We highlight the complexities in estimating the valuation effects of board gender quotas by critically revisiting studies of Norway’s pioneering board gender-quota law. We use the short-run event ...study of Ahern and Dittmar Ahern KR, Dittmar A (2012) The changing of the boards: The impact on firm valuation of mandated female board representation.
Quart. J. Econom.
127(1):137–197 to illustrate (1) the difficulties in attributing quota-related news to specific dates, (2) the need to account for contemporaneous cross-correlation of stock returns when judging the statistical significance of event-related abnormal stock returns, and (3) the fundamental difficulty of separating quota-induced valuation effects from the influences of firm characteristics and macroeconomic events such as the financial crisis. We provide new evidence suggesting that the valuation effect of Norway’s quota law was statistically insignificant. Overall, our evidence suggests that, at the time of the Norwegian quota, the supply of qualified female director candidates was high enough to avoid the negative consequences of the quota highlighted previously in the literature.
This paper was accepted by Renee Adams, finance.
We examine chief executive officer (CEO) career and compensation changes for large firms filing for Chapter 11. One-third of the incumbent CEOs maintain executive employment, and these CEOs ...experience a median compensation change of zero. However, incumbent CEOs leaving the executive labor market suffer a compensation loss with a median present value until age 65 of $7 million (five times pre-departure compensation). The likelihood of leaving decreases with profitability and CEO share ownership. Furthermore, creditor control rights during bankruptcy (through debtor-in-possession financing and large trade credits) are associated with CEO career change. Despite large equity losses (median $11 million for incumbents who stay until filing), the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy.
Are stock-financed takeovers opportunistic? Eckbo, B. Espen; Makaew, Tanakorn; Thorburn, Karin S.
Journal of financial economics,
06/2018, Letnik:
128, Številka:
3
Journal Article
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The more the target knows about the bidder, the more difficult is paying the target with overpriced bidder shares. Thus, when bidders are opportunistic, the fraction of stock in the deal payment will ...be lower for better informed targets. We test this intuitive prediction against the alternative that stock payments primarily reflect bidder concerns with target adverse selection, which implies a greater fraction of stock in the deal payment for better informed targets. Discriminating between these two mutually exclusive and nested predictions requires measures of target information about the bidder but not of market mispricing. We find that public bidders systematically use more stock in the payment when the target knows more about the bidder. Tests exploiting exogenous variation in bidder market-to-book ratios also fail to support bidder opportunism. Finally, greater potential competition from private bidders is associated with greater propensity for public bidders to pay in cash.
With a hand-collected set of 545 debtor-in-possession (DIP) loan facilities for 2002–19, we show that these short-term loans are highly overcollateralized and contain a comprehensive set of ...restrictive covenants, mandatory prepayments, and restructuring milestones—all of which help produce a repayment risk near 0. Nevertheless, the all-in spread drawn averages 658 basis points—almost five times the average spread on matched investment-grade loans and nearly double the average spread on matched leveraged loans issued by highly risky firms outside of bankruptcy. Textual analysis of court documents shows lack of outside lenders’ participation in the loan solicitation process, but spreads are somewhat lower when outside interest is high. We discuss alternative interpretations of the high DIP loan spreads, ranging from monitoring-cost compensation to rent extraction as DIP loan providers with strong bargaining power share in the preservation of going-concern value helped by the last-resort loan. “The question this debtor had to ask, is: Is this debtor-in-possession loan better than a liquidation?” (Mark Ellenberg, in Kary 2009)“In the Great Recession default cycle, no debtor-in-possession loans defaulted.” (David Keisman, in Adler 2016)
I review recent empirical research documenting offer premiums and bidding strategies in corporate takeovers. The discussion ranges from optimal auction bidding to the choice of deal payment form and ...premium effects of poison pills. The evidence describes the takeover process at a detailed level, from initial premiums to bid jumps, entry of rival bidders, and toehold strategies. Cross-sectional tests illuminate whether bidders properly adjust for winner's curse, whether target stock price runups force offer price markups, and whether auctions of bankrupt firms result in fire-sale discounts. The evidence is suggestive of rational strategic bidding behavior in specific contexts.
I review recent takeover research that advances our understanding of “who buys who” in the drive for productive efficiency. This research provides detailed information on text-based definitions of ...product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and pre- and post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of “how firms are sold” (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner’s curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids and suggest that bidder synergy gains are much larger than previously thought.
Merger negotiations and the toehold puzzle Betton, Sandra; Eckbo, B. Espen; Thorburn, Karin S.
Journal of financial economics,
02/2009, Letnik:
91, Številka:
2
Journal Article
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The substantial control premium typically observed in corporate takeovers makes a compelling case for acquiring target shares (a toehold) in the market prior to launching a bid. Moreover, auction ...theory suggests that toehold bidding may yield a competitive advantage over rival bidders. Nevertheless, with a sample exceeding 10,000 initial control bids for US public targets, we show that toehold bidding has declined steadily since the early 1980s and is now surprisingly rare. At the same time, the average toehold is large when it occurs (20%), and toeholds are the norm in hostile bids. To explain these puzzling observations, we develop and test a two-stage takeover model where attempted merger negotiations are followed by open auction. With optimal bidding, a toehold imposes a cost on target management, causing some targets to (rationally) reject merger negotiations. Optimal toeholds are therefore either zero (to avoid rejection costs) or greater than a threshold (so that toehold benefits offset rejection costs). The toehold threshold estimate averages 9% across initial bidders, reflecting in part the bidder's opportunity loss of a merger termination agreement. In the presence of market liquidity costs, a threshold of this size may well induce a broad range of bidders to select zero toehold. As predicted, the probability of toehold bidding decreases, and the toehold size increases, with the threshold estimate. The model also predicts a relatively high frequency of toehold bidding in hostile bids, as observed. Overall, our test results are consistent with rational bidder behavior with respect to the toehold decision.
Merger Negotiations with Stock Market Feedback BETTON, SANDRA; ECKBO, B. ESPEN; THOMPSON, REX ...
The Journal of finance (New York),
August 2014, Letnik:
69, Številka:
4
Journal Article
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Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover ...synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Largesample tests support rational deal anticipation in runups while rejecting the costly feedback loop.
Abstract
With zero capital structure rebalancing costs, dynamic trade-off theory predicts that firms stay at their leverage targets with more profitable firms staying at higher leverage. This ...prediction is rejected by the robustly negative correlation between leverage and profitability. When rebalancing costs are added to this theory, it predicts a positive leverage–profitability correlation only in periods where companies pay these costs and actively rebalance their capital structures. However, we show that the correlation is negative when firms issue debt and distribute the proceeds to shareholders—precisely the case where the theory predicts it should be positive. Our results thus resurrect the leverage–profitability puzzle.
We review recent research into how firms navigate four complex decisions in corporate takeovers: (
a
) deal initiation, (
b
) pre-offer toehold acquisition, (
c
) the initial (public) offer price, ...and (
d
) the payment method. We focus the evidence on public targets and the theory on first-price or English (ascending-price) auctions with two competing bidders and a single (pivotal) seller. The evidence shows that nearly half of bids are initiated by the target (not a bidder). Notwithstanding the large offer premiums, only a small fraction of bidders acquire a target toehold prior to bidding. The first bid rarely attracts rival bidders, suggesting effective competition deterrence. Bid jumps are high, as predicted when bidding costs are large. Pre-bid stock price run-ups reflect rational market deal anticipation and are understood as such by the deal negotiators. Bidders select stock payment when concerned with adverse selection on the target side of the deal.
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