In his seminal paper, Lewellen (1971) argues that a conglomerate merger between two firms with imperfectly correlated cash flows could reduce the risk of default and hence increase debt capacity. He predicts that such mergers produce a coinsurance effect that benefits both shareholders and bondholders. However, subsequent studies debate whether the coinsurance effect results in real wealth creation or a mere wealth transfer from stockholders to bondholders. Under varying model conditions, these studies generate different predictions about the distribution of merger gains between bondholders and stockholders. In a recent article, Leland (2007) argues that the coinsurance effect is not always positive, as postulated by Lewellen (1971). In addition, he suggests that the corporate coinsurance can be either wealth creation or wealth transfer depending on the specific merger conditions.
The surge in credit card transactions and credit card debt, the high levels of credit card rates, merchant discounts and interchange fees, and the mounting profitability make competition and regulation in credit card markets very important issues for both researchers and policy makers all over the world. Turkey is not an exception in this respect. In ten years, the number of credit cards increased by 500 percent and reached 43 million in 2008, making Turkey the second country in Europe after the UK. Although there are currently 21 card issuing banks, 87 percent of the market is controlled by the six largest banks.
The payment and size of dividends have long been matters of debate in corporate finance. Under conditions of symmetric information and taxes, dividends have been dubbed a puzzle [Black (1976)]. Several authors model dividend policy under the assumption that information is distributed asymmetrically between managers and investors. Bhattacharya (1979, 1980) argues that firms pay dividends because dividends signal the private information of managers and thus help market participants value the firm. Ambarish, John and Williams (1987) suggest that high value firms choose investment and dividends jointly to separate themselves from low value firms. In other words, dividends are not a residual payment as implied by classical finance theory. John and Williams (1985) and Ambarish, John and Williams (1987) predict a positive association between dividends and stock prices. John and Nachman (1987) describe dividends as a “coarse signal of earnings.” Miller and Rock (1985) argue that once the investment decision of a firm is made, unanticipated dividends signal changes in earnings and cash flows. These models differ in the details of their assumptions and approach, but reach the same broad conclusion: firms pay dividends to convey information to investors that cannot be conveyed costlessly and credibly in other ways.
Empirical evidence supports the signaling function of dividends. Asquith and Mullins (1983) find that the initiation of dividends has a significant positive impact on the firm’ s stock price. They interpret their evidence as consistent with the signaling hypothesis in that managers use dividends to communicate private information to investors, and investors react favorably. Richardson, Sefcik and Thompson (1986) report similar evidence.
