Why newly listed firms become acquisition targets

We study the operating, financial, and ownership structure characteristics of newly listed firms which become acquisition targets shortly after their initial public offerings. We examine whether such firms get acquired because of their successful performance or as an alternative to delisting. We find that firms, which do relatively well in terms of operating as well as stock performance and attract institutional investor interest, draw the attention of acquirers. Furthermore, we observe that investments made by newly listed target firms do not destroy shareholder value and have comparable profitability to investments made by newly listed firms which grow by acquisitions. Overall, firms acquired shortly after listing are on a growth trajectory similar to that of surviving firms.     

The totality of change-in-control payments

Most extant studies consider golden parachutes as the totality of change-in-control payments. However, for the median CEO of firms listed in the S&P SmallCap 600 index in 2009, golden parachute payments are only 46% of total change-in-control compensation. We measure total change-in-control payments using newly available data for this sample. Our results show that the total payments to the departing CEO are estimated at 1.1% of market value (on average). We also show that newly earned compensation (as opposed to accelerated vesting of lagged incentive pay) makes up approximately half of total change-in-control payments for the median CEO, and these two components of severance pay are positively correlated (contrary to existing theory). Furthermore, change-in-control payments do not appear to impede takeover offers or affect takeover premiums. Total change-in-control payments are small on average, and boards seem to take care in negotiating these terms with incumbent CEOs so that change-in-control payments do not adversely affect the firm's prospects in the takeover market.     

COMPANY PARTICIPATION IN THE AUSTRALIAN ACCOUNTING STANDARDS SETTING PROCESS

Public accessibility to the records of standard setting organisations has encouraged research into the processes involved and the final outcomes. There is also a need to examine the standard setting process by enquiries directed towards the activities of external groups with an interest in the processes. This paper details the results of enquiries into the activities of listed Australian companies towards standard setting and provides an explanation of why some firms participate in the standard setting process and others do not.     

Corporate performance and CEO compensation in China

This paper examines the compensation of CEOs in China's listed firms. First, we discuss what is known about the setting of CEO compensation and then we go on to examine factors that may help explain variations in the use of performance related pay. In China, listed firms have a dominant or controlling shareholder and we argue that the distinct types of controlling shareholder have different impacts on the use of incentive pay. We find that firms that have a State agency as the major shareholder do not appear to use performance related pay. In contrast, firms that have private blockholders or SOEs as their major shareholders relate the CEO's pay to increases in stockholders' wealth or increases in profitability. However the pay–performance sensitivities for CEOs are low and this raises questions about the effectiveness of firms' incentive systems.     

Sticky cost behaviour: evidence from small and medium sized companies

This paper investigates whether cost stickiness occurs in small and medium sized companies using a sample of Italian nonlisted and listed firms during the period 1999–2008. Our findings show that cost stickiness emerges only for the total cost of labour and not for selling, general and administrative (SG&A) costs, cost of goods sold and operating costs. Stickiness of operating costs is only detected in a sample of listed companies. We further contribute to the literature on sticky cost behaviour by discussing critical issues associated with the extant approach of empirical analysis and interpretation of sticky cost behaviour.     

政治联系对中国上市公司的R&D投资具有“挤出”效应吗?

本文揭示了政治联系这一非正式的制度安排对中国上市公司R&D投资行为的影响。手工搜集了2004-2009年R&D与关键高管政治联系的经验数据,本文实证研究了政治联系是否对R&D具有"挤出"效应。结果表明,政治联系的公司投资于R&D的概率显著更小、R&D投资强度显著更低,即政治联系对R&D投资具有显著的挤出效应。进一步研究发现,相对于非国有上市公司与非高科技企业,政治联系对国有上市公司与高科技上市公司的R&D投资产生了显著的挤出效应。     

The financial and operating performance of China's newly listed H-firms

This study compares pre- and post-listing financial and operating performance for a complete sample of H-firms that are incorporated in Mainland China and listed in Hong Kong between 1993 and 2000. Theoretically, there are two major opposing influences on the performance change of these newly listed firms: negative initial public offering (IPO) effect and positive privatization effect. Our major findings are: (1) the IPO effect dominates the privatization effect, so that the H-firms experienced a significant decrease in profitability and operating efficiency after listing, and (2) the performance of a control sample of newly listed private firms declined more than that of the H-firms, probably because the positive privatization effect somewhat offset the negative IPO effect for the H-firms. This paper is the first to document the positive effect of privatization in oversea listed Chinese companies.     

Shareholder Value: Principles, Declarations, and Actions

This paper is about shareholder value. We examine whether welfare considerations justify that target and whether competitive markets force firms to pursue it. We also argue that shareholder value is strictly an ill-defined goal. We report evidence from a large sample of listed firms across the world that many managers do not even mention shareholders in their mission statements. However, firms that do disclose a commitment to shareholders seem to perform better in terms of stock price and operating performance.     

