•The effect of policy uncertainty on cross-border acquisitions is investigated.•Size of acquired equity stake decreases with country-specific policy uncertainty.•Acquirer is less willing to pay in ...cash if target faces high policy uncertainty.•The results are not sensitive to the quality of institutional environment.
Policy uncertainty has been documented to have a significant impact on corporate investment decisions. This paper investigates the effect of policy uncertainty on cross-border acquisitions. We find a significant monotonic relationship between the size of the acquired equity stake in a target firm and the level of policy uncertainty in the target’s country of origin. More specifically, the acquirer is less inclined to purchase a sizeable ownership stake in the target firm, if the target is domiciled in unstable macroeconomic environment. Moreover, we find that acquirers are less willing to pay in cash if the target faces high policy uncertainty. The above results do not seem to depend on the quality of the country’s institutional environment and are robust to alternative econometric specifications. Our study discusses policy implications and should be of interest to academics as well as finance practitioners.
This paper contributes to the literature on agency theory by examining relations between family involvement and CEO compensation. Using a panel of 362 small U.S. listed firms, we analyze how founding ...families influence firm performance through option portfolio price sensitivity. Consistent with the dual agency framework, we find that family firms have lower CEO incentive pay, which is further reduced by higher executive ownership. Interestingly, such incentive pay offsets the positive impact that families have on firm valuation. Collectively, our results show that, compared with nonfamily firms, lower incentive pay adopted by family firms due to lower agency costs mitigates the direct effect of family involvement on firm performance. Once accounting for CEO incentive pay, we do not observe performance differences between family and nonfamily firms.
•We study the flow-performance function for retail and institutional mutual funds.•The function appears to be convex in the upper region of the return scale.•In the region of the lower performance ...scale, the function appears to be concave.•The observed convexity of the function is more pronounced for retail funds.•The concavity of the function can be mainly attributed to institutional funds.
In this paper, we examine and compare the form of the flow-performance relationship for U.S. retail and institutional mutual funds. We provide evidence that the convex form of the flow-performance function documented by previous research characterizes mostly the relationship in the upper region of the performance scale. In contrast, the flow-performance relationship for the low-performance region appears to be concave. Furthermore, we document that the observed convexity is more pronounced for retail funds, while the concavity can be mainly attributed to institutional funds.
This paper provides evidence that CEO incentive pay mediates the effect of family preferences on corporate investment policy. Our study focuses on the option portfolio volatility sensitivity vega, ...which motivates the risk-taking behavior of undiversified managers. After controlling for factors that affect incentive pay and investment policy simultaneously, we find that one-third of underinvestment in riskier R&D projects in active family firms can be attributed to a significantly lower vega. Passive family firms allocate more capital to R&D as opposed to active family firms, and are more active in M&A deal making. In contrast to many prior studies, pay incentives and families are not associated with capital expenditures. Overall, our empirical results suggest that CEO pay incentives induce investment policy contingent on firm risk. Family CEO incentive pay manifests the family preference for lower risk, especially in firms with higher firm risk. Nonetheless, after replacing family CEOs with outside professionals, investments in both R&D and M&A increase, which is consistent with the family preference for extended investment horizons. Interestingly, such a preference seems not to be manifested in incentive pay.
Based on a sample of U.S. seasoned equity offering (SEO) during the period 2002–2017, we examine how the choice of equity issuance method changes in response to policy uncertainty. We find that firms ...subject to high policy uncertainty are less likely to use accelerated offerings rather than other types of traditional seasoned equity offerings. Our results are robust to alternative variable specifications, propensity score matching method, IV approach, and the inclusion of additional controls. Also, the effect of policy uncertainty on accelerated offering decision is weaker for firms with better information environment, earnings quality, and governance structures. Further, policy uncertainty increases the cost of funds and lowers long-run abnormal returns after SEOs for firms subject to high levels of policy uncertainty.
•A sample of U.S. seasoned equity offering (SEO) during the period 2002–2017.•Firms subject to high policy uncertainty are less likely to use accelerated offerings.•The results are robust to a set of tests involving governance, information environments and endogeneity.•Long-run abnormal returns after SEOs are lower for firms subject to high levels of policy uncertainty.
We examine the impact of family control on the cost of raising external funds by family enterprises. Using a sample of Australian publicly listed firms, we find a significantly negative relation ...between cost of newly raised capital and family control. Moreover, we show that this relationship varies with the quality of corporate governance and the quality of firm's information environment. Furthermore, we conduct several robustness checks and consistently find that our main results remain unchanged. Overall, our evidence suggests that family firms have easier access to external financing fostered by family involvement in the ownership and control.
We examine the impact of family control on the cost of raising external funds by family enterprises. Using a sample of Australian publicly listed firms, we find a significantly negative relation ...between cost of newly raised capital and family control. Moreover, we show that this relationship varies with the quality of corporate governance and the quality of firm's information environment. Furthermore, we conduct several robustness checks and consistently find that our main results remain unchanged. Overall, our evidence suggests that family firms have easier access to external financing fostered by family involvement in the ownership and control.
In this case study, you will walk through different types of competitive strategies adopted by the world's leading corporations, dominant players in their respective industries. In the first step, ...the identification of the generic competitive strategy is made solely based on the information contained in the income statement. Emphasis is placed on the link between the core competencies of the firm: product differentiation and product cost, versus the propensity of the firm to undertake innovation. In the second step, a selected set of examples highlight the ambiguity in the identification of the accurate competitive strategy, based only on the information disclosed in the statement of operating income. Additional information must be sought in order to determine how exactly firms achieve their sustainable competitive advantage. This case study leads through the sources of this additional information that complement the quantitative data included in the income statement. In the final step, we relate business strategy with firm profitability via an array of economic dimensions that jointly determine a firm's relative position within an industry, and which can be regarded as its key success factors. Financial statements of global companies that are standardized under either GAAP or IFRS are used. This feature makes the students aware of the terminology and style differences adopted by GAAP and IFRS accounting principles, respectively. Equally important, the set of examples highlight terminology and style differences even across companies that use the same set of account rules, namely either GAAP or IFRS.
This case study evaluates a set of new proposals aimed to change the existing corporate governance regime in Canada. These amendments concern privately-held and publicly listed companies incorporated ...under the federal Canada Business Corporations Act (CBCA). The new regulation covers corporate governance practices related to shareholder voting, elections of directors, diversity among directors and senior managers, as well as other changes. The main objective of this case study is to explain the key differences between distinct shareholder voting regimes by indicating their relative advantages and disadvantages. More importantly, however, this study focuses on diversity policies introduced in the new bill with regard to gender diversity of the members of the board of directors and the top management team. It uses the proposed amendments as a pretext to discuss gender differences in the general population and the potential impact gender diversity may have on the quality of the decision-making process in the firm and subsequently on firm performance.
Taxes and Firm Investment Arin, K Peren; Devereux, Kevin; Mazur, Mieszko
IDEAS Working Paper Series from RePEc,
01/2021
Paper
Odprti dostop
We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 ...period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.
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