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Share Repurchases, Special Dividends, Stock Splits, and Stock Dividends

H. Kent Baker, J. Clay Singleton, and E. Theodore Veit

in Survey Research in Corporate Finance: Bridging the Gap between Theory and Practice

In addition to distributing capital to shareholders by means of cash dividends, some firms use share repurchases and special dividends. While the practice of repurchasing shares has increased ... More

In addition to distributing capital to shareholders by means of cash dividends, some firms use share repurchases and special dividends. While the practice of repurchasing shares has increased dramatically in the country-regionplaceUnited States in the past several decades, the practice of paying special dividends has declined during that same period. This chapter provides a synthesis of the theories and empirical findings of share repurchases and special dividends and focuses on survey-based evidence. Some firms also split their stock and pay stock dividends. These decisions involve the costly process of altering the number of shares in a publicly-traded company. The chapter examines the perceptions of managers involving these other methods of distribution and whether such actions affect firm value. The chapter attempts to identify the gap between theory and practice involving these methods.Less

Resurgence, Part I: Federal Agencies and Courts Opened Loopholes in the Glass-Steagall Act During the 1980s and 1990s

Arthur E. Wilmarth Jr. Jr.

in Taming the Megabanks: Why We Need a New Glass-Steagall Act

The Glass-Steagall Act created a decentralized financial system composed of three separate and independent financial sectors—commercial banking, securities markets, and insurance. The Bank Holding ... More

The Glass-Steagall Act created a decentralized financial system composed of three separate and independent financial sectors—commercial banking, securities markets, and insurance. The Bank Holding Company Act of 1956 reinforced Glass-Steagall’s policy of structural separation by prohibiting bank holding companies from engaging in any activities that were not “closely related to banking.” Glass-Steagall’s structural barriers prevented the occurrence of systemic financial crises for more than four decades. During that period, federal regulators could deal with problems arising in one financial sector without need to rescue the entire financial system. Despite Glass-Steagall’s success, federal agencies and courts undermined its prudential buffers during the 1980s and 1990s by opening loopholes. Those loopholes allowed banks to convert their loans into asset-backed securities and to offer derivatives that functioned as synthetic substitutes for securities and insurance products. Regulators and courts also allowed money market mutual funds and other nonbanks to issue short-term financial claims that served as deposit substitutes, despite Glass-Steagall’s prohibition against deposit-taking by nonbanks.Less

Government Crowding Out of Private Issuance of Short-Term Debt

Hal S. Scott

in Connectedness and Contagion: Protecting the Financial System from Panics

It has been suggested that the government should increase the effective supply of public short-term debt in order to meet the demand by institutional cash managers for safe short-term debt. If the ... More

It has been suggested that the government should increase the effective supply of public short-term debt in order to meet the demand by institutional cash managers for safe short-term debt. If the government eliminated private issuance of short-term debt by issuing enough public short-term debt to satisfy this demand, then there could be no runs and no contagion. The same result could be achieved if the remaining short-term debt of the financial system was so small that runs would not be significant. These policies can be characterized as “crowding out” private short-term debt. This chapter discusses crowding out by the Treasury and the Federal Reserve. The Treasury could crowd out runnable private short-term debt by replacing a certain amount of long-term Treasury debt issuance with shorter term Treasury debt. Investors that would otherwise buy and hold private short-term debt would instead buy Treasuries. The Federal Reserve could “crowd out” private short-term debt, using its new tools of monetary policy—interest on excess reserves (IOER) and reverse repurchase agreements (RRPs).Less

The Shadow of the Financial System

William K. Tabb

in The Restructuring of Capitalism in Our Time

This chapter examines how the deregulation of financial markets allowed the dramatic growth of a shadow financial system of special investment vehicles, highly leveraged hedge funds, and private ... More

This chapter examines how the deregulation of financial markets allowed the dramatic growth of a shadow financial system of special investment vehicles, highly leveraged hedge funds, and private equity. The nonbank financial firms and the products they buy and sell are widely seen as a second banking system that grew up apart from, but not unconnected to, the older financial system. The shadow banking system includes hedge funds, private equity groups, insurance companies, money market funds, and pension funds, among others, and features funding sources involving the use and reuse of collateral posted with banks and others to finance transactions that show up as non-balance-sheet funding. This chapter argues that any analytic separation of a regulated banking system from a shadow system should be entertained with caution, suggesting that the commercial and investment banks, owing to their heavy use of the overnight repurchase market, were in the most serious trouble when their lenders refused to roll over short-term loans.Less

Market Operation

Harold L. Cole

in Finance and Financial Intermediation: A Modern Treatment of Money, Credit, and Banking

This chapter describes how several important financial markets operate.

Short-Term Funding and Financing Alternatives

Benjamin Aguilar, Ajit Jain, and Kevin Neaves

in Debt Markets and Investments

This chapter discusses the different types of short-term funding and financing alternatives that are available in the commercial money and capital markets. First, it covers commercial paper market ... More

This chapter discusses the different types of short-term funding and financing alternatives that are available in the commercial money and capital markets. First, it covers commercial paper market activity, issue maturity, and quality. Second, the chapter addresses common uses and terms for commercial and standby letters of credit as well as common issuing requirements and covenants, and discusses the parties, processes, and risks involved. Third, it covers bilateral and trilateral repurchase agreements. Fourth, the chapter discusses asset-based loans, including accounts receivable factoring and purchase order financing. Finally, it covers revolving credit facilities and their associated costs. In sum, short-term funding is important for borrowers seeking additional liquidity to finance working capital or other short-term investments. For each type of short-term funding alternative, the chapter discusses the expected return and potential risks that the borrower and lender should evaluate before entering the financial transaction.Less

