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This paper investigates how firms shifted their dividend policies and leverage policies in response to the economic shock caused by the 2008 financial crisis. The sample countries are United States, Great Britain, France, Germany, Australia, Japan, China, and Korea. The empirical relationship of firms’ dividend policies with their capital structures and earnings was likely to undergo a major change around the 2008 financial crisis, as firms adjusted their capital structures and dividend policies in response to the extreme credit crunch caused by the financial crisis. The extent and the speed that firms deleverage themselves and reduce their dividends were likely to be influenced by countries’ cultural and social norms. This paper finds a significant reduction in dividends across sample countries except Great Britain and France after the 2008 crisis. This finding supports the free cash flow theory that dividends are paid to dissipate free cash flow to address agency conflicts between managers and shareholders. This paper finds a higher correlation between dividends and leverages before the 2008 crisis, and that it strengthened after the crisis except Great Britain and Korea. This finding is consistent more with the pecking order theory than with the trade-off theory of leverage.

Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

We examine the security and firm characteristics of a sample of 2,027 non-convertible investment grade floating rate securities (bonds) issued by the US based firms between 1980 and 2018. These bonds pay a coupon based on short term reference rate, such as fed funds rate, plus a fixed quoted margin. Considerable number (81.6%) of these issues are between 1992 and 2007 signifying floating rate as an effective mechanism to mitigate firm’s interest rate risk when the rates are high and expected to fall. A positive and significant abnormal return (CAR = 0.27%), in the event window surrounding issue date, provides strong evidence that the floating rate is viewed as a less restrictive provision as compared to the call option. Majority of the issues (89.3%) are non-callable since the floating rate mitigates interest rate risk for the issuing firm. Lack of put provision in these bonds (in only 7.35% of the sample issues) signifies no significant investor concerns of falling bond prices. Regression analysis reveals that firms with growth options and with higher leverage experience positive CAR due to the financial flexibility these bonds provide. Firms with higher level of information asymmetry benefits less from issuing these securities since most of these bonds (90.13%) are issued at par therefore, the price is not likely to carry information content that mitigates information asymmetry between the firms and the investors.

This study utilizes hand-collected ownership data to re-examine the signaling, agency and wealth effect theories in a matched-sample of initial public offerings (IPOs) issued in the U.S. prior to and following the passage of the Sarbanes-Oxley Act of 2002 (SOX). SOX provides some motivation for revisiting these topics because evidence exists that it may have affected the types of firms going public and ultimately the relatively importance of adverse selection and moral hazard, the asymmetric information problems with which these theories are concerned. Results on both the pre- and post-SOX samples are consistent with the signaling theory and evidence of a wealth effect exists in both eras. However, in contrast to results of studies conducted prior to SOX, both the pre- and post-SOX results give little credence to the agency theory, suggesting that SOX has not impacted investors’ concerns regarding moral hazard. Rather, the difference between the pre-SOX results and the results of previous studies suggests that SOX appeared to reduce moral hazard concerns only through its effect on the self-selection of firms going public.

The fact that publicly traded companies incur substantial costs when issuing new equity has been extensively documented in the empirical finance literature. In particular, numerous studies show that seasoned equity offerings (SEOs) tend to be priced significantly below prevailing market prices, thereby causing issuers to leave money on the table. Offer price discounting is an indirect flotation cost borne by pre-SEO shareholders that, according to extant theoretical and empirical research, arises due to asymmetric information. A heretofore unrelated literature argues that corporate multinationalism, i.e., establishing operations in one or more foreign countries, exacerbates the asymmetric information problem via greater costs to shareholders of monitoring the activities and performance of foreign subsidiaries. Motivated by these lines of thought, I investigate the relation between SEO discounting and corporate multinationalism. Using a sample of SEOs completed by U.S. firms between 1998 and 2016, I show that offer price discounting is significantly higher in offerings conducted by multinational firms relative to those conducted by purely domestic firms after controlling for known determinants of SEO discounts. This effect is stronger for multinational firms with foreign subsidiaries spread across a greater number of countries and weaker for multinationals that hire a high-reputation underwriter to lead the underwriting syndicate. These findings suggest that asymmetric information costs borne by seasoned equity issuers are increasing in the geographic scope of a firm’s operations, which can be mitigated by certification from a highly reputed lead underwriter.

