Richard A. DeFusco

The Association Between Executive Stock Option Plan Changes and Managerial Decision Making

This paper examines the behavior of managerial investment, dividend, and capital structure decisions subsequent to the adoption of stock options as part of the compensation package. Previous studies have documented a positive stock market reaction to changes in incentive compensation plans. The specific changes that such plans induce remain unclear. Surprisingly, firms that increase incentive stock option plans experience earnings declines, on average, relative to their industries. A decline in expenditures on R&D and an increase in selling, general and administrative expenses is also documented.

Changes in the Information Efficiency of Stock Prices: Additional Evidence

Previous research shows, using data from three quarters after the implementation of regulation fair disclosure (Reg FD), that there is an improvement in the informational efficiency of stock prices after Reg FD. We compare the informational efficiency of stock prices in four pre-Reg FD quarters (1999–2000) and 12 post-Reg FD quarters (2002–2005). The improvement in the informational efficiency of stock prices previously reported in the immediate aftermath of Reg FD persists in later periods.

Skewness preference, value and size effects

We test the Kraus–Litzenberger three-moment capital asset pricing model (CAPM) and the Fama–French (FF) three-factor (FF) model with the C-test proposed by Davidson and MacKinnon. We are unable to reject the null hypothesis that expected returns are described by either of the models in cross-sectional regressions. However, for size-sorted portfolios, both the FF three-factor and the three-moment CAPM significantly explain expected returns.

An Empirical Analysis of the Dynamic Relation among Investment, Earnings and Dividends

The separation principle implies independence among a firm’s financing, investment, and dividend decisions and that investment policy is the sole determinant of firm value. One important implication of the separation principle is that investment decisions of the firm should never be impacted by the firm’s dividend decisions. However, recent work suggests that payout policy is also a first-order value determinant, suggesting interdependence between a firm’s dividend and investment decisions. We empirically examine and quantify the relation between dividends and investment by modeling the dynamics of investment, earnings and dividends at the firm level in a vector autoregression (VAR) framework for a large cross-section of firms. Results show that shocks to dividends do have long-run consequences for investment and vice versa, implying bi-directional interdependence, evidence against the separation principle. Long-run dynamics from impulse responses show that on average, for a

The Effect of Executive Stock Option Plans on Stockholders and Bondholders

1.00 shock to dividends, there is an immediate decrease in investment of

Long-Run Diversification Potential in Emerging Stock Markets

3.00 and a cumulative 12-year response of –

The exchange traded funds’ pricing deviation: analysis and forecasts

0.02. For a

Portfolio performance, managerial ownership, and the size effect

1.00 shock to investments, there is an immediate increase in dividends of

SKEWNESS PERSISTENCE IN US COMMON STOCK RETURNS: RESULTS FROM BOOTSTRAPPING TESTS

0.03 and a cumulative 12-year response of

Risk, return and international investment by US corporations

0.06. Lastly, preliminary crosssectional regression results of the dividend response indicates that firms with more profitable investment opportunities (i.e., higher market-to-book ratio) have larger dividend responses to a shock to investments.