The evidence presented here is inconsistent with variants of corporate finance theory which hold that the option properties of growth opportunities or asset substitution incentives are first-order determinants of equity values, but it is supportive of risk management and capital structure theories that emphasize the costs of cash flow volatility. Specifically, controlling for known determinants of changes in shareholder wealth, we find that the change in shareholder wealth over one year is inversely related to the change in expected equity volatility over the same year in cross-section regressions. This relation holds consistently through time for all but the largest firms and is economically significant. It is stronger for firms with weaker financial health. When we decompose volatility into beta risk and idiosyncratic risk, we find that shareholder wealth is positively related to beta changes, so that our evidence cannot be explained by a beta effect. Nor can the evidence be explained by the impact of returns on volatility predicted by the leverage effect studied in the option pricing literature.
{"title":"Shareholder Wealth and Firm Risk","authors":"Hyun-Han Shin, René M. Stulz","doi":"10.2139/ssrn.254271","DOIUrl":"https://doi.org/10.2139/ssrn.254271","url":null,"abstract":"The evidence presented here is inconsistent with variants of corporate finance theory which hold that the option properties of growth opportunities or asset substitution incentives are first-order determinants of equity values, but it is supportive of risk management and capital structure theories that emphasize the costs of cash flow volatility. Specifically, controlling for known determinants of changes in shareholder wealth, we find that the change in shareholder wealth over one year is inversely related to the change in expected equity volatility over the same year in cross-section regressions. This relation holds consistently through time for all but the largest firms and is economically significant. It is stronger for firms with weaker financial health. When we decompose volatility into beta risk and idiosyncratic risk, we find that shareholder wealth is positively related to beta changes, so that our evidence cannot be explained by a beta effect. Nor can the evidence be explained by the impact of returns on volatility predicted by the leverage effect studied in the option pricing literature.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128920320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze acquirers' wealth maximizing acquisition strategy when competing for a target. We allow acquirers to make either one-tier or two-tier offers. We show that a two-tier offer strategy will be used when target shareholders have sufficiently large differences in their valuations of the considerations offered, for example due to taxes. However, when shareholder heterogeneity is small, one-tier offers always defeat two-tier offers. Our model also explains the stylized fact that successful two-tier offers are over-subscribed (i.e., structured such that the number of shares tendered exceeds the number sought). Finally, for intermediate levels of valuation heterogeneity neither one- nor two-tier offers are uniquely optimal and acquirers will randomize their offer strategies or resort to preemptive offers, that is, offers that exceed the reservation value of their opponent. The latter is more likely to occur when the difference between the two acquirers' reservation values is high.
{"title":"Optimal Structure of the Consideration in Mergers and Acquisitions","authors":"Thomas D. Fields, Thomas Z Lys","doi":"10.2139/ssrn.239723","DOIUrl":"https://doi.org/10.2139/ssrn.239723","url":null,"abstract":"We analyze acquirers' wealth maximizing acquisition strategy when competing for a target. We allow acquirers to make either one-tier or two-tier offers. We show that a two-tier offer strategy will be used when target shareholders have sufficiently large differences in their valuations of the considerations offered, for example due to taxes. However, when shareholder heterogeneity is small, one-tier offers always defeat two-tier offers. Our model also explains the stylized fact that successful two-tier offers are over-subscribed (i.e., structured such that the number of shares tendered exceeds the number sought). Finally, for intermediate levels of valuation heterogeneity neither one- nor two-tier offers are uniquely optimal and acquirers will randomize their offer strategies or resort to preemptive offers, that is, offers that exceed the reservation value of their opponent. The latter is more likely to occur when the difference between the two acquirers' reservation values is high.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134185798","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the suggested substitutive relation between executive compensation and the disciplinary threat of takeover imposed by the market for corporate control. We complement other empirical studies on managerial compensation and corporate control mechanisms in three distinct ways. First, we concentrate on firms in the oil industry for which agency problems were especially severe in the 1980s. Due to the extensive generation of excess cash flow, product and factor market discipline was ineffective. Second, we obtain a unique data set drawn directly from proxy statements which accounts not only for salary and bonus but for the value of all stock-market based compensation held in the portfolio of a CEO. Our data set consists of 51 firms in the U.S. oil industry from 1977 to 1994. Third, we employ ex ante measures of the threat of takeover at the individual firm level which are superior to ex post measures like actual takeover occurrence or past incidence of takeovers in an industry. Results show that annual compensation and, to a much higher degree, stock-based managerial compensation increase after a firm becomes protected from a hostile takeover. However, clear-cut evidence that CEOs of protected firms receive higher compensation than those of firms considered susceptible to a takeover cannot be found.
