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We investigate the valuation effects of debt issues on the issuing firms’ common stock using a sample of Turkish issuers. For the sample of non-financial firms, we find no significant wealth effects for debt issues around the announcement dates. However, market reactions are more positive when information asymmetry between firm managers and outside investors is low, agency costs are high, and when debt issues are likely to carry positive information about firms’ prospects. These results support pecking order, signaling and agency theories of capital structure. In additional tests, we find positive market reactions to debt issue announcements of financial firms.

Based on the three functions of currency internationalization, including exchange medium, pricing currency and foreign reserve, this paper explores how the degree of currency internationalization a...

The increase in cross-border assets and liabilities of nations with globalization, implies small asset price and currency movements create large wealth changes. The national net external position i...

This study explores the valuation effects of the conglomerate merger on an acquiring firm and its stakeholders. We examine Google's acquisition of Motorola and the impact that it had on Google's vendors and rivals. The empirical results suggest that the announcement of this deal led to positive market reaction among Android's vendors, primarily due to Google's ability to use Motorola's extensive patent portfolio to help protect Android's vendors from a potential patent infringement war in the future. Our results also find that when the Open Handset Alliance members obtain help from Motorola's patents or get new technology, an increase in shareholder wealth among Android's vendors and a decrease in shareholder wealth among Android's rivals are likely to occur.

Business process outsourcing (BPO) has recently grown in incidence and importance. However, academic research on this phenomenon is sparse. Further, studies on outsourcing have primarily used a tra...

This study examines shareholder wealth effects and intra-industry signals of consolidation announcements in the European financial sector over the period 2000 to 2006. Results show that announcements generate strong positive valuation effects for targets that become higher in cross-border and small value deals, and are negatively related to their relative size and prior performance. Evidence of acquirer returns is mixed depending on value size, geographic location and legal status of the deal, while returns of combined entities are mostly positive. Our findings provide preliminary evidence that European consolidation announcements transmit intra-industry signals that may encourage or discourage future takeover deals through the revaluation of other similar European financial institutions that are considered prospective targets ‘rival financial institutions’.

Global imbalances and the sustainability of large U.S. current account deficits have dominated international macroeconomics of late. Pedagogically, a clear disconnect exists between graduate-level open-economy macroeconomics that emphasizes intertemporal current account models and net foreign asset adjustment featuring valuation effects, and, undergraduate macroeconomics that is still driven by static analysis of U.S. current account deficits and cursory coverage of valuation-effects-driven external balance adjustment. The authors of this article discuss a simple intertemporal framework, based on modern open-economy macroeconomic models, that emphasizes the significance of valuation effects arising from changes in asset prices and exchange rates. The authors also highlight the relevance of the framework by examining a few topical applications related to prominent puzzles and debates in open-economy macroeconomics.

This study investigates the motives and valuation effects of share repurchase announcements of German firms during the 1998–2008 period, addressing the question why initial public offering (IPO) firms repurchase shares soon after going public. While our focus is on IPO firms, we also examine the impact of firm size by differentiating between IPO and established DAX/MDAX firms and by analyzing the source of surplus cash holdings, that is, either from equity issuances or from operating cash flows. We further explore the impact of the regulatory environment. Our empirical analysis reveals significant differences between the IPO and DAX/MDAX subsamples regarding their repurchase motives, stock price performance, and explanatory factors. Standard corporate payout theories are essential in explaining the different valuation effects. Our empirical analysis suggests agency costs of free cash flow as the main reason for the observed valuation effects of both IPO and DAX/MDAX firms, yet for different reasons. While...

We find that the announced withdrawal of mergers involving private targets produces negative and significant valuation effects on the bidder's stock on average. This result is distinctly different from the valuation effects for merger withdrawals involving public targets. These unique results hold even when we control for the medium of payment and for other factors with multivariate models. The adverse effects of the withdrawal announcement are more pronounced when the merger proposal announcement was more favourable. This implies that the effect of withdrawn merger of a private target reflects a partial correction of the benefits that were previously anticipated when the merger was initially announced.

This article examines the stock market's response to military contract award announcements for the 10-year period surrounding 11 September 2001. The abnormal returns of successful grantees are examined over the short run (days −1 to +1) and long run (days −1 to +60) to determine whether these contracts were apparently overfunded. Consistent with previous studies, we find positive abnormal returns on the announcement day for both pre and post 11 September 2001 contracts. Using cross-sectional regression analysis, we do not find a statistically significant difference between the pre and post 11 September 2001 contracts in the short run. Surprisingly though, military contracts granted after 11 September 2001 were apparently underfunded when considering abnormal returns over the long run. The results are robust to the inclusion of industry effects, the use of different regression specifications and the application of alternative estimation and testing intervals.

