Exchange Listings and Delistings: The Role of Insider Trader Information and Insider Trading
Asjeet S. Lamba
University of Melbourne
Walayet Kahn
University of Evansville
Abstract
We examine whether insiders systematically exploit their private information before exchange listings and delistings about which they are likely to know before outsiders/investors. Analyzing a comprehensive sample of over-the-counter (OTC) firms, which list on the New York Stock Exchange (NYSE) or American Stock Exchange (AMEX) during 1977-93, we find evidence that insiders act upon their private information of an impending exchange listing by purchasing, or postponing the sale, of stock on private account. For firms delisting from the NYSE or AMEX, we find that insiders of these firms sell stock on private account prior to delisting. Overall, the evidence indicates that insiders act on their private information before exchange listings and delistings.
Market Interpretation of ISO 9000 Registration
Diane Scott Docking
Richard J. Dowen
Northern Illinois University
Abstract
Since 1990, many U.S. firms have registered under the provisions of the ISO 9000 standard. Meeting the demanding qualifications of this registration requires the expenditure of considerable time and money. To this point, the justification offered has been put in terms of management commitment to quality, cost reduction, or opening new markets, particularly international markets. We contribute by examining the reaction of the firms' stock price to the announcement of ISO 9000 registration. We find that for the smallest firms, ISO 9000 registration is regarded as positive information by investors. We also find that the market reaction to ISO 9000 registration is sensitive to the signing of the Maastricht Treaty in 1992.
How Firm Characteristics Affect Capital Structure: An International Comparison
John Wald
Rutgers University
Abstract
In this empirical study I examine the factors correlated with capital structure in the United States , Japan , United Kingdom , France , and Germany . Although both mean leverage and many firm factors appear to be similar across countries, some significant differences remain. Specifically, differences appear in the correlation between long-term debt/asset ratios and the firms' riskiness, profitability, size, and growth. These correlations may be explained by differences in tax policies and agency problems, including differences in bankruptcy costs, information asymmetries, and shareholder/creditor conflicts. The findings of this study suggest links between varying choices in capital structure across countries and legal and institutional differences.
Interest Rate Parity and the Behavior of Bid-Ask Spread
Henock Louis
Ohio State University
Lloyd P. Blenman
University of Mississippi
Janet S. Thatcher
University of Wisconsin -Whitewater
Abstract
We use a stochastic frontier regression model to test Interest Rate Parity (IRP) with bid- ask spreads for the Belgian franc, the Deutschmark and the Swiss franc. The forward markets tested have become efficient in the sense that IRP holds very well. The bounds provided by IRP do not appear to be binding, however. We provide evidence that in spite of the overall goodness-of-fit of the model, the arbitrage margins are sometimes violated, implying the possibility of arbitrage opportunities. The percentage bid-ask spread is found to be consistently higher for the Belgian Franc than for the Deutschmark and the Swiss franc. Spreads are increasing functions of the time to maturity and volatility. Spread-size clustering is more severe than clustering in price-levels and appears to be inversely related to volatility and positively related to the volume of trading. We find no significant evidence of calendar day effects on the size of spreads.
Shareholder-Management Conflict and Event Risk Covenants
Greg Roth
St. Mary's University - San Antonio
Cynthia G. McDonald
University of Missouri - Columbia
Abstract
Event risk covenants (ERCs), such as poison puts, can protect bondholders from losses related to highly leveraged transactions. Previous observers argue that managers could use ERCs primarily to benefit shareholders or to entrench, and the evidence on the shareholder wealth effects of ERCs is conflicting. Using data not previously exploited and an innovative method of isolating the wealth effects of ERCs, we find that ERCs decrease shareholder wealth. Additional evidence suggests that firms with greater shareholder-management conflict are more likely to use ERCs. Overall, the evidence from this study supports the entrenchment view of ERCs.
Bid-Ask Spread Components in an Order-Driven Environment
Paul Brockman and Dennis Y. Chung
Hong Kong Polytechnic University
Abstract
The purpose of this study is to extend the bid-ask spread decomposition literature into the order-driven environment. The use of electronic limit order books combined with order-driven market making has been increasing rapidly in recent years because improvements in information technology and financial market deregulation. To date, reported bid-ask spread decompositions rely almost exclusively on quote-driven or hybrid systems. This study provides bid-ask spread component estimates from one of the world's largest order-driven markets, the Stock Exchange of Hong Kong. Based on a sample of over six million observations, we estimate a median adverse selection component of 33 percent and a median order processing component of 45 percent of the spread. Dollar volume-based decile portfolios show significant cross-sectional variation for adverse selection costs but insignificant variation for order processing costs. Finally, order persistence is consistently positive for all deciles and displays a direct relation with the level of trading activity.