Beni Lauterbach

Market Microstructure and Securities Values: Evidence From the Tel Aviv Stock Exchange

This paper examines the value effects of improvements in the trading mechanism. Stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a positive and permanent price appreciation. The cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5.5%. In addition, we find positive liquidity externalities (spillovers) across related stocks, and improvements in the value discovery process due to the improved trading method. Finally, there was a positive association between liquidity gains and price appreciation. Our results suggest that improvements in market microstructure are valuable.

Ownership Structure and Firm Performance: Evidence from Israel

The study examines the effect of ownership structure on firm performance. We distinguish between family firms, firms controlled by partnerships of individuals, concern controlled firms, and firms where blockholders have less than 50% of the vote. The empirical work analyzes data on 280 Israeli firms and employs the technique of Data Envelopment Analysis. It is found that owner-manager firms are less efficient in generating net income than firms managed by a professional (non-owner) manager, and that family firms run by their owners perform (relatively) the worst. This evidence suggests that the modern form of business organization, namely the open corporation with disperse ownership and non-owner managers, promotes firm performance.

Internal vs. External Successions and Their Effect on Firm Performance

An examination of 165 top management successions in U.S. firms during 1989-91 reveals that external successions are more likely in small firms, in firms with poor economic performance, and in firms which offer the successor several top positions (for example, Chairman and CEO). This last finding illustrates that successors interests and demands (such as organizational power) are also important in determining the final match between manager and firm. We also find that, on average, the postsuccession performance of external successors is superior to that of internal successors. This could indicate that the Board of Directors faces an agency problem, leading it to appoint too often from inside.

Pay at the executive suite: How do US banks compensate their top management teams?

This study examines how a large sample of US banks compensates their top management teams (i.e., the top four to five highest ranking executives in each bank). We observe two tiers of compensation in the executive suite: the Chief Executive Officer (CEO) and the rest of the top management team. CEOs receive not only greater pay in absolute dollar, but are also rewarded more in relation to performance, as manifested in having a larger portion of their pay in performance contingent compensation. Below the CEO, top executives have similar compensation structure and pay to performance elasticities. The results are robust to a significant size effect, and alternate measures of performance. 2002 Elsevier Science B.V. All rights reserved.

The Value of Trading Consolidation: Evidence from the Exercise of Warrants

We study the effect of trading consolidation by examining the response of liquidity and stock price to the exercise of deep in-the-money corporate warrants. This enables a relatively clean test of the value of trading consolidation. The exercise at the warrant expiration is fully anticipated and has no information content. An effect can come from the value of trading consolidation that improves liquidity. Indeed, we find that liquidity and stock prices both increase significantly at warrant expiration. Further, the price increase is positively related to the pre-exercise extent of fragmentation, to post-exercise improvement in stock liquidity, and to the proportional increase in the number of shares following the warrant exercise.

Consumption volatility, production volatility, spot-rate volatility, and the returns on treasury bills and bonds

Abstract The study documents a relation between the expected holding-period premiums on Treasury bills and the ex ante conditional volatilities of consumption, spot (one-month) interest rate, and industrial production. A model portraying the relation as a risk and return phenomenon is presented and tested. Consistent with the model, the coefficients of the relation appear to depend on the sensitivity of the realized premium to the ex post shocks in consumption, industrial production, and the spot rate. The model fits the data better than the traditional term premium models.

A note on trading mechanism and securities' value: The analysis of rejects from continuous trade

We examine 97 stocks that moved from continuous trade back to single daily auctions. The response to exit from continuous trade is almost a mirror image of the entry response documented in Amihud et al., 1997 (Amihud, Y., Mendelson, H., Lauterbach, B., 1997. Journal of Financial Economics 45, 365‐390). Upon exiting continuous trade, stock liquidity, price accuracy, and value drop. An exception is, however, identified. Ten stocks that were omitted from continuous trade within three months of their addition have negative excess returns upon entry into continuous trade and positive excess returns upon exit. These immediate rejects had relatively low volumes before entering continuous trade, which suggests that for thinly traded stocks simple unassisted continuous trade may not be optimal. ” 2001 Elsevier Science B.V. All rights reserved. JEL classification: G14

Efficient Labor and Capital Markets: Evidence from CEO Appointments

An examination of 268 CEO appointments in US firms indicates that, on average, appointment of a better-quality CEO (a CEO who receives a pay premium ex-ante) is accompanied by an immediate positive revaluation of stock prices, and is followed by an improvement in firm performance. This evidence supports the notion of jointly efficient and integrated labor and capital markets. The findings are particularly strong in non-regulated industries. The managerial labor market appears somewhat less efficient in internal successions, and the stock market appears less efficient or only relatively weakly integrated with the labor market in small firm appointments.

The Impact of Minimum Trading Units on Stock Value and Price Volatility

We study how minimum trading unit changes on the Tel-Aviv Stock Exchange impact a stocks trading activity, price volatility, and value. The value effects are consistent with Mertons (1987) model, i.e., an increase in the investor base (trading volume) and a decrease in price noisiness affect stock value positively. Our results extend Amihud, Mendelson, and Unos (1999) tests of Merton by demonstrating a clear relation between price noisiness changes and stock value changes, and by showing that the response to a minimum trading unit decrease becomes less favorable (and arguably even negative) in the thinnest trading stocks.

Calendar anomalies: some perspectives from the behaviour of the Israeli stock market

Contrary to international evidence, stock returns in Israel are higher following weekends and holidays. Daily stock returns in Israel are examined in the period 1977–1990 and several patterns observed. These findings suggest that there may exist a fundamental compensation for the illiquidity and greater risk of investing during market closures.