Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

This study investigates the relationship between family control and corporate capital structure considering the dynamic nature of the debt policy and the ownership structure of family firms. Our results show that the sensitivity of debt to fluctuations in cash flow is less pronounced in family firms and highlight that family control increases the speed of adjustment toward target debt. Four dimensions of the family business model explain these results: deviations of voting from cash flow rights, the presence of a second blockholder in the company, involvement of family members in management, and the generation in charge of the business. The weaker negative impact of cash flow on debt is driven by family firms with no control‐enhancing mechanisms, companies with active family participation in management and family businesses that are still controlled by the first generation. By contrast, the more severe agency conflicts between owners and creditors in family firms with a second blockholder lead to more pronounced pecking order behaviour. Furthermore, the higher flexibility in corporate decision‐making of family firms managed by the family and under the influence of the first generation explains why family companies are able to rebalance their capital structure faster.     

The empirical relationship between ownership characteristics and audit fees

The present study examines the empirical relationship between ownership characteristics and audit fees. The basic premise is that the level of ownership sophistication and the extent to which ownership is large and substantial impact the effectiveness of stockholder monitoring on corporate affairs including the financial reporting process. Furthermore, high managerial ownership firms may experience a decline in agency problems in financial reporting due to a decrease in managerial propensity to misreport financial results. By employing a cross-sectional least squares regression analysis for a sample of 358 New York Stock Exchange-listed firms audited by the Big Five auditors, we find evidence of a significantly positive relationship between diffused institutional stock ownership (i.e., having less than 5% individual shareholding) and audit fees, and a significantly negative relationship between institutional blockholder ownership (i.e., having 5% or more individual shareholding) and audit fees. Finally, we document that managerial stock ownership is negatively associated with audit fees. We do not, however, find evidence of any relationship between noninstitutional blockholder ownership (with at least 5% individual stock ownership) and audit fees. The study's main results hold in various specification tests including when the effects of board-related and audit committee variables are factored in the analysis. Based on the observed relationship between the ownership variables and audit fees, we suggest that the ownership characteristics of a firm as a part of its governance mechanism constitute an important determinant of audit fees.

Valuation and Performance of Reacquisitions Following Equity Carve‐Outs

While existing literature reports a positive market reaction to parent companies conducting carve‐outs, we find that the response to carve‐outs that are ultimately reacquired is negative or insignificant. Reacquired units perform considerably worse than those that are not reacquired. Thus, parents may perceive that the market does not recognize the potential of these poorly performing units, and reacquires them to capitalize on the parents' private information. The reacquisition announcement results in a favorable market reaction for the parents and the units. However, parents experience negative long‐term buy‐and‐hold abnormal returns when they reacquire less than 100% of units' shares.     

Blockholder leverage and payout policy: Evidence from French holding companies

This paper focuses on dominant owners’ use of leverage to finance their blockholdings and its relationship to dividend policy. We postulate that blockholder leverage may impact payout policy, in particular when earnings are hit by a negative shock. We use panel data for France where blockholders have tax incentives to structure their leverage in pyramidal holding companies and study the effect of the financial crisis in 2008/2009. We find no difference in payout policy and financial behavior during the 1999 to 2008 period between firms with levered owners and other firms. However, in the years 2009 to 2011 following the crisis, dividend payouts increase in proportion to pyramidal debt of dominant owners. We inspect pyramidal entities individually and find that on average only 60% of dividends are passed through to the ultimate owners, with the rest predominantly used to meet debt service obligations of the pyramidal entities.     

The Performance of the European Market for Corporate Control: Evidence from the Fifth Takeover Wave

This paper presents an in‐depth analysis of the performance of large, medium‐sized, and small corporate takeovers involving Continental European and UK firms during the fifth takeover wave. We find that takeovers are expected to create takeover synergies as their announcements trigger statistically significant abnormal returns of 9.13% for the target and of 0.53% for bidding firms. The characteristics of the target and bidding firms and of the bid itself are able to explain a significant part of these returns: (i) deal hostility increases the target's but decreases bidder's returns; (ii) the private status of the target is associated with higher bidder's returns; and (iii) an equity payment leads to a decrease in both bidder's and target's returns. The takeover wealth effect is however not limited to the bid announcement day but is also visible prior and subsequent to the bid. The analysis of pre‐announcement returns reveals that hostile takeovers are largely anticipated and associated with a significant increase in the bidder's and target's share prices. Bidders that accumulate a toehold stake in the target experience higher post‐announcement returns. A comparison of the UK and Continental European M&A markets reveals that: (i) the takeover returns of UK targets substantially exceed those of Continental European firms. (ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on takeover returns in the UK and a negative one in Continental Europe. (iii) Weak investor protection and low disclosure in Continental Europe allow bidding firms to adopt takeover strategies enabling them to act opportunistically towards the target's incumbent shareholders.