Robert M. Hull

Bank Debt Reduction Announcements and Negative Signaling

We examine 242 NYSE/AMEX and OTC common stock offerings that reduce bank debt and 254 that retire non-bank debt. We discover that bank debt reductions are associated with negative announcement period stock returns that are more than twice the magnitude of the negative returns found for non-bank debt reductions. The significant difference in returns indicates bank debt reductions transmit negative information beyond that previously cited in the stock offering literature. The regression tests support bank debt signaling models that predict that bankers play a unique role as transmitters of information in the capital markets.

Issue Costs and Common Stock Offerings

Prior research of common stock offerings reaches different conclusions concerning the impact of issue costs on stock value. We identify factors that can best explain the different findings - most prominent are the issue costs measure and the listing. We investigate 323 common stock offerings and find that

Debt‐equity decision‐making with and without growth

61 of every

The information contents of senior offerings that reduce junior securities

100 fall in stock value can be attributed to issue costs. The respective dollar amounts for the samples of OTC, AMEX, and NYSE firms are

Junior-for-senior announcements: A study of the role of inside ownership

72,

IPO valuation and insider manipulation of R&D

69, and

Insider signaling and seasoned equity offerings

38. These findings suggest that the collective impact of the negative wealth effects from managerial signaling may be less important than generally assumed.

Hedge funds vs SEO firms: a comparative analysis

Purpose - The purpose of this paper is to instruct upper level business students on the intricacies of the debt-equity choice with the emphasis on showing the interrelation of this choice with the plowback-payout choice. Design/methodology/approach - The paper is designed around a pedagogical exercise that applies academic theories on the computation of the gain to leverage for an unleveraged nongrowth firm. A question and answer methodology is used within the exercise. The approach is instructional as it attempts to teach students about firm valuation and the variables that are important in the valuation process. The firm valuation method is based on perpetuity equations with and without growth. Findings - Unlike an empirical study that concentrates on providing findings from a data analysis, this paper attempts to instill knowledge and skills to students when making debt-equity and plowback-payout choices. Research limitations/implications - All gain to leverage equations used in this paper are limited by their derivational assumptions and the estimation of values for variables used in the equations. Practical implications - Besides using the traditional Modigliani and Miller (MM)-Miller gain to leverage equations, this paper also uses more recent gain to leverage equations that attempt to bridge the gap between theory and practice by applying new theory on the impact of the plowback-payout choice on the debt-equity choice. Students will be able to compare traditional and recent gain to leverage equations and form their own opinions as to their potential value in practice. In the process, they should get an idea of the practical complexities of financial decision-making. Social implications - Optimizing firm value through proper decision-making implies there is a proper and efficient utilization of societal resources. Originality/value - The paper builds on a prior pedagogical paper that incorporated discount rates (costs of borrowing) within the nongrowth MM-Miller gain to leverage framework. This papers originality and value lies in being the first pedagogical paper to incorporate growth as determined by the plowback-payout decision within the nongrowth gain to leverage framework.

Debt-equity decision-making with wealth transfers

Abstract This study examines 196 pure leverage increases consisting of senior offerings that reduce junior securities. The following contributions not previously discovered by the senior-for-junior research are offered. First, firms for which less information exists have positive announcement period stock returns that are significantly greater than firms for which more information exists. Second, the signaling effects associated with the announcement of a premium and with adverse selection exercise a significant impact on stock returns. Last, the decrease in systematic risk, that accompanies senior-for-junior transactions, occurs almost solely for firms for which less information exists.

SEO valuation and insider manipulation of R&D

Abstract In this paper, we investigate the role of inside ownership in explaining announcement period stock returns for 455 junior-for-senior transactions. We find that returns are more negative for firms with higher inside ownership percentages. Returns become even more negative for firms in which insiders are expected to be decreasing their ownership percentages.