Tuesday, September 28, 2004

Are you ready for some football? Super Bowl and stock returns

Football in New Orleans! No, I am not talking the Saints, the Green Wave, or even LSU. But rather the paper by Fehle, Tsyplakov, and Zdorovtsov that will be presented at the FMA conference in New Orleans.

Short version: Super Bowl advertisers outperform the market by about a half a percentage point on Super Bowl Monday. This increase, which apparently is permanent, is concentrated in heavy advertisers and caused by buying activity by individual investors. This is consistent with a behavorial finance view of the world.

Longer version: Fehle, Tsyplakov, and Zdorovtsov study the stock price of firms that advertise during the Super Bowl. While overall there is no abnormal return, there is a positive abnormal return of slightly less than a half a percent for heavy advertisers.

The stock price jump does not appear to be driven by either increased expected sales or enhanced liquidity. To establish the mood and to tie this paper to behavioral finance, the authors begin by showing that previous research has shown that investor mood and attention, and not just financial variables, may influence stock prices. For example "Hirshleifer and Shumway (2003) document that the good mood associated with the weather...can still affect investor behavior."

Once this link is established, the authors state that this same type of link can exist with Super Bowl advertising. Again in their words:

There are good reasons to believe that mood and attention effects on investor
behavior may exist as a result of advertising. Extensive marketing literature
suggests that a person exposed to an affect-evoking advertisement about any
object, tends to change his or her attitude toward a more favorable
consideration of the object. Thus, advertising promoting the company image may
create a positive mood in the minds of investors and also potentially render
them more optimistic in their evaluation of a company’s fundamentals. [footnotes
The authors then set out to find this relationship. And sure enough they find it. For instance:

While there do not appear to be significant abnormal returns for the overall
sample on average, abnormal returns are greater for firms readily identifiable
from the ad contents and increase in the number of ads employed....For
recognizable companies with the number of ads greater than the sample mean of
two, the event is followed by an average abnormal Monday return of 45 basis
points. Interestingly, the effect appears to be non-transitory in nature as the
20-day post-event cumulative abnormal returns for this subset average 2%.
What might be more important is the finding that this increase in price is caused by buying concentrated in small buyers.

"Our hypothesis is that small, less sophisticated investors are most susceptible
to such effects, and thus tend to buy stock of companies recognized in Super
Bowl ads. This hypothesis is in line with work by Barber and Odean (2002)
showing that small individual investors are more prone to be net buyers of
attention-grabbing stocks....Consistent with our hypothesis, we find that small
trades for recognized companies exhibit significant abnormal net buying

This is interpreted as supportive of the view that investors, in particular small investors, are making decisions based on the ad and not on the underlying economics of the firm. This is understood to be consistent with a behavioral finance view of the world.

The authors correctly note that there are alternative explanations to these findings. For instance:

  1. The ads are of higher than expected quality and high quality ads lead to more sales, and hence a higher stock price.
  2. The ads reduce information costs and therefore lead to a more diffused shareholder base and higher liquidity.

These explanations are considered and then refuted. The easiest refutation is that if there is a response to information costs and liquidity storoes, then the stock price should move on the announcement of the ads, and not on the Monday following the game.

The authors comment on this:

Given that Super Bowl ads are pre-announced, we expect that any positive or
negative effect of the ad on sales is priced in before the Super Bowl. The only
unexpected component of the sales effect could be due to the quality of the ad.
However, there is no reason to believe that investors’ expectations of ad
quality should be biased and therefore we do not expect abnormal returns in the
cross-section after ad quality is revealed.
What may be most interesting is the suggestion that the advertising firms know this relation exists and are running the ad as a means of raising stock prices. "...the decision to run a commercial can be viewed as a costly, endogenous and possibly strategic choice by firms that may aim to exploit investors’ misreaction. The potential for such strategic advertising suggests a possible link between behavioral finance and traditional corporate finance topics."

My view: “Getting noticed” is a factor in pricing. And yes one aspect of advertising is to get noticed. However, it is not a major determinant in asset pricing (the abnormal returns were less than ½ a percentage point). Given transaction costs (both information costs and trading costs), it is probably not worth it for investors to readjust their portfolios prior to when the advertisement actually runs.

Additionally, this “getting noticed” is, as the authors suggest, arguably more important for smaller firms. This size story would also be consistent with the finding that the price jump is driven by small trades since larger trades would gravitate to larger firms.

That said, I am ALMOST convinced. This ALMOST is quite a concession from a market efficiency adherent and testament of a job well done by the authors. When I first read the abstract, I defensively thought of several explanations other than the behavioral finance story. But the authors addressed these arguments. So I am forced to admit that the behavioral finance angle is compelling.

Very interesting paper! I am sure the session in New Orleans will be well-attended, so get there early!

The Stock Market and Political Cycles by John Nofsinger

Our tour of FMA papers continues with The Stock Market and Political Cycles by John Nofsinger.

John Nofsinger examines the historic relationship between who in office and how the stock market does. Contrary to previous papers that used data that went back to only to 1927, Nofsinger reports that for a longer time period (back to 1828!) "The full time-series history reveals that stock market returns are not different between the two political parties"

Talk about a timely paper! It is nearly impossible to watch TV without election coverage inundating you. Moreover many of you undoubtedly have been asked what does one party's candidate mean for the stock market. This speculation has been a hot topic on TV and in the popular press. For example: Business Week, Smart Money, The Baltimore Sun, CNN, and many others have done stories on what the presidential election means for the Stock Market.

The problem with many of these articles is that they are based more on opinion and short data sets (for example, the stock market was up when Clinton was president, therefore Democrats must be good for the stock market).

In academia the tie between presidential election and stock returns has also been looked at. While the data sets are bigger (generally from 1927 on), and the analysis more thorough, the findings are still quite mixed. For instance Santa-Clara and Valkanov report in a recent Journal of Finance article that the stock market does better when a Democrat is president than when a Republican is in office. This can be contrasted with Riley and Luksetich (1980) who find that the market rises on the news of a Republican victory.

Nofsinger examines this apparent contradiction by going back further in time. Using monthly stock data from 1802 (WOW--how cool is that?!! Jefferson was president!), and election data from 1828, he finds no apparent difference in stock market returns based on which party "owns" the White House.

In addition to this important finding Nofsinger proposes an important relationship that may exist. This "social mood theory suggests that the mood of the nation is reflected in the...stock market." (Is anyone else thinking of Charoenrook's Does Sentiment Matter?)

