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Abstract:
We analyze Berkshire Hathaway's equity portfolio over the 1976 to 2006 period and explore potential explanations for its superior performance. Contrary to popular belief, we find Berkshire Hathaway invests primarily in large-cap growth rather than "value" stocks. Over the period the portfolio beat the benchmarks in 27 out of 31 years, on average exceeding the S&P 500 Index by 11.14%, the value-weighted index of all stocks by 10.92%, and a Fama and French characteristic-based portfolio by 8.56% per year. Although beating the market in all but four years can statistically happen due to chance, incorporating the magnitude by which the portfolio beats the market makes a luck explanation extremely unlikely even after taking into account ex-post selection bias. We find that Berkshire Hathaway's portfolio is concentrated in relatively few stocks with the top five holdings averaging 73% of the portfolio value. While increased volatility is normally associated with higher concentration we show the volatility of the portfolio is driven by large positive returns and not downside risk. The market appears to under-react to the news of a Berkshire Hathaway stock investment since a hypothetical portfolio that mimics the investments at the beginning of the following month after they are publicly disclosed also earns significantly positive abnormal returns of 10.75% over the S&P 500 Index. Our evidence suggests the Berkshire Hathaway triumvirates of Warren Buffett, Charles Munger, and Lou Simpson posses' investment skill unlikely to be explained by Efficient Market Theory.

Warren Buffett, Berkshire Hathaway, efficient markets, long-term performance, investment performance, abnormal returns

Abstract:
This paper examines the potential benefits of security fungibility by conducting the first comprehensive analysis of Global bonds. Unlike other debt securities, Global bonds' fungibility allows them to be placed simultaneously in bond markets around the world; they trade, clear and settle efficiently within, as well as across markets. We test the impact of issuing these securities on firms' cost of capital, issuing costs, liquidity and shareholder wealth. Using a sample of 230 Global bond issues by 94 companies from the U.S. and abroad over the period 1996-2003, we find that firms are able to lower their cost of (debt) capital by issuing these fungible securities. We also document that the stock price reaction to the announcement of Global bond issuance is positive and significant, while comparable domestic and Eurobond issues over the same time period are associated with insignificant changes in shareholder wealth.

Fungibility, global bonds

Abstract:
This paper examines the potential benefits of security fungibility by conducting the first comprehensive analysis of Global bonds. Unlike other debt securities, Global bonds' fungibility allows them to be placed simultaneously in bond markets around the world; they trade, clear and settle efficiently within as well as across markets. We test the impact of issuing these securities on firms' cost of capital, issuing costs, liquidity and shareholder wealth. Using a sample of 230 Global bond issues by 94 companies from the U.S. and abroad over the period 1996-2003, we find that firms are able to lower their cost of (debt) capital by issuing these fungible securities. We also document that the stock price reaction to the announcement of Global bond issuance is positive and significant, while comparable domestic and Eurobond issues over the same time period are associated with insignificant changes in shareholder wealth.

Global bonds, security fungibility, cost of capital, international capital raising

Abstract:
This paper examines the costs, wealth effects, and determinants of international capital raising for a sample of 260 public debt issues made by non-U.S. firms in the U.S. (Yankee) market. We find that investors demand economically significant premiums on bonds issued by firms that are located in countries that do not protect investors' rights and do not have a prior history of on-going disclosure. The results provide support for the literature that suggests better legal protections and more detailed information disclosure increases the price investors will pay for financial assets. We also find that the average stock price reaction to Yankee bond offerings is significantly positive and that abnormal returns are largest for first-time Yankee bond issuers. In addition, we show that foreign firms tend to issue in the Yankee market when the relative interest cost is low, indicating that potential differences in borrowing costs influence where firms choose to sell bonds.

Yankee bonds, International Capital Raising

Abstract:
In this paper, we examine how stock option usage affects total corporate payout. Using fixed-effects panel data estimators on various samples of Execucomp firms from 1993 to 2005, we find the higher the executive stock options, the lower the total payout, ceteris paribus. We also find some evidence that firms increase payouts through repurchases in order to offset EPS dilution that occurs due to usage of executive and non-executive stock options. However, incentives from not having dividend protection for options appear to dominate that of anti-dilution, resulting in lower total payout for firms with higher options usage.

Dividends, payout, executive compensation, incentives, stock options, share repurchases, issuances, earnings dilution

Abstract:
This paper comprehensively examines whether the presence of interlocked directors on a board is associated with weak governance. For a sample of 3,566 firm-years over the 2001-2003 time period, we find that firms with lower industry-adjusted firm performance are more likely to have interlocked directors. We also find a negative stock price reaction to the announcement of director appointments that create interlocked directors. Finally, we document that the presence of interlocked directors is associated with lower than optimal pay-performance sensitivity of CEO incentive compensation and reduced sensitivity of CEO turnover to firm performance. Collectively, our results suggest that the presence of interlocked directors is indicative of weak governance and entrenched managers.

director interlocks, performance, board monitoring, social networks

Abstract:
I examine several possible explanations for why Infosys' Depositary Receipts (DRs) trade at significant premiums to the equivalent underlying domestic shares. I find that a limited supply of DRs and a downward-sloping demand curve, significant transaction costs associated with investing directly in the domestic market, and trend-chasing by smaller and potentially uninformed investors partly explain the DR premiums. I also examine the wealth effects of non-capital raising secondary depositary receipt offerings by Infosys Technologies and find significant wealth transfers from existing DR holders to selling domestic shareholders who are comprised significantly of Infosys' founders.

Abstract:
This paper examines the costs, wealth effects, and determinants of international capital raising for a sample of 260 public debt issues made by non-U.S. firms in the Yankee Bond market. We find that investors demand economically significant premiums on bonds issued by firms that are located in countries that do not protect investors' rights and do not have a prior history of on-going disclosure. The results provide support for the literature that suggests better legal protections and more detailed information disclosure increases the price investors will pay for financial assets.