Trading Turns Hectic in Hasbro’s Stock
The stock price of toy industry giant Hasbro Inc. of Pawtucket jumped again yesterday in heavy trading, one day after Hasbro announced that its chairman and chief executive officer, Stephen D. Hassenfeld, was hospitalized for treatment of pneumonia and is in intensive care. Hasbro stock closed yesterday at $21.50, up 87.5 cents in composite American Stock Exchange trading, after gaining $1.25 per share Tuesday. About 1.1 million shares changed hands yesterday, more than double the volume of any other stock traded on the Amex. (excerpt)
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Downing, Neil
Full text: [Providence Journal] Jun 01, 1989
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Trading turns hectic in Hasbro’s stock Chairman’s illness incites speculation
The stock price of toy industry giant Hasbro Inc. of Pawtucket jumped again yesterday in heavy trading, one day after Hasbro announced that its chairman and chief executive officer, Stephen D. Hassenfeld, was hospitalized for treatment of pneumonia and is in intensive care. Stephen Hassenfeld remained in the intensive care unit last night at Columbia Presbyterian Medical Center in New York, a hospital spokeswoman said. He was in stable condition, unchanged from Tuesday, said Hasbro executive vice president Alfred J. Verrecchia. Hasbro officials said that the company is continuing its business affairs in Stephen Hassenfeld’s absence, and that senior managers are continuing to negotiate for the acquisition of certain assets of Avon, Conn., toy maker Coleco Industries Inc.
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NEIL DOWNING Journal-Bulletin Business Writer
Full text: [Providence Journal] Jun 01, 1989
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COMPANY NEWS; Barry Wright Bid Pushes Stock Up
The stock of the Barry Wright Corporation jumped $2.125 yesterday, to $10.25 a share, after the company received a $10-a-share hostile bid from Applied Power Inc. The 26.15 percent increase was the largest on the New York Stock Exchange.
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Full text: [New York Times] Jun 1, 1989
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COMPANY NEWS; Plans for Varity
The Varity Corporation is considering a stock buyback, reverse share splits and restoring its common stock dividend as ways to raise its share price, the company’s chairman and chief executive officer, [Victor Rice], said.
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Reuters
Full text: [New York Times] Jun 1, 1989
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Current Problems in the Japanese Capital Markets
In an environment of constantly rising stock prices, Japanese corporations have relied excessively on equity funding for raising external funds. This has reduced profit per stock, increased the risk of holding stocks, and made it unlikely that stock prices will continue their uninterrupted rise. The development of primary and secondary markets for corporate straight bonds is recommended. From both the borrower’s and the investor’s point of view, this development is necessary to ensure that stock prices are formed rationally and to strengthen arbitrage relationships between stocks and other financial instruments. The impetus for this development lies in the decline in the issuance of public bonds, the relaxation of issuing restrictions, and a new tender system that should allow government bonds to serve as a benchmark for the long-term rate structure. Such a move would also increase the internationalization of the yen and ease the integration of Japan’s financial markets into the global financial system.
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Anonymous
Full text: [Mitsubishi Bank Review] Jun 1989
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Peak or Pit
The UK’s new enterprise economy rewards growth, initiative, and achievement; the Unlisted Securities Market (USM) is one of the arenas in which such rewards are made. However, the fact is that, for any significant period since the inception of the junior market, small fully listed companies have outperformed their USM rivals. USM companies still are perceived as stocks of the moment. As a result, they are supposed to ride high on the back of any economic upturn and should expect to be downgraded more harshly than most when the peak has passed. Nonetheless, the bull market of 1986 and 1987 did not see the USM outstripping the full market by any noticeable degree. Any company that sees the achievement of the USM flotation as the pinnacle of its corporate ambitions is doomed to obscurity within the marketplace. The USM suffers from weak liquidity since companies seeking a USM flotation are required to offer only 10% of their enlarged equity to the market.
