Corporate tax cuts,merger activity,and shareholder wealth

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.     

The impact of OBRA on shareholder wealth

Market-return data and a multivariate regression model are used to investigate the impact of the Omnibus Budget Reconciliation Act of 1987 (OBRA) on the wealth of shareholders of firms sponsoring overfunded and underfunded pension plans during the period surrounding the passage of OBRA. Assuming semistrong market efficiency, a reduction in the pension insurance effect associated with the passage of OBRA was hypothesized to have a negative impact on the security prices of all plan sponsors. In general, the market reacted unfavorably to sponsors of both overfunded and underfunded defined-benefit pension plans when OBRA was introduced. However, the market reaction varied as a function of the funding-level change during the period preceding passage of the Act. Firm-specific financial variables were also used in a stepwise regression analysis to investigate whether selected financial variables could explain negative abnormal returns observed during the legislative period. We found that earnings per share and the short-term debt-coverage ratio explained up to 19.4% of the negative abnormal returns for the underfunded sample. However, no significant explanatory variables were identified for the overfunded sample.     

Evasive shareholder meetings

We study the strategic scheduling of annual shareholder meetings. When companies move their annual meetings a great distance from headquarters, they tend to experience pronounced stock market underperformance in the six months after the meeting and announce earnings below expectations over the subsequent year. Companies appear to schedule meetings in remote locations when the managers have private, adverse information about future performance and wish to discourage scrutiny by shareholders, analysts, and the media. However, shareholders do not decode this signal, since the disclosure of meeting locations leads to little immediate stock price reaction. We find that voter participation drops when meetings are held at unusual hours, even though most voting is done electronically during a period of weeks before the meeting convenes.     

Pursuing shareholder value: The rhetoric of James Hardie

In this paper we analyse the media release by James Hardie Industries Limited (JHIL) announcing the establishment of a separate entity to fund current and future asbestos litigation claims using the interpretive tool of rhetorical criticism. At the centre of the corporate reorganisation which alienated asbestos-related liabilities from the corporate group was the concept of shareholder value. This concept was presented as an unequivocal rationale to persuade the public that the reorganisation would resolve the asbestos liability issue and benefit both shareholders and legitimate asbestos claimants alike. Accounting is implicated by the use of accounting concepts such as assets and liabilities to persuade stakeholders of the financial viability of the new entity. These concepts were presented as objective and unproblematic without consideration of the nuances of accounting measurement, recognition and disclosure criteria.

Using an organisational discourse analysis framework, the media release is ‘dismantled’ to expose the rhetorical strategies used to create particular understandings and to privilege certain interests. The analysis demonstrates the power of a single textual artefact to harness and influence strategic possibilities and serve an organisational strategy.     

股民眼中的2006

胡说有理998 SOHU财经论坛 根据业界此前的预期,股改双过半(市值、数量)将成为股改进程中的一个重要节点,包括"新老划断"、金融产品创新等一系列重大举措都将在此后展开,不排除"两会"前后有重大利好推出.新综指再创新高,收出鸡年的最后一个红盘.早市股指冲高回落,午后两市再次走高,量能虽然有所萎缩,但总体看资金配合良好.     

The role of shareholder proposals in corporate governance

This paper examines the corporate governance role of shareholder-initiated proxy proposals. We find that target firms tend to underperform and have generally poor governance structures, with little indication of systematic agenda-seeking by the proposal sponsors. Governance quality also affects the voting outcomes and the announcement period stock price effects, with the latter strongest for first-time submissions and during stock market peaks. Proposal implementation is largely a function of voting success but is affected by managerial entrenchment and rent-seeking. The results imply that shareholder proposals are a useful device of external control, countering arguments that they should be restricted rather than facilitated under the SEC's current regulatory agenda.     

The determinants of shareholder value in European banking

This paper examines the determinants of shareholder value creation for a large sample of European banks between 1998 and 2005. As the recent turmoil in global banking systems has illustrated, bank performance can have a substantial influence on efficient capital allocation, company growth and economic development. We use a dynamic panel data model where the bank’s shareholder value is a linear function of various bank-specific, industry-specific and macroeconomic variables. We show that shareholder value has a positive relationship with cost efficiency changes, while economic profits are linked to revenue efficiency changes. Credit losses, market and liquidity risk and leverage are also found to substantially influence bank performance. These results are robust to a variety of different model specifications.     

