Edward J. Zychowicz

Institutional investors, corporate discipline, and the role of debt

Abstract This paper examines the influence of institutional ownership of corporate shares on the capital structure decisions of individual firms. We find that institutional concentration of ownership may be a substitute for the disciplinary and signaling roles of debt. A significant and negative relationship between the use of corporate debt and the percentage of shares owned by institutional investors is observed. This relationship is again observed when a more narrowly defined measure of institutional concentration is employed. The findings reported in this paper suggest that institutional influence through the governance process may not be independent of corporate financing decisions.

The performance of new equity offerings in Hungary and Poland

Abstract This paper documents the short- and long-run price performance of 103 initial public offerings (IPOs) in Poland and 33 in Hungary during the 1991–1998 period. The empirical analysis reveals significant first-day underpricing of 15.12% in Hungary and 54.45% in Poland. The long-run performance of the new offerings in these markets is less conclusive. The cross-section regression analysis finds that market momentum is a significant and primary determinant of initial returns in both countries. The evidence suggests that over the study period, the degree of underpricing is determined by the intensity of demand driven by investor interest where offering prices do not fully adjust to the prevailing market conditions.

Predicting Stock Returns in the Developing Markets of Eastern Europe

How well can market fundamentals such as earnings-to-price (EP) ratios, book-to-market (BM) ratios, and dividend yields (DY), along with political risk measures and economic variables, predict stock market returns in the transitional countries of Eastern Europe? BM ratios are positively and significantly related to future returns with 1- to 12-month horizons. There is some evidence that EP ratios are negatively related to returns with holding periods longer than six months. Dividend yields are on average positively related to stock returns but with lower degrees of statistical significance. The findings also show that stock returns are significantly related to market liquidity and systematic risk. The linkages between returns and economic and political variables are mixed and inconclusive.

The Impact of Faith-Based Screens on Investment Performance

There has been a phenomenal rise in faith-based investing in recent years. A very important question arises: do investors sacrifice satisfactory economic returns by making ethically and socially responsible investing decisions based on their faith? Using data on 36 faith-based mutual funds, this article reviews and extends previous research on the performance of faith-based investing. It examines the performance of these faith-based funds over three different five-year periods from May 2001 to February 2008. By applying a comprehensive set of tests, the authors find evidence that faith-based funds mostly outperform the market. The results also suggest that faith-based funds do better than socially responsible investing funds in general.

Pension plan terminations, excess asset reversions and securityholder wealth

The total firm valuation impact of an excess pension assetreversion is an unresolved issue. Prior studies focusing on stockholder wealth provide varied evidence. This study examines the valuation effects of excess asset reversions on bondholders (straight and convertible) and stockholders of the sponsoring firm. The redeployment and the negative signalling hypotheses provide a framework for the analysis. We provide evidence of wealth expropriation from straight bondholders to stockholders. Convertible debtholders are not impacted by plan terminations. Contingency table analysis also reveals evidence in support of the negative signalling hypothesis for a significant portion of the sample. Cross-sectional regression identifies financial weakening of the firm, reversions undertaken for restructuring purposes and takeover defense related terminations as significant determinants of bondholder excess returns.

Share prices and pension funding: An empirical test of the joint effect of pension insurance and the pension tax shield

This article examines the joint significance of the tax benefits of pension funding and the value of government sponsored pension insurance in determining the efficacy of corporate pension funding. When the pension tax shield benefits are dominant, additional funding may enhance shareholder wealth. However, additional funding is observed to have negative effects on equity prices when the value of pension insurance is dominant relative to the value of the pension tax shield. When neither the tax or insurance effects are dominant, marginal adjustments in pension funding apparently will not alter corporate share prices.