World Scientific Publishing Company eBooks, Mar 1, 2019
This paper investigates the risk structure of interest rates using pure discount bonds. The most ... 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.
I investigate whether rating agencies (Moody’s and S&P) use consistent standards in solicited and... 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.
Tepper School of Business and the Office of Economic Analysis of the Securities and Exchange Comm... 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...
ABSTRACT We propose a new test of motives to be a public firm that is based on the observation th... 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.
University of Haifa, and the Wharton School for helpful comments and suggestions. Going Public: P... 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...
World Scientific Publishing Company eBooks, Mar 1, 2019
This paper investigates the risk structure of interest rates using pure discount bonds. The most ... 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.
I investigate whether rating agencies (Moody’s and S&P) use consistent standards in solicited and... 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.
Tepper School of Business and the Office of Economic Analysis of the Securities and Exchange Comm... 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...
ABSTRACT We propose a new test of motives to be a public firm that is based on the observation th... 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.
University of Haifa, and the Wharton School for helpful comments and suggestions. Going Public: P... 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...
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Papers by Oded Sarig