Competitive environment and innovation intensity

We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentration is high, increased concentration causes industry firms to increase innovation intensity to escape competition. The U-shaped relation is more pronounced in industries where firms compete in strategic substitutes. Using tariff rate reductions as an exogenous shock to the competitive environment, firms in neck-and-neck industries and industries where firms compete in strategic substitutes respond to foreign competitive threats by increasing innovation intensity.     

Investor Protection,Investment Efficiency and Value: The Case of Cross‐Listed Firms

We examine the impact of improved investor protection due to cross‐listing on foreign firms’ investment decisions and firm value. While we find that cross‐listing increases firms’ capital expenditures and mergers and acquisitions activities, cross‐listed firms also invest more in research and development, make better acquisition decisions, and have higher profitability compared to non‐cross‐listed firms. Moreover, cross‐listing is associated with better cash utilization by foreign firms for investments. These improvements in investments and cash utilization are more pronounced for firms cross‐listed on US exchanges and for firms from countries with weak investor protection laws.     

Competition in the acquisition market and returns to bidders in Australia

This study investigates the impact of takeover market competition on the short-run market performance of Australian acquirers. While the market for corporate control predicts a positive association between takeover market competition and acquirers’ announcement period returns, the winner’s curse hypothesis predicts a negative relationship. Using six alternative proxies to capture acquisitions market competition, I find that takeover market competition has a significant negative influence on acquirers’ announcement period returns. However, this effect is more pronounced among private target acquirers, large acquirers and stock-financed acquisitions. The findings further reveal that large bidders acquiring private targets through stock-financed acquisitions are the most penalised group in the capital market in a competitive acquisitions market. Additionally, evidence is found which suggests that competition-induced bids are associated with significantly higher bid premiums and experience negative post-acquisition performance. The findings remain robust to the implementation of alterations to several methodological concerns, the issue of endogeneity and sample selection variations.     

Firm vertical boundaries,internal capital markets,and firm performance

We investigate how vertical relatedness between business segments of firms affects capital allocation within internal capital markets. Using a battery of tests including exogenous import tariff reductions, we show that investments flow toward segments with better investment opportunities in firms with significant vertical relatedness between segments. This benefit of vertical relatedness is more pronounced in economic environments prone to information problems and in imperfectly competitive industries. Firms with significant inter-segment vertical relatedness also exhibit superior productivity and operating profitability. Overall, we show that superior capital allocation is a channel through which vertical integration impacts real outcomes of firms.     

Competition and the cost of debt

This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm's competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition.     

The long-run performance of acquiring firms in mergers and acquisitions: Does managerial ability matter?

This paper examines the association between the managerial ability of acquiring firms and their long-term performance after mergers and acquisitions (M&As). Based on M&A data for U.S. firms from 2000 to 2012, we find that acquiring firms with higher managerial ability achieve better long-term operating performance and stock returns. We also find that the positive effect of managerial ability on long-term performance is more pronounced when acquirers and target firms belong to the same industry. The result suggests that managers who have higher ability to manage their firms, i.e., to generate higher revenues for given resources, are more capable of achieving higher synergy benefits and better post-acquisition performance in same-industry acquisitions than in cross-industry acquisitions.     

Does international experience of managers bring financing benefits? Evidence from the cost of equity capital

Using a sample of Chinese firms, this study examines whether and how managers’ overseas experience affects a firm’s cost of equity capital. We document a negative association between managers’ overseas experience and the cost of equity capital. Mechanism analyses indicate that companies with returnee managers have better information quality and lower systematic risk; more institutional investors, media reports, and analysts following; and higher stock liquidity, all of which lead to a lower cost of equity capital. Further analyses show that chief executive officers (CEOs) with foreign experience have a more significant impact on the cost of capital than non-CEO managers with foreign experience and that managers’ overseas work experience has a more significant impact on the cost of capital than their overseas education. We also find that the impact of managers’ overseas experience is more pronounced when that experience is gained in common law countries compared to code law countries but weaker for state-owned enterprises and firms that are cross-listed or have foreign institutional investors. Overall, the results suggest that managers’ knowledge, skills, and ethical values imprinted from overseas experience, plus eyeball effects from media and analyst attention, can reduce the cost of equity capital.     

