Catherine Shenoy

Stock price decreases prior to executive stock option grants

This study examines abnormal stock price changes prior to executive stock option grants. We suggest that executives may have the incentive to manipulate information released to the market during the period just prior to their stock-option grant dates so as to reduce the exercise price of their options. The manipulation could be in the form of delaying the release of good news, information that will positively influence stock prices, ensuring that bad news is released prior to the grant date, or releasing of false information. Executive stock option grants create the unique opportunity for insiders to profit from information-based price manipulation without engaging in insider trading. Using data on 783 stock-option grants to chief executive officers, we find a statistically significant abnormal decrease in stock prices during the 10-day period immediately preceeding the grant date.

The Information Content of Dividend and Capital Structure Policies

Dividend and capital structure policies interact to provide significant predictive information about the firms future cash flow. This study furnishes empirical evidence that supports the free-cash flow hypothesis concerning the agency effects of dividend and capital structure changes.

The firm's leverage-cash flow relationship

Abstract Two separate strands of the literature on capital structure under asymmetric information consider the relationship between a firms financial leverage and cash flow. Signalling theory suggests a positive relationship, while pecking order behavior implies a negative relationship. These contrasting theoretical implications appear contradictory. However, both are supported in different bodies of empirical literature. Leverage-changing event studies tend to support a positive relationship while cross-sectional studies typically reveal a negative relationship. This paper proposes that the appropriate pecking order relationship is contemporaneous — between current leverage and current cash flow, while the relevant signalling relationship is intertemporal-between current leverage and future cash flow. A dynamic simultaneous equations model is built which allows the firms leverage, cash flow, and risk to interact jointly in the same period, as well as across time. Empirical results reveal that, in the same time period, leverage and cash flow tend to be negatively related, while across time leverage is positively related to future cash flow. Thus the apparent contradictions in the theoretical and empirical literature may be reconciled by considering both the contemporaneous and dynamic aspects of the firms leverage/cash flow relationship.

Modeling Financial Portfolios Using Belief Functions

The main goal of this paper is to demonstrate how the theory of belief functions [Dempster 1967, Shafer 1976, Kohlas and Monney 1995, Smets 1998] can be used to model financial portfolios. In particular, we are interested in modeling how a portfolio return distribution changes as we learn new information about the different factors that impact the portfolio.

Knowledge representation and integration for portfolio evaluation using linear belief functions

This paper proposes a linear belief function (LBF) approach to evaluate portfolio performance. By drawing on the notion of LBFs, an elementary approach to knowledge representation in expert systems is proposed. It is shown how to use basic matrices to represent market information and financial knowledge, including complete ignorance, statistical observations, subjective speculations, distributional assumptions, linear relations, and empirical asset-pricing models. The authors then appeal to Dempsters rule of combination to integrate the knowledge for assessing the overall belief of portfolio performance and updating the belief by incorporating additional evidence. An example of three gold stocks is used to illustrate the approach

Shoulder injury reduction with post-offer testing

OBJECTIVE This study is an interventional evaluation of a post-offer employment testing. The study is designed to determine if shoulder injury rates are lowered when employees are placed at jobs they demonstrate the physical ability to perform. METHODS A physical capacity evaluation based testing protocol was utilized to determine if each new employee had the physical work capacity to perform the job for which they were hired. Injuries to the shoulder were specifically scrutinized. The interventional group was compared to a historical control. RESULTS The incidence of shoulder injuries was 0% in the tested group and 3.8% in the untested historical control. Over a 6 year study timeframe the utilization of physical capacity testing for work placement appeared to be the major factor in decreasing work related shoulder injuries. The annual cost of administering the tests for three years was

An examination of the dynamic behavior of aggregate bond and stock issues

9,543, while the net annual cost savings was

CEO Compensation: Does Performance Matter?

124,451. This represented a 37% decrease in medical costs for shoulder and other work-related injuries. For every dollar spent on testing there was a

Bayesian Network Models of Portfolio Risk and Return

14 savings in medical costs secondary to injury prevention. CONCLUSION The use of post-offer physical capacity testing resulted in a substantial and noticeable decrease in shoulder related non-accidental injuries. Furthermore, it is evident that a properly conceived and implemented post-offer testing program may help in the reduction of work-related injuries.

Order imbalance and stock returns: Evidence from China

Abstract Using a vector autoregressive (VAR) model, this article examines the dynamic behavior of aggregate bond issues and aggregate stock issues and how interest rates, stock market returns, and aggregate capital expenditures influence them. We find that an increase in stock market returns causes an increase in stock issues that persists over one quarter, while a decrease in interest rates leads to an increase in bond issues that persists over a full year. Aggregate capital expenditures have an immediate effect, but not a long-term effect, on bond issues. We also find that the financing process spreads over a period of at least 1 year. In the short run, an increase in aggregate bond issues leads to a decrease in aggregate stock issues, but in the long run (6 months to 1 year), an issue of either stocks or bonds makes subsequent financing by either stocks or bonds more likely.