Why Are the Levels of Control (So) Different in German and U.K. Companies? Evidence from Initial Public Offerings

We analyze why the control of listed German and U.K. companiesis so different. As shareholders in Germany are less protectedand control is less expensive, German investors prefer controllingstakes. We also focus on economic factors such as profitability,risk, and growth to predict the probability of occurrence ofdifferent states of control six years after the flotation. LargeU.K. companies become widely held, whereas in large German firmsnew shareholders control significantly larger stakes. Wealthconstraints become binding for U.K. shareholders, whereas Germanshareholders can avoid this by using pyramids. We find substantialdifferences between a takeover by a concentrated shareholderand one by a widely held company. For the United Kingdom, theprobability of the former increases when the company is risky,small, and poorly performing. Conversely, the latter is morelikely when the target is large, fast growing, and profitable.Poor performance and high risk require control and monitoringby a concentrated shareholder. Conversely, high growth and profitabilityattract widely held companies. Founders are less inclined todilute their stake to retain private benefits of control. WhenGerman firms are profitable and risky, control is likely togo to a concentrated shareholder, but growth and low profitabilityincrease the probability of a control acquisition by a widelyheld firm.     

Information salience,investor sentiment,and stock returns: The case of British soccer betting

Soccer clubs listed on the London Stock Exchange provide a unique way of testing stock price reactions to different types of news. For each firm, two pieces of information are released on a weekly basis: experts' expectations about game outcomes through the betting odds, and the game outcomes themselves. The stock market reacts strongly to news about game results, generating significant abnormal returns and trading volumes. We find evidence that the abnormal returns for the winning teams do not reflect rational expectations but are high due to overreactions induced by investor sentiment. This is not the case for losing teams. There is no market reaction to the release of new betting information although these betting odds are excellent predictors of the game outcomes. The discrepancy between the strong market reaction to game results and the lack of reaction to betting odds may not only be the result from overreaction to game results but also from the lack of informational content or information salience of the betting information. Therefore, we also examine whether betting information can be used to predict short-run stock returns subsequent to the games. We reach mixed results: we conclude that investors ignore some non-salient public information such as betting odds, and betting information predicts a stock price overreaction to game results which is influenced by investors' mood (especially when the teams are strongly expected to win).     

A century of corporate takeovers: What have we learned and where do we stand?

This paper reviews the vast academic literature on the market for corporate control. Our main focus is the cyclical wave pattern that this market exhibits. We address the following questions: Why do we observe recurring surges and downfalls in M&A activity? Why do managers herd in their takeover decisions? Is takeover activity fuelled by capital market developments? Does a transfer of control generate shareholder gains and do such gains differ across takeover waves? What caused the formation of conglomerate firms in the wave of the 1960s and their de-conglomeration in the 1980s and 1990s? And, why do we observe time- and country-clustering of hostile takeover activity? We find that the patterns of takeover activity and their profitability vary significantly across takeover waves. Despite such diversity, all waves still have some common factors: they are preceded by technological or industrial shocks, and occur in a positive economic and political environment, amidst rapid credit expansion and stock market booms. Takeovers towards the end of each wave are usually driven by non-rational, frequently self-interested managerial decision-making.     

The monetary appreciation of paintings: from realism to Magritte

This study investigates how investments in paintings comparewith those in stocks in terms of risk–return trade-offusing Sharpe and Treynor ratios and Markowitz efficient frontiers.A large database was analysed consisting of more than 10,500auction prices of Belgian paintings over the period 1970–97.These paintings are the auctioned oeuvre of 71 internationallyrecognised painters representing the main artistic schools (fromsocial realism to surrealism) over the period 1850–1950.Hedonic art returns are corrected for auction location and auctionhouse, artistic school, painters' reputation, medium, signatureand painting size. Surrealism and luminism have been the mostpopular currents of art (in monetary terms), while expressionismand symbolism have gained (financial) esteem. This study concludesthat art investments underperform equity market investmentsowing to the high risk of investing in art and its high transactioncosts, resale rights and insurance premia. In addition, theMarkowitz efficient frontier shows limited diversification potentialfor art.