Meziane Lasfer

On the financial drivers and implications of leasing real estate assets

Purpose – This paper aims to contrast the financial costs and benefits of leasing, rather than owning real estate assets.Design/methodology/approach – The main argument is that leasing is beneficial. The hypothesis is tested using a total of 2,343 UK‐quoted companies over the period 1989‐2002, resulting in 14,101 pooled time‐series and cross‐sectional observations.Findings – The results indicate that large and high‐growth companies are likely to lease than to own these assets. Companies that lease are more efficient in using their real estate and that these benefits are compounded in share price valuation as leasing propensity is strongly leasing propensity is not linear, but an inverse U‐shaped, suggesting that the market is also considering the costs of not owning real estate.Research limitations/implications – The study relied on historical accounting values of real estate rather than market values which are not available in machine readable format, and there was no data on the type of real estate and ...

The Tax Impact on the Ex-Dividend Dates: Evidence from European Firms

In this paper we examine the behaviour of share prices around the ex-dividend dates across four major European countries: France, Germany, Italy and the UK. We analyse the tax system and tax reforms in each country and test the hypothesis that if taxation is the sole determinant of ex-day prices, then differences in ex-day returns across these countries should be directly related to each countrys tax differentials between dividends and capital gains. We find that in all countries ex-day returns are positive and significant and in countries where the differential between dividends and capital gains is high (low), ex-day returns are high (low). We also find that changes in the tax systems that affect taxes on dividend and/or capital gains altered significantly ex-day returns. Further tests indicate that ex-day returns are not affected by transaction cost and market microstructure effects. Our results provide support for the tax hypothesis.

Why Do Companies Pay Stock Dividends? The Case of Bonus Distributions in an Inflationary Environment

We assess the market valuation of an unusual form of stock dividends, referred to as bonus distributions, which are carried out by transferring the accumulated equity reserves, mainly the inflation revaluation equity reserves, to paid‐in capital leaving the total equity unchanged. In the absence of cash substitution and transaction cost effects, we find positive excess returns on the announcement dates, particularly for the financially weak firms, such as the non‐cash‐dividend‐paying firms. We relate our results to the ‘paid‐in capital hypothesis’ under which firms opt for bonus distributions to mitigate the impact of inflation on their eroding paid‐in capital, to reduce their leverage defined as debt‐to‐paid‐in‐capital ratio, and to increase their credibility and borrowing capacity in a market of limited access to external equity financing. Although our results are also consistent with the retained earnings and signaling hypotheses, we find no support for the attention‐getting, and a weak support for the liquidity enhancement hypotheses observed in other markets.

Does Cross-Listing Mitigate Insider Trading?

This paper examines whether the increased legal and reputational constraints associated with cross-listing in the U.S. reduces the propensity of insiders to trade on private information. We find that the directors in both domestic and cross-listed firms trade on private information, particularly when they sell their holdings, as their trades generate negative and significant abnormal returns regardless of the cross-listing level, and the post-event returns in exchange-listed and OTC-listed firms where the regulation is expected to be less binding are relatively similar. We also show that the impact of the Sarbanes-Oxley Act (SOX) is limited. These results provide weak evidence for the impact of cross-listing on the propensity of insiders to trade on private information.

The Impact of Taxation on Dividends: A Cross-Country Analysis

We analyze dividends tax systems in the world and assess their impact on dividend distributions. Using data from 24 OECD countries, we find that the dividend payout is monotonically distributed across tax regimes as firms in classical tax system countries have significantly lower payouts and speed of adjustment to target dividends than companies in partial or full imputation tax system countries. We also report that the type of dividend tax system affects the size of dividend payout while the tax rate differential between dividends and capital gain affects the propensity to pay and the decision to change dividends. Our results hold when we control for the other fundamental determinants of dividends. Finally, we find that ex-day returns are monotonically distributed across the tax systems, suggesting that the dividend taxation is also compounded into stock prices.

