On the acquisition of equity carve-outs

We examine the role played by the parent’s motive in undertaking a carve-out; the parent’s post-IPO influence over the carved-out subsidiary; and anti-takeover provisions and industry structure of a carve-out on its acquisition likelihood and its acquisition premium. We find that the probability and hazard of a carve-out acquisition increase when the parent’s objective is to unlock the value of a subsidiary and when the parent and the subsidiary are tied with a product-market relationship. We also find that the post-IPO parent ownership significantly affects the acquisition likelihood and the level of acquisition premium. Additional analyses examining the post-IPO carve-out status suggest that the product-market relationship and post-IPO parent ownership increase the probability of re-acquisition.     

Credit supply and corporate capital structure: Evidence from Japan

In this paper we examine how financial constraints, especially fluctuations in the supply of credit, affect the capital structure of 1537 publicly listed Japanese firms from 1980 to 2007, in a data set with 33,000 observations. It is one of the first studies to do so and is inspired by the recent studies of Leary (2009) and Faulkender and Petersen (2006). Japan was selected due to the extreme credit supply fluctuations observed during the last 30 years. It thus offers an ideal natural experiment to test the impact of credit supply on corporate capital structure. In particular, in our panel data study we investigated the impact of the asset bubble in the 1980s and the credit crunch of the late 1990s on corporate capital structure decisions. The results of this paper show, among other findings, that financial policy decisions are indeed influenced by monetary conditions and the supply of credit. In particular, smaller sized firms face financial constraints, especially during economic downturns.     

Acquisitions and CEO power: Evidence from French networks

During mergers and acquisitions, the CEOs of the acquiring firms are likely to cancel the deal if the market does not react favorably to its announcement. Using a sample of French acquisition announcements during the period from 2000 to 2005, this paper studies the conditions in which CEOs are more willing to listen to investors. Furthermore, according to the strong networks developed through French elite schools' alumni and board ties, the well-connected CEOs are more likely to complete any deal in spite of a negative market reaction to acquisition announcements.     

Monitoring via staging: Evidence from Private investments in public equity

I study the causes and consequences of staging in the setting of private investments in public equities (PIPEs). I find that, in PIPE investments, as in venture capital staging, the staging strategy is used by investors as a monitoring mechanism to mitigate information asymmetry and agency problems. Moreover, strategic investors and investors investing alone are more likely to utilize staging. I show also that staging reduces the cost of financing and has positive implications for PIPE issuers’ long-run stock performance.     

Return on capital analysis: U.S.-based multinational corporations versus U.S. domestic corporations

We study the difference between U.S.-based multinational corporations (MNCs) and U.S. domestic corporations (DCs) in terms of management efficiency with return on capital as the measure of management efficiency. We use a fixed effect model to account for heterogeneity and/or the time-specific effect and find that MNCs have lower management efficiency than DCs, which holds after we control for the effects of firm size, GDP growth rate, and growth opportunity on management efficiency. One reason for the low efficiency is the MNCs’ inability to manage their assets well relative to DCs. We also find that there is an inverted U-shaped relationship between return on capital and degree of internationalization, which implies an optimal degree of internationalization. Our result does not confirm the recently proposed three-stage model.     

Directors' and officers' liability insurance and acquisition outcomes

We examine the effect of directors' and officers' liability insurance (D&O insurance) on the outcomes of merger and acquisition (M&A) decisions. We find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns. Further analyses suggest that acquirers with a higher level of D&O insurance protection tend to pay higher acquisition premiums and their acquisitions appear to exhibit lower synergies. The evidence provides support for the notion that the provision of D&O insurance can induce unintended moral hazard by shielding directors and officers from the discipline of shareholder litigation.     

Are liquidity and corporate control priced by shareholders? Empirical evidence from Swiss dual class shares

Stadard asset pricing models generally exclude corporate control and liquidity considerations as joint explanatory factors of the stock price formation process. This empirical study investigates their influence on Swiss Bearer and Registered share prices issued by the same firm. It is shown that the statistical properties of both shares' returns differ without implying profitable arbitrage opportunities. A multifactor model of the ‘premium’ between Bearer and Registered stock prices is then proposed and tested. The results show that the freely negotiable equity book value, the existence of dominant shareholder positions and ownership transfer regime changes are significant variables in explaining the dual class share price differential.     