{"title":"Executive Compensation and the Susceptibility of Firms to Hostile Takeovers - an Empirical Investigation of the U.S. Oil Industry","authors":"Michael H. Haid, E. Nowak","doi":"10.2139/ssrn.155956","DOIUrl":"https://doi.org/10.2139/ssrn.155956","url":null,"abstract":"We investigate the suggested substitutive relation between executive compensation and the disciplinary threat of takeover imposed by the market for corporate control. We complement other empirical studies on managerial compensation and corporate control mechanisms in three distinct ways. First, we concentrate on firms in the oil industry for which agency problems were especially severe in the 1980s. Due to the extensive generation of excess cash flow, product and factor market discipline was ineffective. Second, we obtain a unique data set drawn directly from proxy statements which accounts not only for salary and bonus but for the value of all stock-market based compensation held in the portfolio of a CEO. Our data set consists of 51 firms in the U.S. oil industry from 1977 to 1994. Third, we employ ex ante measures of the threat of takeover at the individual firm level which are superior to ex post measures like actual takeover occurrence or past incidence of takeovers in an industry. Results show that annual compensation and, to a much higher degree, stock-based managerial compensation increase after a firm becomes protected from a hostile takeover. However, clear-cut evidence that CEOs of protected firms receive higher compensation than those of firms considered susceptible to a takeover cannot be found.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"54 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122487459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates takeover likelihood models for UK quoted companies. For a sample of 643 UK nonfinancial quoted companies over the period 1989-96, we find that the probability of being a takeover target is increasing in leverage and incidence of takeover speculation and decreasing in pre-bid performance, size and age since listing.
{"title":"Takeover Likelihood Models for UK Quoted Companies","authors":"R. Nuttall","doi":"10.2139/ssrn.155168","DOIUrl":"https://doi.org/10.2139/ssrn.155168","url":null,"abstract":"This paper estimates takeover likelihood models for UK quoted companies. For a sample of 643 UK nonfinancial quoted companies over the period 1989-96, we find that the probability of being a takeover target is increasing in leverage and incidence of takeover speculation and decreasing in pre-bid performance, size and age since listing.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-01-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123968208","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
L. Bebchuk, Allen Ferrell, Reinier H. Kraakman, M. Roe, Guhan Subramanian
This piece provides our amicus curiae brief in the case of American Federation of State, County & Municipal Employees Pension Plan v. American International Group, which is now under consideration by the Second Circuit Court of Appeals. In this case, a shareholder submitted a proposal to amend the company's bylaws to require the company in certain circumstances to place candidates nominated by shareholders on the company's ballot, and the company sought to exclude this proposal from the ballot. We suggest in our amicus curiae brief that companies should not be allowed to exclude form the company ballot bylaw amendments concerning corporate elections. Prohibiting companies from doing so, we argue, is required by a reasonable interpretation of the proxy rules and necessary to advance the policy goals underlying the rules. As an appendix to the brief we attach a letter to the SEC sent by forty-eight law professors including ourselves that expresses a similar position.
{"title":"Placing Election Bylaws on the Corporate Ballot","authors":"L. Bebchuk, Allen Ferrell, Reinier H. Kraakman, M. Roe, Guhan Subramanian","doi":"10.2139/SSRN.915403","DOIUrl":"https://doi.org/10.2139/SSRN.915403","url":null,"abstract":"This piece provides our amicus curiae brief in the case of American Federation of State, County & Municipal Employees Pension Plan v. American International Group, which is now under consideration by the Second Circuit Court of Appeals. In this case, a shareholder submitted a proposal to amend the company's bylaws to require the company in certain circumstances to place candidates nominated by shareholders on the company's ballot, and the company sought to exclude this proposal from the ballot. We suggest in our amicus curiae brief that companies should not be allowed to exclude form the company ballot bylaw amendments concerning corporate elections. Prohibiting companies from doing so, we argue, is required by a reasonable interpretation of the proxy rules and necessary to advance the policy goals underlying the rules. As an appendix to the brief we attach a letter to the SEC sent by forty-eight law professors including ourselves that expresses a similar position.","PeriodicalId":106641,"journal":{"name":"Corporate Law: Corporate & Takeover Law","volume":"135 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122344649","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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