Oded Sarig
The Interdisciplinary Center, Herzliya, Finance, Faculty Member
This paper investigates the risk structure of interest rates using pure discount bonds. The most striking feature of the authors' estimates of default-risk premia is the resemblance of their time profile to... more
This paper investigates the risk structure of interest rates using pure discount bonds. The most striking feature of the authors' estimates of default-risk premia is the resemblance of their time profile to the theoretical time profile obtained by R. C. Merton (1974). Copyright 1989 by American Finance Association.
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I investigate whether rating agencies (Moody’s and S&P) use consistent standards in solicited and unsolicited ratings, that is, whether agencies treat issuers who pay for the service (solicited rating) differently from those who do not... more
I investigate whether rating agencies (Moody’s and S&P) use consistent standards in solicited and unsolicited ratings, that is, whether agencies treat issuers who pay for the service (solicited rating) differently from those who do not pay (unsolicited rating). I find that both agencies give significantly lower ratings to unsolicited issues. However, I do not find a significant difference between the performances of solicited and unsolicited issues. The results are consistent with the hypothesis that rating agencies give worse ratings to un-soliciting issuers not as blackmail, but rather as a necessary adjustment for the difference in the true and unobserved quality. Holding public information constant, issuers with better private information self select into the soliciting group since by disclosing the private information to the agencies they can receive higher ratings. The results in this paper do not lend support for more stringent regulation on the rating agencies.
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Tepper School of Business and the Office of Economic Analysis of the Securities and Exchange Commission. However, these individuals are not responsible for any of the views, interpretations or errors herein. The Securities and Exchange... more
Tepper School of Business and the Office of Economic Analysis of the Securities and Exchange Commission. However, these individuals are not responsible for any of the views, interpretations or errors herein. The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This presentation expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff. Abstract This paper explores the implications of principal-agent theory for executive compensation to identify explanations for a number of compensation practices and to identify a variety of puzzles. We suggest several potential explanations for the level of executive compensation, highlight the role and causes of incentive-based compensation, identify several puzzling aspects of the design of employee stock option grant programs and address the role and incentives of the board of d...
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ABSTRACT We propose a new test of motives to be a public firm that is based on the observation that firms can become public by issuing either equity or debt. Thus, one can examine the determinants of the private-public decision by... more
ABSTRACT We propose a new test of motives to be a public firm that is based on the observation that firms can become public by issuing either equity or debt. Thus, one can examine the determinants of the private-public decision by comparing firms that are public with equity to firms that are public with debt. The advantage of this approach is the availability of standardized COMPUSTAT data about both types of public firms. We find that there are many firms that are public only with debt (Public Debt firms) and that they are significantly different from firms that are public only with Equity (Public Equity firms). Specifically, Public Equity firms have higher sales volatility, volatility of returns on assets, and R&D intensity, and lower fraction of assets in place than Public Debt firms. This suggests that Public Equity firms are exposed to more information asymmetry than Public Debt firms. We find the same differences for financially unconstrained firms. We also find that firms with significant investments and R&D intensity are more likely to be public with equity than with debt. Examining firms around the time they transition from being private to being public, we find that transitioning firms have abundant cash and pay significant dividends both before and after the transition. Lastly, Public Debt firms are more profitable than Public Equity firms. We interpret our results as indicating that agency and information collection motives dominate information asymmetry considerations in the private-public decision.
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University of Haifa, and the Wharton School for helpful comments and suggestions. Going Public: Public Debt or Public Equity? We expand the private-public decision to include the choice of security with which to become public. We find... more
University of Haifa, and the Wharton School for helpful comments and suggestions. Going Public: Public Debt or Public Equity? We expand the private-public decision to include the choice of security with which to become public. We find that there are many firms that are public only with debt (Public Debt firms) and that they are significantly different from firms that are public only with equity (Public Equity firms). Specifically, Public Equity firms have higher sales volatility, volatility of returns on assets, and R&D intensity, and lower fraction of assets in place than Public Debt firms. This suggests that Public Equity firms are exposed to more information asymmetry than Public Debt firms. We find the same differences for financially unconstrained firms. We also find that firms with significant investments and R&D intensity are more likely to be public with equity than with debt. Examining firms around the time they transition from being private to being public, we find that tr...
We analyze a unique data set that includes the full demand schedules of 27 Israeli IPOs that were conducted as non-discriminatory (uniform price) auctions. To the best of our knowledge, this is the first time the whole demand schedule for... more
We analyze a unique data set that includes the full demand schedules of 27 Israeli IPOs that were conducted as non-discriminatory (uniform price) auctions. To the best of our knowledge, this is the first time the whole demand schedule for any asset is described. The demand schedules are relatively flat around the auction clearing price: The average elasticity is 37. The elasticity is low when the return distribution contains a large unique component. We also find a significant average abnormal return of 4.5 % on the first trading day and a positive correlation between the abnormal return and the elasticity of demand. 1The Demand for Stocks: An Analysis of IPO Auctions This paper uses a unique data set of initial public offerings of securities (IPOs), conducted as non-discriminatory (uniform price) auctions. Our data include the full demand schedules for 27 auctioned Israeli IPOs. To the best of our knowledge, this is the first time the whole d mand schedule for any asset is describe...
