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financial history and analysis of the United States airline industry
Title
A financial history and analysis of the United States airline industry.
Creator
Sturm, Ray R., Florida Atlantic University, McDaniel, William R.
Abstract/Description
This dissertation analyzes the financial history of the U.S. airline industry from the perspectives of earnings, dividends, risk and capital structure. The airline industry is chosen because of its transition from economic regulation to competition. Within the area of earnings, I examine the impact of deregulation on the mean-reversion behavior of earnings documented by Fama and French (2000). Next, I examine the impact of dividends on the variation of carriers' stock returns. Then, I extend...
Show moreThis dissertation analyzes the financial history of the U.S. airline industry from the perspectives of earnings, dividends, risk and capital structure. The airline industry is chosen because of its transition from economic regulation to competition. Within the area of earnings, I examine the impact of deregulation on the mean-reversion behavior of earnings documented by Fama and French (2000). Next, I examine the impact of dividends on the variation of carriers' stock returns. Then, I extend this relation by examining the impact of specific industry characteristics, deregulation, air crashes and the events of 9/11, on both the total and market risk of the industry's stock returns. I also examine the effect of inflation on shareholder returns using the consumer price index as a proxy. I then examine the effect of deregulation and stock returns on debt ratio behavior. Finally, I examine the relation between operating leases and operating performance. My results suggest that deregulation has affected the magnitude and variation of earnings, but not on the mean-reversion behavior. I also find that stock return volatility appears to increase industry-wide following air crashes, that deregulation appears to increase the industry's total stock return risk and that 9/11 appears to have increased both the total and systematic risk of the industry. Additionally, in the presence of these risks, there does not appear to be a relation between dividends and stock return volatility. Further, there appears to be a negative relation between industry returns and the consumer price index that is robust to lagged stock returns. Within the area of capital structure, I find that the recently documented relation between stock returns and debt ratio behavior is not impacted by deregulation. Finally, although my results are mixed, I generally find a negative relation between the use of operating leases and profitability.
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Date Issued
2005
PURL
http://purl.flvc.org/fcla/dt/12126
Subject Headings
Aeronautics, Commercial--United States--History, Airlines--United States--Management--Evaluation, Aeronautics, Commercial--United States--Statistics
Format
Document (PDF)
On financing with convertible debt over the last two decades
Title
On financing with convertible debt over the last two decades.
Creator
Rotaru, Camelia S., Florida Atlantic University, McDaniel, William R.
Abstract/Description
Despite extensive research, the rationale behind firms' decision to issue convertible debt is still unknown. On average, results indicate that the market reacts more negatively to new convertible debt issues of companies with higher cash ratios. Hence, I test whether convertible issuers are companies with limited access to the debt and equity markets. I find that pre-1990 issuers have a propensity to accumulate cash out of their cash flows prior to the convertible debt issue. Moreover, I...
Show moreDespite extensive research, the rationale behind firms' decision to issue convertible debt is still unknown. On average, results indicate that the market reacts more negatively to new convertible debt issues of companies with higher cash ratios. Hence, I test whether convertible issuers are companies with limited access to the debt and equity markets. I find that pre-1990 issuers have a propensity to accumulate cash out of their cash flows prior to the convertible debt issue. Moreover, I provide strong evidence that convertible issuers substitute cash for both short-term debt and non-cash net working capital. I also test the pricing of new convertible debt securities at issue. I use a 100-step trinomial tree and find that convertible bonds are issued at an average discount 4.84 from their fair market value. Although the discount appears to be slightly higher in the pre-1990 period than the post-1990 period, the difference is not statistically significant. I also test for the determinants of the degree of underpricing of new convertible debt securities. I find that longer maturity issues and issues with higher coupon rates are more underpriced in the pre-1990 period. I attribute this finding to the poor stock and bond markets of the early and mid 1980s, which caused investors to become weary about long-term fixed income instruments. I find that longer maturity issues are less underpriced in the post-1990 period. This is probably because the value of the conversion option increases with maturity. Furthermore, it appears that issues with higher coupon rates and lower conversion premiums are less underpriced. I attribute this finding to investors being more informed in the post-1990 period and, therefore, less willing to accept higher conversion premiums. I also show that cash redemptions of convertible debt securities are not associated with a negative market reaction, even though forced conversions result in an abnormal negative return at the time of the announcement. Contrary to previous arguments by Stein (1992) and Moody's, I find no evidence that companies force conversion of their securities in order to avoid future bankruptcy.
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Date Issued
2005
PURL
http://purl.flvc.org/fau/fd/FADT12129
Subject Headings
Convertible Preferred Stocks, Corporations--Finance, Option (Contract), Convertible Securities
Format
Document (PDF)
dividend reinvestment plan puzzle: Theoretical and empirical evidence
Title
The dividend reinvestment plan puzzle: Theoretical and empirical evidence.
Creator
Lyroudi, Katerina., Florida Atlantic University, McDaniel, William R.
Abstract/Description
This study examines the significance and implications of Dividend Reinvestment Plans (DRPs) for the sponsoring company and for the shareholders' wealth from a theoretical and an empirical point of view. It develops a DRP theory, as an extension of dividend and capital structure theories. Furthermore, the study tests empirically several hypotheses related to the market reaction at the announcement of a DRP adoption, to the market reaction at the announcement of a DRP discontinuance and to the...
