The Effect of Commercial Paper Rating Changes and Credit-Watch Placement on Common Stock Prices

The common stock price response to the announcement by Standard and Poor of CreditWatch placement and commercial paper reratings is examined. Results indicate a negative stock price response to negative placements on the CreditWatch list and to commercial paper rating reductions. A cross-sectional model is estimated to identify firm characteristics associated with the stock market response.     

Book Reviews

R.E. Elson, Javanese Peasants and the Colonial Sugar Industry: Impact and Change in an East Java Residency 1830–1940, Singapore: Oxford University Press, 1984, pp. xxiv + 281. $24.95 (cloth). $13.95 (paper).

Olle Tornquist, Dilemmas of Third World Communism: The Destruction of the PKI in Indonesia, London: Zed Books, 1984, pp. x + 307. $17.95 (paper).

H. Crouch, Domestic Political Structures and Regional Economic Co-operation, Singapore: Institute of Southeast Asian Studies, 1984, pp. 101. US$9.

Audrey R. Kahin (ed.), Regional Dynamics of the Indonesian Revolution: Unity from Diversity, Honolulu: University of Hawaii Press, 1985, pp. xii + 306. US$25 00

United Nations Industrial Development Organisation (UNIDO), Prospects for Industrial Development and for a Capital Goods Industry in Indonesia, 1984. 3 vols. (Vol. I: Main Report, pp. 66).

Akimi Fujimoto and Toshiro Matsuda (eds), A Comparative Study of the Structure of Rice Productivity and Rural Society in Southeast Asia: Two Village Studies in Indonesia and Thailand, Tokyo: University of Agriculture, 1985.

W. Rutz, Die Städte Indonesians [The Cities of Indonesia], Berlin: Borntraeger, 1985, pp. x + 286.

Narongchai Akrasanee (ed.), ASEAN-Japan Relations: Trade and Development, Singapore: Institute of Southeast Asian Studies, 1983, pp. viii + 191. US$15.

Sueo Sekiguchi (ed.), ASEAN-Japan Relations: Investment, Singapore: Institute of Southeast Asian Studies, 1983, pp. viii + 274. US$16.

J. Panglaykim, Japanese Direct Investment in ASEAN: The Indonesian Experience, Singapore: Masruzen Asia, 1983, pp. viii + 97.     

Leveraged Buyouts in the U.K. and Continental Europe: Retrospect and Prospect

The markets for management buyouts in the U.K. and continental Europe have experienced dramatic growth in the past ten years. In the U.K., buyouts accounted for half of the total M&A activity (measured by value) in 2005. And as in the U.S. during the‘80s, the greatest number of U.K. buyouts in recent years have been management‐ and investor‐led acquisitions of divisions of large corporations. In continental Europe, by contrast, the largest fraction of deals has involved the purchase of family‐owned private businesses. But in recent years, increased pressure for shareholder value in countries like France, Netherlands, and even Germany has led to a growing number of buyouts of divisions of listed companies. Like the U.K., continental Europe has also seen a small but growing number of purchases of entire public companies (known as private‐to‐public transactions, or PTPs), including the largest ever buyout in Europe, the €13 billion purchase this year of the Danish corporation TDC. In view of the record levels of capital raised by European private equity funds in recent years‐which, until 2005, exceeded the amounts invested in any given year‐we can expect more growth in private equity investment in the near future. In continental Europe, the prospects for buyouts remain especially strong, given both the pressure from investors to restructure larger corporations and the possibilities for adding value in family‐owned firms. But, as the authors note, today's private equity firms face a number of challenges in earning adequate returns for their investors. One is increased competition. In addition to the increased activity of U.S. private equity firms, local private equity investors are also facing competition from hedge funds and new entrants such as government‐sponsored operators, family offices, and wealthy entrepreneurs. Another major challenge is finding value‐preserving exit vehicles. Although an IPO is an option for the largest buyouts with growth prospects, most buyout investments are harvested either through sales to other companies or, increasingly, other private equity firms. The latter transactions, known as “secondary” buyouts, now account for a significant share of new funds invested by private equity firms across Europe.     

