Steven C. Mann

Execution Costs and Their Intraday Variation in Futures Markets

We consider trading costs in the transparent, competitive open outcry markets of the Chicago Mercantile Exchange (CME), in which market makers have no affirmative obligation to trade. We document that while CME spreads are similar in magnitude to those in other markets, realized spreads are often negative. A plausible explanation is that CME market makers are able to employ more complex trading strategies than their equity market counterparts because they are not bound by affirmative obligation. The evidence suggests that market transparency and market maker obligations are important determinants of intraday variation in trading costs. Copyright 2001 by University of Chicago Press.

Do operating leases expand credit capacity? Evidence from borrowing costs and credit ratings

We document that borrowing costs and credit ratings are less sensitive to off-balance sheet lease financing than to on-balance sheet debt financing, particularly for firms that are financially constrained and firms that have limited ability to use tax shields. This evidence is consistent with theoretical predictions based on tax benefits as well as bankruptcy costs. Our evidence on borrowing costs and credit ratings suggests that credit markets treat operating leases differently from balance sheet debt. Consistent with this interpretation, we document that firms closer to ratings borderlines lease more, particularly around the investment grade borderline.

Market Recognition of the Accounting Disclosure and Economic Benefits of Operating Leases: Evidence from Borrowing Costs and Credit Ratings

We contribute to the current debate on the accounting treatment of operating leases by providing evidence from bond markets and private lending on the market recognition of the role of leasing in determining borrowing costs and credit ratings. Borrowing costs and credit ratings are less sensitive to lease obligations than to debt financing for firms that are financially constrained or have lower marginal tax rates, consistent with theoretical predictions based on tax sharing and bankruptcy costs. Firms closer to ratings borderlines lease more, especially those firms around the investment grade borderline. Our evidence suggests that leasing provides financial flexibility to some firms, relative to debt financing, by preserving or extending credit capacity, and that the credit markets evaluate the economic characteristics of operating leases and treat them differently in their pricing. Our finding on the differential pricing in the credit market is particularly relevant to the current lease accounting debate because the mandatory capitalization under the proposed new accounting rule might curtail such differentiation, diminishing the information value of financial statements. We expect to observe a continuing demand for leases independent of accounting treatments as long as there are economic benefits associated with lease transactions such as preserving or expanding credit capacity.

Market Microstructure Theory.

Foreword. 1. Markets and Market--Making. 2. Inventory Models. 3. Information--Based Models. 4. Strategic Trader Models I: Informed Traders. 5. Strategic Trader Models II: Uninformed Traders. 6. Information and the Price Process. 7. Market Viability and Stability. 8. Liquidity and the Relationships between Markets. 9. Issues in Market Performance.