Optimism in foreign investors

Purpose - The purpose of this paper is to compare the short-term trading behaviour of A shares owned by domestic investors and their dually-traded B shares owned by foreign investors, after a period of significant price change. Design/methodology/approach - Given that the fundamentals of A and B shares are the same, the paper tests the hypothesis that both types of stocks should behave homogeneously either by exhibiting a momentum behaviour or an over-reaction pattern. The paper relates any deviations in post-shock stock returns to the differences in the trading patterns of foreign relative to domestic investors. Findings - While the prices of the A shares are relatively random after the event, those of the B shares carry on increasing significantly after both positive and negative shocks. This trend is more pronounced for large firms with high liquidity, in contrast to the efficient market hypothesis expectations, which suggests that any abnormal performance should be arbitraged away sooner in a frictionless (in this case liquid) market. Originality/value - The paper relates these results to the high level of optimism of foreign investors, which is an under-researched area in behaviour finance.

The Market Valuation of Share Repurchases in Europe. A Cross Country Analysis

We analyse a uniquely constructed data set of share repurchases in France, Germany and the UK. We find significant differences across the three countries in the popularity of this strategy, in the market reaction and its determinants, and in the likelihood of subsequent share repurchase announcements. We show that in the UK, fundamental factors such as initial announcement, size, past returns, ownership concentration, and changes in regulations during our sample period explain the market reaction to the announcement of intention to repurchase shares. In the remaining countries, the excess returns are not persistent in the post-event period, and the fundamental factors do not consistently explain the market reaction and the probability of subsequent repurchases announcements. Our results suggest that institutional settings affect the value creation of share repurchases.

Why Do Directors Change Their Ownership During IPO Lockup Arrangements

We test a number of hypotheses to assess changes in director ownership during lockup periods. We find that these transactions are additional signalling devices. Our results also imply that they are contractual arrangements between directors and underwriters, as directors increase their holdings after significant price decline, in line with the price support hypothesis, but they decrease their ownership after price run-up, consistent with the early lockup releases hypothesis. Stock prices decline when directors decrease their holdings, like the seasoned firms. Interestingly, stock prices decline significantly after ownership increases. The overall effect of director purchases is different as compared to seasoned firms, and it reduces the heavy decline in share prices for those IPOs. Our results could imply that the valuation uncertainty of IPOs makes the precision of directors’ information content weak and their profitability low.

Insider Trading and the Long-Run Performance of IPOs

We find significant impact of insider trading activity on the long-run performance of IPOs. We show that, at the aggregate, insiders are net sellers in IPOs that generate positive long-run returns, while they are net buyers in those that underperform. When we analyse individual trades, we find that they adopt contrarian strategies, but their information effectiveness is weak. They buy in underperforming IPOs, but while share prices increase significantly on the announcement date, they become negative in the post trade period. These buy trades are consistent with the price support hypothesis, but, since prices do not revert, their signal is not effective. In contrast, they sell in overperforming IPOs, but the announcement and post-event period are mainly insignificant, suggesting that insiders sell when their IPO reaches its optimal value, and the pre-trade returns drive the excess performance of net sell IPOs. Overall, unlike previous evidence, the direction of stock price reaction to insider trading in IPOs is not consistent with the expected performance, because the valuation uncertainty of IPOs makes the precision of the information content of insider trading weak and the profitability of insiders low. Thus, our results do not support strongly the agency conflict, and the trading on private information hypotheses, and in terms of signalling, insider trades reflect more the past than the future performance.

IPO Lockup Arrangements and Trading by Insiders

We document that the average lockup of 365 days in the UK is higher than the US 180 days and many insiders trade within the lockup period. We find that prestigious underwriters and underwriter power (longer lockup) drive their trades. However, they sell in over-performing, large, and low institutional holding IPOs, but buy in underperforming IPOs with lower underpricing and proportion of shares locked. On the lockup expiry dates, there is significant price drop for early buy but not for early sell IPOs. We suggest that this early trading activity is pre-arranged with the underwriters to mitigate information asymmetries.