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Lord, Keith
Full text: [Management Today] Jun 1989
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MT250: Growth and Profit Leagues
For the first time, the entire 10-year span of the Management Today 250 Growth and Profit Leagues is covered by one government. As a testimony to share and earnings growth in the Thatcher decade, the growth and profit leagues confirm some of the government propaganda about an improved corporate climate. The 1979 growth median was a rating of 92; in 1989, the median rating is 462. In profitability, the general performance has sharpened considerably. Among the league leaders, the average net return of the top 10 has risen to 45.6%, up from 1988′s average of 39.2%. In growth, the top 5 companies are the same and in the same order, which is a reflection of both the stability provided by a long-term retrospective and the static market of 1988. Some firms that attract consistent attention have continued their rise in the growth league. For example, Carlton Communications moved up to 8th place from its 15th position in 1988, Associated Newspapers climbed 41 positions to 24, and BOC rose from 104 to 54. Spring Ram is one of the few true manufacturers to do well in both the growth and profit leagues.
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Anonymous
Full text: [Management Today] Jun 1989
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Creating Value to Keep the Raiders at Bay
The recent wave of takeovers, leveraged buyouts, and restructuring is evidence that many public firms, especially diversified ones, have been undervalued by the stock market. A value-based strategic management process can help top management ensure that business-level competitive strategies are linked with company-level portfolio planning and that this integration is then reflected in the stock price. The value-based strategy process is built on a careful financial assessment of each business unit and an assessment of the riskiness of alternative strategies. Precise and timely inputs are critical to the accuracy of the final assessment, which will include calculations of discounted cash flow and net present value. Firms such as Exxon and Westinghouse have used value-based techniques when making portfolio decisions. The successful value-based strategy is preceded by a clear corporate statement of commitment to raising shareholder value and followed up by communication and compensation plans that reward the creation of value.
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Reimann, Bernard C.
Full text: [Long Range Planning] Jun 1989
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Airline Accidents And Stock Return Performance
A study focuses on the adjustments of airline stock returns to the announcement of unanticipated airline accidents using an event study methodology to evaluate the continuous process of airline stock adjustment over the study period. The study also determines specifically whether: 1. abnormally low or high returns follow announcement of an airline accident, 2. how much time expires before such abnormalities are exhausted, and 3. whether carrier or accident-specific factors account for the magnitude of the abnormal returns. Results indicate that investor reaction is negative for only a day or 2 after a crash and that the market assimilates the information rapidly. By the 4th or 5th day returns attain preannouncement levels. Carrier and accident-specific factors are not found to be significant in determining investor response patterns.
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Bruning, Edward R.
Kuzma, Ann T.
Full text: [Logistics and Transportation Review] Jun 1989
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Asymmetric Information, Captive Insurers’ Formation, and Managers’ Welfare Gain
The argument that captive insurance firms are synergistic because they allow tax arbitrage and other cash flow increases that would positively impact the stocks of their parent corporations is well-accepted in the industry. Most management literature dealing with captive insurers ignores 2 arguments that favor the formation of captives. The arguments are: 1. In the context of asymmetric information, there is a clear incentive for the use of captives in an attempt to reduce the effective level of loss sharing thrust upon them in the direct insurance market. 2. In the context of wealth transfer, a captive may be a tool to transfer wealth from one class of parent firms’ claimholders to another. The results of empirical tests support the contention that captive insurers serve primarily to provide insurance to their parents. The welfare gain that results from the establishment of captives most probably benefits the managers of parent firms.
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Diallo, Alahassane
Kim, Sangphill
Full text: [Journal of Risk and Insurance] Jun 1989
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The Stock Market and Exchange Rate Dynamics
The question of how the existence of a stock market affects the response of capital flows, interest rates, and exchange rate dynamics to shocks is addressed in a comparison with a more conventional model that incorporates only a bond market. A model is articulated of the small, open economy in which the price of shares in the stock market determines domestic aggregate demand. The stock market reduces the impact of monetary policy on the real exchange rate. If the link between stock prices and aggregate demand is sufficiently important, the impact of monetary policy on the real exchange rate can be reversed. In contrast with standard, dynamic Mundell-Fleming models, anticipated fiscal policy can be expansionary. The interaction of output, profitability, stock prices, and aggregate demand tends to dampen the exchange rate implications of shifts in monetary policy. In the empirically relevant “good news” case and when aggregate demand shocks are unanticipated, such disturbances tend to generate a negative correlation between the stock price and the real exchange price.
