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By utilizing survey forecasts of macroeconomic statistics, we find that market participants’ expectations are not rational as they exhibit an anchoring bias. The forecasts systematically underpredict macroeconomic statistics and the forecast errors are predicted by past macroeconomic announcements. Most importantly, we find that the stock market does not see through this bias, that is, we find statistically significant stock price effects of “anticipated” components of macroeconomic announcements. Investors overweight the importance of historical information and do not make sufficient adjustments after the arrival of new information. © 2021 Financial Management Association International

Following the 2007–2008 financial crisis, there is widespread interest in understanding how derivative use drives bank lending behavior. Our paper examines the impact of bank ownership structure on the relationship between derivative use and lending activities of U.S. banks. We find that lending recovered faster in larger banks than smaller banks post-crisis and in line with Diamond’s (Diamond DW 1984 Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414) systemic risk reduction theory, derivative use is positively associated with lending growth. Ownership is significant in explaining the magnitude of the relationship even after controlling for alternative specifications of the derivative use variable. In both normal and crisis periods, the speed of adjustment of lending to derivatives use by stock banks lags that of mutual banks. We suggest that speculative trading in derivatives substitutes for lending growth to a larger extent for stock banks compared to mutual banks. These findings may have important implications for investors and bank regulators. © 2020, Academy of Economics and Finance.

We provide insights into how the market processes going concern audit opinions based on the trading of some well-documented sophisticated investors–short sellers. We find that abnormal short selling increases significantly upon impending going concern disclosures. While prior literature attributed much of short selling around some corporate events to private information, we find evidence that pre-going-concern announcement short selling reflects both privately informed trading and processing of public information by short sellers. Further, a negative relation between pre-announcement short selling and post-announcement short-term stock returns exists for stocks with less short sale constraints. We also find moderate evidence associating short selling with subsequent bankruptcy to some extent. Overall, these results suggest that short sellers front run going concern announcements based on private information and fundamentals, although trading constraints prevent them fully impounding the severity of negative information in the short run, providing a partial explanation for the long-run price drift post-going concern. © 2020 Informa UK Limited, trading as Taylor & Francis Group.

Purpose: The study investigates the effect of political risk on shareholder value, using an event study and a novel measure of firm-level political risk recently developed by Hassan et al. (2017). In addition, the authors explore how corporate social responsibility (CSR) influences the effect of political risk on shareholder wealth. Design/methodology/approach: The authors exploit the guilty plea of Jack Abramoff, a well-known lobbyist, on January 3, 2006, as an exogenous shock that made lobbying less effective and less useful in the future, depriving firms of an important tool to reduce political exposure. Findings: The results show that the market reactions are significantly more negative for firms with more political exposure. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis and Oster's (2019) method for testing coefficient stability. Finally, the authors note that the adverse effect of political risk on shareholder value is substantially mitigated for firms with strong social responsibility, consistent with the risk mitigation hypothesis. Originality/value: This study is the first to explore the effect of political risk on shareholder value using a novel measure. Furthermore, it is also the first to show that CSR alleviates the cost of political risk to shareholders. © 2020, Emerald Publishing Limited.

A public shell is generally defined as an inactive public corporation. It may or may not have assets or a publicly trading stock. However, for purposes here it must have valid SEC and domicile-State legal standing to permit its reactivation by merger with, or acquisition of, an operating company. After many years of clouded regard because of promoters' stock abuses, acceptance of using a shell to go public has considerably widened. This has been due to clarified and tighter SEC policies, rising costs of an IPO, and innovative financial uses of a shell by businessmen and investment bankers. Supply of shells probably still greatly exceeds demand for shells because of the mortality rate of the waves of new issues of recent years, the lack of cleanness of many of these shells and still lagging sophistication in their use. Nevertheless, advertising analysis indicates that in the past year alone companies "going public the back door" has at least trebled the number a decade ago. The greater part of this increase, also, appears to be accountable by ventures. For venture start-ups public access via merger with a shell can produce economies in legal/accounting costs and opportunity cost in time. It is also a means of becoming public when an initial public offering is not feasible due to market condition or nature of business. If the stock is trading it can encourage initial venture capital investment. The concept impact can vault the stock price even before earnings eventuate. Or exciting prospects can entice an exaggerated price/earnings ratio on tiny earnings. These events can even facilitate additional financing to prolong viability. But once the venture decides to use a shell for public access, the caveats of the route must be considered. In addition to valid registration and cleanness, such aspects as stockholder list, market sponsorship, control and dilution problems must be matched to the venture's financial aims. Cost of the shell can vary between $25,000-$100,000 depending on the outcome of these considerations, terms of payment, and general attractiveness of the venture entering the shell. Finally, speculative merits of shell stocks compared with the OTC Index of Industrial Stocks show that for equal holding periods, a market basket of revived-shell stocks bought soon after revival and sold around their highs, during the past decade would have produced multiple total returns compared to the less speculative index market basket. This optimum buy-sell period usually fell between 18 months and two years. But these returns presume not only sagacious timing, but that sales of stock of the typically small companies constituting shell-revivals could actually be made at the prices shown in the National Securities Dealers Pink Sheets. Beyond the optimum holding period, shell-descended companies become increasingly subject to valuation factors similar to those accorded to long established companies in related industries. © 1988.

After surveying the evolution of the major methodologies in inflation hedging, this study presents a unique methodology that uses principal component factor analysis to separate the effects of variability in the real rate of return from the nominal rate of return. This approach allows the effects of both anticipated and unanticipated inflation on rates of return to be estimated more precisely. This study finds that art objects perform well in terms of average real rates of return and that the market, though not perfect, integrates anticipated inflation into the rates of return. However, unanticipated inflation is very often negatively related to the rates of return. Copyright © 1994, Wiley Blackwell. All rights reserved

This paper discusses a regulatory technique that consists of the use of a controlled chain reaction to influence social and economic processes. It claims that this method was employed by Hungarian control agencies to further centralize the farm sector in the 1970s. Section I of the paper presents three versions of this technique. Section II shows how the institutional structure of Hungarian agriculture made the application of this technique possible. (JEL P21).

This paper examines whether a more restrictive zoning ordinance actually reduces construction of new housing. This may seem at first to be a trivial issue, since why else would a zoning board make the ordinance more restrictive. However, it is possible for landowners to circumvent the zoning law. For example, they can subdivide their land before the zoning change occurs. In addition, they can bargain with the local zoning officials and offer side payments, also known as exactions, for the right to develop their land. This paper examines a famous case of agricultural downzoning in McHenry County, Illinois. It finds that although the number of building permits issued did not fall immediately, in the long run the number of permits issued by the county was significantly reduced. This suggests that developers were able to anticipate the zoning change and subdivide their land before it occurred. (C) 1997 Academic Press.

There have been several studies that have investigated the effect of zoning on housing prices. One hypothesis is that the restrictiveness of zoning laws will vary with the monopoly power of a town. The degree of monopoly power varies with the number of towns in the urban area. Urban areas with few zoning jurisdictions are likely to have higher housing prices than more fragmented urban areas. Previous research on this topic has shown mixed results. The results in this article suggest that towns with more monopoly power do tend to have significantly higher housing prices than more fragmented urban areas.