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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2009.12.006 Byline: Bill B. Francis (a), Iftekhar Hasan (a)(b), Kose John (c), Maya Waisman (d) Keywords: Agency costs; Bondholders; Corporate governance; State antitakeover laws Abstract: We examine how state antitakeover laws affect bondholders and the cost of debt, and report four findings. First, bonds issued by firms incorporated in takeover-friendly states have significantly higher at-issue yield spreads than bonds issued by firms in states with restrictive antitakeover laws. Second, firms in takeover friendly states have significantly higher leverage than their counterparts in restrictive law states. Third, bond issues are associated with negative average stock price reactions among firms in takeover-friendly states, but positive stock price reactions among firms in restrictive law states. Fourth, existing bond values increase, on average, upon the introduction of Business Combination antitakeover law. These results indicate that state antitakeover laws tend to decrease bond yields and increase bond values, which is the opposite of their effect on equity values. This, in turn, implies that state laws help mitigate the agency cost of debt by shielding bondholders from expropriation in takeovers. Overall, the empirical evidence suggests that the effect of antitakeover provisions on firm value must take into account the impacts of both bondholders and stockholders. Author Affiliation: (a) Lally School of Management and Technology, Rensselaer Polytechnic Institute, 110 8th Street Troy, NY 12180, USA (b) Bank of Finland, 00101, Helsinki, Finland (c) Stern School of Business, New York University, 44 West 4th Street Suite 7-177 New York, NY 10012, USA (d) Fordham University - Finance Area, 113 West 60th Street New York, NY 10023, USA Article History: Received 29 May 2007; Revised 11 December 2008; Accepted 29 December 2008 Article Note: (footnote) [star] We are grateful to seminar participants at the 2005 research workshop at RPI, the 2005 Financial Management Association conference, the 2005 Southern Finance Association conference, the Center for Financial Studies at the Goethe University Frankfurt, the CERF, the University of Cambridge, Murali Jagannathan, Jeffrey Mercer, Holger Mueller, Jay Ritter, Phil Strahan, Haizhi Wang, the editor (Bill Schwert) and an anonymous referee for detailed comments on earlier drafts.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2009.01.002 Byline: Bill B. Francis (a), Iftekhar Hasan (a)(b), Xian Sun (c) Abstract: We examine how political connections impact the process of going public. Specifically, we test how political connections impact the pricing of the newly offered shares, the magnitude of underpricing, and the fixed cost of going public. Based on the experience of the newly public firms from Chinese security markets and using multiple measures of political connections, we find robust evidence that the issuing firms with political connections reap significant preferential benefits in the process of going public. To be specific, we find that firms - irrespective of their ownership status - with greater political connections have relatively higher offering price, lower underpricing, and lower fixed costs during the going-public process. Author Affiliation: (a) Lally School of Management and Technology, Rensselaer Polytechnic Institute, 110 8th Street, Pittsburgh Building, Troy, NY 12180-3590, United States (b) Bank of Finland, PO Box 160, 00101, Helsinki, Finland (c) Office of the Comptroller of Currency, U.S. Department of Treasury, Risk Analysis Department, 250, E-Street, SW, Washington, D.C. 20219, United States

In this paper, we examine if the introduction of the euro impacted the risk exposures, risk premiums and, hence, the cost of equity of the banking industry of 11 Eurozone countries, five non-Eurozone European countries, and three non-European countries. Using a multifactor asset-pricing model that allows time variation in the risk exposures, we find a statistically significant and economically large decline in the cost of equity of the banking industry across the three groups of countries following the introduction of the euro. Though we find an increase in the market and currency exposures after the euro, consistent with increased competition among banks, the fall in the cost of equity arises from an economically large decline in the currency premium. As expected, the Eurozone banking industry experienced the largest decrease. Our results are inconsistent with the argument that increased banking competition arising from the legislative changes accompanying the introduction of the euro would result in an increase in the overall risk premium of the banking sector. Keywords: Cost of capital; Banking industry; Currency risk premium; Euro

In this paper we make use of the uncovered interest rate parity (UIRP) relationship to examine the extent that the liberalization of emerging financial markets has resulted in the integration of developing countries' currency markets into the international capital market. Previous tests of the impact of liberalization on the integration of emerging capital markets into world financial markets are confined to equity markets, ignoring currency markets that are arguably more important in determining the success of financial liberalization. We find that, in general, deviation from UIRP in the emerging markets is systematic in nature and that a significant part of emerging market currency excess returns is attributable to a time-varying risk premium. Importantly we also find that these countries' currency deposits provide US (equity) investors with the benefits of international diversification. Our results also show that for some markets, liberalization improved (worsened) investors' perception of growth opportunity while reducing (increasing) investors' perception of the probability of financial distress. Finally, while several countries benefited from liberalization and have become more integrated into the world capital market, the experience is country specific. JEL classification: F21; F31; F36 Keywords: Capital market integration; Uncovered interest rate parity (UIRP); Financial liberalization; GARCH model

Byline: Bill B. Francis (1), Iftekhar Hasan (2) Keywords: IPOs; deliberate underpricing; venture-backed IPOs; stochastic frontier Abstract: In this paper, we examine the premarket underpricing phenomenon within a group of venture-backed and a group of non-venture-backed initial public offerings (IPOs), using a stochastic frontier approach. Consistent with previous research, we find that venture-backed IPOs are managed by more reputable underwriters and generally are associated with less underwriter compensation. However, unlike other papers in the literature, we find that the initial-day returns of venture-backed IPOs on average, are, higher than the non-venture-backed group. We observe a significantly higher degree of premarket pricing inefficiency in the initial offer price of venture-backed IPOs. Further, our results show that a significant portion of the initial day returns is due to deliberate underpricing in the premarket. Author Affiliation: (1) College of Business Administration, University of South Florida, Tampa (2) School of Management, New Jersey Institute of Technology, Newark Article History: Registration Date: 23/10/2004

Using the multicointegration framework suggested by Granger and Lee (1989, 1990) and developed in Engsted, Gonzalo and Haldrup (1997) and Haldrup (1997) this study explores the long-run relationship between components of the U.S. current account during two periods, 1947:i-1973:iv and 1974:i-1994:ii. The paper develops the concept of sustainability of external imbalances in an environment that is non-deterministic and characterized by uncertainty. The sustainability criteria are related to multicointegration. Evidence consistent with sustainable intertemporal external budgeting in the fixed exchange rate era is presented. In the post Bretton Woods period there is no support for sustainable external budgeting. Policy issues and factors that affect sustainability are discussed.

The assumption that a system of equity markets is characterized by superexogeneity was invalidated after taking into account stock indices of the US, UK, Germany and Japan. Utilization of Johansen procedure for cointegration testing as well as weak exogeneity and invariance tests showed that for a system composed of stock indices of the US, UK, Germany and Japan, superexogeneity is rejected. Rejection of superexogeneity also suggested the existence of forward looking financial market participants in such countries.

This study examines a lower boundary estimate of the well-known company size effect using reverse regression. Estimates of abnormal returns in prior studies use direct regression that provides upper bound estimates of the small firm abnormal return. The size effect is diminished materially with the reverse regression. The effect is still material and significant, however, even with reverse regression. Results are consistent with expectations and run counter to prior reverse regression results reported by Booth and Smith (1985)., INTRODUCTION The issue of measurement errors in financial economics has received much attention in recent years. Many researchers caution about evidence of large abnormal returns on portfolios based on firm-specific [...]