Michael Casey - Academia.edu (original) (raw)
Papers by Michael Casey
The purpose of this research is to determine whether investor clienteles react in a different man... more The purpose of this research is to determine whether investor clienteles react in a different manner to the same information. Applying a technique developed by He (2012) to a firm like Berkshire Hathaway with two different classes of common stock allows us to test whether investor clienteles react in differential ways to the same information while holding other factors constant. Using a method developed by He (2012) we create an investor sentiment index (SE) to forecast prices of Berkshire Hathaway class A and class B shares. We find evidence that reactions of class A shareholders to news are more volatile, compared with class B. There is no evidence that volatility of SE can significantly affect the accuracy of forecasting. However, results of this study suggest that a more volatile SE index may lead to more unsteady outcomes in some rolling forecasts. The volatility differences in SE index and rolling forecasts stem from differential investor clienteles and their reactions the same news.
Corporate Ownership and Control, 2008
This paper explores the relationship between a firm’s dividend payment and an external perception... more This paper explores the relationship between a firm’s dividend payment and an external perception of whether the firm exercises good corporate governance. Consistent with an agency explanation of dividend payout, we find that firms with higher corporate governance scores do pay lower dividends. The reduced cost associated with not seeking external funds as often as firms with higher dividends can be listed as a benefit for firms seeking to be known as better corporate citizens.
Journal of Applied Business Research (JABR), 2011
This study develops an equity distribution model to analyze dividend and share repurchase pay- me... more This study develops an equity distribution model to analyze dividend and share repurchase pay- ments to shareholders. Transaction costs increase and agency costs decrease as equity cash dis- tributions increase, suggesting that an optimal equity distribution exists that minimizes the sum of these two costs. A Tobit model relates the equity distribution yield (dividend and share repurchase distributions as a percent of market capitalization) to proxies of perceived undervaluation, finan- cial leverage, asset productivity, investment cash outflows, and agency costs. The results suggest that firms appearing undervalued, using little financial leverage, employing more productive as- sets, having fewer investment opportunities, or having greater dispersion of ownership distribute relatively more cash to shareholders through dividends and/or share repurchases. These findings support the existence of an optimal equity cash distribution policy that is unique to each firm.
This study identifies factors that explain bank dividend policy by adapting the Barclay, Smith, a... more This study identifies factors that explain bank dividend policy by adapting the Barclay, Smith, and Watts (1995) model. Our model uses investment opportunities, capital adequacy, size, signaling, ownership, dividend history, and risk to explain dividend payments. Empirical analysis suggests a negative relationship between dividend payments and investment opportunities, signaling, ownership, and risk and a positive relationship to size and dividend history. Our results lead to five guidelines for making dividend payout decisions.
This study focuses on determining whether short-term market inefficiencies exist that can be peri... more This study focuses on determining whether short-term market inefficiencies exist that can be periodically exploited by investors. Berkshire Hathaway's dual class stock with differential voting rights and one-way conversion option provides a unique opportunity to investigate this issue while controlling for other exogenous variables that could bias the findings. Given the investor attention directed toward Berkshire Hathaway, and the company's famous CEO Warren Buffett, this company's stock should always trade in an efficient market. The results suggest that Berkshire Hathaway class B shares tend to have significantly higher opening prices and Berkshire Hathaway class A shares tend to have higher closing prices, although both A and B shares have similar average daily returns. Price dynamics may create unique arbitrage opportunities for investors. However, the higher overnight returns for B shares may be offset by higher volatility embedded in the B shares.
The Quarterly Review of Economics and Finance, 2000
The literature concerning the Tax Reform Act of 1986 (TRA) is extensive, but generally does not c... more The literature concerning the Tax Reform Act of 1986 (TRA) is extensive, but generally does not consider dividend policy changes related to TRA's passage. One exception is Casey et al., but that work omits banking. An examination of banks is especially apt given TRA's changes in tax rates and municipal bond categorization. Results show bank dividend policy to be different from other industries, as banks show no relation to past growth rates, beta, or an insider ownership as Rozeff's model holds. The results support the idea that the lower the taxes, the higher the payout which is contrary to the dividend irrelevancy argument. However, the results are not robust in tests using data from a later period meant to more closely examine changing capitalization requirements' impact on dividend policy.
