Dividends and Capital Structure

Hold on to your seats folks, this one gets exciting! Definitely I^3! It starts off so easy: Are dividend policy and capital structure related? And if so how? Surprisingly for two topics that have been central to corporate finance for decades, we still really do not have very good explanations to either. A new paper by Faulkender, Milbourn, and Thackor attempts to solve both

Has IPO underpricing decreased over time?

Continuing with the “history and finance” theme that seems to have arisen of late, Chambers and Dimson examine IPOs from the London Stock Exchange from 1914 to the present. Interestingly, and counter to what standard financial theory might have predicted, they find no reduction in IPO underpricing in the more recent periods of increased regulation and decreased information asymmetries. In

Hedge Fund pay

$130,000,000. That is how much the 25th and 26th highest paid hedge fund managers made last year. The top spot? James Simon of Renaissance Technologies made about $1.5 billion (yes with a "b")!From USAToday:"In rising to the top of what amounts to a who's who list of the secretive hedge fund world, Simons, of Renaissance Technologies, unseated 2004's top earner and first-ever billion-dollar man,

Recent graduates and Money

This AM NPR had an interesting(short) piece on the finances of recent college graduates. Didn't have much new, but you might be interested. Short version: you can save more than you think!

Enron Trial Results: guilty

From CBS Marketwatch: HOUSTON (MarketWatch) - A jury of eight women and four men threw the book at former Enron founder and former Chief Executive Kenneth Lay Thursday, finding him guilty on all six counts of fraud and conspiracy. The jury also found Lay's protégé, former Enron Chief Executive Jeffrey Skilling, guilty on 19 counts of fraud, but acquitted him on 9 counts of insider

Thomas Friedman on Google Video

Long time followers of FinanceProfessor.com know I am a big fan of Thomas Friedman. From his early books to The World is Flat and most of his NY Times articles, I think I have read everything he has written. I may not agree with everything, but at least I have read it (or more aptly ristened to it) and agreed with MOST of it.Thus, I was excited when I found the following from Google Video (one

Two recent purchases turn out to be great "investments"

No, just because the blog is now "listed" on TheMoneyBlogs (check it out, it is pretty cool!), I am not going to start giving stock predictions. Rather these are investments in learning!1.Advances in Behavioral Finance Volume II edited by Richard Thaler. Just get it. Yeah I have read many of the articles in the text before, so what. Context matters and Thaler does a wonderful job of putting the

Do managers backdate options?

Do managers backdate options? It sure seems that way. From Reuters:"A U.S. government probe into stock option grants for executives widened on Tuesday with more technology companies being called on to explain the way these grants are awarded. The investigation focuses on whether companies are giving executives backdated options after a run-up in the stock. Backdated securities are priced at a

How and WHY does inclusion in an index affect stock prices

It is well known that when a stock gets added to an index, the stock price jumps. This has been known for at least as long as the mid 1980s (Harris and Gurel 1986 JF). However the "why" has been the question ever since.Some alternative hypotheses that have been examined include "Certification" by the company running the index (for instance, for the Standard and Poors 500, Standard and Poors

Is Corporate Social responsibility good for shareholders?

Corporate Social Responsibility as a Conflict between ShareholdersMain point of paper: Barnea and Rubin ask the tough and important question of whether Corporate Social Responsibilty (CSR) is value increasing or whether it is an agency cost problem whereby managers and others accrue benefits at the expense of shareholders.They find that firms with "higher insiders ownership and leverage are

NY Times: S.E.C. Eases Audit Rules but Rejects Exemptions

Small firms and even academic researchers (see for instance Linck, Netter, and Yang 2005) have noted that the costs of Sarbannes-Oaxley compliance are higher for small companies. In part as a response to the complaints, the SEC tried to make things easier.From the NY Times:"The Securities and Exchange Commission moved yesterday to make audit rules that have angered many companies easier and less

