Search

Conflict of interest issues may arise as a result of the issuance of fee-contract incentives by stock companies to investment banks. Using a contract choice model to determine possible losses, it was discovered that losses increase by as much as 16.7% of the tender offer's value. Losses can be reduced from 16.7 to 3.4% by including the investment banker reputation capital variable in the model.

An analysis of the relation between investment bankers and their clients is presented. The analysis focuses on fee contracts covered by tender offers and applies data from such offers spanning 1978 to 1986. It is shown that fee contracts are effective in concluding tender offers. However, the method of contracting is only a partial solution for agency problems encountered in investment banker relations.

Convertible debt offerings are one of the nation's significant funding sources. Firms, for instance have been recorded as having issued $3.7 billion-$9.3 billion annually in a five-year period spanning 1988-1992. A study was conducted to investigate 828 convertible debt issuers from 1980-1993 in terms of long-term operating and stock price performance. Among other results, it was found that firms that issued equity during the three years prior to the convertible debt offering posted larger operating performance declines after the offering.

Extant literature on real options argue that the valuation principles for future growth opportunities can differ from assets in place, which challenges the applicability of discounted cash flow analysis in valuing real options. However, these studies have not examined the impact of investment options on the vulnerability of a company to interest rate risk. To address this shortcoming, a model of future growth opportunities that permits analysis of interest sensitivity for different project features was developed. This binomial model focused on growth option sensitivity to inflation-derived changes in interest rates. Analysis demonstrated that growth options are less susceptible to these rate changes than assets in place. However, the value of growth options was found to drop as interest rates increase. The ability of the underlying project to flow through interest rate changes was found be an important growth option quality.