Tariff uncertainty and firm innovation: Evidence from the U.S.–China Permanent Normal Trade Relation

We examine the effect of the tariff uncertainty associated with Chinese imports on U.S. firm innovation. Our test exploits the U.S. conferral of Permanent Normal Trade Relations (PNTR) on China—a policy that reduces the uncertainty of future tariff increases for Chinese goods. We find a significant increase in the number of patents and patent citations for U.S. firms affected by PNTR relative to other firms. This result is stronger for firms with more irreversible investments and for firms that experience a greater increase in Chinese goods following PNTR. Overall, our evidence is consistent with the view that lowering the tariff uncertainty of Chinese imports boosts the attractiveness for U.S. firms to make long-term irreversible investment (such as technological innovation) and thus induces U.S. firms to innovate more.     

Do firms have leverage targets? Evidence from acquisitions

In the context of large acquisitions, we provide evidence on whether firms have target capital structures. We examine how deviations from these targets affect how bidders choose to finance acquisitions and how they adjust their capital structure following the acquisitions. We show that when a bidder's leverage is over its target level, it is less likely to finance the acquisition with debt and more likely to finance the acquisition with equity. Also, we find a positive association between the merger-induced changes in target and actual leverage, and we show that bidders incorporate more than two-thirds of the change to the merged firm's new target leverage. Following debt-financed acquisitions, managers actively move the firm back to its target leverage, reversing more than 75% of the acquisition's leverage effect within five years. Overall, our results are consistent with a model of capital structure that includes a target level and adjustment costs.     

Do product market threats affect analyst forecast precision?

We examine how product market threats influence the precision of analyst forecasts. Greater competitive threats may make forecasting more difficult by increasing the uncertainty regarding future cash flows and by influencing the quality of financial disclosure. Using a firm-specific measure of product market threats (i.e., fluidity), we find that analysts are more likely to be less precise forecasting earnings for highly fluid firms and that the lack of precision is not fully explained by performance volatility. Our findings further suggest that firms with fluid products have lower accruals quality and that they are more likely to withheld information regarding contract terms and sales from major customers. Cross-sectional analysis further suggests that the effect of fluidity on analyst forecasts is more pronounced when firms have flexibility in disclosure choices. Using significant changes in tariff rates as a quasi-natural experiment, we find that analyst forecast precision is significantly lower following tariff reductions.     

Does operating performance really improve following corporate acquisitions?

Previous research indicates that operating performance improves following corporate acquisitions relative to industry-median firms. Such performance results are likely to be biased because acquiring firms undertake acquisitions following a period of superior performance and they are generally larger than industry-median firms. Using firms matched on performance and size as a benchmark, I find no evidence that operating performance improves following acquisitions. I also analyze if performance is higher in cash acquisitions as suggested by various studies. The results indicate that cash flows increase significantly following acquisitions that are made with cash, but decline for stock acquisitions.     

Managerial foreign experience and corporate risk-taking: Evidence from China

This study investigates the relationship between managerial foreign experience and corporate risk-taking. We find that foreign experienced managers in Chinese firms are positively associated with corporate risk-taking and that this mainly exists in private firms rather than in state owned enterprises (SOEs). In privately owned firms, the degree of corporate internationalization and operating leverage are potential channels through which foreign experienced managers affect corporate risk-taking. Moreover, the positive association is more pronounced for managers' practical, rather than educational foreign experience and for managers who gain their foreign experience from countries or regions with advanced management practices and better corporate governance. Short-term visits overseas has no impact on corporate risk-taking. Additionally, the relationship is more persistent among private firms with better corporate governance and those operating in weak local economy. Finally, we find evidence that the risk-taking behaviour from foreign experienced managers is an important mechanism for companies to enhance their value.     

A note on foreigners’ trading and price effects across firms

We study the investment behavior of foreign investors in association with an equity market liberalization, and find a strong link between foreigners’ trading and local market returns. In the period following the liberalization, net purchases by foreign investors induced a permanent increase in stock prices, suggesting that local firms reduced their cost of equity capital. We also find a strong link between a firm’s fraction of foreign ownership and the magnitude of the cost reduction. Foreign investors seem to prefer large and well-known firms, and these firms realize the largest reduction in capital cost. Furthermore, our analysis suggests that foreigners increase their net holding in firms that have recently performed well. Analyzing foreigners’ performance, we find very little evidence of informed trading, suggesting that risk sharing is the most plausible explanation for the reduction of the cost of equity capital.     