Given the global nature of business, and in particular banking, we should find that financial ins... more Given the global nature of business, and in particular banking, we should find that financial institutions are impacted by foreign currency movements. In this paper, we investigate whether the performance of 22 large U.S. commercial banks is affected by foreign exchange fluctuations over a 40-year period. We find that these large U.S. banks are exposed to foreign exchange risk and that specific bank performance is related to the value of the dollar relative to market baskets of other currencies. These results can potentially be used to mitigate some of this risk and/or alter investment portfolios given various foreign currency movements. INTRODUCTION AND LITERATURE REVIEW The popular press contains numerous references to the impact of foreign exchange movements on U.S. banks. For example, in an article by Boyd (2011) he states that Fitch Ratings indicated that U.S. banks had substantial exposure to the Euro related to the European debt crisis. In fact, by the end of 2010 the combined U.S. bank exposure to the Greek debt crisis alone was at least 41billionaccordingtotheBankofInternationalSettlements.AdditionaldatafromtheOfficeoftheComptrolleroftheCurrency(OCC)indicatesthatU.S.banksgeneratesubstantialtradingrevenuefromforeignexchange.Inthesecondquarterof2011,therevenuefromforeignexchangewas41 billion according to the Bank of International Settlements. Additional data from the Office of the Comptroller of the Currency (OCC) indicates that U.S. banks generate substantial trading revenue from foreign exchange. In the second quarter of 2011, the revenue from foreign exchange was 41billionaccordingtotheBankofInternationalSettlements.AdditionaldatafromtheOfficeoftheComptrolleroftheCurrency(OCC)indicatesthatU.S.banksgeneratesubstantialtradingrevenuefromforeignexchange.Inthesecondquarterof2011,therevenuefromforeignexchangewas491 million. However, in comparison with the second quarter of 2010 the U.S. bank revenue from foreign exchange was $4,261 million. The year-to-year volatility highlights the risk exposure of U.S. banks to foreign exchange movements. When the derivative exposure is added to this equation, the amounts of risk attributable to foreign exchange can be staggering with many estimates ranging in the hundreds of billions of dollars (Durden, 2011). Given the recent popular press attention to foreign exchange risk of big commercial banks it warrants academic investigation. Is bank performance truly impacted by foreign exchange risk? The purpose of this research is to investigate that claim using 30 years of recent data to evaluate the exposure of large U.S. banks to fluctuations in foreign exchange. A number of academic studies have addressed banks and foreign exchange exposure. For example, Bracker et al (2009) identified the change in the value of the U.S. dollar as one of the six primary sources
The purpose of this paper is to determine whether prepayment risk impacts the performance of mort... more The purpose of this paper is to determine whether prepayment risk impacts the performance of mortgage companies and/or mortgage REITs. Previous research finds prepayment risk impacts bank returns and also impacts bank loan returns (He, 2007; Fayman & He, 2011). This paper uses regression analysis to measure the prepayment risk premium and then uses those results as a dependent variable in several separate regression models that utilize performance metrics as the independent variable. The results indicate that prepayment risk has a positive impact on sales growth in mortgage companies and also has a negative impact on ROE and a positive impact on ROA in mortgage companies. One possible explanation for this finding is mortgage companies may opt to sell mortgages faster in interest rate environments that have higher levels of prepayment risk. However, prepayment risk appears to have little to no impact on the performance of mortgage REITs.
The purpose of this research is to determine whether investor clienteles react in a different man... more The purpose of this research is to determine whether investor clienteles react in a different manner to the same information. Applying a technique developed by He (2012) to a firm like Berkshire Hathaway with two different classes of common stock allows us to test whether investor clienteles react in differential ways to the same information while holding other factors constant. Using a method developed by He (2012) we create an investor sentiment index (SE) to forecast prices of Berkshire Hathaway class A and class B shares. We find evidence that reactions of class A shareholders to news are more volatile, compared with class B. There is no evidence that volatility of SE can significantly affect the accuracy of forecasting. However, results of this study suggest that a more volatile SE index may lead to more unsteady outcomes in some rolling forecasts. The volatility differences in SE index and rolling forecasts stem from differential investor clienteles and their reactions the same news.
Corporate Ownership and Control, 2008
This paper explores the relationship between a firm’s dividend payment and an external perception... more This paper explores the relationship between a firm’s dividend payment and an external perception of whether the firm exercises good corporate governance. Consistent with an agency explanation of dividend payout, we find that firms with higher corporate governance scores do pay lower dividends. The reduced cost associated with not seeking external funds as often as firms with higher dividends can be listed as a benefit for firms seeking to be known as better corporate citizens.
Journal of Applied Business Research (JABR), 2011
This study develops an equity distribution model to analyze dividend and share repurchase pay- me... more This study develops an equity distribution model to analyze dividend and share repurchase pay- ments to shareholders. Transaction costs increase and agency costs decrease as equity cash dis- tributions increase, suggesting that an optimal equity distribution exists that minimizes the sum of these two costs. A Tobit model relates the equity distribution yield (dividend and share repurchase distributions as a percent of market capitalization) to proxies of perceived undervaluation, finan- cial leverage, asset productivity, investment cash outflows, and agency costs. The results suggest that firms appearing undervalued, using little financial leverage, employing more productive as- sets, having fewer investment opportunities, or having greater dispersion of ownership distribute relatively more cash to shareholders through dividends and/or share repurchases. These findings support the existence of an optimal equity cash distribution policy that is unique to each firm.
This study identifies factors that explain bank dividend policy by adapting the Barclay, Smith, a... more This study identifies factors that explain bank dividend policy by adapting the Barclay, Smith, and Watts (1995) model. Our model uses investment opportunities, capital adequacy, size, signaling, ownership, dividend history, and risk to explain dividend payments. Empirical analysis suggests a negative relationship between dividend payments and investment opportunities, signaling, ownership, and risk and a positive relationship to size and dividend history. Our results lead to five guidelines for making dividend payout decisions.
