Trade credit is created whenever a supplier offers terms that allow the buyer to delay payment. In this paper we document the rich variation in interfirm credit terms and credit policies across industries. We examine empirically the firm's basic credit policy choices: whether to extend credit or to require cash payment; and, if credit is extended, whether to adopt simple net terms or terms with discounts for prompt payment. We also examine determinants of variations in two-part terms. Results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness.TRADE CREDIT HAS IMPORTANT ECONOMIC SIGNIF ICANCE from both micro-and macroeconomic perspectives. During the 1990s vendor financing has accounted for an average $1.5 trillion of the book value of all assets of U.S. corporations and has represented approximately 2.5 times the combined value of all new public debt and primary equity issues during a given year. As a component of the money supply, trade credit, in the form of accounts payable, exceeds the primary money supply~M1! by a factor of 1.5 on average. 1 Clearly, efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade-credit financing.Several recent empirical studies examine determinants of firm reliance on trade credit. 2 These studies model supply and demand for trade credit using financial-statement data~accounts receivable and payable!. 3 However, many aspects of trade-credit practice are unexplored. Most notably, little is known about the types of credit terms~e.g., net 30, 2010 net 30! and credit policies that are observed across firms and industries.

The issuer's decision to include warrants as compensation to underwriters is studied for a sample of 1,991 negotiated firm commitment issues of seasoned equity. Using a two‐stage logit model to correct for self‐selection bias, we find direct evidence that warrant compensation functions as a bond, substituting for reputational capital and enabling the underwriter to certify the issue price. To a lesser degree, the decision also is affected by regulations on underwriter compensation and on the use of underwriter warrants. Issuers' decisions are consistent with an objective of minimizing total underwriting cost, including cash compensation, warrants, and underpricing.

The issuer's decision to include warrants as compensation to underwriters is studied for a sample of 1,991 negotiated firm commitment issues of seasoned equity. Using a two-stage logit model to correct for self-selection bias, we find direct evidence that warrant compensation functions as a bond, substituting for reputational capital and enabling the underwriter to certify the issue price. To a lesser degree, the decision also is affected by regulations on underwriter compensation and on the use of underwriter warrants. Issuers' decisions are consistent with an objective of minimizing total underwriting cost, including cash compensation, warrants, and underpricing. COMPENSATION TO UNDERWRITERS OF equity issues can be in either cash in the form of a spread, or a combination of cash spread plus warrants to purchase new shares of the issuer at a future date. Use of warrant compensation has been puzzling and controversial for several reasons: (1) since expectations about future stock performance may diverge, the value of cash compensation is easier for the issuer and the underwriter to agree upon; (2) legal restrictions on resale and exercise of warrants used as compensation reduce their value to the underwriter; (3) since the exercise price is tied to the issue price, warrants reinforce the underwriter's incentive to underprice.Previous research offers three hypotheses for use of warrant compensation. First, in an early study of securities markets, the U.S. Securities and Exchange Commission (SEC) (1963a, at 500-512; and 1963b) hypothesizes that the market for underwriting services is segmented between small and large issuers. Large issuers enter into cash compensation contracts with well-established underwriters, whereas small issuers are constrained to deal with less well-established underwriters who demand warrant compensation. The SEC suggests that warrants are used to mislead small issuers about the value of

No abstract

<p>Setting decimal places to two in Texas Instruments BA-II Plus financial calculator to be consistent with our currency denomination is insidious. It yields erroneous amortization answers that elude unsuspecting users. The only remedy to minimize the erroneous answers is to increase the decimal places to nine, the maximum permissible by the calculator.</p>

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -To test and compare how the value of ten major investment banking firms was affected by the announcement in April 2002 of an investigation by the New York State Attorney General's office and by the announcement of a settlement between the Attorney-General's office and the indicted firms in December 2002.Design/methodology/approach -Presents a hypothesis that the defendant firms would experience greater negative returns on the announcement day than on the settlement day, describes method of data collection and analysis, and draws conclusions from the results.Findings -Announcement of the anti-fraud investigation was more value-depleting than announcement of the punitive settlement. The decline in the defendant banks' share prices over the following year was correlated with the amounts of their punitive settlements.Originality/value -While primarily a corporate finance study comparing the effects of the announcement of the investigation and of the final settlement on the securities firms' share prices, also shows how the alleged infractions affected the firms' shareholder values.