earnings management. Using these suggestions, we replicate a recent study, and demonstrate that the inferences change after controlling for operating volatility.     

THE COMPETITIVENESS OF UK MANUFACTURING: EVIDENCE FROM IMPORTS

The paper presents an empirical analysis of the behaviour ofUK imports of manufactures, intended to develop understandingof non-price competitiveness by evaluating the impact of capacityconstraints, international specialisation, and industrial standards.Two data sets are employed: aggregate data for the period 1970–93,and a panel of 81 industries for 1985–90. Structural stabilityin a model of the former suggests that no competitiveness improvementhas occurred in domestic UK manufacturing which matches thatfound elsewhere for exports The panel model shows the importantimpact of standards on imports, while confirming that skilledlabour shortages are a key source of volatility.     

The Leverage Ratchet Effect

Firms’ inability to commit to future funding choices has profound consequences for capital structure dynamics. With debt in place, shareholders pervasively resist leverage reductions no matter how much such reductions may enhance firm value. Shareholders would instead choose to increase leverage even if the new debt is junior and would reduce firm value. These asymmetric forces in leverage adjustments, which we call the leverage ratchet effect, cause equilibrium leverage outcomes to be history‐dependent. If forced to reduce leverage, shareholders are biased toward selling assets relative to potentially more efficient alternatives such as pure recapitalizations.