Are there arbitrage gaps in the UK gilts strips market?

Evidence in financial markets of an opportunity for pure arbitrage, and therefore a violation of the law of one price, is considered an anomaly to be noted. This paper reports an apparent violation of the law of one price between UK government gilts and their separately traded principal and coupon strips over a sample period of nearly 14 years. There are persistent price differences, and hence opportunities for arbitrage, after allowance for the bid-ask spread; the strips package tends to be overpriced in relation to the corresponding gilt. The price differences may, in part, be due to a lack of liquidity and stale prices in the strips market

The evolving relation between dividends and flexible payouts:A different evolution

We study payout by U.K. listed companies during 1993-2018. Regular dividends remain the dominant channel; they are not disappearing, nor becoming less flexible. At the same time, payments of special dividends and especially repurchases have grown, and these methods make total payout substantially more flexible and more sensitive to earnings than regular dividends on their own. We find that flexible methods augment rather than replace regular dividends. The role of regular and special dividends remains larger in the U.K. than in the U.S., and the role of repurchases is smaller

Competition and debt conservatism

Exploiting changes in countries’ competition laws, we find that competition increases firms’ propensity to use zero leverage (ZL). We test the financial-flexibility, financial-constraint, and quiet-life explanations for this result, concluding that desire for flexibility is the one most likely. The relation between competition and ZL strengthens with cash-flow volatility, which supports the flexibility motive. Adoption of ZL by firms is accompanied by increases in payouts, so it is unlikely that ZL adopters are constrained. Proxies for governance have no effect on the relation between competition and ZL, suggesting that desire for a quiet life is not the explanation either.</p

Returns After Personal Tax on UK Equity and Gilts, 1919-98

This paper investigates whether personal tax could help explain the size of the historic equity permium in the UK measured before personal tax. If there has been a higher tax burden on equity, some of the premium could be viewed as compensation for tax. We estimate that personal tax reduces the arithmetic mean nominal return on equity from 13.3 per cent to 11.1 per cent pa during 1919-98 and the mean return on gilts from 7.1 per cent to 5.6 per cent pa. Personal tax accounts for a slightly higher proportion of the before-tax return on gilts than on equity, which implies that none of the premium measured before tax can be viewed as compensation for a higher tax burden on equity

Are the Discounts in UK Open Offers and Placings Due to Inelastic Demand?

This paper investigates the large and diverse discounts in UK open offers and placings. Large discounts are a substantial cost to shareholders who do not buy new shares. The existing literature mainly examines US firm-commitment offers and private placements, but UK open offers and placings differ from both types of US offer. The paper presents evidence that inelastic demand, illiquidity of the issuer's shares, and financial distress are key determinants of the discount. The effects of inelastic demand and distress are much more apparent in UK than in US SEOs. We argue that institutional features obscure the role of these variables in the US context