Show moreThis study examines the significance and implications of Dividend Reinvestment Plans (DRPs) for the sponsoring company and for the shareholders' wealth from a theoretical and an empirical point of view. It develops a DRP theory, as an extension of dividend and capital structure theories. Furthermore, the study tests empirically several hypotheses related to the market reaction at the announcement of a DRP adoption, to the market reaction at the announcement of a DRP discontinuance and to the performance of the company sponsoring a DRP. The results indicated that the market reaction to the announcement of a DRP establishment is favorable on days 1 and 2, significant only for the latter. In the long-run, DRPs create value for the sponsoring firm and its shareholders (as measured by Tobin's Q). The announcement of a DRP termination is followed by a negative market reaction, consistent with the thesis of this study. Finally, several factors such as the DRP type (Type I and Type II plans), the industry of the sponsoring company (utilities and non-utilities), tax legislation, the discount feature and the dividend payout ratio are examined in relation to the market reaction at the announcement of a DRP adoption. The Type II DRPs create more favorable reaction to Type I plans at the announcement of their introduction. There are significant differences between the market reaction at the DRP introduction of utilities and non-utilities. The tax legislation affects corporate dividend policy and DRPs. Finally, the discount feature is not regarded favorably by investors as it was hypothesized, which explains its elimination from many DRPs in the recent years.
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Date Issued
1993
PURL
http://purl.flvc.org/fcla/dt/12328
Subject Headings
Dividend reinvestment, Corporations--Finance, Investments, Portfolio management
Format
Document (PDF)
examination of pricing efficiency in the offering of convertible debt securities
Title
An examination of pricing efficiency in the offering of convertible debt securities.
Creator
Taylor, Don A., Florida Atlantic University, McDaniel, William R.
Abstract/Description
This study evaluates the relative pricing efficiency of convertible debt offerings by comparing the wealth of the convertible bond at its termination with the termination date wealth of an equal initial investment in non-convertible debt of the same approximate risk and maturity. The comparison is made via the construct of a performance ratio. The attributes of the sample's aggregate ratio versus the expected value of the ratio, given that convertible bonds are priced efficiently, provides...
Show moreThis study evaluates the relative pricing efficiency of convertible debt offerings by comparing the wealth of the convertible bond at its termination with the termination date wealth of an equal initial investment in non-convertible debt of the same approximate risk and maturity. The comparison is made via the construct of a performance ratio. The attributes of the sample's aggregate ratio versus the expected value of the ratio, given that convertible bonds are priced efficiently, provides policy implications in the use of convertible bond financing. The thesis compares the results to prior research measuring convertible pricing efficiency and discusses the relative merit of this approach. The bond rating system, as it relates to convertible issues, is examined. The dissertation concludes by presenting the implications of the results and direction of future research in this area. The results show that convertible bonds are priced in a manner that favors the convertible investor and not the common stockholder.
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Date Issued
1999
PURL
http://purl.flvc.org/fcla/dt/12619
Subject Headings
Convertible Securities--Prices, Convertible Bonds--Prices
Format
Document (PDF)
relationship between underwriter experience, excess offering yield and underwriter compensation in the market for corporate debt
Title
The relationship between underwriter experience, excess offering yield and underwriter compensation in the market for corporate debt.
Creator
Jones, Wesley Matthew, Jr., Florida Atlantic University, McDaniel, William R.
Abstract/Description
Contemporary finance theory suggests that the appropriate goal of the management of a corporation should be to maximize the contribution of the shareholder's ownership in the corporation to the shareholder's wealth. A related objective of the firm's management that is consistent with this prime objective should be to minimize the cost of all inputs into the firm's income producing process. This would include minimizing the cost of the capital required to fund the firm's operations. This study...
Show moreContemporary finance theory suggests that the appropriate goal of the management of a corporation should be to maximize the contribution of the shareholder's ownership in the corporation to the shareholder's wealth. A related objective of the firm's management that is consistent with this prime objective should be to minimize the cost of all inputs into the firm's income producing process. This would include minimizing the cost of the capital required to fund the firm's operations. This study examines the cost of debt to firms issuing new debt. Using a sample of new debt issues between 1988 and 1993 drawn from a listing compiled by the Capital Markets Division of the Federal Reserve Board of Governors, this study finds that when underwriters are categorized by recent (last year) experience, the issuing firm's choice of an underwriter does not affect the offering yield required of the issuer in excess of several benchmark yields. Excess yield is tested with respect to 3-month treasury bills, 10-year constant maturity treasury securities, the average contemporary yield on AAA rated corporate bonds, and the average contemporary yield on new corporate issues carrying the same rating. The results do suggest that the issuing firm's choice of underwriter does affect the underwriter spread that the issuer will be charged. The implication of the results to corporate issuers of new debt is that choosing an experienced underwriter (defined in the study as having appeared in the listing of the top ten underwriters of corporate debt reported by Wall Street Journal in the previous year) could lead to reduced overall net interest costs stemming from the reduced underwriter spread.
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Date Issued
1997
PURL
http://purl.flvc.org/fcla/dt/12521
Subject Headings
Corporate debt, Monetary policy, Industrial management, Investment banking
Format
Document (PDF)