Search

We use events related to a proxy access rule passed by the Securities and Exchange Commission in 2010 as natural experiments to study the valuation effects of changes in shareholder control. We find that valuations increase (decrease) following increases (decreases) in perceived control, especially for firms that are poorly performing, have shareholders likely to exercise control, and where acquiring a stake is relatively inexpensive. These results suggest that an increase in shareholder control from its current level would generally benefit shareholders. However, we find that the benefits of increased control are muted for firms with shareholders whose interests may deviate from value maximization.

Using a large sample of partial block acquisitions, we examine the importance of geographic proximity in corporate governance and target returns. We find that block acquirers have a strong preference for geographically proximate targets and acquirers that purchase shares in such targets are more likely to engage in post-acquisition target governance activities than are remote block acquirers. Moreover, the targets of these acquirers realize higher announcement returns and better post-acquisition operating performance than do targets of other types of acquirers, particularly when they face greater information asymmetries. IT IS WELL KNOWN THAT DESPITE THE SUBSTANTIAL GAINS from international diversification, investors exhibit a strong preference for domestic stocks (French and Poterba (1991), Kang and Stultz (1997)). Recent studies show that this so-called home bias phenomenon in international portfolio selection exists even in domestic portfolio selection, and that investment returns in local holdings are higher than those in nonlocal holdings. For example, Coval and Moskowitz (1999) show that U.S. mutual fund managers exhibit a strong preference for local stocks, and using data on individual investments, Zhu (2002) and Ivkovic and Weisbenner (2005) find that a strong preference for local stocks also exists for individual investors. Coval and Moskowitz (2001) and Ivkovic and Weisbenner (2005) also show that U.S. mutual fund managers and individual investors, respectively, earn significant abnormal returns on geographically proximate investments. Several studies establish that the observed local bias is largely driven by information asymmetry between local and distant investors. For example, Coval and Moskowitz (1999) show that the extent of the local bias is higher for small, highly leveraged firms that produce nontraded goods, and Ivkovic and Weisbenner (2005) find that abnormal returns for local investments are higher among non-S&P 500 index stocks for which information asymmetry problems are severe. Similarly, using a large sample of analysts, Malloy (2005) shows

We analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders. We find shareholder wealth increases, ownership concentration falls, and extensive corporate control activity ensues. Share price responses are related to the deceased's equity stake. Control group holdings fall for two-thirds of the firms due to either the estate's dispersal or inheritors selling stock. A majority of firms become targets of control bids: three-quarters of bids are successful; one-third are hostile. Our evidence is broadly consistent with Stulz's (1988) model of the relationship between ownership concentration and firm value. THE OBJECTIVE OF THIS paper is to assess how changes in insider ownership concentration affect firm value, corporate governance, and the control of public companies. We obtain our evidence on these issues by examining the effects of the death of an inside blockholder-that is, a member of the firm's control group as defined by Securities and Exchange Commission (SEC) disclosure rules-who holds 5 percent or more of a firm's equity. Overall, we find that the death of an inside blockholder, an exogenous event, is value enhancing, reduces ownership concentration, and leads to extensive corporate control activity. Our analysis has three components. One, we use market-based evidence to evaluate how changes in ownership concentration affect firm value by analyzing the share price response to the death of an inside blockholder. Financial market efficiency implies that share prices capitalize gains or losses from changes in ownership concentration and future control events expected to ensue from an inside blockholder's death. Thus, such valuation effects provide a test of the continuing controversy as to whether ownership concentration promotes managerial entrenchment or aligns insider and noninsider interests. We find that the share price response to the death of an inside blockholder is significantly positive when the level of ownership concentra

In this paper, the authors examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. The authors' principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. They interpret the evidence as supportive of an anticipation hypothesis in which the market perceiv es the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration. Copyright 1993 by American Finance Association.