We test whether bond ratings contain pricing-relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not... more
We test whether bond ratings contain pricing-relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not preceded by any announcement, and was carried simultaneously for all bonds. We find that rating information does not affect firm value but that debt value increases (decreases) and equity value falls (rises) when Moody's announces better- (worse-) than-expected ratings. We also find that when Moody's announces better- (worse-) than-expected ratings, the volatilities implied by prices of options on the fine-rated issuers' shares decline (rise). 2 Virtually all large corporate bond issues are rated by at least one rating agency. These ratings are costly: $25,000 for issues of up to $500 million and half a basis point of the issued amount for issues exceeding $500 million. Interestingly, although bonds are rated whether the issuer pays fo...
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In this paper, I conduct a time series analysis of corporate payout policies that accounts for the dynamic nature of these decisions and for the interaction among investment decisions and payout policies. The estimation is done with a VAR... more
In this paper, I conduct a time series analysis of corporate payout policies that accounts for the dynamic nature of these decisions and for the interaction among investment decisions and payout policies. The estimation is done with a VAR model of investments, earnings, total payout, and the split of the total payout between dividends and share repurchase. I control for changes in the legal treatment of share repurchase in 1982 and for changes in the relative taxation of dividends and capital gains. I find that: An increase in the taxation of capital gains relative to dividends causes a shift in the split of total corporate payout away from share repurchase and towards dividends Corporate investment decisions lead payout policies and not the other way around Increases in corporate payout are associated with long-term subsequent increases in earnings Changes in the composition of corporate payout away from share repurchases and toward dividends are associated with subsequent increase...
財務価値創造のツール 財務報告情報の利用 評価：プロセスおよび原則 見積財務諸表の構築 企業をとりまく環境の分析 企業の業務分析 Ｊ・Ｍ・スマッカー社—財務実績予測 資本構造と資本コスト 割引率の推計 倍率による価値評価〔ほか〕
1. Financial Valuation Tools 2. Using Financial Reporting Information 3. Valuation: Processes and Principles 4. Building Pro Forma Financial Statements 5. Analyzing the Firm's Environment 6. Analyzing the Firm's Operations 7. J.... more
1. Financial Valuation Tools 2. Using Financial Reporting Information 3. Valuation: Processes and Principles 4. Building Pro Forma Financial Statements 5. Analyzing the Firm's Environment 6. Analyzing the Firm's Operations 7. J. M. Smucker - Projecting Financial Performance 8. Capital Structure and the Cost of Capital 9. Estimating Discount Rates 10. Valuation by Multiples 11. Valuing the Firm's Debt 12. Valuing Equity Cash Flows Directly 14. Final Remarks
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ABSTRACT The incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade. Using prices of Israeli index and nominal bonds of equal maturity, we calculate... more
ABSTRACT The incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade. Using prices of Israeli index and nominal bonds of equal maturity, we calculate implied expectations of inflation that has already occurred but for which the official statistic has not yet been announced. Learning is defined as the convergence of these expectations to the actual level of inflation in the period after the end of the month but before the announcement of the official statistic. We find that the variance of the inflation expectation errors decreases with trading days in this period. The decline in the variance suggests that investors learn, by repeatedly observing prices, about the distribution of other investors’ information. We also find a positive relation between the dispersion of relative price changes and the size of the inflation-expectation errors on the first round of trade. The correlation diminishes as investors learn about the distribution of inflation information in the economy.
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... (For a more detailed description of bond trading and its implications for bond market.studies, see Sarig and Warga (1989).) Bond ... Ederington, LH and JB Yawitz, 1987, The bond rating process, in E. Altman, ed.: Handbook of Financial... more
... (For a more detailed description of bond trading and its implications for bond market.studies, see Sarig and Warga (1989).) Bond ... Ederington, LH and JB Yawitz, 1987, The bond rating process, in E. Altman, ed.: Handbook of Financial Markets and Institutions, 6th ed. (Wiley, New ...
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ABSTRACT This paper introduces a new method to measure the unexpected component of dividend announcements. While measures used previously were based on various arbitrary models of dividend expectations, the authors' suggested... more
ABSTRACT This paper introduces a new method to measure the unexpected component of dividend announcements. While measures used previously were based on various arbitrary models of dividend expectations, the authors' suggested method compares the reaction of stock and option prices to dividend announcements. Their measure is compared to commonly used model-based measures, to a Box-Jenkins time-series-based measure, and to a Value-Line Investor Survey-based measure of dividend surprises. The new measure is more highly correlated with the market's reaction to the announcements than are alternative measures of dividend surprises. The new measure is also shown to be insensitive to the extent to which the options used to identify unexpected dividend announcements are in- or out-of-the-money. Copyright 1992 by American Finance Association.