This study focuses on determining whether short-term market inefficiencies exist that can be peri... more This study focuses on determining whether short-term market inefficiencies exist that can be periodically exploited by investors. Berkshire Hathaway's dual class stock with differential voting rights and one-way conversion option provides a unique opportunity to investigate this issue while controlling for other exogenous variables that could bias the findings. Given the investor attention directed toward Berkshire Hathaway, and the company's famous CEO Warren Buffett, this company's stock should always trade in an efficient market. The results suggest that Berkshire Hathaway class B shares tend to have significantly higher opening prices and Berkshire Hathaway class A shares tend to have higher closing prices, although both A and B shares have similar average daily returns. Price dynamics may create unique arbitrage opportunities for investors. However, the higher overnight returns for B shares may be offset by higher volatility embedded in the B shares.
The Quarterly Review of Economics and Finance, 2000
The literature concerning the Tax Reform Act of 1986 (TRA) is extensive, but generally does not c... more The literature concerning the Tax Reform Act of 1986 (TRA) is extensive, but generally does not consider dividend policy changes related to TRA's passage. One exception is Casey et al., but that work omits banking. An examination of banks is especially apt given TRA's changes in tax rates and municipal bond categorization. Results show bank dividend policy to be different from other industries, as banks show no relation to past growth rates, beta, or an insider ownership as Rozeff's model holds. The results support the idea that the lower the taxes, the higher the payout which is contrary to the dividend irrelevancy argument. However, the results are not robust in tests using data from a later period meant to more closely examine changing capitalization requirements' impact on dividend policy.
Given the global nature of business, and in particular banking, we should find that financial ins... more Given the global nature of business, and in particular banking, we should find that financial institutions are impacted by foreign currency movements. In this paper, we investigate whether the performance of 22 large U.S. commercial banks is affected by foreign exchange fluctuations over a 40-year period. We find that these large U.S. banks are exposed to foreign exchange risk and that specific bank performance is related to the value of the dollar relative to market baskets of other currencies. These results can potentially be used to mitigate some of this risk and/or alter investment portfolios given various foreign currency movements. INTRODUCTION AND LITERATURE REVIEW The popular press contains numerous references to the impact of foreign exchange movements on U.S. banks. For example, in an article by Boyd (2011) he states that Fitch Ratings indicated that U.S. banks had substantial exposure to the Euro related to the European debt crisis. In fact, by the end of 2010 the combined U.S. bank exposure to the Greek debt crisis alone was at least 41billionaccordingtotheBankofInternationalSettlements.AdditionaldatafromtheOfficeoftheComptrolleroftheCurrency(OCC)indicatesthatU.S.banksgeneratesubstantialtradingrevenuefromforeignexchange.Inthesecondquarterof2011,therevenuefromforeignexchangewas41 billion according to the Bank of International Settlements. Additional data from the Office of the Comptroller of the Currency (OCC) indicates that U.S. banks generate substantial trading revenue from foreign exchange. In the second quarter of 2011, the revenue from foreign exchange was 41billionaccordingtotheBankofInternationalSettlements.AdditionaldatafromtheOfficeoftheComptrolleroftheCurrency(OCC)indicatesthatU.S.banksgeneratesubstantialtradingrevenuefromforeignexchange.Inthesecondquarterof2011,therevenuefromforeignexchangewas491 million. However, in comparison with the second quarter of 2010 the U.S. bank revenue from foreign exchange was $4,261 million. The year-to-year volatility highlights the risk exposure of U.S. banks to foreign exchange movements. When the derivative exposure is added to this equation, the amounts of risk attributable to foreign exchange can be staggering with many estimates ranging in the hundreds of billions of dollars (Durden, 2011). Given the recent popular press attention to foreign exchange risk of big commercial banks it warrants academic investigation. Is bank performance truly impacted by foreign exchange risk? The purpose of this research is to investigate that claim using 30 years of recent data to evaluate the exposure of large U.S. banks to fluctuations in foreign exchange. A number of academic studies have addressed banks and foreign exchange exposure. For example, Bracker et al (2009) identified the change in the value of the U.S. dollar as one of the six primary sources
The purpose of this paper is to determine whether prepayment risk impacts the performance of mort... more The purpose of this paper is to determine whether prepayment risk impacts the performance of mortgage companies and/or mortgage REITs. Previous research finds prepayment risk impacts bank returns and also impacts bank loan returns (He, 2007; Fayman & He, 2011). This paper uses regression analysis to measure the prepayment risk premium and then uses those results as a dependent variable in several separate regression models that utilize performance metrics as the independent variable. The results indicate that prepayment risk has a positive impact on sales growth in mortgage companies and also has a negative impact on ROE and a positive impact on ROA in mortgage companies. One possible explanation for this finding is mortgage companies may opt to sell mortgages faster in interest rate environments that have higher levels of prepayment risk. However, prepayment risk appears to have little to no impact on the performance of mortgage REITs.