Comparative Value-relevance of GAAP, IBES, S&P Core, Cash Earnings and Cash Flows

This study examines the impact the global financial crisis had on the value relevance of GAAP and non-GAAP earnings. We adopt the Ohlson (1995) valuation and CAR models to test the value relevance and information content of alternative earnings measures. We use six different earnings measures comprising IBES earnings, Standard & Poor’s (S&P) core earnings, cash earnings, cash flows from operations, earnings from operations adjusted to exclude special items under GAAP and income before extraordinary items under GAAP. We draw our sample from US publicly traded firms between 2002 and 2010. Our sample is partitioned into Financial and non-Financial firms, and S&P 500 and non-S&P 500 firms. The results show that investors place greater value relevance on GAAP earnings during the GFC period relative to the pre-GFC period

Financing and Investment Flexibility Intrinsic in Revolving Credit Loans

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WEBS, SPDRs, and country funds: an analysis of international cointegration

Prior empirical studies analyzing linkages between international equity markets have suffered because suitable real-world financial instruments representing national equity markets were not available for trading. In March 1996, World Equity Benchmark Shares (WEBS) began trading on the American Stock Exchange. WEBS are open-end index funds that trade like closed-end index funds; they are designed to closely track the international indices developed by Morgan Stanley Capital International. This study utilizes WEBS along with Standard & Poor’s Depository Receipts (SPDRs) to avoid the previously encountered problems associated with nonsynchronous trading, fluctuating foreign exchange rates, non-liquidity, trading restrictions, and index replication. Results indicate that substantial pairwise cointegration exists among the 18 market indices as well as between individual closed-end country funds and their own-country WEBS. In addition, Granger causality tests indicate the existence of short-term causal relationships, suggesting market inefficiencies and the possibility of short-run arbitrage opportunities

The impact of financial crises on international diversification

Benefits from international diversification are well documented; low correlations between domestic and foreign securities allow for the construction of portfolios with improved return/risk characteristics. However, recent evidence indicates that correlations among international security markets are related to these markets' volatility, thus reducing the efficacy of international diversification at the time it is needed most. The turmoil in capital markets following the recent Asian financial crisis provides a vivid illustration of these phenomena. An examination of the correlations and volatility of 11 foreign markets reveals that potential diversification benefits changed dramatically for the period following the devaluation of the baht by Thailand in July 1997. Specifically, both the correlations among 11 country indices and their volatilities increased substantially following the July devaluation. Interestingly, index funds, represented by World Equity Benchmark Shares (WEBS), dominated closed-end country funds prior to the devaluation, but were dominated by the closed-end funds (CEFs) subsequent to the devaluation

The Response of Bank Share Prices to Securitization Announcements

This paper examines the impact of securitization announcements on share prices of multibank holding companies. Prior studies report share price responses are industry-specific. Because a few frequent issuers dominate multibank holding company securitizations, we move from an industry comparison to a comparison of firms within the banking industry. The data are partitioned on financial characteristics, and we observe significantly positive wealth effects for banks with high bond ratings, high financial leverage, low non-interest expense, and high issue frequency. We argue that these characteristics serve as proxies for, respectively, information asymmetry and creditworthiness, financial slack, comparative advantage in loan origination, and reputation. When the data are partitioned into Citigroup, MBNA and other MBHCs, we find that the two major securitizers differ substantially and that the other MBHCs exhibit significantly positive share price responses

Market response to syndicated loan announcements from high‐profile failed and acquiring banks during the global financial crisis

Previous studies that have examined the impact of the 2008 financial crisis on syndicated loans have ignored potential differences between lending banks by explicitly or implicitly aggregating all lenders together and focusing on borrower characteristics. One must jointly consider both borrower and lender to fully understand the complex role of the syndicate during this period. We consider the identity of the lender, with a focus on five major US banks that failed and their five corresponding acquirers. Our results highlight the distinct roles of investment and commercial banks and facilitate an understanding of relationship and transactional‐based lending