In an examination of 136 equity carve-outs in Taiwan in 1994–2007 we first find significantly positive stock price reactions associated with the announcements, consistent with the global findings. We further examine the sources of wealth gains on the basis of the asymmetric information hypothesis (Nanda, 1991) and the divestiture gains hypothesis (Schipper and Smith, 1986) and find that the results lend more support to the latter than the former. Specifically, two ramifications of the divestiture gains hypothesis are supported: firms that divest unrelated business (refocusing strategy hypothesis) and use the proceeds to undertake new investments (the investment strategy hypothesis) draw favourable market appraisals.

We apply several theories advanced for the mispricing of individual stock prices to suggest the existence of mispriced sectors. We find that sector upgrades result in a positive and significant sector share price response, while sector downgrades result in a negative and significant sector share price response. The favorable valuation effects associated with sector upgrades are more favorable when there is a high level of trading activity of the stocks in the sector, the sector share price runup is relatively weak, and the prevailing price-to-fundamental ratios in the sector are relatively low. In addition, the negative valuation effects associated with sector downgrades are more favorable when there is a high level of trading activity of the stocks in the sector and the share price runup is relatively strong. Overall, the valuation adjustments in response to changes in sector ratings vary with the prevailing market prices in the sector.

This article examines the valuation effects of new equity issues by Japanese banks through private placement. Although past studies have shown a positive market response to private placement, our results indicate that abnormal returns are, on average, positive but statistically insignificant. Such findings fail to support the notion that private placements help resolve the problem of information asymmetry. However, after controlling for bank capital, the valuation effects for banks with higher capital are significantly negative, whereas those with lower capital are significantly positive. The difference suggests that valuation depends on whether capital regulation motivates the new issue. Moreover, there is a negative correlation between Nonperforming Loans (NPLs) and valuation effects. This indicates that an increase in the uncertainty of bank loan quality is associated with a negative market response. Finally, the results show that new issues with a single purchaser convey more negative information to t...

While exchange-traded funds (ETFs) are being created at a rapid rate, there is very limited research on how they affect the component stocks that they contain. We find that in response to the inception of ETFs, there are positive and significant valuation effects on the dominant component stocks (defined as the 10 largest stocks in each ETF). The variation in the valuation effects is associated with stock-specific characteristics, such as relatively low liquidity and the size of the ETF in which the component stock is contained. The characteristics of the component stocks that experience more favourable valuation effects at the inception of ETFs also lead to a more pronounced increase in their trading volume following their ETF's inception. The increase in trading volume is especially pronounced for those component stocks that are relatively small, have relatively low levels of liquidity, and are contained within relatively large ETFs.

The study tests the abnormal returns of announcements of joint-venturing in Mainland China by Hong Kong-based companies. As the Hong Kong stock market is one of the most mature stock markets in the world, the response of the stock price should be among the best quality. Thus the positive response suggests that international joint ventures provide potential profits to the parent firms, which is predicted by the nowadays standard eclectic theory. The result supports the hypothesis of abnormal returns.

This study reports the results of contingent valuation (CV) studies conducted in eight states in the United States. Over 1,100 telephone interviews examined valuation effects on residential propert...

A partial acquisition represents a unique form of corporate restructuring because it alters the ownership structure of two entities (in opposite ways), and therefore alters the form of control over the target's management. The proportion of the partial target that is owned by other shareholders is reduced by the increase in ownership by the partial acquirer. Yet, the transaction is unique in that the target firm continues as a going concern. Therefore, the target can be evaluated over time to determine the impact of the restructuring. Given the shift in ownership structure and control over the partial target, the performance of partial targets could be affected. It is found that while the partial targets experience favourable valuation effects at the time of the announcement, there is no evidence of unusual long-term performance beyond the initial announcement effects. Therefore, the realized benefits to the partial target due to improved monitoring by the partial acquirer are limited on average to the in...

We assess the pricing behavior of American Depositary Receipts (ADRs) in response to information about their profitability. Specifically, we test for leakage effects and lagged effects, and we assess the cross-sectional variation in market inefficiencies related to profit warnings by foreign firms listed on U.S. stock exchanges as ADRs. Foreign firms experience strong negative valuation effects at the time of the profit warning. Furthermore, there are pronounced leakage effects, which suggests that some market participants were able to capitalize on inside information before the profit warnings were issued. We also find statistically significant evidence of a three-day lag effect following the profit warning, which suggests that investors who did not have inside information could profit from a warning. When using the leakage as a proxy, the degree of market inefficiency is more pronounced for firms in the technology sector, but the extent of government ownership or countries of origin are not significant ...

