There is substantial evidence on the influence of political outcomes on the business cycle and stock market. We further hypothesize that uncertainty about the outcome of a U.S. presidential election should be reflected in pre-election common stock returns. Prior research pools returns based on the party of the winning candidate, assuming that the outcome of the election is known a priori. We use candidate preference (i.e., polling) data to construct a measure of election uncertainty. We find that if the election does not have a candidate with a dominant lead, stock market volatility (risk) and average returns rise. 2006 The Southern Finance Association and the Southwestern Finance Association.

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In this paper we investigate the effect of golden parachute (GP) adoptions on shareholder wealth. We control for the potential effect a GP adoption has on the probability that a firm will receive a takeover bid by investigating the wealth effects for firms that are in play when the GP is adopted. We find that announcements are wealth neutral when firms are in play and wealth increasing when firms are not in play when a GP is adopted. The results suggest that GPs have no influence on the success of a tender offer, refuting the hypotheses that they either align manager and shareholder interests or that they entrench inefficient managers. The difference in the results for in-play and not-in-play firms is consistent with the hypothesis that GPs signal an increased likelihood that a firm will receive a takeover bid.

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Studies of investor responses to exchange offer (EO) announcements find a positive relation between abnormal returns and the proposed change in leverage: a result consistent with the performance signaling hypothesis. In this study of equity-for-debt EO announcements, shareholder wealth declines and the relation between 'Ibbin's Q and announcement effects is consistent with the free cash flow hypothesis. There is no pattern of contemporaneous and subsequent performance of EO firms that systematically supports the signaling, income smoothing, or free cash flow hypotheses. We infer that EOs are motivated by sinking fund considerations, rather than signaling or compensation motives.

Abstract. In a Semi-Strong Form (SSF) Efficient Market, asset prices should respond quickly and completely to the public release of new information. In the period from his election on 11/8/16 to his swearing in ceremony on 1/20/17, President-elect Trump posted numerous statements ('tweets') on his Twitter messaging service account that identified ten publicly traded firms. In the absence of new information, the Efficient Market Hypothesis (EMH) predicts that these announcements should have little or no price impact on the common stocks of these firms. Using standard event study methods, we find that positive (negative) content tweets elicited positive (negative) abnormal returns on the event date and virtually all of this effect is from the opening stock price to the close. Within five trading days, the CARs are no longer statistically significant. President-elect Trump's tweets were associated with increases in trading volume and Google Search activity. Taken as a whole, the price and trading volume response, combined with Google Search activity is consistent with hypothesis that it was small/noise traders who were acting on President-elect Trump's tweets and that their impacts were transitory.