Consequences of Riding Takeover Waves: Australian Evidence

This paper uses Australian data to analyze takeover bid premiums and long‐term abnormal returns for mergers that occur during wave and non‐wave periods. Findings reveal that bid premiums are slightly lower in wave periods, and bidding firms earn normal post‐takeover returns (relative to a portfolio of firms matched on size and survival) if their bids were made in non‐wave periods. However, bidders who announced their takeover bids during wave periods exhibit significant underperformance. For mergers that took place within waves, there is no difference in bid premiums nor is there a difference in the long‐run returns of bidders involved during the first half and second half of the waves. We find that none of prominent theories of merger waves (managerial, misvaluation, and neoclassical) can fully account for Australian takeover waves and their effects. Instead, our results suggest that Banal‐Estanol et al.'s screening theory of merger activity, by combining the misvaluation and neoclassical theories, may provide a better explanation.     

Same-sex sexual behaviour: US frequency estimates from survey data with simultaneous misreporting and non-response

Survey-based research concerning sexual behaviour almost inevitably confronts the simultaneous problems of misreporting and non-response. These problems lead to disparities among estimates of the number and characteristics of those who engage in same-sex sexual behaviour. This paper proposes a statistical model to consistently estimate the frequency of same-sex sexual behaviour in the presence of non-ignorable misreporting and non-response. The model is fitted using 1991–2000 General Social Survey data. Frequency estimates corrected for simultaneous misreporting and non-response are reported. According to the model, 7.1% of US males and 4.1% of females – 15.8 million individuals – are not exclusively heterosexual. Allowing for misreporting and non-response increases the estimated same-sex frequency by more than four million. The model reveals new patterns between misreporting and non-response probabilities and standard demographic variables such as age and income.     

The effects of China’s split-share reform on firms’ capital structure choice

China’s split-share structure reform in 2005–2006 mitigates agency conflicts between controlling shareholders and minority shareholders and thus may bring substantial changes to corporate financing behaviour. This article examines the impact of that reform on the capital structure decisions of firms by applying a variety of trade-off and pecking-order models. Using data from 1176 non-financial Chinese listed firms during the period 2000–2012, we present empirical evidence indicating that equity tracks the financing deficit better than debt in Chinese firms, a finding which is not consistent with pecking-order theory. This phenomenon is more prominent after 2006 as share reform increases trading activity in the secondary stock market and improves the transparency of financial markets. In addition, Chinese firms have an optimal leverage ratio and they adjust below-target leverage ratios faster than above-target leverage ratios after the implementation of share structure reform, although they make symmetric adjustments towards the target leverage ratio before 2007. Finally, recent share reform has prompted Chinese firms to more quickly address the divergence of actual leverage ratios from long-term target levels, but has slowed their response to short-term target leverage divergence.     

Contract settlement specification and price discovery: Empirical evidence in Australia individual share futures market

This study applies Geweke [J. Am. Stat. Assoc. 76 (1982) 304] measures of information flow and dependence between Australian individual share futures (ISF) contract and its underlying stock market to investigate whether the price discovery function of futures price has been enhanced after the switch of futures contracts from cash settlement to physical delivery. It is found that the spot market leads the futures market as the futures trading volume is rather small. Further tests suggest that the switch from cash settlement to physical delivery in the ISF contracts has reinforced the information flow from the spot market to the futures market.     

Firm Value,Corporate Cash Holdings and Financial Constraint: A Study from a Developing Market

This paper investigates the nonlinear relationship between firm value and corporate cash holdings in a sample of non‐financial Vietnamese firms from 2008 to 2013. We focus on both static and dynamic regressions to test for a nonlinear relationship. Our results reveal an ‘inverse U‐shape’ relationship between firm value and cash holdings, which is in line with trade‐off theory. Specially, we further test whether the optimal cash level changes under different financial conditions. In turn, this paper shows evidence of a nonlinear relationship between firm value and cash holdings under different financial circumstances and that each type of firm will adjust its optimal cash level based on business conditions.     

A note on the hedging effectiveness of GARCH models

This note compares the hedging effectiveness of the conventional hedge ratio and time-varying conditional hedge ratios (of which GARCH ratio is a special case). It is shown that, in large sample cases, the conventional hedge ratio provides the best performance. For small sample cases, a sufficiently large variation in the conditional variance of the futures return is required to produce the opposite result. The result is due to the fact that the hedging effectiveness measure is based upon the unconditional variance; meanwhile, the conventional hedge ratio minimizes the unconditional variance and the conditional hedge ratio aims at minimizing the conditional variance.     

Estimating the optimal hedge ratio with focus information criterion

In recent years, the error‐correction model without lags has been used in estimating the minimum‐variance hedge ratio. This article proposes the use of the same error‐correction model, but with lags in spot and futures returns in estimating the hedge ratio. In choosing the lag structure, use of the Akaike information criterion (AIC) and recently proposed focus information criterion (FIC) by G. Claeskens and N. L. Hjort (2003) is suggested. The proposed methods are applied to 24 different futures contracts. Even though the FIC hedge ratio is expected to perform better in terms of mean‐squared error, the AIC hedge ratio is found to perform as well as the FIC and better than the simple hedge ratios in terms of hedging effectiveness. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1011– 1024, 2005     

Spot‐futures spread,time‐varying correlation,and hedging with currency futures

This article investigates the effects of the spot‐futures spread on the return and risk structure in currency markets. With the use of a bivariate dynamic conditional correlation GARCH framework, evidence is found of asymmetric effects of positive and negative spreads on the return and the risk structure of spot and futures markets. The implications of the asymmetric effects on futures hedging are examined, and the performance of hedging strategies generated from a model incorporating asymmetric effects is compared with several alternative models. The in‐sample comparison results indicate that the asymmetric effect model provides the best hedging strategy for all currency markets examined, except for the Canadian dollar. Out‐of‐sample comparisons suggest that the asymmetric effect model provides the best strategy for the Australian dollar, the British pound, the deutsche mark, and the Swiss franc markets, and the symmetric effect model provides a better strategy than the asymmetric effect model in the Canadian dollar and the Japanese yen. The worst performance is given by the naïve hedging strategy for both in‐sample and out‐of‐sample comparisons in all currency markets examined. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1019–1038, 2006