The Pricing Effects of Interfirm Cash Tender Offers

The tools provided by option-pricing theory are used to examine the wealth effects of interfirm cash tender offers. The analysis provides evidence consistent with the “synergy” theory of corporate takeovers and has implications concerning the economic effects of regulations of cash tender offers. The analysis further suggests that the market prices information uncertainty in a manner not captured by the standard Capital Asset Pricing Model. The study introduces a technique for unbundling the prices of a primary asset and a contingent claim when only the prices of the combination are observed.     

Why Consumers Choose Managed Mutual Funds Over Index Funds: Hypotheses from Consumer Behavior

Much evidence exists which suggests that the vast majority of equity mutual fund managers do not possess differential information (or skills) which allow them to achieve above average market returns for their investors. Thus, when investors pay fees to equity mutual fund managers for investment advice and management, the very probable outcome is that they are reducing the return that they would otherwise achieve by investing in a nonmanaged index fund that tracks the total stock market (e.g., Wilshire 5000) or some significant portion of it (e.g., the Standard & Poor's 500). The long-term negative consumer welfare implications are large, very possibly in the hundreds of thousands of dollars for individual consumer investors. Drawing largely on insights from the psychology, consumer behavior, and behavioral finance literatures, we offer a series of hypotheses that may partially account for such consumer choices. We conclude with a call for increased government- and employer-sponsored education programs aimed at creating a more informed consumer investor.     

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.