Paul A. Laux

The Relative Importance of Competition and Contagion in Intra-Industry Information Transfers: An Investigation of Dividend Announcements

Large revisions in dividends are accompanied by stock price reactions for industry rivals of the announcing firm. Though these effects are near-zero on average, their magnitude differs systematically across the firms in the industry. Rivals that are unlikely to be affected by competitive realignments within the industry tend to experience stock price effects like those of the announcing firm. Those that are likely to be affected tend to experience statistically insignificant reactions of the opposite sign. Thus, for some rivals, competitive effects apparently offset contagion effects. We find supporting results for changes in rivals dividends over a longer period.

The Information Content of Corporate Investment Annoucements: The Case of Joint Ventures

Partner firms to the same joint venture experience sharply different stock price reactions. These differences cannot be explained by mechanical factors related to differences in firm size and ownership share in the project, nor are they attributable to different partner roles in the project or differences in investor anticipation of the announcement. We conclude that the stock price reactions reflect a revaluation of non-project assets that is different for each partner. Additionally, we find evidence indicating that investors infer information about agency problems (in the sense of Jensen, 1986) from the joint venture announcements and subsequently, revalue the whole firm – not just the marginal project being announced. Finally, we find that free cash flow is value-enhancing for one type of partner firm after we control for the extent of agency problems.

Board Members' Media Connections and Access to Financing

Corporate board members who also sit on the boards of media companies enhance their companies’ �?nancing outcomes in the public equity and debt markets. The linkage operates via increased prominence and sentiment in news flows. The effect is more pronounced in the bond market where increased news flow can reassure bond investors and reduce their concerns about monitoring disadvantages relative to private lenders. In the equity market the news attracts mainly retail investors. As a result, �?rms with media-linked directors issue more public equity and debt (as much as 8% of the assets), and can borrow on better terms.

Cost, Risk-Taking, and Value in the Airline Industry

This chapter develops empirical measurements of the shape of airline firms’ cost functions as they relate to price variation of oil-based inputs and outputs during the 1998–2009 periods. Using the estimates, we assess the value-added potential for hedging and risk taking with respect to oil prices. We find reasons to believe that the potential value-added of hedging fuel costs with oil derivatives is somewhat limited on average, but that it varies across the business cycle. Our evidence helps explain why, although many airlines hedge, also many do not hedge, why hedging is incomplete, and why hedging intensity varies over time within many airlines.