Are there monitoring benefits to institutional ownership? Evidence from seasoned equity offerings

We provide new evidence on the monitoring benefits from institutional ownership by analyzing the impact of institutional ownership on stock price and operating performance following seasoned equity offerings, a setting where the effects of monitoring are likely to be especially important. We find that announcement returns are positively and significantly related to total and active institutional ownership levels and concentration. Post-issue stock returns are positively and significantly related to the contemporaneous post-issue changes in total and active institutional ownership and the concentration of their shareholdings. Operating performance improvements are also related to institutional monitoring in the one, two, and three years following the equity issue. Our results continue to hold even after accounting for the possibility that institutional investors have an informational advantage that enables them to identify and invest in subsequently better performing firms. We also empirically eliminate the possibility that our findings are driven by institutions buying past winners and selling past losers as a way to window-dress their portfolio holdings.     

Partial adjustment toward optimal cash holding levels

Recognizing that industry and capital market conditions may impede a firm's desire to achieve its targeted cash holding levels, we estimate a dynamic model that allows firms to adjust their cash holding levels over time and find evidence consistent with a trade-off type behavior in cash holding levels. We estimate a partial adjustment model and find that firms rapidly correct any deviation from their targeted cash levels. A typical firm in our sample closes this gap within two years. Inconsistent with the agency view of excess cash holdings, we find that cash holding levels for firms with excess cash persists over time compared to those that have a deficit. We also find that smaller firms typically hold excess cash and are quicker to correct deviations than large firms consistent with the view that it is more costly for financially constrained firms to operate at sub-optimal levels of liquid assets.     

The influence of governance on investment: Evidence from a hazard model

Does corporate governance affect the timing of large investment projects? Hazard model estimates suggest strong shareholder governance may deter managers from pursuing large investments. Controlling for investment opportunities, firms with good governance experience longer spells between large investments. However, in the presence of financial constraints or strong CEO incentives (high delta (δ)), we find no such timing differences. Finally, these higher investment hazard firms exhibit significantly negative long-run operating and stock performance. Overall, our findings are consistent with the notion that poor governance associates with overinvestment.     

Disclosure and cost of equity capital in emerging markets: The Brazilian case

In this paper, we conjecture that the weak association between disclosure and cost of equity capital found in the literature (Botosan, 1997) can be caused by the high-level corporate disclosure environment found in the United States. We hypothesize that in low-level corporate disclosure environments the variability in disclosure practices across firms will be larger than in the United States, and, consequently, the marginal effect of voluntary disclosure policies will be higher. Using a newly developed Brazilian Corporate Disclosure Index (BCDI), our results confirm this hypothesis. Disclosure is strongly associated with ex ante cost of equity capital for Brazilian firms. The results are more pronounced for firms with less analyst coverage and low ownership concentration, as expected.     

Family control and investment–cash flow sensitivity: Empirical evidence from the Euro zone

This paper considers the ownership structure of family firms to determine whether family control alleviates or exacerbates investment–cash flow sensitivity in the Euro zone. We find that family-controlled corporations have lower investment–cash flow sensitivities. Further, our results show that this reduced sensitivity is mainly attributable to family firms with no deviations between cash flow and voting rights and to family firms in which family members hold managerial positions. We also find that second largest shareholders affect family firms' sensitivity and are associated with either monitoring (non-family second blockholders) or collusion (family second blockholders). Overall, family control seems to mitigate investment inefficiencies that derive from capital market imperfections.     

Announcement effects of convertible bond loans and warrant-bond loans: An empirical analysis for the Dutch market

This study investigates the announcement effects of offerings of convertible bond loans and warrant-bond loans using data for the Dutch market. The event study analysis shows that announcement effects of convertible bonds are associated with positive but insignificant abnormal returns and that announcements of warrant-bonds are associated with significant positive abnormal returns. These findings are similar to the results for Japanese hybrid debt, as reported by Kang et al. (1995) (Kang, J.K., Kim, Y.C., Park, K.J., Stulz, R.M., 1995. Journal of Financial and Quantitative Analysis, pp. 257–270) and Kang and Stulz (1996) (Kang, J.K., Stulz, R.M., 1996. Review of Financial Studies, pp. 109–139), but they contrast with studies for the United States that generally find significant negative abnormal returns for convertible bond loans and insignificant negative abnormal returns for warrant-bond loans. Our results cannot be attributed to differences in the corporate governance structures of the Netherlands and the United States. We find that the positive abnormal returns for the warrant-bond loans are caused by the packaging of the announcements with other (good) firm-specific news.     