In Nofsinger's own words:
"As an alternative to the political policy theory, I propose that the performance of the stock market is a predictor of who will be elected president. When social mood is optimistic, the stock market is high and voters are content to reelect the incumbents. When social mood is pessimistic, the market is low and voters vote out the incumbent party. Therefore, this social mood theory suggests that stock market performance influences who wins the presidency...."

And later in the paper:
"In the social mood theory, I propose that people suffer from a misattribution bias (see Hirshleifer (2001)) when voting for president. That is, they miss attribute the source of their mood to the incumbent presidential party. They credit the incumbent party for their positive or optimistic mood and blame incumbents for a negative or pessimistic mood."

As such, "stock market returns are more likely to predict presidential elections than elections are to predict the stock market." (p. 1) Specifically, Nofsinger finds that the the return in the 3 years (36 months) prior to the election is a good predictor of whether the incumbent or challenger will win the election.

All in all a fascinating article and one that will definitely makes great conversation at many conference "sessions." (You can also read 'session' as party, social etc. ;) )

BTW the paper is also full of some cool facts such as equity ownership was less than 2% at turn of 20th century as opposed to about 50% now.
So read it! :)

Monday, September 27, 2004

Does sentiment matter?

Does sentiment matter? By Anchada Charoenrook

Super Short version: Yes!

Slightly longer version:

Sentiment, as measured by the University of Michigan Consumer Sentiment Index, does affect stock prices. Charoenrook finds that “changes in consumer sentiment reliably predict excess stock market returns at one-month and one year horizons.

Long version:

This paper tries to settle the debate that exists in finance as to whether sentiment plays a role in asset pricing. This is interesting question for, as the paper states, in a purely rational market, sentiment would play no role.

Alternatively, sentiment plays a role in many behavioral finance markets: “Delong, Shleifer, Summers, and Waldman (1990) propose a model of asset pricing based on the idea that irrational investors guided by sentiment misprice stocks, and the unpredictability of investor sentiment impounds resale risk on assets that they trade. In other behavior-based asset-pricing models, investor sentiment or belief distorted by psychological attributes drives stock prices away from their fundamental valuations.”

Past empirical evidence does not provide a clear answer as to whether sentiment matters or even how to most efficiently measure sentiment. For instance, “in the closed-end fund literature, some researchers argue that small investor sentiment can be measured by change in the discount on closed-end fund equity returns.” Consequently, many finance papers have used closed end fund discounts as a proxy for market sentiment.

This proxy has occasionally led to conflicting conclusions. “Lee, Shleifer, and Thaler (1991) report empirical evidence that the discount on closed-end fund return is a factor in the stock return-generating process.” While on the other hand “Elton, Gruber, and Busse (1998) find that the discount on closed-end fund return is not priced and hence is unimportant in the return-generating process.”
In this current paper, Charenrook around the improper proxy problem relating changes in the widely reported University of Michigan Consumer Sentiment Index to changes in stock market returns.

She finds “that change in the consumer sentiment index is negatively related to future value-weighted and equal-weighted excess aggregate stock market returns at one-month and one-year horizons.” That is if investors are happy (higher sentiment) the returns one month and one year out, tend to be lower.

This relationship “remains a strong and consistent predictor of returns after controlling for other established predictors. [Such as] dividend yield, the book-to-market ratio of the Dow Jones Industrial Average (DJIA), the slope of the term structure, the yield spread between Baa and Aaa bonds, the short rate yield, lagged excess market returns, and the consumption-wealth ratio.”

The author disputes suggestions that such a relationship is due to ties to the business cycle: “Empirical test results…show that the predictability of change in consumer sentiment is unrelated to economic cycles measured by real gross domestic product growth or consumption growth. Moreover, change in consumer sentiment has incremental predictive power for aggregate stock return after controlling for lagged consumption-wealth ratio, which is a strong predictor of business cycles (Lettau and Ludvigson, 2001).”

It is important to note that this relationship is not just statistically significant but economically significant as well: “in the one-year returns sample, a one-standard deviation improvement in consumer sentiment predicts a 6 percentage points a year lower excess return relative to the unconditional mean. Moreover, change in consumer sentiment index performs better than the benchmark ARI model in out-of-sample forecasting.”

In conclusion the author identifies the paper’s main contributions: “First it uses a direct survey of sentiment instead of proxies such as closed-end fund discounts….Second, this study contributes to the debate on whether sentiment can cause systematic mispricing in the aggregate stock market….The results suggest that it is premature to reject a behavioral explanation.”

Very interesting and well done.

BTW the discussion of how the Sentiment Index is calculated in well worth your time!

Thursday, September 23, 2004

Maybe Fraud is not even needed--Earnings restatements and Management turnover

The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover by Desai, Hogan, and Wilkins.

At the same FMA conference session as Jayaraman, Mulford, and Wedge's Accounting fraud and Management turnover, is The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover by Desai, Hogan, and Wilkins. This latter paper finds that fraud may not be needed to increase turnover: Management turnover increases following Earnings Restatements.

In a sample of 146 firms that announced restatements in 1997 and 1998, we find
that at least one senior manager (Chairman, CEO or President) loses his/her job within 24 months of the announcement of the restatement in 60% of the firms. The corresponding rate of turnover among industry-, size- and age-matched control firms is 35%. The significant difference in turnover persists even after controlling for other factors associated with management turnover, such as performance, bankruptcy, and governance characteristics. Moreover, only 17 out of 114 (15%)displaced managers of the sample firms secure a comparable position at another public firm, compared to 17 out of 63 (27%) displaced managers at the control firms.

There are several points to deserve further mention.

1. Have the times changed?

Previous research by Beneish (1999) did not "find a significant difference in the managerial turnover rate between sample firms and size-, age- and industry matched control firms" following GAAP violations." And closely related is the "Agrawal, Jaffe and Karpoff's (1999) investigation of the consequences of corporate fraud"

Thus that the findings of the current paper coupled with the findings of Jayaraman, Mulford, and Wedge suggest that boards of directors are taking a harder stance on fraud and overly aggressive accounting practices.

A logical question to ask is why have Boards of Directors gotten tougher? Readily apparent explanations include because of larger institutional holdings, more active shareholder activism, and/or threats of SEC action.

2. Interestingly, both abnormal returns and management turnover are related to whether the company (or auditor) instigated the restatement or whether the restatement was SEC instigated. "68% of both company-prompted and auditor-prompted restatements result in a turnover. On the other hand, only 48% of the restatements prompted by the SEC or other parties result in a turnover."

