Corporate Finance

This paper compares the properties of dividend announcements and management earnings forecasts as predictors of earnings and firm value. First, the two predictors are compared on the basis of their ability to predict earnings. Then the information they convey about firm value is assessed by comparison of the performance of investment strategies based on values of the two predictors. Finally, the effects of dividend announcements on stock prices are considered.

Corporate investment in an economy without a complete set of contingent claims markets has the characteristic of a public good in the sense that the stockholders' consumption plans cannot be separated from, but depend on, the specific investment plans of the firms. The purpose of this article is to develop an internal allocation mechanism capable of attaining production plans that are unanimously preferred by stockholders and that satisfy a natural notion of optimality applicable to the stock market economy.

In this paper we study the determination of forward foreign exchange rates. An exchange rate is the price of one currency in terms of another currency, and a forward rate is a contractual exchange rate established at a point in time for a transaction that will take place at the maturity date on the contract in the future. Well-organized forward markets exist for all major currencies of the world for various maturities, with the most active contract lengths being one, three, six, and twelve months.

Evidence is given in this paper which indicates that corporate insiders time their trades in their firms' stock relative to the date of the disclosure of their forecasts of annual earnings. Further, insiders earn abnormal returns to their joint trading and information dissemination activities, and the paper provides measures of these returns.

Over the years, there has developed a fairly substantial body of research on the time series of earnings. As a whole, this literature concludes that changes in (annual) accounting earnings are unpredictable, that is, earnings follow a "random walk." Based on this result, some inferences of economic substance (policy) have been claimed. In this paper we reconsider empirical issues which, at least to some extent, have been obscured by this conclusion.

The cost of external equity capital is higher than the investor-required rate of return because of flotation costs (underwriting expenses and underpricing). Recognizing this, regulatory agencies have generally included an allowance for flotation costs in the authorized cost of capital. The adjustment for flotation costs can have a significant effect on the firm and its consumers.

This paper is a theoretical investigation of equilibrium forward and futures prices. We construct a rational expectations model in continuous time of a multigood, identical consumer economy with constant stochastic returns to scale production. Using this model we find three main results. First, we find formulas for equilibrium forward, futures, discount bond, commodity bond and commodity option prices.

Focuses on a theory and test of credit rationing. Lending behavior under a fixed interest rate; leverage terms under risk aversion.

The article presents several lender supply and borrower demand conditions for a leverage structure of interest rates. The paper presents a model of the credit transaction between individuals embedded in a competitive credit market. In this model, the individual has to decide on the optimal allocation of his initial investible capital K, among a risk asset with random rate of return R-1 available to all investors, a riskless asset with return s-1 and lending to or borrowing from another individual. Short sales of the risk asset are not permitted.