Tao-hsien King

Accelerated share repurchases: value creation or extraction

Review of Quantitative Finance and Accounting

The "signaling value, or more generally, the information content, of ASRs relative to conventiona... more The "signaling value, or more generally, the information content, of ASRs relative to conventional OMRs" remains unsettled in the literature (Farre-Mensa, Michaely, and Schwartz, 2014, p.125). Using a handcollected sample of 716 privately-negotiated Accelerated Share Repurchases (ASR) contracts from 2004 thru 2015, we find ASRs have now become the second largest method of share repurchase in the U.S., representing approximately 10% of all repurchases. We examine managements' motives to initiate an ASR to manage quarterly reported EPS and/or as a signaling mechanism. We find univariate support for the use of ASRs to meet quarterly analyst EPS forecasts. However, multivariate logit regressions reveal that firms are more likely to initiate an ASR if they would have met analysts' forecasts without the accretive effects of a repurchase. Contrary to the literature, we find both 5-day CARs and 1-year BHARs surrounding ASR announcements are significantly higher than those of non-ASR firms. However, post-announcement operating performance is declining for both ASR and non-ASR firms. Taken together, our results support the use of ASRs to send a stronger signal of management's commitment to avoid overinvestment.

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The Impact of Organized Labor on CEO Debt-Like Compensation

Journal of Accounting, Auditing & Finance

We examine the impact of organized labor on the debt-like components of CEO compensation. In init... more We examine the impact of organized labor on the debt-like components of CEO compensation. In initial findings, we demonstrate a positive association between unionization intensity with measures of debt-like compensation intensity used in the extant literature. This finding is robust to alternative measures of union-bargaining strength and empirical approaches. Consistent with the view that managers substitute cash for accrued compensation to improve their bargaining position over labor, this result is robustly driven by the deferred component of debt-like compensation. Our results collectively suggest that unions play an important role in the use of deferred compensation.

Debt maturity and the cost of bank loans

Journal of Banking & Finance

We study the extent to which a firm's debt maturity structure affects its borrowing costs from ba... more We study the extent to which a firm's debt maturity structure affects its borrowing costs from banks. By examining the syndicated loans from 1990 to 2014 in the U.S. market, we find that a firm's short-maturity debt structure is a major determinant of loan spreads after accounting for firm-and loan-specific variables, and firm and year fixed effects. A one-standard-deviation increase in the ratio of short-term debts to total assets increases the mean loan spread by 11.44bps, representing an additional $0.643 million in total interest expense. The result supports the rollover risk hypothesis that short-term debts intensify shareholder and bondholder conflicts and lead to greater credit risk. In addition, we demonstrate that high-growth firms experience a significantly smaller increase in loan spread than low-growth firms as the short-term debt ratio increases. This finding is consistent with the asset substitution theory that short-term debts mitigate the overinvestment problem and therefore reducing firm risk.

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Is Dividend Policy Related to Information Asymmetry: Evidence from Insider Trading Gains

SSRN Electronic Journal

... instances when firms capitalize the costs associated with intangible assets. However, since i... more

S&P 500 Index reconstitutions and information asymmetry

Applied Financial Economics

ABSTRACT

The decision to list abroad: The case of ADRs and foreign IPOs by Chinese companies

Journal of Multinational Financial Management, 2010

... On the other hand, the companies that cross-list in Europe have less foreign sales and averag... more

The Financial Crisis and Temporary Liquidity Guarantee Program: Their Impact on Fixed-Income Markets

The Journal of Fixed Income, 2013

The authors examine the Federal Deposit Insurance Corporation’s (FDIC’s) Temporary Liquidity Guar... more The authors examine the Federal Deposit Insurance Corporation’s (FDIC’s) Temporary Liquidity Guarantee Program to determine the effectiveness of this government-sponsored solution for the recent banking crisis. They explore the impact of the program on the liquidity and credit crisis in the debt markets and the market value of the FDIC guarantee. They find a negative and significant two-day abnormal stock return of –1.53% around FDIC-backed debt issue dates, suggesting stockholders held pessimistic views on the future prospects of the banks. Bondholders reacted positively to the issuances, with a two-day excess return of 0.32%, confirming the positive liquidity and credit effects in the debt market. The authors also find a significant drop in yield spreads of AAA debt issues around the announcements of FDIC-guaranteed debt issues. Using multiple regressions, they confirm the drop in yield spreads of AAA financial bonds after the program started. Both findings suggest that the program effectively encouraged liquidity and confidence. Finally, FDIC-backed debt trades at a discount of 132 bps to nonguaranteed debt, implying that the guarantee is valuable.

