| This document presents three papers representing research from both corporate finance and investments. The second chapter is an investigation into the systematic variation of stock price reactions to corporate capital budget announcements. Within this chapter we use an event study methodology to measure the market's reaction to capital investment announcements. Cross sectional variation in these reactions is examined. We find that, on average, the market's reaction to both capital budget increases and decreases is statistically insignificant. We also find that there is support for the idea that agency problems affect the market's valuation of investment decisions and that there is support for the hypothesis of managerial entrenchment. We also find support for the notion that investment decisions made by managers with strong reputations are more highly valued than those made by other managers. We find no support for the notions that the stock market is myopic or that managers behave myopically nor do we find support for the idea that firms with high levels of cash flow invest inefficiently. The third chapter examines when a board of directors, working with a single-minded focus on value-maximization, will choose to replace an incumbent manager. We show that a board which is rational and acting exclusively in the interests of shareholders will not always replace managers who are of below average ability. The fourth chapter provides a brief description of the development of the structured note market in Canada and provides the tools for setting up a system to value a wide variety of these notes using nothing more than a standard spreadsheet and interest rate swap rates. In brief, the valuation technique described involves decomposing a note with an imbedded option into a note, a forward swap, and an option on the forward swap. Techniques for valuing the final two components are described in the paper. |