Huge bill for public retirees hits soon

Just on the outside chance that things are too good for you today, I will give you something to worry about. To put it bluntly, this is not good. Talk about an off balance sheet liability!! Wow. From USAToday "Taxpayers will soon get a surprise bill that could exceed $1 trillion for the cost of paying future medical benefits for state and local workers who retire. Retiree medical costs

Hedge fund follow-up

Two additional articles that you might enjoy on hedge funds (see yesterday's entry)1. From GreenTrader(via moneyscience.org)How to Set Up Your Own Hedge Fund: "Traders and money managers often dream about one day running their own hedge fund, managing large sums of money, and competing head to head with the world's top traders. For many, though, this dream remains unfulfilled, because they do not

Finance Reading List

I was asked for a "summer reading list" for finance classes so here you go: ten (non technical) finance/economics books I would recommend.1. The World is Flat by Thomas Friedman. It has been talked about everywhere (even the SBU graduation speaker mentioned it by name) but it is definitely worth the read! Probably my favorite of the bunch. Read what I wrote about it previously.2. The Wisdom of

Ancient Finance from HBS

The HBS Working Knowledge site has an interesting article by William Goetzmann on financial instruments back in the time of the Romans and Greeks. For instance on checks:"...bankers' checks written in Greek on papyri appeared in ancient Egypt as far back as 250 B.C. Papyri preserved well in Egypt thanks to its arid climate, but Goetzmann thinks it's safe to say such checks changed hands

Fed's Patrick M. Parkinson on Hedge Funds

Let's see what the Fed's Patrick Peterson who is the Deputy Director of the Division of Research and Statistics had to say to the Subcommittee on Securities and Investment, Committee on Banking, Housing, and Urban Affairs, U.S. SenateSome highlights:* "In my remarks today, I will discuss the increasing importance of that role, the public policy issues associated with it, and what the Federal

The Bogle Blog!

John Bogle is truly one of my heros. I really do not think his impact on the small investor can be overstated. He has been a long-time advocate for lower transaction costs and less frequent trading. And this from the founder and long-time leader of Vanguard.From his bio on Vanguard.com:"In 2004, TIME magazine named Mr. Bogle as one of the world's 100 most powerful and influential people, and

When are behavioral biases most pronounced

When do Investors Exhibit Stronger Behavioral Biases? by Alok Kumar.To get a quick understanding of this paper, ask yourself the following question: when do biases (financial or otherwise) play a large role in decision making?Your answer probably includes "in areas where there is much subjectivity" or "in gray areas". Why? Because you can not readily prove the opinion wrong.For example, why do

The NYSE and Competition

Competing with the NYSE by William Brown, Harold Mulherin, and Marc Weidenmier.No, this is not on the impact of ECNs (Electronic Communication Networks) on the NYSE. Rather, it is a fascinating look back to competition from the Consolidated Stock Exchange NYSE's cheif rival from 1885 to 1926.Some of the cool points of the paper1. The NYSE has faced major competition--at its peak the Consolidated

Are real estate commissions going to go the way of stock commissions?

Battling the 6 percent realtor commission - May 1, 2006: "The 6% real estate commission has been under assault awhile, but the hits justkeep coming - and are getting more sophisticated. Three Internet upstarts are the latest to take a shot" That the internet is shaking up the Real Estate business is obviously no surprise. What is surprising is that it has taken so long. Be sure to check

The role of learning in M&A

What better way to kick off "summer" than with a really cool paper from Aktas, de Bodt, and Roll? Short version: The paper confirms the now well known finding that Cumulative Abnormal Returns (CARs) drop with subsequent takeover announcements. The authors proceed to separate takeovers that are done by "rational CEOs" and those that are done by "hubris infected" CEOs. Both groups do show learning

Expropriation: a way NOT to build an economy

My note to all national leaders who have not had economics or finance classes. It may be tempting. It may even look like a great idea: a way of making up for past injustices (real and imagined). But expropriation is almost never a good means of building an economy. Why not? As Aguiar, Amador, and Gopinath write "...[the] threat of expropriation depresses investment, prolonging downturns." What

High School Economics--some really good examples!