An Empirical Examination of Call Option Values Implicit in U.S. Corporate Bonds

The Journal of Financial and Quantitative Analysis, 2002

ABSTRACT

Shareholder governance, bondholder governance, and managerial risk-taking

Journal of Banking & Finance, 2011

We examine the relation between the overall corporate governance structure and managerial risk-ta... more We examine the relation between the overall corporate governance structure and managerial risk-taking behavior. We find that the overall governance structure has a significant impact on how managers make decisions on investment policy: strong bondholder governance motivates more low-risk investments such as capital expenditure and lower high-risk investments such as R&D expenditures, whereas weak shareholder governance (entrenched managers) leads to more R&D expenditures. Moreover, we find that the effects of governance on investment policy differ significantly between speculative and investmentgrade firms. For speculative firms, strong bondholder or shareholder governance leads to more capital expenditures and low R&D investments. For investment-grade firms, strong bondholder or shareholder governance leads to low capital expenditures and an insignificant impact on R&D investments. Furthermore, financing and investment covenants exhibit strong binding power to deter risky investments. Finally, a more dependent (or a less independent) board is associated with low capital expenditures and high R&D investments.

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Going private transactions, bondholder returns, and wealth transfer effects

Journal of Banking & Finance, 2010

We examine how buyout activity and deal characteristics drive bondholder returns and the wealth t... more We examine how buyout activity and deal characteristics drive bondholder returns and the wealth transfer effects between bondholders and stockholders in going private transactions from 1981 to 2006. We find that various deal characteristics are major determinants of the cross-sectional variation in bondholder returns. In particular, a single private equity acquirer mitigates bondholder losses. On the other hand, bondholders have larger losses when a reputable buyout firm is involved in the deal. Bondholders experience losses in the 1980s and 2000s, but enjoy gains in the 1990s. Our findings remain robust to consideration of deal financing, relative cost of credit, and level of market overheating. We find a negative and significant relationship between stockholder and bondholder wealth effects, which supports the wealth transfer hypothesis.

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Shareholder governance, bondholder governance, and managerial risk-taking

Journal of Banking & Finance, 2011

We examine the relation between the overall corporate governance structure and managerial risk-ta... more We examine the relation between the overall corporate governance structure and managerial risk-taking behavior. We find that the overall governance structure has a significant impact on how managers make decisions on investment policy: strong bondholder governance motivates more low-risk investments such as capital expenditure and lower high-risk investments such as R&D expenditures, whereas weak shareholder governance (entrenched managers) leads to more R&D expenditures. Moreover, we find that the effects of governance on investment policy differ significantly between speculative and investmentgrade firms. For speculative firms, strong bondholder or shareholder governance leads to more capital expenditures and low R&D investments. For investment-grade firms, strong bondholder or shareholder governance leads to low capital expenditures and an insignificant impact on R&D investments. Furthermore, financing and investment covenants exhibit strong binding power to deter risky investments. Finally, a more dependent (or a less independent) board is associated with low capital expenditures and high R&D investments.

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Does Dividend Policy Relate to Cross‐Sectional Variation in Information Asymmetry? Evidence from Returns to Insider Trades

Financial Management, 2006

... Tao-Hsien Dolly King is an associate professor of finance at the University of North Carolina... more

Bondholder wealth effects in mergers and acquisitions: New evidence from the 1980s and 1990s

The Journal of Finance, 2004

We examine the wealth effects of mergers and acquisitions on target and acquiring firm bondholder... more

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GSE Debt and the Decline in the Treasury Debt Market

by Tao-hsien King and Brent W. Ambrose

Journal of Money, Credit, and Banking, 2002

... The largest of the GSEs, Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLB), hav... more

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