By. Mamoru Nagano
Waseda University Institute of Finance
Juli 2003
Abstract
This paper investigated micro-economic variables that determined corporate capital structure in the East Asian countries of Indonesia, Korea, Malaysia, the Philippines and Thailand in the aftermath of the 1997 Asian financial crisis. In general, there is a high level of dependency by firms on short-term external financing. Based on empirical analyses, the study found a significant negative relationship between firm profitability and corporate debt-to-equity (DE) ratio in all the sample countries. Firm size also has a direct relationship with DE ratio in many countries. On the other hand, the relationship between corporate debt-to-equity (DE) ratio and firm’s tangibility -- generally significant in the industrialized countries -- is entirely insignificant even in the post-crisis period.
Determinants of Corporate Capital Structure in East Asia: Are there differences fromo the Industrialized Countries
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Wednesday, 17 September 2008
Information Risk and the Cost of Debt Capital
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Monday, 15 September 2008
by. Sattar A. Mansi , William F. Maxwell , and Darius P. Miller
Abstract
We test whether forecast dispersion is related to the uncertainty of economic fundamentals by exploiting the unique attributes of the corporate bond market. We find strong evidence that forecast dispersion is positively priced in corporate bond yields. We also provide evidence that other firm specific information measures, such as the level of idiosyncratic risk, analyst following, forecast bias, ownership structure, probability of informed trading (PIN), executive compensation, age, size, and accounting disclosures impact the spread on corporate bonds, but do not subsume the effect of dispersion. Our results are consistent with the hypothesis that the dispersion of analysts’ forecasts represents a forward looking measure of information risk that is priced in financial markets.
Conclusion
In this paper, we examine the impact of forecast dispersion on asset prices to a different claimant, bondholders. We rely on Merton’s (1974) framework which acknowledges that corporate bondholders are short a put option on the firm’s assets. Therefore, if analyst disagreement about future earnings represents a measure of uncertainty about firm value, it should be unambiguous associated with a lower bond price because of its connection with the volatility of the underlying asset. Focusing on corporate bonds provides several potential advantages for examining dispersion and information risk. For example, the bond market has limited short selling and is primarily composed of institutional investors. In addition, bond yields, as a measure of internal rates of return, contain the ex-ante expected bond return. Further, bond pricing models are relatively well-specified.
After controlling for idiosyncratic risk, we find strong evidence that forecast dispersion is
negatively related to credit ratings and positively priced in corporate bond yields. In so doing, we also provide evidence that other firm specific information measures, such as level of analyst
following, ownership structure, probability of informed trading (PIN), executive compensation, age, size, and accounting disclosures also impact the spread on corporate bonds. These results suggest the dispersion of analysts’ forecasts is a forward looking measure of information risk that is priced in financial markets.
Abstract
We test whether forecast dispersion is related to the uncertainty of economic fundamentals by exploiting the unique attributes of the corporate bond market. We find strong evidence that forecast dispersion is positively priced in corporate bond yields. We also provide evidence that other firm specific information measures, such as the level of idiosyncratic risk, analyst following, forecast bias, ownership structure, probability of informed trading (PIN), executive compensation, age, size, and accounting disclosures impact the spread on corporate bonds, but do not subsume the effect of dispersion. Our results are consistent with the hypothesis that the dispersion of analysts’ forecasts represents a forward looking measure of information risk that is priced in financial markets.
Conclusion
In this paper, we examine the impact of forecast dispersion on asset prices to a different claimant, bondholders. We rely on Merton’s (1974) framework which acknowledges that corporate bondholders are short a put option on the firm’s assets. Therefore, if analyst disagreement about future earnings represents a measure of uncertainty about firm value, it should be unambiguous associated with a lower bond price because of its connection with the volatility of the underlying asset. Focusing on corporate bonds provides several potential advantages for examining dispersion and information risk. For example, the bond market has limited short selling and is primarily composed of institutional investors. In addition, bond yields, as a measure of internal rates of return, contain the ex-ante expected bond return. Further, bond pricing models are relatively well-specified.
After controlling for idiosyncratic risk, we find strong evidence that forecast dispersion is
negatively related to credit ratings and positively priced in corporate bond yields. In so doing, we also provide evidence that other firm specific information measures, such as level of analyst
following, ownership structure, probability of informed trading (PIN), executive compensation, age, size, and accounting disclosures also impact the spread on corporate bonds. These results suggest the dispersion of analysts’ forecasts is a forward looking measure of information risk that is priced in financial markets.
The Market Reaction to the Choice of Accounting Method for Stock Splits and Large Stock Dividends
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Sunday, 14 September 2008
by. Graeme Rankine; Earl K. Stice
The Journal of Financial and Quantitative Analysis, Vol.32, No.2. (Jun.,1997), pp.161-182.
Abstract
Prior research has used inaccurate classification rules to distinguish between stock splits and stock devidends. The CRSP classification of two-for-one stock distribution agrees with the actual accounting treatment impacts the announcement period reaction-two for one distributions accounted for as stock dividends are associated with five day announcement returns for distributions accounted for as stock splits. Announcement returns are positively related to earnings growth in the two years following the distribution for stock dividend firms but not for stock split firms, The accounting choise appears to be used to confirm management's private information about future earnings revealed at the time of the distribution announcement.
The Journal of Financial and Quantitative Analysis, Vol.32, No.2. (Jun.,1997), pp.161-182.
Abstract
Prior research has used inaccurate classification rules to distinguish between stock splits and stock devidends. The CRSP classification of two-for-one stock distribution agrees with the actual accounting treatment impacts the announcement period reaction-two for one distributions accounted for as stock dividends are associated with five day announcement returns for distributions accounted for as stock splits. Announcement returns are positively related to earnings growth in the two years following the distribution for stock dividend firms but not for stock split firms, The accounting choise appears to be used to confirm management's private information about future earnings revealed at the time of the distribution announcement.
Earnings and StockSplits
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by. PaulAsquith;PaulHealy;KrishnaPalepu
The Accounting Review, Vol.64,No.3.(Jul.,1989), pp.387-403.
Abstract
This paper examines whether stock split convey information about earnings. The result indicates that firms split their shares after a significant increase in earnings. Before the stock split announcement, the market expects these earnings increases to be temporary. The split announcement leads investors to increase their expectations that the past earnings increases are permanent. The evidence also suggest that the market's reaction to split announcements cannot be attributed to expectations of either future earnings increases or near term cash dividend increases.
The Accounting Review, Vol.64,No.3.(Jul.,1989), pp.387-403.
Abstract
This paper examines whether stock split convey information about earnings. The result indicates that firms split their shares after a significant increase in earnings. Before the stock split announcement, the market expects these earnings increases to be temporary. The split announcement leads investors to increase their expectations that the past earnings increases are permanent. The evidence also suggest that the market's reaction to split announcements cannot be attributed to expectations of either future earnings increases or near term cash dividend increases.
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