Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 THE ROLE OF INSIDERS AND DIVIDEND POLICY: A COMPARISON OF REGULATED AND UNREGULATED FIRMS M. Cary Collins The University of Tennessee Atul K. Saxena Mercer University James W. Wansley The University of Tennessee Abstract This paper explicitly recognizes the potential differences in dividend policy between regulated and unregulated firms and focuses on agency-cost and monitoring explanations for the relevance of dividends. The purpose of this paper is to examine the role of insiders in determining dividend policy for unregulated firms, utilities, and financial-services firms. Since utilities, and to some extent, financial-services firms, have regulators who serve as the low-cost informants to market participants, insiders play a reduced role in determining dividend policy compared to unregulated firms. A regression model is developed that addresses whether the role of regulators and insiders are substitutes or complements for utilities and financial-services firms. The regression results reveal fundamental differences in the relationship between insider holdings and dividend policy for unregulated firms and utilities, but suggest that the regulatory environment enhances–rather than mitigates–the importance of the insiders" role for utilities. For financial-services firms, the results do not support the hypothesis that increased equity risk through fixed-rate deposit insurance enhances the role of insiders when determining dividend policy.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 EVALUATING OIL AND GAS ASSETS: OPTION PRICING METHODS PROVE NO PANACEA Ross N. Dickens Louisiana Tech University John Lohrenz Louisiana Tech University Abstract The authors examine the validity of using option pricing theory methods to value oil and gas assets by comparing the value of discounted cash flow and option pricing methods for an actual Gulf of Mexico oil well. Option pricing method assumptions yield questionable valuation results for real, as opposed to financial, options. In fact, as a general rule, the further upstream the oil and gas asset is, the more the option pricing method assumptions may be questioned. Therefore, careful consideration should be given to any strategic decisions based on option pricing valuations.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 CORPORATE ENVIRONMENTAL STRATEGY: IMPACT UPON FIRM VALUE Richard J. Curcio Kent State University Fran M. Wolf Youngstown State University Abstract The purpose of this paper is to investigate the relationship between corporate environmental strategy and firm value. The major finding of this study is that corporate performance with regard to environmental responsibility is related to overall firm value. Adopting an environmentally responsible strategy appears to significantly enhance corporate financial performance for all firms except those serving industrial customers. Firms supplying industrial customers seem to benefit financially from a strategy of environmental indifference or irresponsibility.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 THE USE OF FINANCIAL RATIOS AS MEASURES OF RISK IN THE DETERMINATION OF THE BID-ASK SPREAD Huldah A. Ryan City University of New York Abstract The effect of financial reports on stock market behavior is a central issue of research in accounting and finance. A number of studies investigate how financial information becomes impounded in security prices and affects investment decisions. Prior studies on the determinants of the bid-ask spread investigate the effect of market risk measures, and provide evidence that the bid-ask spread is a positive function of risk. Other studies report on an association between market risk measures and accounting risk measures. The present study extends this line of research by examining the effect of risk, proxied by accounting risk measures, on the bid-ask spread. The results of ordinary least squares (OLS) regressions provide evidence of a statistically significant association between certain accounting ratios and the bid-ask spread, and indicate that accounting risk measures account for more variability in the bid-ask spread than market risk measures. Most notably, the results indicate that a model which includes both accounting risk measures and market risk measures is a better fitted model that one which includes either accounting risk measures or market risk measures alone.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 THE LOCATIONAL DETERMINANTS OF U.S. FOREIGN DIRECT INVESTMENT IN THE EUROPEAN UNION Francisca M. Beer California State University Suzanne N. Cory St Mary's University Abstract This paper empirically assesses United States direct investment in the European Union. In that respect, market size, growth rate, labor costs, export flows and tariff barriers have already been shown to influence U.S. foreign direct investment in the European Union. The present paper enlarges the field of knowledge on the matter by: (i) exploring the impact of two locational determinants of foreign direct investments, namely infrastructure and taxes and, (ii) including the opportunity costs associated with foreign investment.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 BEHAVIORAL ASPECTS OF THE INTRA-INDUSTRY CAPITAL STRUCTURE DECISION Greg Filbeck University of Toledo Raymond F. Gorman Miami University Dianna C. Preece University of Louisville Abstract The past decade has witnessed numerous challenges to the axioms of the von Neumann-Morgenstern utility maximizing theory of individual behavior. Most of these challenges have come from the field of psychology and have been in the form of experiments on humans which demonstrate frequent violations of these axioms. This cross fertilization between economics and psychology has begun to attract the attention of the finance profession as well. In this paper we examine two hypotheses, developed from this literature, which may help explain how firms within an industry choose their levels of debt and equity. First, we reexamine the herd migration hypothesis postulated by Patel, Zeckhauser and Hendricks in a 1991 American Economic Review paper. Unable to find support for their findings, we next hypothesize that firms may make financing decisions based on following some industry leader. We find only weak support for this hypothesis and conclude that firms act rationally with respect to financing decisions.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 THE EFFECT OF EQUITY-FOR-DEBT SWAPS ON SECURITY RETURNS: SOME NEW EVIDENCE Rajiv Kalra Moorhead State University Kam C. Chan University of Wisconsin- Parkside Gary A. Raines University of Cincinnati Abstract This study re-examines the effects of equity-for-debt swaps on security returns. Special attention is paid to the effects of the swaps across industries and calendar years. The results indicate that the market reactions to such swaps after 1984 (Deficit Reduction Act) are not significantly different than those before 1984. Moreover, we find that although there is a decrease in alpha and increase in beta of the market model during the announcement period, as expected, beta declines in the post swap period.

Journal of Financial and Strategic Decisions Volume 9, Number 2   Summer 1996 AN EMPIRICAL ANALYSIS OF MARKET AND INDUSTRY FACTORS IN STOCK RETURNS OF U.S. AEROSPACE INDUSTRY Sung C. Bae Bowling Green State University Gregory J. Duvall Parker Hannifin Corporation Abstract This paper applies multi-index CAPMs to explore the relationships of U.S. aerospace company stock returns to selected market and industry variables. This paper finds that the market returns represented by the S&P 500 index and Department of Defense expenditures are significantly positively related to aerospace stock returns. The regression results on other variables are mixed; in particular, aircraft shipments are positively related to aerospace stock returns, but the relations are not significant. Additional regression analysis of employing unanticipated changes in independent variables provides confirmatory evidence. The results of this paper suggest that a multi-index CAPM using selected economic and industry variables provides additional power in explaining the variability of U.S. aerospace stock returns over a single index model using the market index alone.

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