This is pretty cool. It is designed for High Schools, but many of the items can be used in college AND even if not, it is useful to know what knowledge incoming freshmen posses. Oh and it is always useful to watch great teachers!Resource: The Economics Classroom: A Workshop for Grade 9-12 Teachers:"Video workshop for teachers provides a solid foundation for teaching the concepts covered in high

Financial Research Association call for papers

FRA: Call for Papers The 2006 Financial Research Association MeetingDecember 16 and 17, 2006 Las Vegas, Nevada"The program committee of the Financial Research Association seeks finance papers of general interest to the profession....The selection process is extremely competitive. Last year’s program represented 7% of submissions."

Want to succeed? Better be prepared to work hard!

While it is "pure finance", it is both interesting and important and from time to time it is important to take a step back and think about learning. That is why, in this time of many graduations (and the NFL draft ;) ), this post will appear on this larger blog and not just my class blog. Indeed it may be the most important lesson we can learn! Namely, that success is hard and that talent alone

Berkshire Hathaway's annual meeting

Two reasons for this entry:1. I love to follow Warren Buffett's Berkshire Hathaway's annual meetings.2. The WSj is having a 10 day free online trial.WSJ.com - Reporters' Notebook: Wisteria Lane, Omaha: "The annual shareholder gathering at Berkshire Hathaway's headquarters in Omaha on Saturday, often called 'Woodstock for Capitalists,' included bling, a merger deal and appearances by the '

Louis Rukeyser, Television Host, Dies at 73 - New York Times

I always liked his show. :(Louis Rukeyser, Television Host, Dies at 73 - New York Times:"Louis Rukeyser, the exquisitely tailored and pun-loving television host who helped millions of Americans believe that they could get rich in the stock market, or at least begin to understand it, died yesterday at his home in Greenwich, Conn. He was 73.AN interesting point in the article:When "Wall Street

Is risk aversion an instinct? Monkeys may hold the answer

ScienceDaily: New Study Finds Similarities Between Monkey Business And Human Business: "As part of the study, the researchers presented capuchin monkeys with two payoff-identical gambles: one in which a good outcome was framed as a bonus, and the other in which bad outcomes were emphasized as losses. Like humans, the monkeys displayed a strong preference for the first option, and like humans, the

Free Financial Spreadsheet templates!!

Free Excel Spreadsheets This collection (which is simly awesome) is from Matt Evans. Great Job!! Thanks to MoneyScience for pointing it out!!

Update on NASDAQ-LSE

This one sure has legs. It has been going on seemingly forever.Nasdaq increases stake in the LSE: "Former takeover suitor Nasdaq Stock Market Inc. revealed Wednesday that it has increased its stake in the London Stock Exchange PLC to 18.9 percent....The purchases are the second major move by Nasdaq to increase its share of the bourse -- Europe's oldest and largest -- since it abruptly dropped a

FEN interview with Jack Treynor

This one should not be missed. FEN has an interview (text) with Jack Treynor (yeah that Jack Treynor, the person who helped devlop CAPM) ."Jack Treynor is one of the river gods of finance. He helped develop the Capital Asset Pricing Model, which relates risk and expected return, in the early 1960s and spearheaded the field of performance measurement for investment funds. Over the decades Treynor

NPR : Q&A: What's Behind High Gas Prices?

Given that every single media outlet seems to be focuisig on price if gas, I found this interesting: it even has some real numbers!NPR : Q&A: What's Behind High Gas Prices?: "If a gallon of gasoline costs $2.90 (this week's average, according to the Energy Department), crude oil accounts for about $1.60. The cost of crude oil on the futures market has risen about 33 percent in the last year....