Evidence of a bank lending channel in the UK

Using balance sheet data for a panel of UK listed firms, we find evidence of a bank lending channel of monetary transmission. A higher interest rate induces more bank lending to listed companies, but this effect diminishes if monetary policy becomes tight enough to impose severe constraints on bank loan lending. The dynamic behaviour of bank debt versus non-bank debt shows that the lending channel works through cutting back loan supplies to small, bank-dependent firms while restricting the bank’s ability to provide financial assistance to other firms. We see cross-sectional differences between bank-dependent and non-bank-dependent listed companies, and between listed and non-listed companies: Both can contribute to the size effect of investment. Small firms bear most of the reductions in bank loan supplies, and since they do not have many alternatives to bank finance, they suffer more from monetary tightening than big firms. This is consistent with inventory behavior. Furthermore, we have found that big, non-bank-dependent firms can benefit more from the bank–firm relationship than small, bank-dependent firms.     

Export incentives,financial constraints,and the (mis)allocation of credit: Micro-level evidence from subsidized export loans

This paper combines an exogenous shock to the supply of subsidized credit with unique loan-level data from the export sector in Pakistan to identify the impact and allocation of such financial incentives. The removal of subsidized credit causes a significant decline in the exports of privately owned firms, while the exports of large, publicly listed, and group network firms are unaffected. Publicly listed firms make no significant adjustments to their balance sheets, and only their profits are reduced, indicating that they are financially unconstrained. Nearly half of all subsidized loans are assigned to such firms, implying a substantial misallocation of credit and an output loss to privately owned firms of 0.75% of GDP. Productivity differences do not explain the heterogeneous effects across firms.     

The Effects of Ownership Structure and Intragroup Loans on Leverage: Evidence from Family Firms in Chile

This article examines the effects of family control and pyramidal ownership on firms’ capital structure decisions. After studying a sample of listed family and nonfamily firms in Chile, we find that families take a conservative approach to debt and financial risk exposure. We test the hypothesis that family firms restrict the use of debt in order to avoid the monitoring role of creditors, which could limit their enjoyment of the private benefits of control. In keeping with this hypothesis, we find a U-shaped relationship between leverage and the degree of pyramidal ownership that is more pronounced among family firms than nonfamily firms. We do not find any evidence that is consistent with the hypothesis that family-controlled firms have low leverage ratios due to their access to internal capital markets. In fact, conversely, we find that listed family firms provide more loans to related companies than comparable nonfamily firms.     

IFRS adoption and analysts’ earnings forecasts: Australian evidence

We study 145 large listed Australian firms to explore the impact of international financial reporting standards (IFRS) adoption on the properties of analysts’ forecasts and the role of firm disclosure about IFRS impact. We find that analyst forecast accuracy improves, and there is no significant change in dispersion in the adoption year, suggesting that analysts coped effectively with transition to IFRS. However, we do not observe the expected relationship between firms’ IFRS impact disclosures in their financial statements issued at the end of the transition year with forecast error and dispersion in the adoption year. The results question the timeliness and usefulness of financial statement disclosure, even in a setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1) and firms had strong incentives to provide information to analysts.     

Audit Firm Ranking,Audit Quality and Audit Fees: Examining Conflicting Price Discrimination Views

In this study, we examine whether highly ranked audit firms in Iran, as determined by the Securities and Exchange Organization (SEO), earn a fee premium, firstly, by providing superior quality audit services or, secondly, due to reputation created by the ranking system implemented by the SEO. We employ price discrimination theory, and we test quality discrimination versus brand reputation explanations in the context of a unique institutional setting (where international audit firms are not allowed to operate). The data are derived from firms listed on the Tehran Stock Exchange (TSE) for the period 2006 to 2015. Our results show that the quality of audit services (using all of our measures) provided by the highest ranked audit firms is not superior to that of the non-highest ranked firms. In addition, the audit fee models suggest that the highest ranked firms charge significantly more audit fees compared to lower ranked firms. We employ several sensitivity tests and the results do not change materially. Such findings go against the “quality-based price discrimination” view but support the reputation-based view, and make a significant contribution towards understanding the economic consequences of state-determined ranking of audit firms rather than allowing the market to determine quality differentiation.     

Equity financing and innovation: Is Europe different from the United States?

During the mid and late 1990s young, high-tech firms in the US experienced a supply shift in both internal and external equity fueling a finance-driven boom in corporate R&D. This paper examines whether R&D spending in Europe in a similar way was sensitive to fluctuations in the supply of internal and external equity during the late 1990s and early 2000s. I conjecture that UK and Continental Europe, due to their different financial systems, differ in terms of equity supply. I estimate dynamic R&D regression models for UK and Continental European high-tech firms separately and find significant joint cash-flow effects for newly listed firms in both samples. However, only new firms in the UK experienced a joint external equity effect as well. The findings of this paper suggest a channel through which market-based financial systems outperform the bank-based economies of Continental Europe.     

