Aigbe Akhigbe

The Financial Impact of Boycotts and Threats of Boycott

Abstract The impact of actual boycotts and threats of boycott on the value of target firms was analyzed using the event study methodology. The results are counter-intuitive. The value of target firms increased, on average, by 0.76% on the day that news of the boycott became public. On the other hand, the value of the target firms increased by only 0.55% on the day that information of the threat of boycott became public. However, there is no significant statistical difference between the markets reaction to actual boycott and threats of boycott. When combined, without distinction between actual boycotts and threats of boycott, the value of target firms increased, on average, by 0.66%. The results also show that the market does not react differently to whether boycotts/threats are union sponsored or non-union sponsored.

Intra-industry signals embedded in bank acquisition announcements

Abstract Bank acquisitions have increased in recent years, as more banks attempt to exploit potential synergies, economies of scale, and other benefits. Numerous studies have determined that bank acquisitions generate strong positive valuation effects for targets on average, while the evidence of the impact on acquirers is mixed. Our objectives are: (1) determine whether the announcement of a bank acquisition transmits intra-industry signals; (2) explain why the intra-industry effects vary across acquisition announcements; and (3) explain why the valuation effects of individual rival banks vary. We find that bank acquisition announcements generate significant positive intra-industry effects, on average. The intra-industry effects of rival bank portfolios are not uniform across announcements, as they are conditioned by variables that could signal information about the probability that rival banks will become takeover targets. The valuation effects of rival bank portfolios are positively related to the valuation effects of the target banks, and inversely related to the size and prior performance of rival bank portfolios. Furthermore, the valuation effects are more favorable for individual rival banks that are ultimately acquired. To the extent that these variables reflect the probability of being acquired in the future, the intra-industry effects appear to be more favorable for acquisitions in which there is a higher probability that the corresponding rivals will become targets. Overall, investors discriminate based on event-specific and rival bank-specific characteristics when interpreting the signal transmitted as a result of bank acquisitions.

The impact of FDICIA on bank returns and risk: Evidence from the capital markets

Abstract This study examines the impact of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 on bank stock returns and risk. We find that FDICIA had a generally positive effect on bank stock returns and resulted in a significant reduction in bank risk. The extent of the risk reduction varies based on the capitalization, size, and credit risk of the institutions with poorly capitalized, large, and high credit risk banks experiencing the greatest risk reduction. The results obtained using two separate control groups also bolster the conclusion that FDICIA’s passage resulted in a significant decline in bank risk.

Impact of partial control on policies enacted by partial targets

Abstract Numerous studies have shown that the valuation effects of corporate policies are conditioned on corporate control. A partial acquisition serves as a unique form of corporate control that has not been thoroughly researched as a control mechanism. When firms are partially acquired, the impact of their subsequent corporate policies may be affected by the degree of control imposed by the partial acquirer. Our primary objective is to test this hypothesis by (1) measuring valuation effects of the partial target and partial acquirer in response to policies enacted by the partially acquired firm (after becoming a partial target), and (2) conducting a comprehensive cross-sectional analysis for each policy which incorporate proxies for the degree of control by the partial acquirer. We find that partial targets and partial acquirers experience significant valuation effects in response to some policies enacted by the target. We also find that the valuation effects on a partial target in response to its subsequent policies are commonly conditioned by the degree of the partial acquirers control.

Intra-industry effects of bank layoff announcements

Abstract Bank layoffs have increased in recent years as a means of reducing operating expenses. To the extent that bank layoffs signal information about other banks, intra-industry effects should occur. Our objective is to determine whether intra-industry effects exist, and to explain the variation in intra-industry effects following bank layoff announcements. Our analysis shows positive and significant intra-industry effects, which are interpreted as negative information for the announcing bank, as competitors may be able to gain market share. The intra-industry effects are more favorable when the banks announcing layoffs are in the same region as rival banks, and when banking industry earnings are relatively high.

Intraindustry Effects of Bank Stock Repurchases

Bank stock repurchases have become increasingly popular over time. Because of the unique capital requirements and regulatory constraints on the use of bank funds, the intraindustry effects of bank stock repurchases may differ from intraindustry effects of stock repurchases by other firms. We find that bank stock repurchases result in a positive and significant valuation effect for the repurchasing banks. Moreover, we find positive significant intraindustry effects of bank stock repurchases, unlike previous research by Hertzel on firms from numerous industries that found no evidence of intraindustry effects in response to stock repurchases. We attribute the difference in results to the unique characteristics of the banking industry, which results in a less ambiguous signal emitted from the stock repurchase announcement. In addition, we find that the intraindustry effects are more favorable when the valuation effect for the repurchasing bank is more favorable. This implies that the degree of signal to the industry is conditioned on the degree of signal about the bank that is repurchasing its shares. Furthermore, intraindustry effects are more favorable when the capital position of rival banks is high, when the proportion of residential loans of rival banks is low, and when the announcing bank is a money center bank.

The output efficiency of minority-owned banks in the United States

Abstract This study extends prior research on minority-owned banks by examining their output performance. Using a deterministic output distance function, both technical and allocative efficiency are measured. The findings indicate that, with a given set of inputs, minority-owned banks produce less outputs than a comparable group of nonminority-owned banks. Also, both minority-owned banks and nonminority-owned banks fail to allocate outputs in revenue-maximing proportions.

Influence of economic factors on the valuation effects of debt offerings

The obejective of this paper is to determine whether the share price responses to debt offerings are influenced cross-sectially by economic factors. We develop hypotheses that share price responses are inversely related to nominal interest rates, and to the issuing firms stock price level relative to the market, and positively related to economic growth. After controlling for firm-specific characteristics used in previous studies, we find that the share price responses to straight debt offerings are not significantly related to the nominal interest rates or to the issuing firms relative stock price level, but are positively related to the economic growth. We also find that share price responses to convertible debt offerings are significantly related to the nominal interest rates, the issuing firms relative stock price level, and economic growth in the manner hypothesized. These results imply that the signal emitted by a firms debt offering can be influecnced not only by firm-specific characteristics, ...

Corporate Performance Following Stock Offerings

There is substantial evidence that stock offerings contain a negative signal, based on numerous studies on the immediate market reaction to the announcement. These studies document the markets ex ante view of how the offering will affect the firm. Our objective is to determine whether the adverse signal is accurate by measuring long-term valuation effects following the stock offering. We find a strong negative valuation effect that accumulates to −30.28 percent after 60 months following the stock offering. These long-term effects were more unfavorable for firms that (1) have relatively large stock offerings, (2) have more free cash flow, (3) experienced larger stock price runups before the offering, and (4) had higher market to book value ratios prior to the offering.