Joseph D. Vu

An empirical investigation of calls of non-convertible bonds

Abstract This paper examines call behavior of corporate issuers of non-convertible bonds. Evidence from a sample of 102 calls indicates that the market value of the called bonds is usually below the call price at the time of the announcement. The stock price reactions to call announcements are positively related to the direction of the change in leverage. When the call relaxes restrictive covenants, the firm on average pays a larger premium to call debt. The premium is a minimum estimate of the potential opportunity costs of restrictive covenants.

Efficient Labor and Capital Markets: Evidence from CEO Appointments

An examination of 268 CEO appointments in US firms indicates that, on average, appointment of a better-quality CEO (a CEO who receives a pay premium ex-ante) is accompanied by an immediate positive revaluation of stock prices, and is followed by an improvement in firm performance. This evidence supports the notion of jointly efficient and integrated labor and capital markets. The findings are particularly strong in non-regulated industries. The managerial labor market appears somewhat less efficient in internal successions, and the stock market appears less efficient or only relatively weakly integrated with the labor market in small firm appointments.

Nonlinearity and Low Deterministic Chaotic Behavior in Insurance Portfolio Stock Returns

This article presents new empirical evidence indicating a deterministic component in the portfolio return dynamics of life-health and property-liability insurance company stocks. Our research is motivated by the fact that nonlinearities are a fact of economic life for many financial applications the source of which is logically apparent, yet empirical evidence of their existence is at best weak. The primary reason attributed to the weak findings of nonlinearities reported in previous research is the use of aggregate data that can hide nonlinearities at the micro level. Insurance sector stock returns are analyzed because unique institutional characteristics indicate the possibility of identifying nonlinear dynamics. Tests based on the correlation dimension partially confirm the presence of nonlinearity. However, the more powerful Brock, Dechert, and Scheinkman (BDS) statistic strongly suggests the presence of nonlinearities in the insurance stock portfolio data. The BDS statistic applied to the standardized residuals of exponential generalized auto regressive conditional heteroskedasticity (EGARCH) models strongly rejects the null of independent and identically distributed, indicating that conditional heteroskedasticity is not responsible for the presence of the nonlinear structures in the data. In addition, tests for chaos based on locally weighted regressions indicate that insurance stock portfolio returns indicate low-complexity chaotic behavior. This is an important result since most previous research has failed to report evidence of chaotic behavior in the time series of stock returns. Important contributions of this article are the application of tests of nonlinearities and chaos to more desegregated data sets and the findings of statistically significant evidence indicating nonlinearities and low-deterministic chaotic behavior in insurance stock portfolio returns.

Do Mergers Create or Destroy Value? Evidence from Unsuccessful Mergers

In this study, we examine unsuccessful takeover attempts for new evidence on whether mergers create or destroy value for acquirers and targets. We contribute to the literature in three important areas. First, we contribute to the literature on signaling by investigating whether a takeover attempt signals investors about the quality of firm management as well as the quality of the specific firm investment under consideration. We find that bid announcement returns are partially, but not completely, reversed by termination announcement returns, evidence that the merger proposal itself contains information about the value of the bidding firm. Second, we contribute to the literature on the value of diversification by examining how merger bids and terminations affect the relative values of bidders attempting diversifying and focusing takeovers. Our evidence enables us to differentiate between the synergistic and agency views of mergers. We find significant differences in the responses of firms attempting focusing versus diversifying mergers. The reversal of bid announcement returns by termination announcement returns is significantly different for focusing and diversifying firms. There is no reversal for diversifying firms while there is a partial reversal for focusing firms. This provides evidence in support of both the synergistic and agency views of mergers. Synergies are evident in focusing mergers while agency costs are evident in diversifying mergers. Third, we contribute to the literature on the valuation effects of mergers by using data from the 1991-2000 period to re-examine the important topic of who wins and who loses when mergers are terminated. Previous research examining terminated mergers has relied exclusively upon data from the 1980s.