Atulya Sarin

Ownership structure and top executive turnover

Abstract We report that ownership structure significantly affects the likelihood of a change in top executive. Controlling for stock price performance, the probability of top executive turnover is negatively related to the ownership stake of officers and directors and positively related to the presence of an outside blockholder. In addition, the likehood of a change in top executive is significantly less sensitive to stock price performance in firms with higher managerial ownership. Finally, we document an unusually high rate of corporate control activity in the twelve months preceding top executive turnover. We conclude that ownership structure has an important influence on internal monitoring efforts and that this influence stems in part from the effect of ownership structure on external control threats.

IMPACT OF CORPORATE INSIDER, BLOCKHOLDER, AND INSTITUTIONAL EQUITY OWNERSHIP ON FIRM RISK TAKING

The nature of a firms risk-taking behavior can significantly affect corporate performance. In an agency context, we examined the influence of equity ownership structure upon corporate risk taking....

The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis

We find that option listings are associated with a decrease in the variance of the pricing error, a decrease in the adverse selection component of the spread, and an increase in the relative weight placed by the specialist on public information in revising prices for the underlying stocks. We also find that there is a decrease in the spread and increases in quoted depth, trading volume, trading frequency, and transaction size after option listings. Overall, our results suggest that option listings improve the market quality of the underlying stocks. Copyright The American Finance Association 1998.

Agency theory and the influence of equity ownership structure on corporate diversification strategies

We articulate the agency theory view of managerial decision making and its implications for corporate diversification strategies. From agency theory, we generate testable predictions for the relation between equity ownership structure and diversification strategies and review the existing evidence on this relation. On balance, the evidence strongly supports the view that ownership structure influences corporate strategy. Copyright

Testing for micro-structure effects of international dual listings using intraday data

Abstract This paper examines the impact on the liquidity of NYSE/AMEX listed stocks when they were subsequently listed on the London or the Tokyo Stock Exchanges. It can be argued that the increased competition from foreign market makers will reduce the monopoly rents that specialists can earn, thereby improving their quotes. We find, however, that spreads do not decrease following a dual listing, though the depth of the quotes increases as predicted. The apparent increase in depth disappears once we account for changes in price, volume and return variance. We also find that the level of informed trading increases, which increases the cost to the specialist of providing liquidity, and explains why spreads do not decline in spite of increased competition. Consistent with an increase in informed trading, we also document an increase in trading activity.

The role of corporate groupings in controlling agency conflicts: The case of keiretsu

Abstract Jensen and Meckling (1976) suggest that security analysis monitoring serves to reduce the magnitude of agency costs present within the modern corporation. Moyer et al. (1989) provide evidence consistent with this hypothesis for a sample of publicly-traded American firms. In this study we examine the ability of Japanese corporate groupings or keiretsu to serve as an alternate mechanism for the control of agency conflicts. We find for independent firms in Japan that analyst following is directly related to the potential for agency conflict. We do not observe such a relationship, however, for keiretsu firms. Moreover, unlike independent firms, analyst following for keiretsu corporations is not related to the informational demands of investors. Overall, our evidence indicates that the practices of reciprocal equity ownership and the reliance on a common financier among keiretsu member firms mitigate the agency conflicts present within firms and produce more effective ways to channel information between members.

The impact of index options on the underlying stocks: The evidence from the listing of Nikkei Stock Average options☆

Abstract This paper investigates the impact of the listing of options on the Nikkei Stock Average (NSA) on the volatility, bid-ask spread and trading volume for stocks listed in the First Section of the Tokyo Stock Exchange. Our results indicate that trading volume, volatility, and bid-ask spreads decline for the stocks contained in the Nikkei 225 Index after the listing of the index options. Cross-sectional regressions that control for changes in spread, volume, and price indicate that the options listing is associated with decreases in volatility for the index stocks. We conjecture that the observed results are consistent with the hypothesis that the advent of options trading causes a migration of speculative and market-wide information-oriented trading activity from the underlying market to the options market.

The Costs of Issuing Preferred Stock

U.S. firms commonly use preferred stocks to raise external capital. Yet this hybrid securitys issuance costs and offer yields have not been previously examined in a systematic manner. We analyze a sample of 3,042 U.S. preferred stocks issued between 1980 and 1999. We find that convertible issues, which are riskier than straight issues, entail higher gross spreads and other direct expenses. Scale, credit rating, and industry effects influence gross spreads and issuance costs. We also compare preferred stocks yields with various bellwether bond yields. Our results support the tax-based argument that suggests that yields on preferred stocks should be lower than comparable risky bonds. 2002 The Southern Finance Association and the Southwestern Finance Association.

A microstructure examination of trading activity following stock splits

In a study of 1,131 stock splits spanning the period 1983–1989 we observe an increase in the number of trades as well as a reduction in the mean trade size following the split. Combined with earlier reported findings of an increase in the number of shareholders postsplit, we conclude that the number of liquidity traders increases after a split. We confirm the previously observed increase in the bid-ask spread following a split, and upon decomposition of the spread find an increase in its adverse selection component in the postsplit period. This is consistent with the finding by Brennan and Hughes (1991) of an increase in the number of analysts following a stock after a split. Further, observing a decrease in market depth following a split we determine that Kyle-type models incorporating diverse private information for informed traders most correctly describe the nature of security trading. Since this decrease in postsplit market depth is not related to the trading volume or the split factor, we reject price correction explanations for stock splits.

Do players perform for pay? An empirical examination via NFL players’ compensation contracts

How to properly compensate and incentivize players is an important question in the realm of professional sports, and more broadly, is a central question in contract design. With the increasing use of performance-based compensation packages and tax law favoring such compensation design, a natural question arises as to whether workers do indeed perform for pay. We examine this question in a setting that is not fraught with the typical measurement and identification problems found in many pay-performance settings. Specifically, we examine changes in a NFL players Win Probability Added (WPA) and Expected Points Added (EPA) in response to his compensation-contract design. Overall, our paper provides evidence that players do indeed perform for (properly designed) pay, and has important implications for future work on compensation and incentive-based contract design.