John M. Pinkerton

The intraday speed of stock price adjustment to major dividend changes: Bid−ask bounce and order flow imbalances

Abstract This paper examines the intraday stock price reaction to substantial shifts in dividend policy. The results indicate the price reaction to be slower than that previously found by Patell and Wolfson (1984) and closer to that found with earnings announcements by Woodruff and Senchack (1988). Possible order flow imbalances are examined by looking at the proximity of transaction prices to contemporaneous bid and ask quotes. While order flow imbalances are evident for bad news announcements, this is not the case for the dividend increase sample. This is interpreted as evidence that the price reaction to major dividend increases are in general anticipated. Fifteen minute holding period returns are computed to measure the movement of equilibrium prices during the announcement period. Results show a rapid adjustment of prices to positive announcements with adjustment to negative announcements taking up to 75 minutes. Finally, fifteen minute lagged bid—ask returns are calculated to determine whether an investor could respond to the announcement and earn positive returns. These results are found to be dependent on the transaction cost assumptions being made.

On the Rightholders' subscription to the underwritten rights offering

This paper provides an explanation for the typical and often overlooked occurrence ofundersubscribed rights offerings. We argue that due to subscription costs it may be incorrect to presume that rights offerings will be fully subscribed simply because the subscription price is set below market. We present ordinary least squares estimates and Tobit estimates which support our subscription cost rationale.

Multiple objective capital budgeting within the university

Abstract The problem of selecting capital projects in universities is compounded by the existence of conflicting multiple objectives on the part of different groups within the university community. Administrators, faculty members, students and politicians all have different goals and projects which they feel are important to the university and themselves. Because of the multiple objective dimension of the capital budgeting process goal programming becomes an appropriate solution approach. However, because of the indivisibility of some capital projects, mixed integer goal programming, a variation of the traditional GP model, must be employed. The solution approach is demonstrated via an illustrative case example. Model goals in the example (which are prioritized by the top administrative officers of the university) exist for capital budget and operating expenses, building and laboratory construction, accreditation, political interest and area performance.

Recent SEC prosecution and insider trading on forthcoming merger announcements

Abstract While trading on nonpublic information is illegal, the enforcement of this law has been elusive, particularly in the area of trading in advance of merger announcements. We examine the impact of insider trading on daily stock price changes for firms identified by the SEC in the Antoniu-Newman insider trading case. Using residual analysis, the abnormal returns occuring prior to the announcement are calculated and compared with a sample of 188 typical merger candidates not identified in the Antoniu-Newman case to determine whether or not there was an unusually large market reaction prior to the forthcoming merger announcement on the subset of merger candidates involved in the court procedure.

The usage of convertible and warrant bonds by Japanese firms: Risk-shifting or the delayed issuance of equity?

This paper examines the risk-shifting and delayed equity hypotheses concerning the use of convertible securities by Japanese firms. The popularity of equity-linked debt instruments in Japan where institutional arrangements can mitigate the transfer wealth from bondholders to stockholders appears inconsistent with the risk-shifting hypothesis. Further, we find that the probability of selecting convertible securities over common equity is not positively related to the potential for a wealth transfer from bondholders to stockholders. We obtain similar results when we examine convertible debt ratios. However, we find evidence consistent with the delayed equity hypothesis that firms use convertibles to delay equity when they have favorable information about the firm. The stock price increases preceding and following convertible issuance are positively related to offering size and growth opportunities as predicted by the delayed equity hypothesis. Overall, our findings endorse the delayed-equity hypothesis as an explanation for the use of convertible securities by Japanese firms.