The effects of adopting the Balanced Scorecard on shareholder returns

Many firms have adopted the Balanced Scorecard (BSC) as a way to implement strategy and measure firm performance. This paper uses a long-horizon event study methodology to examine the relationship between BSC adoption and shareholder returns. Using a matched pair design, we show that firms who adopt the BSC significantly outperform firms that do not adopt the BSC over a three year period beginning with the year of adoption. Our results are robust for different matching criteria. There is also evidence that firms earn greater excess returns after adoption of the BSC than before. These results provide strong evidence that the BSC is an effective strategic management tool that leads to improved shareholder returns.     

The effect of pre-emptive right amendments on shareholder wealth

Pre-emptive rights allow existing shareholders to purchase a new offering of shares before the general public. This paper investigates the effect on shareholder wealth of removing pre-emptive rights from corporate charters. Two hypotheses are constrasted: (1) Shareholder wealth maximization suggests that management uses this extra degree of freedom to pick the least cost method for raising new equity; hence, the amendment increases shareholder wealth. (2) Management welfare maximization holds that management will use the passage of the amendment to maximize their own welfare, sometimes to the detriment of shareholders; hence, the amendment decreases shareholder wealth. The evidence indicates that the amendment decreases shareholder wealth.     

Rethinking bank shareholder equity: The case of Deutsche Bank

We introduce and apply an innovative accounting approach to analyse the equity position of a European systemically important financial institution, Deutsche Bank, between 2001 and 2015. According to our findings, the actual contribution by shareholders to bank equity capital was limited, while shareholder payout policies, including share buybacks and trading on its own shares, were both material. These findings raise concerns on the actual capacity by shareholder equity to assure protection against (residual) risk and loss absorption. Customer and investor protections appear to lay with bank entity equity dynamics. These findings have implications for bank financial sustainability and resilience, company capital maintenance, and regulatory capital requirements. Further developments based upon this innovative methodology may improve on existing prudential and accounting regulations.     

政府监管有助于提升股东价值

将监管与股东价值相联系 2007年6月,ACCA委托亚洲CFO研究机构对亚太地区高级财务人士就政府监管问题作了一份调查研究,题为:《一个关键的连接:将监管与股东价值相联系》,该报告对176位来自香港、中国大陆、新加坡和马来西亚的高级财务主管进行了调查.     

The effect of exchange rate variability on US shareholder wealth

We examine the relationship between financial crisis exchange rate variability and equity return volatility for US multinationals. Empirical analysis of the major financial crises of the last decades reveals that stock return variability increases significantly in the aftermath of a crisis, even relative to the increase in stock return volatility for other firms belonging to the same industry and market capitalization class. In conjunction with this increase in total volatility, there is also an increase in stock market risk (β) for multinational firms. Moreover, trade and service oriented industries appear to be particularly sensitive to these changing exchange rate conditions.     

Institutional monitoring through shareholder litigation

This paper investigates the effectiveness of using securities class action lawsuits in monitoring defendant firms by institutional lead plaintiffs from two aspects: (1) immediate litigation outcomes, including the probability of surviving the motion to dismiss and the settlement amount, and (2) subsequent governance improvement such as changes in board independence. Using a large sample of securities lawsuits from 1996 to 2005, we show that institutional investors are more likely to serve as the lead plaintiff for lawsuits with certain characteristics. After controlling for these determinants of having an institutional lead plaintiff, we show that securities class actions with institutional owners as lead plaintiffs are less likely to be dismissed and have larger monetary settlements than securities class actions with individual lead plaintiffs. This effect exists for various types of institutions including public pension funds. We also find that, after the lawsuit filings, defendant firms with institutional lead plaintiffs experience greater improvement in their board independence than defendant firms with individual lead plaintiffs. Our study suggests that securities litigation is an effective disciplining tool for institutional owners.     