Debt Securities

Alan N. Rechtschaffen

in Capital Markets, Derivatives and the Law: Evolution After Crisis

Related to Treasury securities are debt securities, which are offered by a wide range of issuers throughout the capital markets. The issuer is obligated by fixed-income securities to make fixed ... More

Related to Treasury securities are debt securities, which are offered by a wide range of issuers throughout the capital markets. The issuer is obligated by fixed-income securities to make fixed interest payments and repay the principal amount to the buyer upon maturity of the security. These instruments, also known as bonds, may carry less risk than equities but also offer a lower potential for returns. This chapter provides an overview of debt securities or bonds. It discusses the features and types of bonds, trust indentures, bond ratings and credit rating agencies, and regulation of bond-rating agencies. It also considers special types of fixed-income securities such as repurchase agreements or repos and mortgage-backed securities. Finally, it looks at securities that are exempted from registration and disclosure requirements under the Securities Act of 1933 and the Securities and Exchange Act of 1934.Less

Loyseau’s Legacy: The Night of August 4th and the First Abolition of Feudalism

Rafe Blaufarb

in The Great Demarcation: The French Revolution and the Invention of Modern Property

Chapter 2 examines the Constituent Assembly’s abolition of feudalism in the light of the previous centuries’ debate over the proper constitutional relationship between property and power. It ... More

Chapter 2 examines the Constituent Assembly’s abolition of feudalism in the light of the previous centuries’ debate over the proper constitutional relationship between property and power. It reinterprets this famous act as a measure aimed not more than a move to end the dominance of the traditional nobility by eliminating the material foundation of its power. It shows instead that the revolutionary abolition of feudalism was an attempt to replace the prevailing model of hierarchical landholding from superiors—whether noble or not with a new system of legally-equal property based on full, independent ownership. The revolutionaries attempted to realize this transformation through a repurchase system in which tenants could buy out the various rights and prerogatives exercised by proprietary superiors over their lands. This chapter concludes that the repurchase system was more successful than generally thought, especially in urban areas.Less

Creditors

Paul Davies

in Introduction to Company Law

Because of limited liability, creditor protection has always been a feature of company law. Large creditors can contract ex ante for customised protection and the law facilitates this in various ... More

Because of limited liability, creditor protection has always been a feature of company law. Large creditors can contract ex ante for customised protection and the law facilitates this in various ways, notably by the creation of the floating charge. Non-adjusting creditors require the protection of mandatory rules, at least in some situations. Creditor protection in relation to companies in the vicinity of insolvency is now well established, not only through ‘wrongful trading’ but also via transaction invalidity rules and directors’ disqualification. For going-concern companies the emphasis is on rules restricting the shifting assets to shareholders via distributions and associated rules relating to the maintenance of capital.Less

Ownership and Governance

Brian L. Connelly

in Strategic Management: State of the Field and Its Future

Shareholders have, in recent years, imposed considerable influence on firms and the managers that run them. Their role has become so prevalent that hedge funds, activist investors, and short sellers ... More

Shareholders have, in recent years, imposed considerable influence on firms and the managers that run them. Their role has become so prevalent that hedge funds, activist investors, and short sellers dominate the headlines of the popular business press. Academics are desperately trying to keep up with the furious pace of change and incorporate emerging phenomena into theories of corporate governance. To facilitate this process, this chapter reviews the key forms of corporate ownership and describes ways in which they affect firm-level outcomes. The chapter identifies five issues about which ownership scholars disagree: the competitive influence of common shareholding, the costs and benefits of excess control, the consequences of share repurchases, the threat of short sellers, and the value-creating prospects of shareholder-nominated directors. The chapter describes the state of each debate with the hope that strategy scholars, in the years ahead, will add nuance to what we know about these pressing matters.Less

The IMF’s Financing Role in Europe During the Global Financial Crisis

Katharine Christopherson and Wolfgang Bergthaler

in The EU Law of Economic and Monetary Union

Since its establishment in 1945, the International Monetary Fund (IMF) has played a key role in ‘giv[ing] confidence to members by making the general resources of the Fund temporarily available to ... More

Since its establishment in 1945, the International Monetary Fund (IMF) has played a key role in ‘giv[ing] confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity’ through its crisis prevention and resolution role. In exercising its mandate, the IMF has had to adapt over time to significant developments in the global monetary and financial systems. Since the Second Amendment of the IMF’s Articles in 1978, subject to certain obligations under the IMF’s Articles, members may freely decide on their exchange rate arrangements merely notifying the IMF of any changes to their own exchange arrangements, which is a departure from the par value system prevalent when the IMF was established. Less

EU Financial Assistance

Vestert Borger

in The EU Law of Economic and Monetary Union

With the euro crisis behind us, it is hard to picture the currency union without a rescue mechanism. Almost eight years have passed since the European Stability Mechanism (ESM) was created in ... More

With the euro crisis behind us, it is hard to picture the currency union without a rescue mechanism. Almost eight years have passed since the European Stability Mechanism (ESM) was created in September 2012. All states that once benefitted from its financial support have successfully exited their programs. A new round of institutional reform is now in the offing, with the ESM possibly getting ‘beefed up’ to a European Monetary Fund. But the currency union’s set-up has not always had assistance instruments like these at its disposal. At the start of 2010, when the crisis threatened the survival of the euro and the Union as a whole, its toolbox was empty. Or almost empty. Less