Marie E. Sushka

Alternative flotation methods, adverse selection, and ownership structure: evidence from seasoned equity issuance in the U.K

We examine valuation effects of announcements of seasoned equity issuance and assess the impact of the choice of flotation method in the U.K. Rights offerings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S. firm commitment offerings. A placing is a fixed-price bought deal that increases ownership dispersion.Placings generate significantly positive share price effects, whereas rights offerings have large negative valuation effects that become more adverse after 1985. We conclude that the option to conduct placings enhances the ability of firms to signal their quality and to use a seasoned equity offering to reduce ownership concentration.

An analysis of contagion and competitive effects at commercial banks

Abstract We examine whether an adverse event at one bank generates externalities for the banking industry, and assess whether the population of commercial banks is homogeneous. We find dividend reductions are negative events for both announcing money center and regional banks, but only reductions at money center banks have negative, contagion-type externalities. Dividend reductions at regional banks have positive competitive effects on geographic rivals. Regulatory enforcement actions induce negative valuation effects that are idiosyncratic to targeted banks, but actions against regional banks generate positive competitive effects on geographic rivals. Our evidence suggests that regional banking markets are not contestable.

External monitoring and its effect on seasoned common stock issues

Abstract This paper demonstrates that the market reaction to announcements of seasoned stock offerings varies with the presence of outside agents - accounting firms, commercial banks, and underwriters - who monitor the firm. The stock price reaction is a positive function of the quantity of bank debt in a firms financial structure, the quality of the firms investment banker, and the quality of the public accounting firm that serves as its external auditor. The evidence supports theoretical models that imply external agents audit, monitor, and certify decisions to issue seasoned common stock.

Informational externalities of seasoned equity issues: Differences between banks and industrial firms

Abstract We examine share-price reactions of commercial bank common stock issues and find negative effects on rival commercial and investment banking firms. In comparison, we find no such intra-industry effects for equity issues by industrial firms. Our results support theoretical models in which bank loan portfolios impound asymmetric information about client firms, so that adverse individual bank announcements generate external information effects on other banks. A policy implication of these results is that regulatory pressures applied to individual banks induce spillover costs for the commercial and investment banking industries. Our evidence also indicates that the legal separation of commercial and investment banking activities is artificial.

Valuation effects of commercial bank securities offerings: A test of the information hypothesis

Abstract This paper provides event study evidence on securities issuance by commercial banks, a set of firms in which capital structure is regulated. The evidence supports the information hypothesis of securities issuance but also indicates that capital regulation interferes with information transfer. We find that: one, the negative impact of equity issues on bank stock prices is much weaker than for non-financial firms; two, the impact of securities issuance is uniformly less negative after the imposition of stricter capital requirements in 1981; and three, the impact of securities issuance is further attenuated after 1981 for non-multinational banks, which faced more specific capital requirements than multinational banks.

A general model of the banking firm under conditions of monopoly, uncertainty, and recourse

Abstract We develop a stochastic programming model of the monopolistic competition banking firm. It assumes the bank faces a downward-sloping loan demand curve and is a price taker in securities markets. Uncertainty and liquidity requirements are incorporated. Bank decisions are made within a two-stage framework where realized disturbances that violate constraints can be rectified ex post at a cost. The results are: (1) Optimal loan and deposit rates are positive functions of the recourse penalty. (2) Asset/liability decisions are interdependent and elastically supplied deposits lower the loan rate. (3) The effect of uncertainty depends upon the penalty rate level.

Corporate commercial paper, note issuance facilities, and shareholder wealth

Abstract In this paper, we hypothesize that the financial market regards the issuance of securities through a note issuance facility or a commercial paper program backed by a standby letter of credit as a favorable signal about the issuing firm. This is due to the certification role played by banks. We demonstrate that announcements of commercial paper programs backed by these formal backstop facilities have a statistically significant positive effect on shareholder wealth. This result is in contrast to issues of other types of securities studied in the literature which have been shown to induce nonpositive effects on shareholder wealth. The initiation of commercial paper programs without this backing has little effect on shareholder wealth. Finally, we demonstrate that the quality of the credit ratings associated with these issues of commercial paper has little effect on abnormal returns. Thus, our results cannot be explained by the pattern of these ratings.

The economics of parent-subsidiary mergers:: an empirical analysis

Abstract We examine parent-subsidiary mergers, transactions that do not entail arms length bargaining or a change in control. These mergers are typically followed by considerable restructuring of subsidiaries. Minority and parent returns are not significantly different from returns at third party buyouts of parent-controlled subsidiaries, transactions that entail arms length negotiations and a change in control. Buyer returns are negative, consistent with overbidding. We conclude that parent-subsidiary mergers facilitate corporate restructuring, foster the reallocation of resources toward higher valued uses, and increase value for both parent and subsidiary.

Deregulation, contestability, and airline acquisitions

Abstract We test whether airline consolidations generate monopoly profits by examining returns to listed carriers around horizontal airline-acquisition bids and evaluating effects of industry concentration on share-price reactions. Under Civil Aeronautics Board (CAB) regulation, returns to targets, bidders, and rival carriers are positive functions of changes in concentration implied by bids. Changes in concentration after deregulation have no positive effect on carrier returns. These results support Jordans (1970, 1972) hypothesis that CAB activities fostered carrier collusion. There is no evidence of monopoly gains from carrier consolidations after deregulation.

Seasoned common stock issuance following an IPO

Abstract We examine valuation effects of a NASDAQ firms first seasoned common stock issue after its initial public offering on NASDAQ and analyze how share-price response is affected by characteristics of the firm and its IPO. First seasoned issues have excess returns of −2.9%, occur after periods of sharply rising stock market prices, and have large positive cumulative excess returns prior to announcement. We find IPO underpricing mitigates share-price response to seasoned offerings as predicted by Welchs (1989) model of the IPO market. Returns are also inversely related to the proportion of firm shares sold by insiders as part of the seasoned offering.