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Gavin, Michael
Full text: [Journal of International Money and Finance] Jun 1989
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Wealth Effects of Going Private for Senior Securities
The effects of going-private buyout proposals made from 1974 to 1985 on the value and default risk of convertible and nonconvertible debt and preferred stock securities are investigated. The final sample contains 290 buyout proposals made by 264 New York Stock Exchange, American Stock Exchange, and National Association of Securities Dealers Automated Quotes firms from January 1974 to November 1985. Positive average price reactions are documented for public convertible securities and nonconvertible preferred stock. Many of these issues are redeemed as part of the acquisition. Most nonconvertible debt securities remain outstanding without renegotiation following buyouts, and minimal average price reactions are documented for public nonconvertible debt. After successful buyouts, the proportion of debt in the capital structure more than triples on average, and most rated debt securities experience downgradings in Moody’s ratings.
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Marais, Laurentius
Schipper, Katherine
Smith, Abbie
Full text: [Journal of Financial Economics] Jun 1989
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The Relation Between the Return Interval and Betas: Implications for the Size Effect
Recently, researchers examining whether cross-sectional variances in returns are explained by the capital asset pricing model systematic risk have found that firm size has incremental explanatory power. This size effect is sensitive to the length of the return interval employed in estimating betas. Beta changes with the return interval because an asset’s covariance with the market and the market’s variance do not alter proportionately as the return interval is changed. Beta sensitivity is documented to the return interval. Evidence from cross-sectional regressions of returns on monthly and annual betas is not consistent with beta changes stemming only from the higher standard errors of the longer-interval betas. Evidence is provided that the size effect becomes statistically insignificant when risk is measured by betas estimated using annual returns.
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Handa, Puneet
Kothari, S. P.
Wasley, Charles
Full text: [Journal of Financial Economics] Jun 1989
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Tax Attributes as Determinants of Shareholder Gains in Corporate Acquisitions
The significance of target firms’ tax attributes in motivating acquisitions was examined. The weight of certain tax attributes in explaining stock-price response to acquisition announcements is determined through cross-sectional analysis of target and acquiring firms’ returns in tax-free and taxable acquisitions. The overall importance of tax attributes in the acquisition decision is determined by analyzing the actions of prospective acquirers and the stock-price response of the bidding and target firms to Internal Revenue Service rulings on the tax status of the acquisition. The announcement-period returns of companies grouped by tax status and by type of offer are calculated using an event-study methodology. The most prominent tax attribute in tax-free acquisitions is the total amount of net operating loss carryforwards and tax credits ready to expire; while in taxable acquisitions, it is the step-up in the acquired assets’ basis. Although tax considerations motivate acquisitions, it is the obtaining of tax-free status that increases the proposed acquisition’s likelihood of completion.
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Hayn, Carla
Full text: [Journal of Financial Economics] Jun 1989
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Options Markets and Stock Return Volatility
The variance of returns on common stocks around the time exchange-traded options are listed on these stocks is examined. A sample is collected of the Chicago Board Options Exchange and the American Stock Exchange option listings. The results indicate that the listing of options on common stocks is associated with a decline in the variance of returns on these stocks. This decline is not completely explained by contemporaneous changes in market volatility. Assuming that trading volume and return volatility are positively related, the decline would be even larger after the increase in trading volume that also occurs around the time of options listing was controlled. The hypothesis is examined that the variance changes are related to changes in “trading noise” in the stock, but little direct support is found for this explanation. It is possible that the variance changes are a result of changes in the variability of the cash flows of the underlying firm.
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Skinner, Douglas J.