This turnover finding is slightly surprising given the finding that SEC-prompted restatements are met with less of a price drop: the "reaction to the 60 company-prompted restatements is -11.33%, while the reaction to the 22 auditor-prompted restatements is the strongest at -15.21%.

This is consistent with the idea that if a board is concerned enough to force a restatement, then the board is also in disagreement with the manager's actions and would be more inclined to replace the manager.

Explanations as to why SEC-prompted restatements are met with less of a price change is that they may contain more leakage and thus the price drop may occur prior to the event window and/or the SEC acts on less important issues than do Boards.

3. Not surprisingly, firms that restate their earnings are more likely to end up in bankruptcy than are control firms: "there is a greater frequency of bankruptcy filings for sample firms as compared to the control firms (15 out of 146 sample firms filed for bankruptcy within 24 months of the announcement of the restatement whereas only 4 control firms filed for bankruptcy).

4. Reputation matters!

This is possibly my favorite part of the paper looks at what happens after the manager is replaced. The authors state it very nicely:

"If the managerial labor market imposes a significant penalty on displaced managers by shunning them when they attempt to locate alternative employment opportunities, such an outcome would be consistent with Fama's (1980) notion of ex-post settling up." And would therefore serve as a deterrent to risky accounting measures (including but not limited to fraudulent accounting practices).

The authors set up their findings with a quote from the Economist:

"A sacked CEO, says Tom Neff, chairman of Spencer Stuart and doyen of America's
recruiters of chief executives, 'may be literally unemployable.' He is extremely unlikely ever to run another public company, although he may be able to 'hang on to a board or two' as a non-executive, or to gain a seat on the board of a couple of
unimportant companies. Hardly anyone returns from the dead." (The Economist,
Oct. 25, 2003, p. 13.)

The findings support this: "32 out of the 114 displaced managers of the sample firms (28%) are able to find some form of employment following their departure. The corresponding number for the control firms is 31 out of 63, or 49%. This difference is also significant (p-value=0.01). "

The paper goes on to check other measure of future employment with qualitatively similar results. "Collectively, these results show that the future employment prospects (at any level) for the sample firm managers are significantly worse than those of the control firm managers. This evidence is consistent with the existence of significant reputational penaltiesand/or ex-post settling up in the managerial labor market."

Why do I like this section so much? Because it shows that the managerial labor market does incorporate publicly available information and it gives further proof that reputation matters. This should reduce the incidence of fraud and risky accounting by raising their costs.

5. Given the market discpline described above, one might be tempted to ask "are efforts by government to reduce fraud necessary or merely redundant? "

While this is virtually impossible to answer, the governmental actions and fines are apt to be a little consequence, but do add to the market penalty and as such will at the margin help to discourage the undesired behavior. However, the question remains whether govenmental resources could be better spend increasing information transparency (which will increase the probablity of being cheaters being caught) rather than merely penalizing those who are caught.

VERY INTERESTING and Highly recommended!

Wednesday, September 22, 2004

Accounting fraud leads to higher management turnover--Go figure!

Our trip to the FMA meetings continues with a look at Accounting Fraud and Management Turnover By Jayaraman, Mulford, and Wedge.

Jayaraman, Mulford, and Wedge ask the question “What impact does accounting fraud have on the turnover of top management?” Their answer really should not surprise anyone who has been paying attention in recent years: fraud leads to higher turnover. However, just because the outcome is known, it does not mean the paper is not worth reading!

Short Version:
Accounting fraud leads to a higher likelihood of upper management turnover in the 5 year event window surrounding the inclusion in the SEC Accounting and Auditing Enforcement database

Longer version:

“Accounting fraud and scandals have been occupying a central stage in the public policy debate in the recent years. This paper studies firms’ management turnover as a result of accounting fraud.”

Existing literature on the topic is surprisingly mixed. For example, if you presume firms are more likely to cheat when times are bad, there is several papers that suggest that CEO turnover increases as performance is bad. However, in a paper that is closer to this one, Agrawal, Jaffe and Karpoff (1999) “do not find systematic evidence of unusually high turnover among senior managers and directors. Even for financial fraud firms, they do not find higher top management and director turnover rates than control firms.”

It is in this context that Jayaraman, Mulford, and Wedge begin their paper.

Their sample is composed of 291 firms that were the target of SEC action for accounting fraud from 1990 to 2000. The authors examine management changes over the 5 years (+/- 2 years) from the first SEC Accounting and Auditing Enforcement Release (AAER). This event window is noteworthy both because of its length (5 years) but also because it is for 2 years prior to the SEC announcement. This is because there is often a long time period between when the fraud was committed and when the SEC announces their investigation. For many firms it is likely that the news of the fraud, and possibly the pending investigation, is already incorporated by the market prior to the official announcement.

Over this 5 year time period, the authors “identify top management turnover in 180 of the 291 firms.” This is significantly more than found at control firms. Again to quote the authors:

“In all models, top management is significantly positively related with AAER
dummy at 1% to 5% level, after controlling for size, growth opportunities, returns and board information.”

Why the difference between this and previous work?

The authors respond to this question: “Our result is different from Agrawal et al (1999) where they do not find significant relationship between fraud and top management turnover. There are several reasons for our stronger findings: First, they do not document the turnover prior to the event when it is more likely to happen as a correspondence to the fraud investigation. Second, their sample includes frauds of all kinds while our sample primarily focuses on accounting fraud….Third, they collect data from Wall Street Journal, which is more likely to document fraud of larger companies. Our sample includes all firms in AAER releases and does not have the same size bias. One can argue that fraud has less direct impact on management turnover in bigger and more complicated firms.”

Overall it is an interesting paper that, while seemingly relatively early in the publication process, does fit what we would expect to see.

Board Size debate continued: Faleye upholds tradition!

A more traditional view of Board size: Smaller is better

A great thing about academic conferences is that you can see multiple sides of most issues (group think is generally not a problem!) For instance at the upcoming FMA meetings Olubunmi Faleye will present a paper that represents the traditional view (at least since Yermack 1996) that smaller is better when it comes to board size. To quote myself in the August FinanceProfessor newsletter:

“Faleye reports that large boards of directors are less likely to replace existing CEOs and if the CEO replaced, less likely to find a successor from outside the firm. Moreover, when firms announce smaller boards, the firm's stock return is positive.” These findings lead Faleye to conclude "that a large size hinders the board's ability to perform its monitoring functions, and lends additional support to the current drive toward smaller boards."