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ABSTRACT We analyze a model in which firms signal their quality by using financial policies to commit to cash outflows. Two financial policies may be used: dividend and debt-service obligations. We find sufficient conditions for the... more
ABSTRACT We analyze a model in which firms signal their quality by using financial policies to commit to cash outflows. Two financial policies may be used: dividend and debt-service obligations. We find sufficient conditions for the informational equilibrium to entail concommitant use of both dividends and leverage in the cost-minimizing combination of the commitment signal. In this equilibrium, better firms pay higher dividends and are more highly levered than lower quality firms.
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This paper attempts to characterize liquidity-driven noise in the CRSP Government Bond price data set by comparing these price records to the independently collected Shearson Lehman Brothers (SLB) Bond Data Base. We argue that... more
This paper attempts to characterize liquidity-driven noise in the CRSP Government Bond price data set by comparing these price records to the independently collected Shearson Lehman Brothers (SLB) Bond Data Base. We argue that discrepancies between the data sets are ...
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In this note, a loss shared by the security holders of merging firms is pointed out: separate corporate entities provide double protection against future negative cash flows that are part of any production process (e.g., when customer or... more
In this note, a loss shared by the security holders of merging firms is pointed out: separate corporate entities provide double protection against future negative cash flows that are part of any production process (e.g., when customer or employee liabilities exceed future in? come), independent of whether or not debt is used in the corporate capital structure. A merger involves a relinquishment of this double protection in return for a less valuable single protection: limited liability in the merged corporation against combined negative cashflows.
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We find round number clustering in orders submitted by investors in Israeli IPO auctions. Explanations offered for price clustering, such as dealer collusion or implicit agreement to simplify negotiations, cannot explain price clustering... more
We find round number clustering in orders submitted by investors in Israeli IPO auctions. Explanations offered for price clustering, such as dealer collusion or implicit agreement to simplify negotiations, cannot explain price clustering in this market. Therefore, this is direct evidence that investors prefer round numbers.
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We examine the impact of monetary policy using Israeli data on nominal and indexed bonds, which allow us to decompose nominal interest rates into inflation expectations and ex ante real interest rates. We find that a monetary policy... more
We examine the impact of monetary policy using Israeli data on nominal and indexed bonds, which allow us to decompose nominal interest rates into inflation expectations and ex ante real interest rates. We find that a monetary policy shock, introduced by raising the overnight rate the Bank of Israel charges member banks, raises real interest rates but lowers inflation expectations. Long-term real interest rates are less impacted than short-term rates. Lastly, monetary shocks affect the exchange rate between the Israeli currency and the US dollar. Our estimates are robust to numerous modifications to the basic VAR model.
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We find round number clustering in orders submitted by investors in Israeli IPO auctions. Explanations offered for price clustering, such as dealer collusion or implicit agreement to simplify negotiations, cannot explain price clustering... more
We find round number clustering in orders submitted by investors in Israeli IPO auctions. Explanations offered for price clustering, such as dealer collusion or implicit agreement to simplify negotiations, cannot explain price clustering in this market. Therefore, this is direct evidence that investors prefer round numbers.
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ABSTRACT Using inflation expectations extracted from index bond prices, we examine the relations between expected inflation, unexpected inflation and relative price dispersion in stable and volatile monetary regimes. We find that expected... more
ABSTRACT Using inflation expectations extracted from index bond prices, we examine the relations between expected inflation, unexpected inflation and relative price dispersion in stable and volatile monetary regimes. We find that expected inflation is positively related to relative price dispersion in the high inflation period, and that inflation shocks are positively related to relative price dispersion in the low inflation period.
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The purpose of this book is to review the theory and empirical evidence regarding the impact of dividend policy on shareholder wealth. It cuts to the quick of such long-standing questions as Why do corporations pay dividends? and Why... more
The purpose of this book is to review the theory and empirical evidence regarding the impact of dividend policy on shareholder wealth. It cuts to the quick of such long-standing questions as Why do corporations pay dividends? and Why should investors care? With relevant ...
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... Jacob Boudoukh, Roni Michaely, Amir Ziv, and seminar participants at IDC, the Hebrew University, Tel Aviv University, University of Haifa, and the Wharton School for helpful comments and ... Fama and MacBeth (1973), Fama and French... more
... Jacob Boudoukh, Roni Michaely, Amir Ziv, and seminar participants at IDC, the Hebrew University, Tel Aviv University, University of Haifa, and the Wharton School for helpful comments and ... Fama and MacBeth (1973), Fama and French (2001), and Garmaise and Moskowitz ...