Recent studies document both a significant decline in firms’ propensity to pay dividends and a significant increase in firms’ propensity to repurchase shares and issue equity over the past 30 years. In this paper we test whether firms’ net cash disbursements to equity holders have declined in a pattern similar to firms’ propensity to pay dividends. Contrary to the evidence using dividends, we find no evidence that the conditional propensity to distribute net cash to equity holders has declined over the past 3 decades. Surprisingly, we find that, conditional on firm characteristics, net payout yields have been increasing over time.

We study whether the constraints on firms’ operations imposed by laborunions affect firms’ costs of equity. The cost of equity issignificantly higher for firms in more unionized industries. This effect holdsafter controlling for several industry and firm characteristics, is robust toendogeneity concerns, and is not driven by omitted variables. Moreover, theunionization premium is stronger when unions face a more favorable bargainingenvironment and is highly countercyclical. Unionization is also positivelyrelated to various measures of operating leverage. Our findings suggest thatlabor unions increase firms’ costs of equity by decreasingfirms’ operating flexibility.

Using a large sample of hedge fund manager characteristics, we provide one of the first comprehensive studies on the impact of manager characteristics, such as education and career concern, on hedge fund performances. We document differential ability among hedge fund managers in either generating risk-adjusted returns or running hedge funds as a business. In particular, we find that managers from higher-SAT (Scholastic Aptitude Test) undergraduate institutions tend to have higher raw and risk-adjusted returns, more inflows, and take fewer risks. Unlike mutual funds, we find a rather symmetric relation between hedge fund flows and past performance, and that hedge fund flows do not have a significant negative impact on future performance.

Some acquisitions can be viewed as the quickest means to obtain a scarce resource required for restructuring in response to an economic shock. Such acquisitions can give the acquirer a competitive edge and hurt its competitors. In this paper, I first show that if a firm will be adversely affected by a competitor’s acquisition, then it can rationally “overpay” for the target to avoid this outcome within a value-maximizing framework due to industry equilibrium effects. Next, I show that depending on the level of anticipation by the market, the magnitude of the cost of losing, and the competition between bidders, an acquirer can earn negative payoffs at the announcement of such an acquisition. Even though the merger is the best decision given the circumstances, negative returns incorporate the understanding that the target is a necessary resource to survive in this changing environment, losing it to a rival is costly, and there is a positive probability that the bidder may not win or win by paying more than the synergy value of the target. Finally, I extend the model to include 2 targets that become available sequentially to multiple bidders and show that when there are alternatives available for the target’s resources, overbidding subsides.

Previous studies of Treasury market illiquidity span short time periods and focus on particular maturities. In contrast, we study the time series of illiquidity for different maturities over an extended period of time. We also compare time-series determinants of on-the-run and off-the-run illiquidity. Illiquidity increases and the difference between spreads of long- and short-term bonds significantly widens during recessions, suggesting a “flight to liquidity,” wherein investors shift into the more liquid short-term bonds during economic contractions. Macroeconomic variables such as inflation and federal funds rates forecast off-the-run illiquidity significantly but have only modest forecasting ability for on-the-run illiquidity. Bond returns across maturities are forecastable by off-the-run but not on-the-run bond illiquidity. Thus, off-the-run illiquidity, by reflecting macro shocks first, is the primary source of the liquidity premium in the Treasury market.

Using a sample of 2,281 seasoned equity offerings (SEOs) from 1995 to 2004, we show that the marketing of securities is important to issuers. The number of managing underwriters for an SEO is negatively related to the offer price discount, especially when the relative offer size is large and the stock return volatility is high. Larger investor networks of comanaging underwriters also lower offer price discounts. We argue that the evidence is supportive of the marketing hypothesis: The underwriters’ marketing efforts can lower the offer price discount by shifting up and flattening the demand curve of an SEO.

In this paper, we examine the effect of shareholder rights on reducing the cost of equity and the impact of agency problems from free cash flow (FCF) on this effect. We find that firms with strong shareholder rights have a significantly lower implied cost of equity after controlling for risk factors, price momentum, analysts’ forecast biases, and industry and year effects than do firms with weak shareholder rights. Further analysis shows that the effect of shareholder rights on reducing the cost of equity is significantly stronger for firms with more severe agency problems from FCFs.

Corporate events happen in waves. In this paper, we examine the timing patterns of 5 different types of corporate event waves (new stock and seasoned equity issues, stock- and cash-financed acquisitions, and stock repurchases) using a comprehensive data set of more than 151,000 corporate transactions over the 25-year period from 1980 to 2004. We document a distinctive pattern, previously not found in the literature, in the way stock-related waves form. Corporate waves seem to start with new issue waves (seasoned equity offering preceding initial public offering waves), followed by stock-financed merger waves, followed in turn by repurchase waves. Our results hold over separate decades and across industries. Our results seem consistent with both the neoclassical efficiency hypothesis and the misvaluation hypothesis, and there are distinct periods when one or the other appears dominant.

In this study we examine the relation between corporate governance and institutional ownership. Our empirical results show that the fraction of a company’s shares that are held by institutional investors increases with the quality of its governance structure. In a similar vein, we show that the proportion of institutions that hold a firm’s shares increases with its governance quality. Our results are robust to different estimation methods and alternative model specifications. These results are consistent with the conjecture that institutional investors gravitate to stocks of companies with good governance structure to meet fiduciary responsibility as well as to minimize monitoring and exit costs.

Derivative warrants typically have higher prices than do otherwise identical options. Using data from the Hong Kong market during 2002–2007, we show that the price difference reflects the liquidity premium of derivative warrants over options. Newly issued derivative warrants are much more liquid than options with similar terms. As a result, long-term derivative warrants are preferred by traders who trade frequently. In spite of their higher prices, short-term returns on long-term derivative warrants are, in fact, higher than the hypothetical short-term returns on options. The differences in price and liquidity measures decline as the contracts get closer to maturity.