The fact that publicly traded companies incur substantial costs when issuing new equity has been extensively documented in the empirical finance literature. In particular, numerous studies show that seasoned equity offerings (SEOs) tend to be priced significantly below prevailing market prices, thereby causing issuers to leave money on the table. Offer price discounting is an indirect flotation cost borne by pre-SEO shareholders that, according to extant theoretical and empirical research, arises due to asymmetric information. A heretofore unrelated literature argues that corporate multinationalism, i.e., establishing operations in one or more foreign countries, exacerbates the asymmetric information problem via greater costs to shareholders of monitoring the activities and performance of foreign subsidiaries. Motivated by these lines of thought, I investigate the relation between SEO discounting and corporate multinationalism. Using a sample of SEOs completed by U.S. firms between 1998 and 2016, I show that offer price discounting is significantly higher in offerings conducted by multinational firms relative to those conducted by purely domestic firms after controlling for known determinants of SEO discounts. This effect is stronger for multinational firms with foreign subsidiaries spread across a greater number of countries and weaker for multinationals that hire a high-reputation underwriter to lead the underwriting syndicate. These findings suggest that asymmetric information costs borne by seasoned equity issuers are increasing in the geographic scope of a firm’s operations, which can be mitigated by certification from a highly reputed lead underwriter.

Previous study finds that the firms with inferior growth options tend to issue callable bonds. Typically, these firms are characterized by stock underperformance. Previous study also finds that the floating rate as a superior alternative to the call provision, which is restrictive, when the interest rates are likely to fall. We study the long-term stock performance of floating rate notes (FRNs) issuing firms, issued when the interest rates are high. Stock overperformance would suggest floating rate as a preferred choice by the firms with high growth options rather the call option. We find that the FRNs are generally investment grade with extremely rare presence of a call option. We perform the analysis using Buy and hold abnormal return (BHAR) as the proxy for the long-term stock overperformance/underperformance. A sample of floating rate notes issued (1654) from 1992 to 2007, a period of high interest rates, reveals significant overperformance by the floating rate notes issuing firms in the high-rate paradigm. High growth firms, in the high-rate environment, significantly benefit from the floating rate provision which is less restrictive and less costly than the call option, which typically provides call protection period and pays a call premium. Floating rate provision better mitigates the interest rate risk for the firms in the high-rate environment. We find that the smaller, high growth, higher leverage, less profitable firms with greater agency issues benefit more from issuing FRNs in the high-rate environment. Our study has relevance to the stock portfolio construction and performance. We also perform a comparative analysis using the sample of floating rate notes issued (270) during 2008 to 2018, a period of low interest rates, and find stock underperformance. The implications are that the call option likely is a better choice for the firm since the firm preserves the right to forego exercising the option.

We examine the security and firm characteristics of a sample of 2,027 non-convertible investment grade floating rate securities (bonds) issued by the US based firms between 1980 and 2018. These bonds pay a coupon based on short term reference rate, such as fed funds rate, plus a fixed quoted margin. Considerable number (81.6%) of these issues are between 1992 and 2007 signifying floating rate as an effective mechanism to mitigate firm’s interest rate risk when the rates are high and expected to fall. A positive and significant abnormal return (CAR = 0.27%), in the event window surrounding issue date, provides strong evidence that the floating rate is viewed as a less restrictive provision as compared to the call option. Majority of the issues (89.3%) are non-callable since the floating rate mitigates interest rate risk for the issuing firm. Lack of put provision in these bonds (in only 7.35% of the sample issues) signifies no significant investor concerns of falling bond prices. Regression analysis reveals that firms with growth options and with higher leverage experience positive CAR due to the financial flexibility these bonds provide. Firms with higher level of information asymmetry benefits less from issuing these securities since most of these bonds (90.13%) are issued at par therefore, the price is not likely to carry information content that mitigates information asymmetry between the firms and the investors.

Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

We document frequency distribution of 4315 two-party, non-equity alliances undertaken by the U.S. based firms between 1986 and 2015 in 11industries and find that on an aggregate basis, the firms which form multiple alliances based on the exploitation motive are as likely to enter into alliance as the firms that enter into multiple alliances based on the exploration motive. However, we find strong evidence that the firms that enter into alliances on three or more occasions are driven by the exploration motive while, the firms that enter into alliances one and one or two times are driven by the exploitation motive.  The average cumulative abnormal returns (ACAR) for all of the three subsamples of firms that undertook one, one or two, and three or more alliances during the time period for this study are all positive but exhibit a declining trend.  Firms that are larger in terms of total assets engage more frequently in alliances than smaller firms.  Returns to firms that enter into three or more alliances are sensitive to the leverage employed and the likelihood of bankruptcy whereas returns to firms that enter into only one or one or two alliances are affected significantly by the considerations of competitive forces.