THE EFFECT OF VOLUNTARY CORPORATE LIQUIDATION ON SHAREHOLDER WEALTH

This paper presents an analysis of the shareholder wealth effect of voluntary corporate liquidation, the extreme form of corporate divestiture classified as a “selloff.” For a sample of 37 firms that liquidated during the 1970–1982 period, the liquidation announcement is associated with statistically and economically significant stock price increases.     

EVIDENCE OF THE EFFECT ON SHAREHOLDER WEALTH OF CORPORATE SPINOFFS: THE CREATION OF ROYALTY TRUSTS

Corporate spinoffs and divestitures cause positive revaluation of the firm by the market. This paper examines a particular kind of spinoff, one of mineral interests into a royalty trust. Royalty trusts are associated with abnormal returns that come from positive market revalution and from special tax incentives inherent to trusts.     

THE SHAREHOLDER WEALTH EFFECTS OF CORPORATE GREENMAIL

In this study, the abnormal return dynamics of firms undertaking premium targeted block share repurchases are examined empirically. The positive returns accruing to nonparticipating shareholders for the period encompassing the buy-in and repurchase announcements are attributable to the expectation of subsequent acquisition activity. Firms that are not acquired realize, on average, a zero abnormal return. The probability of subsequent acquisition is not related to the targeted repurchase. Managers who engage in targeted block share repurchases frequently are expelled from corporate ranks. Firms that are acquired exhibit abnormal returns only similar to those of other merger and tender offer targets.     

THE SHAREHOLDER WEALTH EFFECTS OF CALPERS' FOCUS LIST

Shareholder activism can help to protect shareholder value by promoting sound corporate governance practices. As an active institutional investor, CalPERS takes its role in the corporate governance process very seriously. In addition to many other initiatives, CalPERS publishes each year a list of six to twelve public companies with poor corporate governance principles and poor financial performance—its well-known "Focus List"—in the hope that the managements of these companies will be motivated to improve their performance and increase shareholder value for CalPERS and their other equity owners.
In an attempt to assess the effectiveness of CalPERS' governance program, the authors examine the market impact of the Focus List and find that companies on the list experience positive excess stock returns of about 12% over the three months following release of the list. Moreover, this wealth effect is even greater for companies with a large, widely dispersed shareholder base, as might be expected given the relative inability of such shareholders to act collectively.     

SHAREHOLDER WEALTH EFFECTS OF MANAGEMENT CHANGES

This paper analyzes the direction and magnitude of changes in stock prices resulting from the announcement of various types of changes in senior corporate management over a twelve-year period. We find support for the view that instability resulting from executive succession adversely affects organizational performance. Furthermore, our results imply a clear preference by the market for a change in composition of the previous management team over its further entrenchment and a perception by the market that senior corporate executives and the board of directors may not be solely motivated by considerations of shareholder wealth maximization.     

THE SHAREHOLDER WEALTH EFFECTS OF MONOPOLIES AND MERGERS COMMISSION DECISIONS

This paper presents an analysis of the policy of the UK's Monopolies and Mergers Commission using stock market data. Stock price reactions to regula-tory intervention by the Monopolies and Mergers Commission might be expected to reflect two sorts of factors. Firstly, the impact of the intervention on the possibility of bidders extracting monopoly profits from consumers. Secondly, the possibility that the subsequent investigation of the bid by the Monopolies and Mergers Commission will raise the cost of a bid, which may not necessarily be in the shareholder's interests, and so cause such bids to be abandoned. Studying a sample of some 53 bids, investigated by the Commission in the period 1976–90, little evidence was found that the Commission halts bids that are likely to result in monopoly profits to the bidder but there was some weak evidence that non-shareholder wealth maximising bids are abandoned as a result of the Monopolies and Mergers Commission intervention.     

THE ADOPTION OF NEW-ISSUE DIVIDEND REINVESTMENT PLANS AND SHAREHOLDER WEALTH

This study examines security price reactions to the adoption of new-issue dividend reinvestment plans. The sample is broken down into three subsamples: nonutilities, utilities adopting plans prior to May 1981, and utilities adopting plans after July 1981. For the nonutility corporations, no significant market reaction is observed. The utilities adopting prior to the change in the tax law experience a negative reaction the day following registration for the plan. Corporations adopting after July 1981, whose dividends receive preferential tax treatment, experience abnormal returns significantly greater than those of the utilities without preferential tax treatment.     

