Mark D. Walker

Credibility and Multiple SEOs: What Happens When Firms Return to the Capital Market?

Using a sample of firms that conducted multiple SEOs during 1995-2012, we examine whether firms can build credibility for subsequent SEOs by following through on their stated use of proceeds from earlier SEOs. We find that firms that previously state their intention to invest funds in projects and those that make no such statements but nevertheless make investments both have relatively more positive announcement returns around subsequent SEO announcements. Our results suggest that markets are aware of potential agency costs of equity, have a long memory, and update their beliefs as to the likely use of funds raised by firms.

Pension Assets, Corporate Earnings, and Expected Return Assumptions

Corporate earnings can be enhanced by means of pension fund accounting. The critical factor is the rate of return assumptions on plan assets, particularly in light of recent dramatic changes in stock market returns and todays reduced estimates of expected future returns. The rate of return assumptions made by a number of S&P 500 companies are unusually optimistic when the probabilities of realizing these returns are calculated. In fact, the earnings of several companies with defined-benefit plans may be significantly adversely affected in the next few years.

The Effect of Tougher Enforcement on Foreign Firms: Evidence from the Adelphia Perp Walk

The public arrest of Adelphia executives John Rigas and his two sons on July 24, 2002 and the spectacle of these executives being paraded in front of news reporters and photographers signaled tougher enforcement of laws against corporate crime. Relative to domestic firms, foreign firms traded in the U.S. fared badly on the day of the Adelphia perp walk, underperforming by 1.8% (by 2.5% when controlling for industry and the financial characteristics of firms). A framework based on the expected cost to firms from tougher enforcement suggests three possible reasons. Foreign firms may be targeted more heavily, may face greater reputational penalties, or may find it more costly to react to (deflect) enforcement. We construct variables linked to each reason and test to see if these explain the July 24 returns of foreign firms. We find some evidence consistent with each of the suggested reasons, but stronger evidence for differential targeting and higher reaction costs for foreign firms.The public arrest of Adelphia executives on July 24, 2002 signaled tougher enforcement of laws against corporate crime. On that day and the two following days, foreign firms experienced a cumulative 1.7% decline in value. Relative to domestic firms, the loss was a much larger 4.5%. The expected cost to firms from tougher enforcement suggests three possible reasons. Foreign firms may be targeted more heavily, may face greater penalties, or may find it more costly to react to (deflect) enforcement. We find evidence consistent with foreign firms facing higher costs from tougher enforcement for each of these reasons.