Paul Asquith

Equity issues and offering dilution

Abstract This study investigates the effect on stock prices of seasoned equity offerings. The results demonstrate that the announcement of equity offerings reduces stock prices significantly. For industrial issues, regression results indicate that announcement day price reduction is significantly and negatively related to the size of the equity offering. The results appear not to be explained by changes in capital structure associated with the equity offerings. The findings are consistent both with the hypothesis that equity issues are viewed by investors as negative signals and with the hypothesis that there is a downward sloping demand for a firms shares.

Merger bids, uncertainty, and stockholder returns

Abstract This study investigates the effect of merger bids on stock returns. Abnormal stock returns are examined throughout the entire merger process for both successful and unsuccessful merger bids. The evidence shows that increases in the probability of merger benefit the stockholders of target firms, and that decreases in the probability of merger harm the stockholders of both target and bidding firms. There is also evidence that the stock market forecasts probable merger targets in advance of any merger announcement, and because of this, previous studies have underestimated the markets reaction to merger bids.

Event risk, covenants, and bondholder returns in leveraged buyouts

Abstract Prebuyout bondholders, on average, suffer statistically significant wealth losses in leveraged buyouts. Bonds with strong covenant protection, however, gain value, while those with no protection lose value. The disposition of bonds after buyouts, e.g., remained outstanding, called, tendered, defeased, is also strongly linked to type of covenant protection. We also document that covenant use declines for bonds issued after 1980. Finally, the losses to bondholders are small compared with the gains accruing to shareholders.

The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market

Many financial markets have recently become subject to new regulations requiring transparency. This paper studies how mandatory transparency affects trading in the corporate bond market. In July 2002, TRACE began requiring the public dissemination of post-trade price and volume information for corporate bonds. Dissemination took place in Phases, with actively traded, investment grade bonds becoming transparent before thinly traded, high-yield bonds. Using new data and a differences-in-differences research design, we find that transparency causes a significant decrease in price dispersion for all bonds and a significant decrease in trading activity for some categories of bonds. The largest decrease in daily price standard deviation, 24.7%, and the largest decrease in trading activity, 41.3%, occurs for bonds in the final Phase, which consisted primarily of high-yield bonds. These results indicate that mandated transparency may help some investors and dealers through a decline in price dispersion, while harming others through a reduction in trading activity.

Rebuttal of Short Sales, Long Sales, and the Lee-Ready Trade Classification Algorithm Revisited

Chakrabarty, Moulton and Shkilko (2012) claim that they redo Asquith, Oman, and Safaya (2010) and obtain different results. This note shows Chakrabarty, et al. (2012) only redid a portion of Asquith, et al. (2010) and their results for that portion are the same as Asquith, et al. (2010). Furthermore, the findings in Chakrabarty, et al. (2012) do not show the Lee-Ready algorithm properly classifies short sales as they claim.