That Faleye uses some cool techniques and has some important findings that help shed light on the board controversy is undebatable.

1. Rather than examining CEO turnover conditional on firm performance, the author looks at unconditional performance. Why? A good board would replace a CEO BEFORE performance suffered, not after. (The logic for this comes form Hermalin 2004.)

2. Larger boards are significantly less likely to replace managers! “The probability of CEO turnover during the period is significantly decreasing in boardsize: An additional director reduces the odds in favor of turnover by 13%!” (Emphasis is mine.) I would caution CEOs who would like to use this finding to entrench themselves that this is non linear or else putting 8 new board members would lead to life long entrenchment.

3. Replacement by smaller boards is tied to better stock performance: “announcement period abnormal return is significantly negatively related to board size, which implies that investors view CEO replacement decisions made by smaller boards more positively than those made by larger boards.” This could be because smaller boards are more apt to replace with an outsider.

So how does this paper fit with the papers by Coles, Daniel, and Naveen (CDN), or with Larcker, Tuna, and Richardson (LTR)? Interesting question!! They are not as different as they may first appear.

For starters that the findings are slightly different should not be surprising. The authors are looking at different samples and more importantly they are not looking at precisely the same thing (although close!). For example CDN use Q values as the dependent variable. LTR use “a wide set of dependent variables, e.g. abnormal accruals, excessive CEO compensation, debt ratings, analyst recommendations, Q, and over investment.” Faleye looks at the likelihood of CEO replacement and abnormal returns on the replacement.

That said, I think what I will take away from these papers is further evidence that smaller boards do appear to be better monitors. BUT (and this is big) better monitoring can come at a cost of expertise and advisement. This cost varies with firm specific factors.

What is still a bit troubling to me is that if the market knows this and incorporates it in the price ( for example LTR show that smaller boards are better where monitoring is more important), why is there still a difference in stock returns following the replacement? And it is more pronounced for smaller boards, the opposite of what would be consistent with the market anticipating the change.

Is this return somehow tied to firm specific factors (maybe industry specific) that is not being picked up by Faleye?

Obviously much left to be said on the topic. It is unfortunate that LTR and Fayele are not in the same session in New Orleans.

Tuesday, September 21, 2004

Corporate Governance by the Numbers: It Doesn't Work - Knowledge@Wharton Larcker, Tuna, and Richardson

http://knowledge.wharton.upenn.edu/article/1041.cfm: "Another paper that shows that governance is not eaily quantified."

Short Version: Larcker, Tuna, and Richardson provide more more evidence that corporate governance is not easily quantifiable and what works for one firm may not for other firms.

Longer Version:

Consistent with Coles, Daniel, and Naveen, but opposed to what many so-called corporate governance experts are trying to sell, is a recent paper by Larcker, Tuna, and Richardson. They find that corporate governance is endogenous and that there does not appear to be an easily quantifiable means of differentiating good and bad governance.

The authors did try to quantify goverance. They examined data on "more than 2,100 public firms" to find what factors led to good governance and what variables wee tied to poor governance. Somewhat surprisingly, they could not find any relationships: ""Our overall conclusion is that the typical structural indicators of corporate governance used in academic research and institutional rating services have a very limited ability to explain managerial decisions and firm valuation."

Why? The most likely explanation is by trying to find single factors that fit all firms, they are losing the relevant importance. For example (in the spirit of Coles, Daniels, and Naveen) what works well at a diverse firm (a large board) may not work well as a single-line firm. Or while insiders are good for R&D intensive firms, insiders may magnify agency costs at slow growth firms.

As Richardson summed up "The recipe book is big, and there's a different recipe for each company." And to those that are using governance report cards to evaluate or instruct firms, Richardson adds "As far as we can tell, there's no evidence that those scorecards map into better corporate performance or better behavior by managers."

What does this mean to financial research? My best guess is that using the "structural indicators" (example number of outsiders on board, board size, etc) will only have meaning in a controlled context. For instance, it will no longer be enough to measure governance by saying there are X% of outsiders on the board, but rather one will have to say "within the same industry, one firm has more insiders than the other firm." Which will be much more time consuming and difficult, but maybe if we have the proper matching, then we can begin to see what does and does not work.

Does size matter? An examination of board composition and size by Coles, Daniel, and Naveen

Our trip through the FMA annual meeting at New Orleans continues with a look at a paper on Board Size and Makeup by Jeffrey L. Coles, Naveen D. Daniel, and Lalitha Naveen.

Short Version:

Optimal board composition and board size are a function of firm makeup.

Long Version:

They examine two questions: 1) Is there such a thing as an optimal Board of Directors? and 2) Is board composition firm dependent?

In other words, is this there such a simple formula that will yield a "good" board of directors? Or is this question too complex for a simple answer and what is optimal for one firm may be horrible for another firm?

One way to motivate this paper is to consider that while "several studies have documented that an outsider-dominated, or more independent, board makes better decisions from the shareholder's perspective," many firms do not have this type of board. Why? Is it an agency-cost problem? Or is does the optimal board vary from firm to firm?

Coles, Daniel, and Naveen investigate this topic in their new paper "Boards: Does One Size Fit All?"

To understand this we must remember that boards serve several functions. Chief among the function are monitoring management and providing expertise and aid in strategic planning. While small boards may be better at monitoring, larger and more diverse boards may be better at the providing assistance in planning.

Recently, most evidence on governance suggests that smaller is better. For instance, as the authors write: "Lipton and Lorsch (1992) and Jensen (1993) suggest that larger boards may be less effective than smaller boards due to co-ordination problems in larger boards and problems such as director free-riding. Yermack (1996) and Eisenberg, Sundgren, and Wells (1998) provide evidence that firms with smaller boards have higher Tobin's Q."

This view is not universal however as "Klein (1998) argues that the CEO's need for advice will increase with the complexity of the organization. " Moreover, there is a strand of literature that finds that diversified firms are more complex (Rose and Shephard, 1997). Additionally "Hermalin and Weisbach (1988) and Yermack (1996), suggest that CEOs of diversified firms have greater need for advice as they operate in multiple segments, and therefore require larger boards. " Thus, the authors "expect,..., that board size will be higher for diversified firms."

Additional hypotheses include that insider board members may have more value at firms with higher levels of R&D (insider information is more valuable) and that firms with higher levels of debt may need larger boards to protect the firm from stakeholder conflicts.

Using a sample of 2740 firm-years from 1992 to 1998, the authors use regression analysis (Dependent variable is the firm's Tobin Q value) to show that there is not single optimal board make-up.