The Idealized Electoral College voting mechanism and shareholder power

Increasing concern over corporate governance has led to calls for more shareholder influence over corporate decisions, but allowing shareholders to vote on more issues may not affect the quality of governance. We should expect instead that, under current rules, shareholder voting will implement the preferences of the majority of large shareholders and management. This is because majority rule offers little incentive for small shareholders to vote. I offer a potential remedy in the form of a new voting rule, the Idealized Electoral College (IEC), modeled on the American Electoral College, that significantly increases the expected impact that a given shareholder has on election. The benefit of the mechanism is that it induces greater turnout, but the cost is that it sometimes assigns a winner that is not preferred by a majority of voters. Therefore, for issues on which management and small shareholders are likely to disagree, the IEC is superior to majority rule.     

10 ways to create shareholder value

Executives have developed tunnel vision in their pursuit of shareholder value, focusing on short-term performance at the expense of investing in long-term growth. It's time to broaden that perspective and begin shaping business strategies in light of the competitive landscape, not the shareholder list. In this article, Alfred Rappaport offers ten basic principles to help executives create lasting shareholder value. For starters, companies should not manage earnings or provide earnings guidance; those that fail to embrace this first principle of shareholder value will almost certainly be unable to follow the rest. Additionally, leaders should make strategic decisions and acquisitions and carry assets that maximize expected value, even if near-term earnings are negatively affected as a result. During times when there are no credible value-creating opportunities to invest in the business, companies should avoid using excess cash to make investments that look good on the surface but might end up destroying value, such as ill-advised, overpriced acquisitions. It would be better to return the cash to shareholders in the form of dividends and buybacks. Rappaport also offers guidelines for establishing effective pay incentives at every level of management; emphasizes that senior executives need to lay their wealth on the line just as shareholders do; and urges companies to embrace full disclosure, an antidote to short-term earnings obsession that serves to lessen investor uncertainty, which could reduce the cost of capital and increase the share price. The author notes that a few types of companies--high-tech start-ups, for example, and severely capital-constrained organizations--cannot afford to ignore market pressures for short-term performance. Most companies with a sound, well-executed business model, however, could better realize their potential for creating shareholder value by adopting the ten principles.     

Excess cash holdings and shareholder value

We examine the determinants of corporate cash holdings in Australia and the impact on shareholder wealth of holding excess cash. Our results show that a trade‐off model best explains the level of a firm’s cash holdings in Australia. We find that ‘transitory’ excess cash firms earn significantly higher risk‐adjusted returns compared to ‘persistent’ excess cash firms, suggesting that the market penalises firms that hoard cash. The marginal value of cash also declines with larger cash balances, and the longer firms hold on to excess cash. The results are consistent with agency costs associated with persistence in excess cash holdings.     

The incentives for tax planning

We use a proprietary data set with detailed executive compensation information to examine the relationship between the incentives of the tax director and GAAP and cash effective tax rates, the book-tax gap, and measures of tax aggressiveness. We find that the incentive compensation of the tax director exhibits a strong negative relationship with the GAAP effective tax rate, but little relationship with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to reduce the level of tax expense reported in the financial statements.     

Manufacturing shareholder value: The role of accounting in organizational transformation

This paper explores the role of accounting calculations in constructing shareholder value within the context of organizational transformation in work organization. Using an intensive longitudinal case study (Conglom, a pseudonym), the paper relates innovation and experimentation in new forms of work organization to a drive for shareholder value creation. The priority given to shareholder value creation was articulated through a proliferation of accounting metrics and calculations that intermediated between the strategic preoccupation with securing financial profitability, as demonstrated by the share price, and the operational challenge of squeezing costs and improving margins to boost short-term performance through outsourcing, programme management and divestment. We interpret the discourse of shareholder value creation and the development of related accounting metrics as a hegemonic move which is central to the reassertion of capital – a development that, we contend, is symptomatic of a shift towards a more ‘despotic’ mode of capitalist reproduction [Burawoy, M., (1985). The politics of production. London: Verso], where the whip of the market, allied to notions of possessive individualism, free choice and self-determination, progressively replaces the velvet glove of the corporatist state.     

Effects of recontracting on shareholder wealth: The case of voluntary spin-offs

This paper investigates the effect of voluntary corporate spin-off announcements on shareholder wealth. A significant positive share price reaction is documented for 93 voluntary spin-off announcements between 1963 and 1981. These shareholder gains do not appear to come wholly at the expense of bondholders. Evidence suggests the gains to shareholders may arise from tax and regulatory advantages and/or improved managerial efficiency resulting from the spin-off.