The Shelf Registration of Debt and Self Selection Bias

Prior studies report lower issue costs for shelf registered debt and conclude that the benefits of increased underwriter competition can be realized by those firms using this registration procedure. This study re-examines the purported superiority of issuing debt via shelf registration, and finds that the savings in issue costs displayed by earlier studies can be attributed to a self selection bias and not the method of registration.     

Merger Negotiations with Stock Market Feedback

Do preoffer target stock price runups increase bidder takeover costs? We present model‐based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one‐for‐one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large‐sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.     

The Rule 415 Experiment: Equity Markets

Rule 415 allows a firm to register all the securities it reasonably expects to sell over the next two years and then, at the management's option, to sell those securities over these two years whenever it chooses. This paper examines whether equity offerings made under Rule 415 (shelf offerings) differ in issuing costs from equity offerings not sold under this rule. We find that shelf offerings cost 13% less for syndicated issues and 51% less for nonsyndicated issues. We also investigate the empirical relevance of the market overhang argument which suggests that shelf registrations depress the price of the registering firm's shares more than traditional registrations. Our data does not support the market overhang argument.     

THE IMPACT OF ACQUISITIONS ON COMPANY PERFORMANCE: EVIDENCE FROM A LARGE PANEL OF UK FIRMS

This paper investigates the impact of acquisitions on companyperformance using a large panel of UK-quoted companies observedover a long time period. The results indicate that acquisitionshave a detrimental impact on company performance and that companygrowth through acquisition yields a lower rate of return thangrowth through internal investment. Given the penchant for takeoversin the UK, as witnessed by the record level of takeovers onthe London equity market last year, our findings suggest thatneither firms nor shareholders are being best served by theexisting financial and industrial system.     

On Constructing an EPS Measure: An Assessment of the Properties of Dilution*

This paper evaluates the information content of the treasury stock method for computing diluted earnings per share (EPS). We demonstrate that the treasury stock method decreases the annual association between earnings changes and stock returns and explain why this is the case. Further, we show that the treasury stock method leads to a dilutive adjustment that biases the random walk model of annual earnings in a predictable direction. Finally, we demonstrate that using the treasury stock method appears to confuse both analysts and investors: analysts' forecast errors increase with the size of the dilutive adjustment, and the association between unexpected earnings and stock returns at the earnings announcement date weakens as the dilutive adjustment increases.     

Dynamic Competition,Valuation, and Merger Activity

We model the interactions between product market competition and investment valuation within a dynamic oligopoly. To our knowledge, the model is the first continuous‐time corporate finance model in a multiple firm setting with heterogeneous products. The model is tractable and amenable to estimation. We use it to relate current industry characteristics with firm value and financial decisions. Unlike most corporate finance models, it produces predictions regarding parameter magnitudes as well their signs. Estimates of the model's parameters indicate strong linkages between model‐implied and actual values. The paper uses the estimated parameters to predict rivals’ returns near merger announcements.