True to theory, they find "that Q is increasing in board size in diversified firms and in firms with higher leverage." Q is also "increasing in [the] fraction of inside directors as R&D-intensive firms."

This all fits the view that there is no single optimal board composition that fits all firms. Rather each firm must select its board size makeup based on its specific problems and opportunities.


Boards:Does one size fit all?

Monday, September 20, 2004

Law and Order and the impact of the slave trade

One of the most interesting papers I have read in some time! It really made me think.

Law and Order. No not the TV show. Real law and order. The importance of law in order in a society are often overlooked. This is unfortunate as almost nothing has as far reaching of repercussions. This was again made clear this past week when a friend sent me a link to Brad Delong's Economics blog. While the blog may be a bit too political for me, it is none-the less a wealth of interesting and thought-provoking articles.

The one article that had the most impact on me was a story on Nathan Nunn's academic article Slavery, Institutional Development, and Long-run Growth in Africa, 1400-2000 that had me thinking all weekend long.

Short Version: Nunn examines the economies of African nations and finds that there is a negative relationship between economic success in the 1900s and number of slaves exported from the region.

Longer Version:

We know that African economies are notorious underperformers (in Nunn's words "Africa's economic performance in the second half of the twentieth century
has been dismal.") When you ask people why this is so, you will get many answers. Obviously the continent must be made safer and the warring and corruption must end. Then and only then can the many other problems (including AIDs) be effectively solved.

While all regions have problems, Africa seems to have more than its share. Why? Obviously there is no simple answer. Nunn suggests that this poor performance can be at least partially attributed to "two events: the slave trade and colonialism."

To investigate this, the author uses "estimates of the number of slaves exported from each country [and] find[s] that the number of slaves taken from each country is an important determinant of subsequent economic development."

Which is interesting enough. For instance: why is this so? Is it because the nation had experienced population loss? Had would-be leaders been sold into slavery? (Imagine how different the US would be without Franklin, Washington, Hamilton etc).

Or were the conditions that lead to the slave trade (corruption, lack of property rights, etc) so ingrained as to still drag down economic development?

Nunn concludes that it is the latter reason: "...that the relationship between the slave trade and current economic performance works through the slave trade's effect on domestic institutions. Qualitative evidence from the African history literature supports this empirical finding. The slave trades led to a large increase in warfare, banditry, and kidnapping; they weakened previously well functioning domestic institutions, which in many cases led to a complete disintegration of these societies. If the resulting poor institutions persist today, then it follows that they will have a first order effect on economic development."

And in what is scary given what we have seen in warring nations today: " At this time, entire communities degenerated into predatory societies. Warlords and slave raiders became the new leaders and they altered previously existing institutions to facilitate their needs."

While any empirical investigation that spans six centuries is going to face many date problems, Nunn acknowledges these problems and tries to control for them as much as possible. His results are seemingly robust to the various controls used and fairly convincing to this cynic. ;)


BTW even if you do not understand the math, I would strongly urge you to read the history section. I learned MUCH about the slave trade. For instance it did not end until 1913?!!

Link to Brad Delong's coverage of this, including comments.
Link to the Nunn's paper itself

Financial Engineering News: Richard Lindsey One on One Interview

Richard Lindsey One on One Interview

Technically this may be more economics oriented, but given that Finance is really just applied economics anyways (and we are financial economists), I am sure you will love this interview. It is with Paul Klemperer.

If the name does not ring a bell, you should know he is one of the world's foremost auction experts. To quote the FEN piece: "Paul Klemperer is probably the best-known European auction theorist. From 1997 until 2000, he and economist Ken Binmore headed the team of analysts that advised the UK government about its sale of third-generation telecom licenses. The auction in spring 2000 raised more than five times the amount of money analysts had anticipated."

FEN is interviewer Nina Mehta.

Some of my favorite lines from the interview:

FEN: When you boil everything down, what's the real point of an auction?

Klemperer: An auction allows us to collect information about what the right price is for something when none of us knows it, and often allocates resources more efficiently. Auctions also have an important role in helping us test the basis of economic behavior. The rules are clearly defined and everyone knows what's allowed and what isn't, in contrast with most ordinary economic environments in which people have all kinds of differing objectives and all kinds of different choices. Economists study auctions for the same reason that biologists study fruit flies. A lot of biology is done by studying the fruit fly because it's a very simple organism, and biologists hope they'll get insights that help them to understand more complex organisms such as humans. Auction theory is the economist's fruit fly

FEN: One point you have repeatedly made is that a successful auction depends on its careful design. You caution that an auction should not be an off-the-rack affair

Klemperer: .....First of all, you have to use the mathematical tools of auction theory. Second, you have to think hard about the special features of the particular environment. You have to be very careful to stop any kind of cheating or collusion, or gaming of the rules. At the same time, you have to make the auction attractive to bidders. You'll never do well if you can't get people to show up to the auction. Indeed, many auctions have failed quite badly because designers did not recognize the basic need to get people to come and play the game. Finally, you've got to come up with something that's comprehensible and acceptable to the civil servants and politicians who must run the process, because they're the ones whose necks will be on the line if the process fails.

FEN: Clearly you couldn't teach the politicians math. How did you explain such a complex process to them?

Klemperer: It is important to use, wherever possible, analogies to processes they’re familiar with. Another thing that's helpful is to simulate examples

Other topics include Google (both before and after the actual sale!), and where auctions can be used in the future.

All in all a very interesting interview!

BTW I can not recommend strongly enough that you subscribe to Financial Engineering News. I really enjoy it!


Friday, September 17, 2004

And you thought the SEC was tough!?!?!?

The SEC is a pushover in comparison to Chinese regulators.

From Reuters: "China executed four people, including employees of two of its Big Four state banks, for fraud totaling $15 million. "

In some sick, weird, and bizarre way this story is more evidence that selling shares to the public is a means of reducing conflicts that arise from information asymmetries. Apparently these (and other) cases of fraud became known as China prepared to see bank shares to the public. Wow, talk about your due-diligence!

BTW I wanted to thank the person who sent me this, but he said not to mention him by name. So I won't say thanks. ;) but I will mention that his story came from a blog that I had never seen (which is not overly surprising, I an still pretty new to this) http://caps.blogspot.com/ It is a Corporate Law Blog. While it may be too technical for the non lawyers among us, it is interesting and definitely should be a "must read" for those wanting to get into corporate law. (Tim are you reading?)

