Government contracts and US bond yield spreads: A study on costs and benefits of materialized political connections

In a 1991–2013 sample of bonds issued by US public firms, we find that the cost of debt (yield spread relative to comparable Treasuries) of suppliers to government agencies is contingent on the strategic importance of the supplier's industry. The yield spreads for strategically unimportant government suppliers are higher than for firms that are not government suppliers. If government contracts serve as tangible evidence of political connections, these higher yield spreads indicate that weaker corporate governance as a cost of political connections outweighs the benefits of said connections. For the subsample of government suppliers from strategically important industries, where the benefits of implicit bailout guarantees and revenue stability outweigh the corporate governance problems, the cost of debt is lower than for firms that are not government suppliers. The higher (lower) cost of debt for strategically unimportant (strategically important) suppliers is confined to contracting with the federal government. Our findings are robust to alternative variable and sample specifications, and to endogeneity concerns.     

Stock mergers and acquirers’ subsequent stock price crash risk

Review of Quantitative Finance and Accounting - We examine the changes in acquirers’ stock price crash risk following mergers and acquisitions (M&As). We employ the three measures of...     

ARDL panel estimation of stock market indices and macroeconomic environment of CEE and SEE countries in the last decade of transition

We tested the hypothesis of the procyclicality of stock exchanges regarding the economic activity of CEE and SEE countries, to measure the level of financial integration during the last decade of the transition period, and to compare these two groups of emerging countries. Our ARDL panel estimates support the hypothesis of procyclicality in the transition period in the CEE and SEE regions, and further financial integration, due to the opening up of the market economy and repricing of systematic risk, followed by large capital inflows, trade liberalization and industrial production, along with the implementation of institutional reforms regarding EU integration. In addition, the significant positive coefficient of capital inflows and negative coefficient of unemployment rate in the CEE and SEE panel ARDL results confirm the volatility of the transition process, as is obvious in higher industrial production, followed by the significant impact of import on CEE countries and the much higher significant impact of export on SEE countries.     

IMPLICATIONS OF UNSUSTAINABLE DIVIDENDS

In this article, we examine the wealth effects of unsustainable dividend payments and explore the economic forces that may explain why they exist. We find that the larger the dividend–earnings differential, the lower the short- and long-run wealth effects to shareholders. In addition, the dividend–earnings differential increases not only the probability of a subsequent dividend cut over the next four quarters but also the likelihood that the cut will be greater than 5%. Overall, our findings suggest that although investors are not fooled by unsustainable dividend payments, the negative announcement effects are in anticipation of protracted poor performance.