The purpose of this study is to examine the wealth effect of the Risk-Based Capital (RBC) regulation on the U.S. commercial banking industry. The RBC plan was first proposed in January 1986, and its final form was announced on July 11, 1988. This plan resulted from dissatisfaction with the old capital regulation, which did not account for asset risk and off-balance sheet activities. The present study hypothesizes that the new regulation restricted bank optimal behavior and, therefore, adversely affected stock prices. The second and third hypotheses suggest that investors used company specific information, Net Tier 1 and Total risk-based capital ratios respectively, in valuing stocks of the affected bank holding companies. Hypotheses four and five suggest that abnormal returns are proportionally related to the levels of Net Tier 1 or Total RBC ratio. Both the traditional event study and the portfolio time-series regression, with RBC ratios (Net Tier 1 or Total) as the weight factors, are used in this study.

Bankruptcy is a costly event. Holders of publicly traded securities can rely on security prices to reflect their risk. Other stakeholders have no such mechanism. Hence, methods for accurately forecasting bankruptcy would be valuable to them. A large body of literature has arisen on bankruptcy forecasting with statistical classification since Beaver (1967) and Altman (1968). Reported total error rates typically are 10%-20%, suggesting that these models reveal information which otherwise is unavailable and has value after financial data is released. This conflicts with evidence on market efficiency which indicates that securities markets adjust rapidly and actually anticipate announcements of financial data. Efforts to resolve this conflict with event study methodology have run afoul of market model specification difficulties. A different approach is taken here. Most extant criticism of research design in this literature concerns inferential techniques but not sampling design. This paper attempts to resolve major sampling design issues. The most important conclusion concerns the usual choice of the individual firm as the sampling unit. While this choice is logically inconsistent with how a forecaster observes financial data over time, no evidence of bias could be found. In this paper, prediction performance is evaluated in terms of expected loss. Most …

An acquisition bid is like any other proposal for risky investment. The difference arises due to additional source of risk arising from two different sources of information asymmetry due to private knowledge held by the bidder and target. We hypothesize that the bidding process evolves in a manner to optimize bidder's investment in the target through a process of joint signalling. Medium of exchange and bid premium are used as the two signal elements simultaneously by the bidder. We develop a multiple signalling model of the bidding process which is fully revealing in equilibrium.

This study examines two interrelated but separate issues: cross-sectional predictability of equity returns in the Stock Exchange of Thailand (SET), and transmission of stock market movements. The first essay empirically investigates to what extent the evidence of three major documented stock market anomalies (earnings-price ratio, firm size, and book-to-market ratio) can be generalized across national stock markets. The second essay studies the price and volatility spillover effects from the New York Stock Exchange (NYSE) to the SET. The first essay, using the Fama-Macbeth procedure and the pooled time-series cross-sectional GLS regressions, finds a weak relation between the beta and average stock returns. The adjustment of estimated beta for the effect of thin trading does not change the implications of the results. Of the three anomalies investigated, the size effect has the most prominent and consistent role in explaining average returns. For the earnings-price ratio, the results indicate that the significance of the E/P ratio variable persists only if the nonfinancial firms are considered. In contrast to the previous empirical results for the U.S. and Japanese stock markets, the book-to-market ratio fails to explain the SET equity returns. The second essay employs a generalized autoregressive conditionally heteroskedastic (GARCH) model with conditional …

This dissertation examines whether Percs, Preferred Equity Redemption Cumulative Stocks, are properly priced regarding to the relevant securities, such as the underlying common stock, the long-term call option of the stock, and so on. Test results indicate that Percs were overpriced with respect to the equivalent packages composed of the relevant securities. Further tests on arbitrage restrictions show that transaction costs would prevent arbitrage profits. This dissertation also examines the market reactions to Percs offerings. Test results reveal that the market reactions to the announcement of Percs offering and the actual issuance are both significantly negative. Compared to the market reaction on common stock offering announcement, the market reaction on Percs offering announcement is weaker. The overpricing of Percs and the weaker reaction of the market suggest that Percs may have advantages in transaction costs, taxes and some corporate finance issues.