Full text: [Journal of Financial Economics] Jun 1989
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International Transmission of Stock Market Movements
A study was done about the international transmission mechanism of stock market movements. A 9-market vector autoregression (VAR) system was estimated. Simulated responses of the estimated VAR system were used to: 1. locate all the main channels of interactions among national stock markets, and 2. trace out the dynamic responses of one market to innovations in another. A considerable amount of multilateral interaction was detected among national stock markets. Innovations in the US rapidly are transmitted to other markets in a clearly recognizable manner, but no single foreign market can sufficiently explain US market movements. The dynamic response pattern was found to be consistent generally with the notion of informationally efficient international stock markets.
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Eun, Cheol S.
Shim, Sangdal
Full text: [Journal of Financial and Quantitative Analysis] Jun 1989
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An Examination of the Robustness of the Weekend Effect
Many empirical studies of the weekend effect rest on a foundation of simple econometric models with strong statistical assumptions. The foundations rarely are evaluated systematically. Because of the importance of stock return anomalies to finance research, an analysis was done of the robustness of the day of the week and weekend effects to alternative estimation and testing procedures. The study focused on 3 issues: 1. the problem of interpreting classical test statistics with very large samples, 2. the impact of inferences of relaxing the Gaussian error distribution assumption, and 3. the time-varying volatility of stock returns. The newly derived Generalized Autoregressive Conditional Heteroskedasticity model is useful because it can parsimoniously incorporate autocorrelated returns, time-varying return volatility, and the fat-tailed error distribution.
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Full text: [Journal of Financial and Quantitative Analysis] Jun 1989
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A New Test of the Three-Moment Capital Asset Pricing Model
In the 3-moment capital asset pricing model constructed by Kraus and Litzenberger (1976), systematic skewness contributes to the risk premium of an asset. Earlier tests of the Kraus-Litzenberger (K-L) model relied either on cross-sectional regressions or on the assumptions of multivariate normality. Cross-sectional regressions have measurement error problems and yield estimators that are less efficient than estimators in a multivariate approach. By developing a set of moment conditions based on the theoretical implications of the K-L model, the model can be tested using Hansen’s (1982) generalized method of moments (GMM) method. The GMM method does not impose strong distributional assumptions on asset returns. The results of the tests suggest that systematic skewness is priced and that further research about the skewness model would be worthwhile.
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Lim, Kian-Guan
Full text: [Journal of Financial and Quantitative Analysis] Jun 1989
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Canadian Poison Pills: Are They Effective?
Two Canadian companies have recently adopted poison pill plans similar to those adopted by some US firms. Most of those US plans have been adopted without shareholder approval. Canadian directors have been told that poison pill plans discourage hostile takeovers or force bidders to negotiate with the target’s board of directors. Management and directors of Canadian publicly held companies that are vulnerable to hostile takeovers are considering poison pill plans or equivalent steps to ensure fairness to shareholders. There are legal and regulatory considerations, such as the “proper purpose” doctrine, which has been accorded deference by courts and academics for years. The oppression remedy, which is not included in US corporate statutes but is included in those of Canada and other jurisdictions, poses another difficulty for poison pill plans. This statutory remedy provides that a court can offer relief where the directors have exercised their powers in a manner that is oppressive or unfairly prejudicial to any security holder.
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Coleman, Gordon
Full text: [International Financial Law Review] Jun 1989
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Looking Eastward
While trading has been very light in US markets, multimillion-share trading days have become common in some Asian markets. As Asian exchanges continue to grow, they are looking to transaction systems for online trading. The Korean Stock Exchange, which has announced a long-term plan to expand its computerized systems, already has initiated an automated trading system. This exchange offers an online information system that includes: 1. computerized order routing, 2. stock price display, 3. market information, and 4. securities information. Stratus, a leading vendor, was chosen for the Republic of Korea’s online information and trading system. Although the exchange technology used in Asia is behind that of the US, it is developing rapidly. Systems in use in the US were developed with a previous generation of computer technology, and US exchanges are committed to them to preserve their investments. As a result, these exchanges may be looking to the East for global investing systems.
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Strazewski, Len
Full text: [Intermarket] Jun 1989
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