Carl D. Hudson

External monitoring and its effect on seasoned common stock issues

Abstract This paper demonstrates that the market reaction to announcements of seasoned stock offerings varies with the presence of outside agents - accounting firms, commercial banks, and underwriters - who monitor the firm. The stock price reaction is a positive function of the quantity of bank debt in a firms financial structure, the quality of the firms investment banker, and the quality of the public accounting firm that serves as its external auditor. The evidence supports theoretical models that imply external agents audit, monitor, and certify decisions to issue seasoned common stock.

Corporate commercial paper, note issuance facilities, and shareholder wealth

Abstract In this paper, we hypothesize that the financial market regards the issuance of securities through a note issuance facility or a commercial paper program backed by a standby letter of credit as a favorable signal about the issuing firm. This is due to the certification role played by banks. We demonstrate that announcements of commercial paper programs backed by these formal backstop facilities have a statistically significant positive effect on shareholder wealth. This result is in contrast to issues of other types of securities studied in the literature which have been shown to induce nonpositive effects on shareholder wealth. The initiation of commercial paper programs without this backing has little effect on shareholder wealth. Finally, we demonstrate that the quality of the credit ratings associated with these issues of commercial paper has little effect on abnormal returns. Thus, our results cannot be explained by the pattern of these ratings.

Deregulation, contestability, and airline acquisitions

Abstract We test whether airline consolidations generate monopoly profits by examining returns to listed carriers around horizontal airline-acquisition bids and evaluating effects of industry concentration on share-price reactions. Under Civil Aeronautics Board (CAB) regulation, returns to targets, bidders, and rival carriers are positive functions of changes in concentration implied by bids. Changes in concentration after deregulation have no positive effect on carrier returns. These results support Jordans (1970, 1972) hypothesis that CAB activities fostered carrier collusion. There is no evidence of monopoly gains from carrier consolidations after deregulation.

The Role of Medium of Exchange in Merger Offers: Examination of Terminated Merger Proposals

In this study, we examine the relation between the medium of exchange (cash or stock) and valuation effects associated with terminated merger proposals. We find significantly higher returns for target shareholders after termination of cash offers than after termination of stock offers. This difference persists even when a subsequent merger bid does not follow and regardless of the following factors: the party deciding to terminate the offer, the presence of an acquisition program, prior foothold position, relative size of the acquisition, or the presence of competing offers. We conclude that target firm shares are re-valued according to private information signaled by the offer medium that pertains to the target firms stand-alone value or its unique synergy potential. Bidding firm shareholders experience insignificant returns, and these returns are not affected by any of the factors analyzed.

A note on savings and loan ownership structure and expense preference: A re-examination

This study extends the work of Akella and Greenbaum [Journal of Banking & Finance 12 (1988) 419] through the use of a much larger, nationwide sample of US saving and loan associations and supports their original finding of significant expense-preference behavior in mutual savings and loans during their original study period (1979–80). This study also provides evidence that over the time period of substantial deregulation and changes in the competitive environment in the US financial services industry, expense-preference behavior for savings and loans decreased. The results are consistent with the idea that the removal of barriers that restrict competition should improve managerial efficiency in firms that survive. 2003 Elsevier B.V. All rights reserved.

S&L Closures and Survivors: Are there Systematic Differences in Behavior?

During the 1980s, the S&L industry experienced its worst performance since the 1930s. More than a thousand institutions failed and were resolved by regulators from January of 1980 through December of 1992 at an estimated present-value cost of nearly

Market reaction to equity offer reasons: What information do managers reveal?

130 billion. The resolution of additional troubled S&Ls will likely result in a final cost of

Further Evidence on the Relationship between Ownership and Performance

150 billion or more. These costs, when measured relative to the size of the industry in the 1980s, are actually greater than those incurred for S&Ls in the Great Depression.

Shareholder Wealth Effects of CalPERS' Activism

Prior studies have had limited success explaining the negative market reaction to common stock announcements using firm and offer specific variables. We employ apiecewise linear model to test the relationship between announcement returns and firm and offer specific variables by specific offer reason as stated by management. We find evidence that managers are signalling the quality of the new investment when issuing equity for the offer-motive capital expenditures; this is support for the announcement of the equity issue being a signal of wasteful investment. We also find that the announcement of equity issues signals overvaluation when the equity offer is for general purposes.