Ever worry about sleeping through a test?

Investment Dealers' Digest

You know that feeling? Maybe you have even done it. The fear of over-sleeping and missing an exam or important meeting. Well now imagine you are the head of SunTrust Robinson Humphrey Equity Capital Markets and all of your research analysts missed the test and therefore can not issue research!

Let's go back and see how this happened! In an attempt to prevent further scandals involving analysts, regulators at the NASD, NYSE, and SEC agreed that analysts had to pass two new tests. From an NASD press release:
"The Securities and Exchange Commission (SEC) recently approved amendments to NASD rules to finalize and implement the research analyst registration requirements and examination program. The registration requirements become effective on March 30, 2004. As of that date, any associated person who
functions as a research analyst must pass the new Research Analyst Qualification Examination (Series 86/87) or qualify for an exemption or waiver. The examination consists of an analysis part (Series 86) and regulatory part (Series 87). Prior to taking either the Series 86 or 87, a candidate must also have passed the ...(Series 7), (Series 17), or "met similar requirements in Canada.
So what happened? Somehow SunTrust Robinson Humphrey Equity Capital Markets (henceforth STRHECM) missed the deadline for filing for the extension AND their analysts had not yet taken the new exam. (Rumors that the reason for the delay was that the firm's name was so long that paperwork took too long could not be confirmed).

While in the end it will no doubt all work out as STRHECM (even the abbreviation is long!) has filed for its analysts to take the test as quickly as possible, but the stress levels at the firm must have been off teh charts!

From Investment Dealers Digest: "Hugh Suhr, a spokesman for SunTrust, said the firm 'undertook the project to get analysts registered in August, and we are almost complete with the process.' He declined further comment. Gerry O'Meara, chief executive officer of the capital markets division, declined to comment."

BTW in case you have not seen the new test, rumor has it that it is rather difficult. Again from IDD: "Part one of the exam, the Series 86, contains 100 questions, for which test-takers are allowed four hours, and deals in part with the topics of information and data collection. It primarily focuses on analysis, modeling and valuation methodologies. Analysts who have passed Levels I and II of the Chartered Financial Analyst examination may be eligible for an exemption from the Series 86 if they have either functioned as research analysts since passing Level II of the CFA exam, or have passed Level II within two years of application for registration as research analysts. Due to its technical bent, the 86 is the exam that most concerns analysts who cannot opt out. The Series 87 deals chiefly with securities law and relevant industry regulations."

Want to see what is on the test? Here is the study guide provided by the NYSE and NASD. (at first glance it does not look that bad, but I would admit that I would have to look over some of the regulations again.

Also in a related point, many people get confused with what tests are needed for what jobs. Here is a list of required financial exams.

Thursday, September 16, 2004

Stanley looks at CEO pay when other CEOs are on the Compensation Committee

The basic question that is being asked is "Does having CEOs of other firms on your compensation committee impact CEO pay at your firm?"

As author Brooke Stanley puts it: "Since the compensation of any given CEO is a function of the compensation of his peers, when one CEO serves on another's Compensation Committee, he has an opportunity to indirectly influence his own compensation by awarding increases in pay. Thus CEOs have both an incentive to drive up the compensation of other CEOs, as well as an opportunity to do so when they serve on the Compensation Committees of other firms."

The key point of this is the assumption that CEO pay is partially driven by how much peer firms pay their CEOs. Empirically this does appear to be the case. That is, at least indirectly paying any CEO more money may be expected to have a positive impact on all CEOs pay. Not surprisingly the tightest connection is seen at peer firms.
(To make a sports analogy, higher salaries for right fielders may indirectly drive up second basemen salaries, but a much stronger connection would be to say that higher right fielder salaries lead to still other right fielders getting higher pay.)

This paper examines a relatively small sample (n=94) of large firms from 1994 to 2001 to test whether CEOs do pay fellow CEOs more. If this is found to be the case, then it takes but a small mental jump to conclude that this payment could be the result of an incentive to raise the average CEO pay, and by extension, their own pay.

Using a model that tries to control for firm specific factors, Stanley finds that overall having the CEO of another firm on the compensation committee does not appear to lead to higher pay. An important exception to this is if the CEO is from a "peer firm." In this case pay does increase.

In the author's words: "Overall my results suggest that there is no opportunism in pay setting when a CEO serves on the Compensation Committee of another CEO, unless he is the executive of a peer firm, one similar in size. In such a case, both cash and total compensation are higher, supporting the hypothesis that an agency conflict exists when peers serve as monitors."

Interesting! I would wager that this relation is even more pronounced at small firms where peer relations likely play a more important role in pay setting.

BTW With this paper we can say our trip to the FMA meetings in New Orleans has officially begun. I will try to pick out several articles that will be presented at this year's conference (always one of my favorites!). We will have everything but the French Quarter, water, and too cold of meeting rooms! ;)

Teaching Kids about Money: Why It's Not Just Fun and Games - Knowledge@Wharton

Teaching Kids about Money: Why It's Not Just Fun and Games - Knowledge@Wharton

We all know that finance is important not just for our business lives, but also personal lives. Yet with millions of people living paycheck to paycheck and facing mounting debts, even a quick look around leads many (Alan Greenspan among them) to conclude that many people do not understand finance.

While it is definite that some of the blame stems from laziness (too high of discount rates) and the fact that finance is not offered (or if it is offered it is taught by non finance people) in high schools. But part of the fault also must fall on our shoulders because we don't make finance interesting enough.

As Wharton's Knowledge Journal points out, teaching finance is not as easy at it appears. Why? Many students have no reference point and thus little interest (no pun intended).

Don't believe me? Ask a random group of college students (and not just business majors) how many have direct experience with stocks or bonds. Or better how many find financing decisions inherently interesting?

One way to increase interest (and hopefully learning) is to make the material relevant to students. This may mean using different examples. Examples that make perfect sense to us, may mean nothing to those just starting in finance.

Where should the examples come from? Anywhere! Sports work well--for instance see Using Football to teach Finance by Rodney Paul and some other guy) or music or the news or just about anywhere.

In addition to using different examples, different formats can also help. This might mean using new technologies (web based, or interactive lessons, or even self-paced tutorials to supplement classroom learning) or different formats (putting classes to music etc). Of course it is more work, and I'll be the first to admit that I do not do it as well as I should, but it does work.

You do not need to do it alone. While you can argue as to the effectiveness of my efforts, I would argue that the FinanceProfessor blog and newsletter help in this endeavor by bringing examples to light that are more timely and, in some cases, more interesting than can be found in some texts.