This study investigates the extent to which information inferred by investors from initial announcements of corporate security offerings affects share prices in the capital markets. The empirical tests measure the response in the common stock prices of both firms announcing a security offering and non-announcing firms operating in the same industry. Small but significantly negative abnormal returns are shown by industry shares upon initial announcements of common stock, convertible debt, and straight debt public offerings. Such an industry response indicates that share prices incorporate an inside assessment of factors relevant to the valuation of an industry subset of firms. RESEARCH INTO THE VALUATION effects of corporate security offerings to the public indicate that announcements of these financing events can convey new information to investors. Significant negative share price reactions have been documented for offering announcements of common stock and securities convertible into common stock. Response to offering announcements of nonconvertible securities is typically negative but not statistically significant. Researchers generally agree that these reactions reflect more than the direct effects of the financing on the issuing firm's cash flows. Rather the announcement of an impending public offering seems to communicate unfavorable inside information about the announcing firm's value.1 Several studies provide theoretical underpinning for this interpretation. Miller and Rock (1985) present a model in which unanticipated security sales indicate that earnings are lower than expected. Myers and Majluf (1984) argue that managers have incentive to exploit their inside information

This paper finds that the generally favorable assessment of corporate sell-off decisions is most apparent for closely held firms where insider net-buy activity is prevalent during the prior six-month period. This suggests that insider trader activity and ownership structure information are used by the market in the characterization of sell-off decisions as favorable or unfavorable for investors. A NUMBER OF RECENT studies document the generally positive valuation effects of voluntary announcements to sell all or part of a corporation's assets. (See Hite and Owers (1983), Alexander, Benson, and Kampmeyer (1984), and Jain (1985).) Hite, Owers, and Rogers (1987) suggest that these results may be due to inefficiencies in the current operating policies and/or organizational structure of divesting firms. Like Klein (1986), they interpret these findings as supportive of the view that asset sales are associated with the movement of economic resources to higher valued uses. Interestingly, Tehranian, Travlos, and Waegelein (1987) find that divesting firms with long-term compensation plans experience a more favorable sell-off announcement effect than do firms without such methods of compensation. These results support the hypothesis that long-term compensation plans motivate managers to make better sell-off decisions. Tehranian, Travlos, and Waeglein's (1987) results also support the hypothesis that sell-off decisions made by firms employing long-term compensation plans are viewed by the market as more likely to be compatible with stockholder interests. This paper considers whether investors similarly regard the recent pattern of insider trading activity and the ownership structure of the firm as a useful context or backdrop for evaluating corporate sell-off decisions. We extend research by Penman (1985), for example, who evaluates the information content of managements' earnings forecasts within the context of insider buy/sell decisions. Penman (1985) finds consistently positive daily mean abnormal returns when high management earnings forecasts are accompanied by high levels of insider netbuy activity. High management earnings forecasts unaccompanied by positive insider trading activity result in lower, but still significant, mean returns. Forecasts of low expected earnings have no significant impact on returns, irrespective of the level of concurrent insider trading activity. Penman (1985) interprets these results as suggesting that both the pattern of insider trading activity and the

The ownership of pension assets in a defined benefit pension plan is an unresolved issue in corporate finance. The issue is important because it defines the appropriate investment policy for a pension fund. In this paper, we summarize the ownership debate in the form of two mutually exclusive theories. We then focus on a recently popular event in pension finance, excess asset reversions. Our paper demonstrates the valuation effects associated with this event in a stochastic dominance framework. Under certain conditions, a reversion constitutes an expropriation of wealth from the participants and beneficiaries of the plan to the firm. Using data provided by the Pension Benefit Guaranty Corporation and the Center for Research in Security Prices tape, we examine the returns to the shareholders of 58 companies which conducted excess asset reversions between 1980 and 1984. Our results show that large abnormal returns accrued to these shareholders around the time of the reversion. These findings have implications both for the appropriate investment policy of pension funds and for public policy with respect to plan terminations.

This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment. RECENT STUDIES ON CORPORATE takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms.1 Substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals. The existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers' acquisition motivations. Nevertheless, the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue. It is observed, however, that mergers are usually common stock exchange offers whereas tender offers are usually cash offers. Given that different methods of financing a project have different signalling implications (Myers and Majluf [39]), the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing.

While there has been an abundance of empirical research on the subject of mergers and acquisitions, little research exists on a closely related topic—voluntary corporate selloffs. This study examines the effect on shareholder wealth of the announcement by management of an investment decision to voluntarily sell part of its operations to another firm. Positive abnormal returns are found to occur on the announcement date. However, it is found that such selloffs generally occur after a period of abnormally negative returns, suggesting the announcement is preceded by the release of negative information about the firm.