This paper uses a dynamic partial equilibrium model to explain a puzzle of dividend smoothing. In contrast to the Modigliani–Miller theory, I show that firm value depends on payout policy. The analysis implies that firms with more stable dividend stream are more valuable. This explains why...

This paper revisits the Modigliani–Miller propositions on the optimal financing policy and cost of capital in a dynamic setting. In an environment without taxes and bankruptcy costs, the results are generally consistent with the Modigliani–Miller Propositions 1 and 2. However, the first...

We partition takeover bids into two groups: those that are deferred from the date of a toehold purchase, and those that are coincident with a toehold purchase. Coincident bids alone have approximately zero abnormal returns at bid/toehold, but deferred bids have negative abnormals both in the...

We document empirical evidence that bidders tailor their takeover strategy when facing entrenched target managers. Key elements of takeover strategies comprise the toehold investment and the initial bid premium. Intervening variables are the principal outsider and contest parameters. Several...

This paper addresses the question of how target manager entrenchment impacts on bidders' initial takeover strategy, which comprises the toehold and the initial bid premium decisions, modeled as conjoint. We document several empirical regularities. The first is that the toehold alone has no...

This paper provides fresh evidence on CEO stock option awards. We identify several contracting conditions applied either on plan adoption or at subsequent award. We show empirically that option awards cannot be evaluated without controlling for CEO pre-award stock ownership. Although options...

We document a structure of pre-effort conditions associated with ESOPs. Since we can observe shareholder returns at award we infer incentive effects in a setting where premium and discounted executive stock options are regularly awarded. Discounted (premium) awards are associated with the...

We document evidence that (absolute) grant size and exercise price choices in determining optimal pay-performance sensitivity are moderated by executive productivity. Specifically, we find that larger grants are associated with lower productivity, but we also find that in-the-money (ITM) grants...

Schaefer (1998) and Baker and Hall (2004) posit a firm size effect for regular executive compensation but not specifically for executive stock option grants. They propose an inverse relation between pay-performance sensitivity and firm size along with a positive relation between the marginal...

We test the option incentive models of Hall and Murphy (2000, 2002) and Choe (2003). Hall and Murphy (2000, 2002) posit optimal grant size and exercise price contingent on the executive’s levels of risk aversion and private diversification. Choe (2003) relates these choices to firm...