The WSJ Classroom Edition also helps in this area by making business (not just finance) more interesting. This is done by reprinting stories from the WSJ that students can relate to. Krishnan M. Anantharaman is managing editor of The Wall Street Journal Classroom Edition and is in charge of story selection. In his words the stories "have to relate to a teenager's life in some way. I happen to think all stories in the Journal are educational in some form. The trick is finding ones that teenagers can really relate to." Well said! In fact the same is true for virtually any topic in finance!

Wednesday, September 15, 2004

Executive Compensation and the Bills loss, What do they have in common?

What a tough loss for the Buffalo Bills this week. The key play was a 45 yard pass from Brian Leftwich to Jimmy Smith on 4th and 14 for the Jacquars. Had the ball dropped incomplete, the Bills could have run out the clock and gone home with a win.

But no, the pass was caught and the Bills ended up losing the game on the last play of the game (a walk-off touch down).

At the time I thought, "ARGH!! There goes Clements trying to pat his stats again."

So what in the world does this have to do with Finance? A lot actually.

As Gregg Easterbrook (who very well may be my favorite web author of all) wrote in his Tuesday Morning QB piece (warning it is HIGHLY addictive!), Clements is in the last year of his contract. Since cornerbacks are rewarded (either in a new contract or in bonuses) for interceptions, going for an interception rather than merely knocking the pass down may have been contract driven.

This is really just a compensation issue in disguise. Pay matters. How we pay people matters even more. For example: Does the way we reward division managers lead to competition between divisions? Or imagine a CEO who is paid for making his/her firm large. Even though not growing it might be better for shareholders.

Is this that much different than a CB padding his stats because he will be rewarded with a higher contract even though batting down the ball would have helped the team more?

Lesson? BE very careful how you pay people, it may lead to unintended consequences. Which very well may have been the cause of many firms' troubles during the so-called corporate governance crisis. (Example Enron etc)

Thanks to Mark Peterson for bringing this story to my attention (via story link from the SportsEconomist Blog . I will definitely be adding it to my reading list!!!)

Saturday, September 11, 2004

Vote for Fama and Jensen for Nobel Prize ;)

A reader (Subscriber? What do you call someone who reads a blog?) just sent me a link to http://www.argmax.com/mt_blog/. I really am impressed with the site (although not with its name). It is one of the best Economic Blogs I have seen!

And when you are there, why not vote for some Finance people to the survey as to who will win the Nobel Prize. I think both Fama and Jensen are perfectly deserving!!! (I am sure others are as well, but those are the first two that I think of when I think of big names who have not yet won).

For the record, I had to write-in the candidate I chose as he was not yet listed.

Friday, September 10, 2004

Opler, Damodaran, Copeland, and other experts on valuation

FMA Online, Spring, 2004

It really doesn't get much better than this! Tim Opler, Aswath Damodaran, and Tom Copeland speaking on valuation. The presentations (video, powerpoint, and documents) are from last year's FMA conference in Denver.

The real short version of the presentations is that while Discounted Cash Flow Analysis (DCF) is the theoretically correct way to value a firm, most people use some comparable valuation model (AKA relative valuation model).

Why the difference?

DCF is more 1. assumption dependent 2. difficult 3. risky 4. prone to overly optimistic valuations

Each video is about 30 minutes long. The links to the powerpoint slides etc are all on the Spring 2004 FMA Online site.

Tim Opler's video, Aswath Damodaran's video, Tom Copeland's video

Absolutely GREAT.

Yeah I know I have linked to this before, but this week in class we are doing valuation so a repeat performance is well worth the price of admission! (Sure it is free, but it is worth MUCH more!!!)

BTW if you are in my class, listen/watch either the Opler or Damodaran video!!!!

Thursday, September 09, 2004

Stock crashes when CEO flies

CEO plane usage linked to declining stock value.

Short version: David Yermack shows that when CEOs get personal use of corporate airplanes, the firm's stock underperforms "market benchmarks." This underperformance is consistent with a view that the plane usage is symptomatic if a greater agency cost problem.

Longer version:

Perquisite consumption (a fancy way of saying that managers have certain advantages) has long been seen as a prime example of the Shareholder-Manager conflict (see Jensen&Meckling 1976). However, we rarely can quantify the cost. David Yermack helps us to be able to do so.

He examines stock price behavior of firms that allow their CEOs personal use of corporate planes. He finds that :

"CEOs' personal use of company aircraft is associated with severe and significant
under-performance of their employers' stocks. Firms that permit personal
aircraft use by the CEO under-perform market benchmarks by about 4 percent or
400 basis points per year, after controlling for a standard range of risk, size
and other factors. This result proves robust to a wide range of alternative
performance measures and additional controls."

Why? One view is that the managers are wasting money by flying. While this is likely to be true, the magnitude of the underperformance and the expense of flying the plane do not correspond. (well maybe if the plane was used for repeated trips to Saturn.)

A much more likely cause is that the plane usage is symptomatic of more severe agency conflicts (if they will take the corporate jet, then they must not be looking out for shareholders too much!) This is like the evidence from merger and acquisition literature that shows some deals destroy much more value than the value of the deal itself as it signals managers willingness to spend on bad deals--see Kodak and Sterling drug).

Other interesting findings in the paper:

  1. The author finds "find a negative association between CEOs’ personal aircraft use and their level of abnormal compensation, measured as the residual from a separate compensation regression model. While this finding is consistent with Fama’s ex-post settling up perspective, its magnitude is quite small and it has only borderline statistical significance. A CEO who consumes an extra $1,000 in perks, according to the model’s estimates, will see his other compensation fall by about 10 cents."
  2. In what may be an endogeniety story, there is "little evidence...that variables associated with monitoring or governance have any association with perks."
  3. One way to avoid having to disclose this perk consumption is to increase consumption of other perks. Why? Only those perks that make up 25% or more of the total need be reported.
  4. "Aircraft use is by far the largest disclosed CEO perk, appearing more than twice as often as the next most popular item, financial counseling, which includes tax preparation, estate planning, and the cost of representation in contract negotiations." Moreover this is growing quickly: There has been a "sharp increase in the frequency of personal aircraft use over the ten-year sample period, with the annual rate having risen from 9 percent in 1993 to above 30 percent in 2002."
  5. The "the median cost to the company of CEO's personal aircraft use, when disclosed, is a little above $50,000. Costs of operating different aircraft vary greatly.
    Maynard (2001)...estimate[s] the hourly cost of leasing an eight-person Cessna Citation V aircraft as $10,000, or $2,500 per person if the CEO on average travels with three other passengers. A CEO with $50,000 in reportable aircraft use would therefore spend about 20 hours per year in the sky, enough for perhaps three round-trips between New York and Florida." (For comparison, I just checked and a round trip flight from NYC to Tampa Florida is selling for about $236.)
A very cool paper! Although I confess I might like it because it fits my prior beliefs on the subject. That said, if you are looking for a "fun" finance paper to read, this is it!


