In this paper, we develop and test five hypotheses relating the takeover premium paid for a target to the investors' divergence of opinion on the target's equity value. For a sample of acquisitions of publicly traded targets, we show that the total takeover premium is higher when investors have...

This paper studies the effect of advertising on stock returns both in the short run and in the long run. We find that a greater amount of advertising is associated with a larger stock return in the advertising year but a smaller stock return in the year subsequent to the advertising year, even...

Using a sample of debt and seasoned equity issues from 1980-2004 and different proxies of investor optimism and the dispersion in investor beliefs, we empirically analyze, for the first time in the literature, the effect of heterogeneous beliefs among outside investors on the capital structure...

This paper provides a rationale for the use of convertible securities as the medium of exchange in corporate change-of-control transactions. We argue that convertible securities can resolve the information asymmetry about the bidder's value while at the same time mitigating the information...

This paper studies the sentiment among financial analysts around announcements of mergers and acquisitions (Mamp;As). Analyst sentiment is measured using revisions of consensus earnings forecasts. We find that bidders are more likely to offer stock rather than cash in their takeovers when...

This paper studies the variation in the value of diversification across time under various capital market conditions. We find that the value of conglomerates increases relative to focused firms when external capital is more costly at the aggregate level. We also find that such an increase is...

Practitioners have noted that firms tend to increase their product market advertising prior to an IPO or a seasoned equity issue. Further, recent empirical evidence indicates that firms with a greater level of product market advertising have lower bid-ask spreads and a larger number of both...

Mandatory convertibles, which are equity-linked hybrid securities that automatically convert to equity on a pre-specified date, have become an increasingly popular means of raising capital in recent years (about $20 billion worth issued in 2001 alone). This paper presents the first theoretical...

Most finance theories suggest that debt and leases are substitutes. However, the empirical findings on the substitutability between leases and debt are mixed. This paper empirically re-investigates this relationship, and differs from the previous literature in three aspects. First we construct a...

We develop a new rationale for the performance and value improvements of firms following corporate spin-offs. We consider a situation of a firm with multiple divisions, where incumbent management may have differing abilities for managing various divisions. Giving up control to a rival with...