Don N. MacDonald

Equity market response to union decertification petitions and elections

The effect of union decertification elections on the valuation of corporations is examined using a standard event study methodology. Cumulative abnormal daily common stock returns for 203 NYSE and AMEX listed firms are estimated for the day on which a petition for a decertification election is filed and for the day on which the National Labor Relations Board (NLRB) certifies the decertification election outcome. The results are consistent with the hypothesis that successful union decertifications increase firm valuation and unsuccessful ones reduce firm valuation. The primary carrier of valuation information is the date the NLRB confirms the decertification election results. The petition file date yields little, if any, information about the firm’s capitalization.

The Impact of Antitrust Litigation on Shareholder Return

The hypothesis that antitrust litigation will redistribute economic power is examined using an event study framework. District and appellate court findings involving firms litigating antitrust issues and the Telex v. IBM case are examined. The results indicated that shareholders of firms involved in the litigation experienced decreases (increases) in return when either court finding was unfavorable (favorable). The Telex v. IBM results indicated that the district courts finding against IBM resulted in significant positive abnormal returns for computer industry firms. Abnormal negative returns were also found in the period surrounding the appellate court reversal. Copyright 1989 by Blackwell Publishing Ltd.

An analysis of consumer expectation effects on demand in a dynamic almost ideal demand system

Abstract A theoretical framework is presented for analyzing psychological, perceptual, or expectational effects on household expenditure within a complete demand system that is also consistent with household utility-maximizing behavior. The model was estimated with the Consumer Sentiment Index (CSI), which represents an index of consumer perceptions of future economic conditions, and was re-estimated for several CSI components separately. From the CSI, evidence was found for significant expectational effects for 4 of the 11 expenditure categories: alcohol, housing services, durable goods, and other services. The results demonstrate the models potential usefulness for both demand forecasting and policy analysis.

Generalized expected utility analysis and preference reversals: Some initial results in the loss domain

Abstract In this paper a series of experiments are reported using human subjects choosing over distributions of negative expected value. The experiments were designed to examine preference reversals and fanning out type violations of expected utility theory. Each subject was endowed with an initial wealth position and asked to choose between lotteries in which they were forced, if they lost, to forfeit a portion of their fixed endowment. Consistent and systematic violations of expected utility theory were found within the loss domain which were a mirror reflection of those found within the gain domain. Preference reversals were also present over losses, but the reversal rate was lower than the rate for prospects with positive expected value. No relationship between fanning out type violations of expected utility theory and preference reversals was found, in contrast to recent theoretical predictions.

Seasonals, price adjustment delays and estimated systematic risk

This article analyzed potential interactions between seasonals and price adjustment delays on estimated systematic risk. It was shown that seasonals in unobservable true security returns can induce inconsistencies into the generalized Scholes and Williams estimator of systematic risk. An alternative estimator was proposed that is consistent in the presence of seasonals in the unobservable true returns. The direction of induced bias is unpredictable a priori, thereby representing a potentially important research consideration in market efficiency tests using abnormal returns. NASDAQ and Dow Jones 30 Industrial return data for the period 1983–87 were used to evaluate the proposed estimator against the OLS and generalized Scholes and Williams (GSW) alternatives. The absolute difference between the GSW and our estimator, that is the seasonal-induced bias, for NASDAQ stocks was negatively correlated with market capitalization. Moreover, seasonal-induced bias was larger for NASDAQ stocks than more highly capitalized Dow stocks. These empirical findings indicate that seasonals and price adjustment delays can interact to bias estimated systematic risk, where price adjustment delays would be projected to be more acute for smaller capitalization stocks.

Commodity tax straddles and the valuation of domestic futures exchanges: An analysis of the 1981 Economic Recovery Tax Act

The Economic Recovery Tax Act (ERTA) of 1981 substantially altered the taxation of commodity tax straddles. Prior to 1981, commodity tax straddles were actively promoted and used to defer income, to convert ordinary income into capital gains, or to convert short-term into long-term capital gains. ERTA imposed a mark-tomarket rule of account settlement for the taxation of futures transactions. This study examines the impact of ERTA on the futures industry by utilizing futures exchange seat prices for all domestic futures exchanges. Futures exchange seats represent specialized capital assets whose value reflects the discounted present value of expected future economic rents derived from trading activity. The results indicate that ERTA produced a large decrease in the market valuation of futures exchange capital which was not recaptured in the ten months following the announcement.