LAWRENCEVILLE, NJ -- Dr. Feng-Ying Liu, associate professor of finance at Rider University, is on paid research leave for the 1999 spring semester to investigate a puzzling issue in corporate finance -- why long-run market performance of firms issuing common stock is less than that of non-issuing firms.

Dr. Liu, a resident of Princeton, cites recent studies reporting that the average return of issuing firms is only seven percent per year in the five years after issuing, as compared with 15 percent per year for non-issuing firms of the same size.

In her research, she will seek an answer for this surprising disparity in performance. She will examine two possible explanations -- the overvaluation hypothesis and the free cash flow hypothesis.

"The overvaluation hypothesis argues that managers who have more information about the future prospects of the firm have incentives to issue common stock of the firm when the stock is overvalued," Dr. Liu said. "Moreover, the price decline of a three percent return at the issuing announcement does not fully adjust the overvaluation of the stock and stock remains overvalued after the issuing announcement."

On the other hand, the free cash flow hypothesis argues that the inflow of cash to the firm allows managers to be less diligent with their resource allocations. "Projects of dubious value may be undertaken not based on project merit, but due to the availability of resources to fund a large number of projects," she said. "With a reduction in the overall rate of return on investment following the influx of cash resources, the firm's market performance is reduced as well.

Dr. Liu recently had a paper titled "The Signaling Power of Specially Designated Dividends" accepted for publication in the Journal of Financial and Quantitative Analysis, one of the most highly regarded journals in finance. A member of the Rider finance faculty since 1988, she has had several other refereed journal publications and has given more than 30 refereed conference presentations.

Holder of a Ph.D. in finance and a M.B.A. in accounting from Drexel University, and a B.A. in economics from National Taiwan University, Dr. Liu has taught capital budgeting, corporate financial decisions, and risk management on the undergraduate level, and financial management, advanced financial management, and a seminar in finance on the graduate level. Among her Rider honors are a Davis Fellowship in 1995-96 and a Dean's Faculty Recognition Award for Scholarly Activity in 1994-95.