This study develops arguments explaining why agency costs are more pronounced for firms with higher degrees of multinational business. Empirical tests are conducted to determine whether firms with more exposure to foreign markets have greater agency costs than less exposed firms. Specifically, valuation effects of security offerings are assessed cross-sectionally to determine whether the change in the firm's value attributed to agency costs is associated with the firm's degree of international business. It was found that valuation effects associated with security offering announcements are more negative for firms with higher degrees of international business, which supports the hypothesis presented. The results suggest that better monitoring could be especially beneficial to MNCs with large exposure to foreign markets.

Recent research has shown that ownership restructuring decisions by firms can enhance value. In particular, Allen and McConnell (1998) find that carve-outs elicit a favourable share price response for parent firms at the time the carve-outs are reported. One explanation is that a carve-out facilitates parental focus and enables the market to value a new entity that now has its own identity, which uncovers hidden value. Since these valuation effects are measured when the carve-outs are reported, they reflect an ex ante view of potential change in performance attributed to the restructuring of ownership. An attempt is made to determine the long-term performance of firms following carve-outs. At the time of the carve-out, parents have information about the unit unknown to the public. The performance of parents and the carved-out units are separately assessed to determine whether there is a wealth transfer between the two entities as the asymmetric information that exists at the time of the carve-out dissipat...

Executive Summary. Real estate investment trusts (REITs) have been one of the most active sectors in the capital market over the last few years. This study examines the equity valuation effects of ...

(2001). The valuation effects of research and development spending announcements by companies listed on the Johannesburg Stock Exchange. Investment Analysts Journal: Vol. 30, No. 53, pp. 29-40.

The objective is to measure how the values of firms are affected when experiencing shareholder activism. According to several researchers, firms can benefit from increased monitoring. If activism prompts managers to focus more closely on shareholder goals, it could enhance firm value over time. Strong positive valuation effects are found for firms following shareholder activism. The valuation effects accumulated to 23% on average by the end of the third year following shareholder activism. The effects appear to be somewhat more pronounced following activism initiated by individual shareholders.

The valuation effects of the Mexican debt crisis are re-examined in a new way. Instead of concentrating upon the announcement of the Mexican debt moratorium, like some previous work, the valuation effects are investigated for eight major events that occurred over a period of two years, events which characterized the entire crisis. A multivariate regression model is applied to three portfolios of returns: high Mexican debt-exposure banks, low debt-exposure banks, and banks without less developed country (LDC) debt exposure. Significant wealth effects are observed for all three portfolios for various events. There is a significant increase (decrease) in the beta for the high exposure (no exposure) banks subsequent to the announcement of a debt-restructuring agreement between Mexico and its major creditor banks. Similar results are also observed for the residual variance, suggesting that the Mexican debt crisis may have contributed to changes in the risk of high-exposure, low-exposure and no-exposure banks.

The long-term share price performance of firms is measured following the implementation of antitakeover amendments. Based on a sample of 346 US firms adopting antitakeover amendments, it is found that valuation effects accumulate to -13.55% after three years, and to -23.12% after seven years. The regulative cumulative valuation effects become significant in the second year and remain significant throughout the seven-year post-amendment period. The results support the hypothesis that antitakeover amendments can adversely affect corporate performance. These results may be attributed to the managerial entrenchment and the removal of efficiency incentives associated with the reduction in external market discipline. A cross-sectional analysis determined that the long-term valuation effects of firms following antitakeover amendments are conditioned on the proportion of insider holdings, the proportion of institutional holdings and the type of amendment used.

The FDIC Improvement Act mandated key provisions that affect the potential performance and risk of financial institutions. Our study measures how the signals pertaining to the FDIC Improvement Act affect the share prices of financial institutions. We find that the Treasury's proposal for bank reform favourably affected small and medium banks, but negatively affected large banks. The differential effects are likely attributed to the relatively lower capital ratio of large banks. A cross-sectional analysis confirms that the commercial banks with a relatively high capital ratio experienced a more favourable share price response to the Treasury's proposal.

The degree of asymmetric information between insiders and uninformed traders is partially dependent on the characteristics of the firm. Since banks have unique operating and regulatory characteristics, asymmetric information levels for banks may differ from other types of firms. This study shows that the information contained in bank insider buy transactions is conditioned on the bank's size and recent performance. Insider buy transactions contain more favourable information when they involve smaller banks that recently experienced more favourable valuation effects.