The effect of option listing on financing decisions

This paper investigates the effect of option listing on corporate financing decisions. Firms experience a significant drop in leverage, which is driven mainly by an increase in new equity issues. This effect is more prominent in firms with greater information asymmetry and lower percentages of quasi-index and transient investors before listing and those with active options trading after listing. After options are listed, the newly listed firms hold more cash and engage in more acquisitions, which are funded mainly by equity issues. These findings suggest that option listing has a significant impact on financing decisions because of lower information asymmetry and that firms use the post-listing equity to build up financial slack and support major investments, such as acquisitions.     

CEO compensation,family control,and institutional investors in Continental Europe

This paper investigates the impact of family control and institutional investors on CEO pay packages in Continental Europe, using a dataset of 754 listed firms with 3731 firm-year observations from 14 countries during 2001–2008. We find that family control curbs the level of CEO total and cash compensation, and the fraction of equity-based compensation. Moreover, we do not observe a significant effect of family control on the excess level of total and cash compensation. This evidence indicates that controlling families do not use CEO compensation to expropriate wealth from minority shareholders. We show that institutional ownership is associated with higher levels of CEO cash and total compensation in Continental Europe, especially in family firms. Also, foreign institutional investors have a positive and significant impact on CEO compensation level. Finally, results indicate that institutional investors affect CEO pay structure: they increase the use of equity-based compensation in both family and non-family firms.     

The spillover effect of disclosure rules and materiality thresholds: Evidence from profit warnings issued in Hong Kong market

Dual-listed firms simultaneously follow the relevant rules in their home country and in their cross-listed country. In contrast, other firms only listed in the cross-listed country are only subject to the local regulations. Previous literature has found evidence that cross-listing can improve firms’ information transparency because of more stringent listing rules in the cross-listed country. The existing research, however, has not paid enough attention to the potential influence of dual-listed firms and their home country institutional factors (e.g. unique disclosure policies) on other firms only listed in the cross-listed country (i.e. spillover effect). In the Hong Kong market, Chinese dual-listed firms are under the mandatory profit warning regulation of mainland China, but other firms listed only in Hong Kong only need to follow the voluntary disclosure rule of the Hong Kong Stock Exchange. Such a setting provides us with the opportunity to investigate a spillover effect, i.e. whether these Chinese dual-listed firms influence their peers only listed in Hong Kong to release profit warnings. We find that firms only listed in Hong Kong are more likely to issue profit warnings if their Chinese dual-listed peers have also issued warnings. We further find that this spillover effect increases with the market capitalization of Chinese dual-listed firms and increases with the market share of these firms before they dominate the industry. Lastly, due to an underlying duty to disclose material information in Hong Kong, the spillover effect is weaker for firms with large earnings surprises.     

The financing and growth of firms in China and India: Evidence from capital markets

This paper studies the extent to which firms in China and India use capital markets to obtain financing and grow. Using new data on domestic and international capital raising and firm performance, it finds that financial market activity has expanded less since the 1990s than aggregate figures suggest. Relatively few firms raise capital and even fewer attract most of the financing. Moreover, firms that issue equity or bonds are different and behave differently from other publicly listed firms. Among other things, they are typically larger and grow faster. The differences between users and nonusers exist before the capital raising, are associated with the probability of raising capital, and become more pronounced afterward. The size distribution of issuing firms shifts more over time than the distribution of those that do not issue, suggesting little convergence in size among listed firms.     

Why do firms pay dividends? International evidence on the determinants of dividend policy

In the US, Canada, UK, Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994–2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the US there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.     

Shareholding structure and corporate performance of partially privatized firms: Evidence from listed Chinese companies

Equity ownership in a listed Chinese firm can have as many as five different classes: state-owned shares, legal-person (LP) shares, tradable A-shares, employee shares, and shares only available to foreign investors, a phenomenon that is unique to the Chinese equity market. In this paper, we investigate whether and how the corporate performance of listed Chinese firms is affected by their shareholding structure. The sample consists of all firms listed in the Shanghai Stock Exchange (SHSE) from 1991 to 1996. It is found that firm performance is positively related to the proportion of LP shares but negatively related to the proportion of shares owned by the state. Additional analyses indicate that firm performance increases with the degree of relative dominance of LP shares over state shares. Moreover, for the subsample of firms that do not have both state and LP shares, the return on equity (ROE) of firms with LP shares but no state shares is higher than that of firms with state shares but no LP shares by 3.84%, and this difference is statistically significant. On the other hand, there is little evidence in support of a positive correlation between corporate performance and the proportion of tradable shares owned by either domestic or foreign investors. These findings suggest that the ownership structure composition and relative dominance by various classes of shareholders can affect the performance of state-owned enterprise (SOE)-transformed and listed firms.