Ownership structure and earnings informativeness: Evidence from Korea

This paper examines the relationship between corporate ownership structure in Korea and the informativeness of earnings. Korean ownership structure is characterized by the dominance of one primary owner who also participates in firm management. Existing literature offers two alternative perspectives on the behavior of such owner-manager firms, convergence of interests, and management entrenchment hypotheses. We tested the alternative views to see how they are reflected in earnings informativeness. The results show that earnings are more informative as holdings of the owner increase, supporting the convergence of interest explanation for the owner-manager structure. Second, we examine the role of institutional investors and blockholders. On the one hand, institutions/blockholders have incentives to actively monitor management. However, on the other hand, institutions/blockholders may not render effective monitoring because they lack expertise, suffer from freerider problems, or strategically ally with management. These opposing views predict conflicting signs on the relation between the earnings informativeness and holdings of institutions/blockholders. We find that earnings informativeness increases with the holdings of institutions and blockholders. This supports the active monitoring role of institutions/blockholders. Finally, we test the relationship between earnings informativeness for chaebol (Korean business group)-affiliated companies vs. that for nonchaebol-affiliated companies, and find no significant relationship between the owner-largest shareholder's holdings and earnings informativeness. This provides evidence that for chaebol companies, the negative effect of management entrenchment/expropriation of minority shareholders offsets the positive effects. This phenomenon is stronger for chaebol-affiliated companies than for nonchaebol affiliates.     

RELIABILITY OF THE QUARTERLY NATIONAL INCOME AND PRODUCT ACCOUNTS OF THE UNITED STATES, 1947–1971*

The reliability of the quarterly national income and product (NIP) accounts of the United States is examined from several standpoints. First, possible sources of error in the quarterly NIP accounts are explored, the most important being the lack of appropriate data, seasonal adjustment errors, sampling errors and biases, and the nature of the U.S. statistical system. Next, four ways of assessing the reliability of the accounts are considered. The most weight is given to measures of revisions in early estimates of the quarterly NIP aggregates. Results of previous studies of revisions are reviewed, and a summary of a major study of revisions for the period 1947–71 is given. The other ways of assessing reliability which are examined are the effect of errors on economic policy making, analysis of the statistical discrepancy, and expert judgment on sources and methodology. The degree of accuracy is judged to be generally sufficient for the policy decisions for which the NIP estimates are used. The early estimates of a quarter's change in GNP almost always distinguish whether the ultimate estimate will be large or small and will usually distinguish whether the ultimate estimate will be larger or smaller than the preceding quarter. While the accuracy of the estimates has generally been sufficient, the accuracy for 1965 was judged insufficient by policymakers. There is some evidence that errors have been reduced over time.     

Negishi's contributions to the development of economic analysis: Research programs and outcomes

This paper surveys Negishi's significant contributions to economics and the research programs they have generated. In a series of papers and books, Negishi developed a number of models and methods of analysis that changed the course of modern economics and catalyzed research in areas that range from welfare and theoretical to applied and computable general equilibrium analysis, and the extension of imperfect competition to general equilibrium. trade theory and international economics. This paper shows that the Negishian research programs that emanated from his works are progressive, and still have an ongoing impact on mainstream economic analysis decades after their publication.     

Intraday effects of macroeconomic shocks on the US Dollar–Euro exchange rates

This paper characterizes the intriguing features of high frequency 15-min Dollar–Euro foreign exchange returns data. The FIGARCH model is found to be the preferred specification for the long memory volatility process in the high frequency returns. This paper then examines how macroeconomic shocks affect the high frequency Dollar–Euro returns on an intraday basis. Quantifying the intraday effects of the shocks on the high frequency returns by using a linearly distributed lag dummy variable, this paper finds that the effects on the high frequency returns are generally statistically significant and that they appear to be asymmetric depending on the regions and the signs of the shocks and to be persistent for several lags even within a day. However, the macroeconomic shocks are found not to affect the long memory property in the high frequency returns implying that the linear dummy variable model may not be enough to explain the long memory property.     

Share reacquisitions,surplus cash,and agency problems

Share repurchases help alleviate agency costs of surplus cash by restricting management’s scope to waste corporate resources. But why do self-interested managers agree to disgorge surplus cash in the first place? This study examines the intervening effect of managerial monitoring and incentive alignment mechanisms on the decision to distribute excess cash through a share repurchase. Findings indicate that repurchases substitute for cash retention decisions that would otherwise prove costly for shareholders, and that better managerial incentive alignment and closer monitoring by external shareholders are important factors stimulating such payouts.