While I do not know how long the link will last, Yahoo also has an interesting write-up on this paper.

Wednesday, September 08, 2004

3 years already? A look back...FRB: Testimony, Olson--Protecting the financial infrastructure--September 8, 2004

FRB: Testimony, Olson--Protecting the financial infrastructure--September 8, 2004

Can you believe it has been three years since the tragic events of 9-11-2001? You remember where you were and what you were doing. You remember who you watched the drama unfold with. You remember the panic-filled phone calls from friends in NYC or DC, the emails, the fear, the sadness. We all do.

At today's meeting of the House Congressional Committee on Financial Services, Fed Governor Mark Olson looked back at the Fed's response to the attacks (a response which was text book in its execution). He also lays out the steps that have been taken since that fateful day to improve the safety of the financial infrastructure.

In his words:
"Within weeks of September 11, we initiated a self-assessment of our contingency arrangements across the Federal Reserve and embarked on forty initiatives, which we classified under five broad headings:

1. Ensure continuity of Federal Reserve operations.
2. Ensure market liquidity during a crisis.
3. Ensure effective communications and coordination during a crisis.
4. Improve resilience of the private-sector financial system infrastructure.
5. Improve resilience of the telecommunications infrastructure supporting critical financial services"

Many of the changes involve geographical diversity and planned redundancies to ensure the Fed's operations can continue. Additionally improved cooperation between various financial institutions (both international as well as domestic) has been planned.

In the event of an attack, there are now more concrete plans of how to rebound. For instance, economically we have seen increased liquidity does help to soften the blow. This liquidity is important and several steps have been taken to ensure the Fed's ability to provide the necessary infusion is not unduly hampered by disasters (natural or man-made). From an operational perspective, this may be as simple as to determine what "critical" lines of communication must be restored immediately.

Interesting and important for all. Necessary for those in any Institutions or Money and Banking class!


BTW you can still read some of my comments on 9-11 from the page that I made last year to commemorate the tragic events. While not financial, I would especially recommend you read some of the first hand accounts that were in the newsletters that followed the terrorism attacks.
(be forewarned, some of the links no longer work, I will try to update some of them later)

SSRN-Reappearing Dividends by David Ikenberry, Brandon Julio

SSRN-Reappearing Dividends by David Ikenberry, Brandon Julio

If you teach finance, there is a good chance that you have been teaching that dividends are disappearing. This teaching no doubt flows from Fama's and French's 2001 paper that reported firms were cutting back on their dividend payments.

Well, NOT SO FAST! They're Back!! Or at least maybe they're coming back. That is the conclusion of Ikenberry and Julio's interesting look at the ups and downs of dividends.

Short version:

After a fairly significant drop in dividend payments during the 1990s, firms seemingly have started paying them again. However the authors caution that this may just be a temporary increase in a longer downward

Longer version:

Few things in finance have a longer record of being studied than dividends. It is thus concerning that we really do not have any hard fast conclusions.

On one hand dividends are bad because (as pointed out in Black 1976) there appear to be negative tax conotations to dividends.

On the other hand, paying dividends might limit the resources managers can waste and thus serve a useful bonding role (see Jensen 1986).

During much the 1990s many firms quit paying dividends. This was well documents by Fama and French (2001). However that trend appears to have reversed.

Julio and Ikenberry now have found that firms have returned to paying dividends. They report:

Among all US industrial firms (i.e., excluding financials and utilities), 32%
paid a positive dividend in 1984. By 1999, the last year Fama and French
considered, this percentage had plunged to 16%. The propensity for firms to pay
dividends decreased by half over a 15-year period at the end of the 20th
century, much of this decline occurring in the last five years of the century.
Yet the story shows an interesting twist. This downward trend in the propensity
to pay rebounds after reaching a a low of 15% in the third quarter of 2001. By
the first quarter of 2004, the last quarter for which we have data, just over
20% of industrial firms pay dividends.

They also examine the firms by size:

If we focus on the 1,000 largest industrial firms in any given quarter, we find
in 1984 a much higher overall propensity to pay at about 79%. Over time, these
firms show a downward trend that bottoms out around the third quarter of 2000 at
about 36%. By the first quarter of 2004, the last quarter for which we have
data, the payout rate for these firms had increased steadily by 10 percentage
points to 46%.

While differing in magnitude and the exact timing of the change, they find similar changes for smaller firms.

The authors are careful to not read too much into the reversal:

Although one hesitates to read too much into what may be a brief change in an otherwise downward trend, the evidence indicates a material reversal in dividend policy by Corporate America. One wonders whether earlier notions of the death of dividend policy were not perhaps premature.

Much of the rest of the paper examines why dividends appear to be staging a come-back. Among the possible explanations:

  1. Tax cut on dividends reduced, but did not eliminate, take disadvantage of dividends.
  2. Dividends can be used to signal the quality of earnings. This became particularly important in the post Enron world.
  3. The 1990s were a time where there were unusually good investment opportunities. Thus, firms conserved cash to take advantage of these investments.
  4. Firms that survived the fallout of the tech collapse are now more mature and a lifecycle hypothesis would suggest they would then begin paying more dividends.
  5. Investors wanted dividends and thus firms are just catering to their investors desires.

Interesting paper!

Suggested Citation
Ikenberry, David L. and Julio, Brandon R., "Reappearing Dividends" (July 2004). http://ssrn.com/abstract=585703

Wednesday, September 01, 2004

Non finance stuff

Sorry about the lack of posts this last week. With classes starting and working on three or four different papers, I have just run out of time. Hopefully it will all calm down soon. Maybe I can review a paper tonight.

Ristening update:

Absolutely love Grant Comes East by Newt Gingrich and William Forstchen. I LOVE IT!!! It is an alternative history version of the US Civil War. It is so interesting that I can not wait to get to the car to listen to it!

I started swimming again. Wow am I bad. Oh well. It is fun and a good workout.

I'll try to get a few reviews out in the next couple of days....maybe one tonight?