THE ACTIVE BOARD OF DIRECTORS AND ITS EFFECT ON THE PERFORMANCE OF THE LARGE PUBLICLY TRADED CORPORATION

In recent years, boards of directors have become more active and independent of management in pursuing shareholder interests. But, up to this point, there has been little empirical evidence that active boards help companies produce higher rates of return for their shareholders. In this article, after describing the new board activism, the authors argue that past failures to document an association between independent boards and superior corporate performance can be explained by two features of the research: its concentration on periods prior to the 1990s (when most boards were largely irrelevant) and its use of unreliable proxies (such as a minimum percentage of outside directors) for a well-functioning board.
The authors hypothesize that an independent and resourceful board takes steps that require management to increase earnings available to investors. To test this hypothesis, the performance of a sample of large U.S. corporations was examined over the period 1991-1995 using two proxies for the professionalism of each company's board: (1) the letter grades (A+ to F) assigned by CalPERS for corporate governance; and (2) a presence or absence grade based on three key indicators of professional board behavior. Both of these governance metrics were associated in statistically significant ways with superior corporate performance, as measured by earnings in excess of cost of capital and net of the industry average. While acknowledging that such results do not prove causation, the authors conclude that, in the first half of the 1990s, corporations with active and independent boards added significantly more value for shareholders than those with passive, rubber-stamp boards.     

BEHIND THE CORPORATE HEDGE: INFORMATION AND THE LIMITS OF "SHAREHOLDER WEALTH MAXIMIZATION"

The article begins by setting out three alternative conceptions of the corporate objective function. Relying on this framework, it shows that legal analyses tend to neglect conflicts between the interests of the corporate entity and the interests of shareholders over the amount of corporate risk-taking. Financial analyses tend to ignore both constraints on managerial discretion imposed by law and a fundamental ambiguity the author identifies in the “shareholder wealth maximization” assumption that underlies such analyses. This ambiguity arises in part from market “frictions”–particularly, the investor uncertainty and heightened price volatility that stem from informational “asymmetry.” Such an information gap between management and outside investors (along with market “irrationality”) can cause material disparities between the actual trading price and the intrinsic value (or what the author calls the “blissful price”) of a company's shares. As a consequence, corporate hedging that maximizes actual share values may not maximize intrinsic values (and vice versa), thus giving rise to a managerial dilemma. Previous analyses have also failed to give adequate consideration to the expectations of shareholders. If, for example, the shareholders of a natural resource company are seeking a relatively “pure play” on that resource–in part because they believe the company's management has no comparative advantage in managing price risks–corporate hedging that increases shareholder wealth may re-duceshareholder welfare. In this sense, the usual “shareholder wealth maximization” directive is not only ambiguous, but also incomplete. These problems stem not only from informational asymmetry, but from other institutional realities (such as the “political” taint associated with reported derivative losses of any kind) that raise the information costs of using derivatives. The article concludes with some suggestions for improving disclosure of corporate risk management “philosophy.” Better disclosure may not only help reduce such information costs, but could also encourage corporations to find–and stick to–their derivatives niche.     

THE EFFECT OF THE IMPLEMENTATION OF THE MULTIDIVISIONAL STRUCTURE ON SHAREHOLDER'S WEALTH: THE CONTINGENCY OF DIVERSIFICATION STRATEGY

This paper presents evidence on the price effect of US firms announcing the implementation of a multidivisional management structure (M-form) and whether these effects are contingent on the existing diversification strategy (either unrelated, related, or vertical integration). Differnt patterns of excess returns and systematic risk (beta) changes are associated with different diversification strategies.     

DEBT REFUNDING AND SHAREHOLDER WEALTH: THE PRICE EFFECTS OF DEBT-FOR-DEBT EXCHANGE OFFER ANNOUNCEMENTS

This study examines the impact of debt refunding on common stock prices for a sample of 48 exchange offers announced from 1970 through 1981. Exchange offer announcements do not have a significant impact on average common stock returns but appear to produce idiosyncratic share price effects. Refunding-induced price effects were unrelated to several exchange offer characteristics including tax shield increases, exchange offer premia, and transaction costs of refunding. Common stock excess returns were negatively related to reductions in debt service payments and relaxation of dividend payment constraints. Thus, the evidence is consistent with theories predicting that certain debt refundings generate negative information-signaling price effects.