Stephen F. Borde

Does an Industry Effect Exist for Initial Public Offerings

We examine the impact of initial public offerings (IPOs) on rival firms and find that the valuation effects are insignificant. This insignificant reaction can be explained by offsetting information and competitive effects. Significant positive information effects are associated with IPOs in regulated industries and the first IPO in an industry following a period of dormancy. Significant negative competitive effects are associated with larger IPOs in competitive industries, those in relatively risky industries, those in high-performing industries, and those in the technology sector. IPO firms that use the proceeds for debt repayment appear to represent a more significant competitive threat to rival firms relative to IPO firms that use their proceeds for other purposes. Copyright 2003 by the Eastern Finance Association.

The Source of Gains to Targets and Their Industry Rivals: Evidence Based on Terminated Merger Proposals

We examine merger gains to targets and their industry rivals and find evidence consistent with the signaling hypothesis. We find that targets and rivals benefit from the merger announcement, but termination results in significant negative returns for targets and significant positive returns for rivals. Termination gains to rivals support the hypothesis that rival firms could become acquisition targets. The gains are positively related to subsequent acquisition activity involving the target and the extent of merger activity in the industry, and are inversely related to the relative size of the target rivals, the presence of competing bidders, and the regulatory environment.

Stock Price Reaction to Dividend Increases in the Hotel and Restaurant Sector

This study assesses the stock price reaction to announcements of dividend increases by firms in the hospitality industry using a standard event study methodology. Results indicate that dividend increases are favorably received by market participants because a statistically significant positive market reaction is observed. Results of a cross-sectional analysis show that the size of the market reaction across firms is positively related to the magnitude of the dividend increase. These results imply that managers ought to carefully consider the ramifications of a change in dividend policy because such changes appear to be perceived as signals of the firm’s future financial condition.

Share Price Reaction To Security Offerings By Hospitality Firms

This study examines the share price reaction to security offering announcements by hospitality firms. Results indicate that a significant negative market reaction is triggered on average when firms announce new equity issues. However, no significant share price reaction occurs when firms announce new debt issues. Cross-sectional analyses of announcement period abnormal market returns indicate that the markets reaction to equity issuance announcements is more favorable or less unfavorable for larger firms. The impact of security offerings is important to investors, managers, creditors, and other stakeholders, as security offerings can have a significant impact on the value of the firm and on the firms cost of capital.