The role of corporate governance in the write-off decision

The recent popularity of write-offs allows for examination of the role governance plays in the write-off decision. I find that well governed companies are more likely to announce write-offs. Additionally, better governed firms announce smaller write-offs relative to poorly governed firms. The evidence also indicates that the stocks of well governed firms experience announcement abnormal returns that are over six percent higher than those of poorly governed firms. The results suggest better governed firms take a pro-active approach to reveal bad news early, and thereby mitigate further uncertainty for investors.     

Value creation and pricing in buyouts: Empirical evidence from Europe and North America

Using a unique proprietary data set of 1980 realized and unrealized buyouts completed between 1986 and 2010, we examine entry and exit pricing in buyouts and its influence on private equity (PE) sponsors' returns. We find that besides leverage and operational improvements, EBITDA multiple expansion (i.e. the difference between entry and exit pricing) is a fundamental factor in explaining equity returns and the result of skill rather than pure luck. We also provide evidence that more experienced PE sponsors use more debt to finance a PE transaction and debt is positively related to entry buyout pricing. However, for a transaction with a given leverage level, more experienced PE sponsors are able to negotiate lower prices. In addition, our results show that deals conducted by first time funds which are realized in a later stage of a fund's life cycle are associated with lower exit prices which can be explained by the increased exit pressure for the PE sponsor.     

International transmission of information: evidence from the Euroyen and Eurodollar futures markets

This paper examines the information transmission between Japan and the US by using the Tokyo Euroyen and Chicago Eurodollar futures. These two interest rate futures markets provide a better understanding of international information transmission than stock markets, which have been shown to exhibit nonsynchronous trading and market segmentation. The results show that traders in Tokyo (Chicago) use information that is revealed overnight in Chicago (Tokyo). The bivariate EGARCH-t model provides no evidence of volatility spillovers in either direction, suggesting that the opening price rapidly reflects foreign information. The overall results support the hypothesis that the domestic market efficiently adjusts to foreign news. The results are also broadly consistent with the covered interest arbitrage effects.     

The impact of family-firm structure and board composition on corporate transparency: Evidence based on segment disclosures in Malaysia

The aim of this study is to contribute to the growing literature on the quality of accounting disclosures by family firms by investigating whether the alignment (entrenchment) effect leads to high (low) corporate transparency. Unlike previous studies, this study also examines the relationship between board composition and corporate transparency by distinguishing between the two types of nonexecutive directors, namely independent and affiliated directors. Using the enhanced segment disclosures by Malaysian firms in 2001/2002 as a proxy of corporate transparency, the results indicate that family firms are more inclined to disclose all the required items for the primary basis of segment reporting, consistent with Ali, Chen, and Radhakrishnan (2007) and Wang (2006). The result also indicates that firms with higher proportion of affiliated directors are more likely to make greater segment disclosures. However, no evidence is found to support the contention that independent directors and institutional investors promote corporate transparency, consistent with previous Malaysian studies.     

Serial CEO incentives and the structure of managerial contracts

I explore CEOs’ incentives to select firm strategies and to acquire firm-specific skills when CEOs have job-hopping opportunities. Several features of managerial compensation, such as benchmarking of pay to larger and more prestigious companies, payments unrelated to past performance, unrestricted stock awards for highly paid CEOs, long-term incentives, and higher pay in companies granting long-term incentives, emerge in the optimal contract. I argue that the model can explain the change in the structure and the surge in US CEO compensation as well as differences across countries and across firms within a country.     

The capital gain lock-in effect with short sales constraints

This paper develops a post-tax asset pricing model under the assumption that investors cannot defer the taxation of capital gains by costlessly short selling tax exempt perfect substitute securities. Contrary to existing literature, it is demonstrated that trading rules of immediate realization of losses and voluntary deferral of gains may not be optimal. Further, equilibrium prices are shown to be higher for stocks held by investors with large accrued capital gains and lower for stocks held by investors with small accrued capital gains or losses.