The Financial Review publishes original empirical, theoretical and methodological research providing new insights into issues of importance in all areas of financial economics. Examples of topics include asset pricing, banking, corporate finance, corporate governance, derivative instruments, financial intermediation, financial research methodology, investment management, market microstructure, mergers and acquisitions, risk management, risk measurement, securities pricing and market equilibrium. We seek a global authorship and varied perspectives.
AbstractWe examine how managerial motives influence the choice of financing for a sample of 209 completed mergers from 1981–1988. Our evidence indicates that bidding firm management is more likely to finance mergers with cash when target firm ownership concentration is high, preventing the creation of an outside blockholder. This suggests bidding firm managers prefer to keep ownership structure widely diffused to reduce external monitoring. We also find that bidding firm management is more likely to finance mergers with stock when the variance of bidding firm's stock return is high. This suggests managers of risky firms prefer leverage‐reducing transactions to reduce their personal risk.
AbstractThis study investigates the impact of first‐ and second‐moment exchange rate exposure on the daily returns of nine U.S. sectors from 1992 to 1998. In 17.8% of the cases we detect significant first‐moment exposure when contemporaneous exchange rates are used. Moreover, 25.0% of the significant exposures are asymmetric. When the model utilizes one‐day lags, 42.2% of the cases are significant and 79.0% are asymmetric. Regarding second‐moment exposure, the financial sector displays pervasive sensitivity to exchange rate volatility when using contemporaneous and lagged models. This result is reasonable, assuming that revenues from the sale of derivative products increase with currency volatility.
AbstractThis study examines the stock price adjustment process around announcements of changes in the federal funds rate target in the 1990s using an asymmetric autoregressive exponential GARCH model (ASAR‐EGARCH). We find that target change announcements convey new information to the stock market. Risk aversion increases before the announcement of a rate change, and especially before the announcement of a joint target and discount rate change. The volatility estimates suggest that such joint rate changes send a clearer signal to the stock market about monetary policy objectives relative to unilateral target changes. Our findings are consistent with overreaction in the wake of bad news (rate hikes), and point to a shift in volatility from before to after the rate change announcement since the adoption of the immediate disclosure policy of the Federal Open Market Committee in February 1994.
John Barkoulas, Walter C. Labys, Joseph I. Onochie
AbstractThis paper tests for fractional roots in the futures prices for selected commodities, foreign currencies, and stock indexes. The fractional testing method is the spectral regression method suggested by Geweke and Porter‐Hudak (1983). The empirical results suggest the presence of a fractional exponent in the differencing process for several commodity and foreign currency futures prices. The returns series for these commodities and currencies exhibit long range positive dependence. However, differencing of exact order one is sufficient for the stock index futures prices. Implications are drawn concerning theoretical and econometric modeling and price forecasting.
AbstractA voluntary divestiture may either be a sell‐off or a spin‐off. In a sell‐off, the divesting firm receives cash (or cash equivalents) and gives up ownership and control of the divested asset. In a spin‐off, the divested asset becomes an independent entity under a new management but ownership remains with the old stockholders of the original firm. The study investigates the divestiture decision and the choice between sell‐offs and spin‐offs by constructing a model of the multi‐divisional firm. The results show that firms undertake voluntary divestitures because of low marginal return coupled with high joint operating and financial costs. The form of the divestiture is determined by the operating risk of the division being divested. The implications of the model are empirically tested for the period 1969–87 and the results support the postulates of the model.
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