Private and Public Merger Waves

We document that public firms participate more than private firms as buyers and sellers of assets in merger waves and their participation is affected more by credit spreads and aggregate market valuation. Public firm acquisitions realize higher gains in productivity, particularly for on‐the‐wave acquisitions and when the acquirer's stock is liquid and highly valued. Our results are not driven solely by public firms' better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public. Initial size and productivity predict asset purchases and sales 10 and more years later.     

Officers’ fiduciary duties and acquisition outcomes

Using a Delaware case law that recognized officers’ distinct fiduciary duties for the first time in 2009, I examine the effect of officers' fiduciary duties (OFDs) on corporate acquisitions. I find that firms with entrenched officers prior to 2009 experienced increased announcement-period abnormal stock returns, mainly because their acquisitions created more synergies and reduced officers’ incentives to preserve control. These firms increased liability insurance premium expenditures, but reduced value-decreasing acquisition frequencies. Furthermore, the effect of OFDs is more pronounced in firms where officers are not directors, have wealth risk, face less product market competition, are insulated from the market for corporate control, or are able to avoid board monitoring. Overall, OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms.     

Increasing Market Share as a Rationale for Corporate Acquisitions

This study examines the relative importance of market share in acquisitions because anecdotal evidence and economic theory suggest that merging firms benefit from larger market share. Firms might focus on market share to improve shareholder value through improved efficiency, which benefits consumers. Alternatively, higher market share could generate greater market power, which adversely affects consumers. I find that market share of merging firms increases by more than 30%, relative to the pre‐acquisition level, and the increase is even larger after I account for industry changes. Abnormal returns are positively correlated with changes in market share around acquisitions, but not with changes in industry concentration, which suggests stock market's expectation of future benefits from efficiency rather than market power. More directly, I find that merging firms' long‐run profitability increases with market share, and the increase in profitability primarily results from better asset management.     

International acquisitions and shareholder wealth Evidence from the Netherlands

In this article, we test wealth effects of international acquisitions using a sample of foreign acquisitions by Dutch firms during the period 1990–96. We find weak evidence that cross-border acquisitions are wealth-creating corporate activities, especially for acquisitions in the U.S. We observe further that for the West European acquisitions, benefits from internalization are larger for companies having relatively less international exposure and making acquisitions outside of their main activities.     

Cross-listing effect on information environment of foreign firms: ADR type and country characteristics

We examine sources of improvement in the information environment of foreign firms that cross-listed in the United States as American Depositary Receipts (ADRs) between 1995 and 2005. We analyze changes in the number and dispersion of analyst recommendations on foreign firms following their cross-listing. We find increases in analyst coverage intensity across all four types of ADR programs, especially among firms that were listed on organized exchanges (the listing effect), and those that adopted capital raising ADR programs (the financing effect). Our results suggest that the listing effect is more persistent than the financing effect. On the other hand, reductions in recommendation dispersion are observed mainly for firms that choose non-capital raising ADRs and those from emerging markets. Overall, improvements in information environment are more profound among foreign firms originating from countries with greater information asymmetry, namely, countries with weaker legal tradition and rule of law, and countries that are less familiar to U.S. investors.     

A theory of voluntary disclosure and cost of capital

This paper explores the links between firms’ voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital and find no cross-sectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and nondisclosing firms is positive in aggregate. I further examine whether reductions in cost of capital indicate improved risk-sharing or investment efficiency. I also find that high (low) disclosure frictions lead to overinvestment (underinvestment) relative to first-best. As average cost of capital proxies for risk-sharing but not investment efficiency, the relation between cost of capital and ex ante efficiency may be ambiguous and often irrelevant.     

The value of access to finance: Evidence from M&As

We examine synergies in mergers and acquisitions (M&As) generated by firms’ comparative advantages in access to bank finance. We find robust evidence that greater access to bank finance increases firms’ attractiveness as acquisition targets. Targets’ comparative advantage in bank finance improves bank credit supply and reduces financing costs for the merged firms. These effects are more pronounced for acquirers with greater frictions in accessing bank loans and acquirers with greater growth opportunities. Overall, this paper reveals that targets, not just acquirers, contribute to financial synergies in M&As.