No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Managerial Performance, Tobin''s Q, and the Gains from Successful Tender Offers
Abstract
For a sample of successful tender offers, we find that the shareholders of high q bidders gain significantly more than the shareholders of low q bidders. In general, the shareholders of low q targets benefit more from takeovers than the shareholders of high q targets. Typical bidders have persistently low q ratios prior to the acquisition announcement while target q ratios decline significantly over the five years before the tender offer. Our results are consistent with the view that takeovers of poorly managed targets by well-managed bidders have higher bidder, target, and total gains.
... Firm value is measured using Tobin's Q. It is the ratio between the market value of the firm's assets and the replacement value of those assets (Lindenberg & Ross, 1981), which indicates the success and accounting value of a firm in the present business world (Lang et al., 1989;Jeewantha et al., 2019). Lang et al. (1989) emphasized that a firm with Tobin's Q value greater than 1 indicates that management has performed well with the assets under its command. ...
... It is the ratio between the market value of the firm's assets and the replacement value of those assets (Lindenberg & Ross, 1981), which indicates the success and accounting value of a firm in the present business world (Lang et al., 1989;Jeewantha et al., 2019). Lang et al. (1989) emphasized that a firm with Tobin's Q value greater than 1 indicates that management has performed well with the assets under its command. ...
Corporate Social Responsibility (CSR) is a critical indicator for bridging corporately responsible behavior and stakeholder inclusion towards achieving long-term development. While stakeholder and reputation-building theories suggest that CSR can affect organizational performance, slack resource theory proposes organizational performance can affect CSR. Accordingly, it indicates that CSR initiatives and firm performance have a bidirectional relationship. Despite many unidirectional studies conducted to examine CSR and firm performance interplay in diverse contexts, studies on bidirectional analyses to test contrasting theoretical standpoints in a single study are rare. However, examining the bi-directional role of CSR is crucial as it provides insights into using CSR as a strategic investment decision within the competitive organizational context. Therefore, this study aims to examine the relationship between CSR and market-based performance as a bidirectional study from an emerging country perspective. Study data was collected from the sustainability/CSR disclosures in annual reports published between 2011 and 2020 by the top hundred companies (identified based on market capitalization) listed on the Colombo Stock Exchange (CSE) in Sri Lanka using judgmental sampling. The CSR was measured using a weighted CSR score assessed based on a comprehensive CSR index with thirty sub-dimensions. Market-based performance was measured using earnings per share (EPS) and firm value, and the control variables were firm size and leverage. The data was analyzed in two phases to examine the two-way linkage between CSR and market-based performance using the fixed effect panel regression technique. The findings concluded that CSR positively impacts market-based performance, confirming the role of CSR as a strategic driver to enhance future profitability. However, the study could not find any bidirectional impact of market-based performance on CSR in an emerging context. Although higher CSR affects higher external performance, higher market-based performance does not affect increased CSR in Sri Lanka. It may be because external performance indicators represent only the future profitability of firms, and these indicators are generally highly volatile over a long period, especially in emerging countries like Sri Lanka.
... Further to see the variations in stock price movements, stock price return/(s) has been calculated. Singal (1996), Rosen (2006), Lang et al. (1989), Abhyankar (2005), Agrawal (1992) and Rau and Vermaelen (1998) [27,25,15,1,3,23] advocated that a widely used method to assess the success of a merger is to analyze the firm"s stock prices in the short term and long term and often compare it to an industry and economic benchmark. after the merger announcement) and medium term (2 months before and 2 months after the merger announcement) stock prices of the merged companies. ...
... Further to see the variations in stock price movements, stock price return/(s) has been calculated. Singal (1996), Rosen (2006), Lang et al. (1989), Abhyankar (2005), Agrawal (1992) and Rau and Vermaelen (1998) [27,25,15,1,3,23] advocated that a widely used method to assess the success of a merger is to analyze the firm"s stock prices in the short term and long term and often compare it to an industry and economic benchmark. after the merger announcement) and medium term (2 months before and 2 months after the merger announcement) stock prices of the merged companies. ...
... The bidder number influences acquirers' bargaining power in the deal (Coff, 2003) and was measured as the number of bidders involved. We controlled for deal attitude, coded as 1 if friendly and 0 if hostile, because the attitude can influence acquisition outcomes (Lang, Stulz, & Walkling, 1989). Since a large percentage of equity sought in acquisition may increase the concerns about the deal (Dikova et al., 2010), we controlled for the percentage sought in each acquisition. ...
... Since a large percentage of equity sought in acquisition may increase the concerns about the deal (Dikova et al., 2010), we controlled for the percentage sought in each acquisition. The tender offer deal may affect the evaluation and risk of the deal (Lang et al., 1989) and was controlled using a dummy coded as 1 for tender offer and 0 otherwise. Moreover, we controlled for cumulative abnormal return (CAR) around public announcement because the market reaction to the announced deal may influence deal completion and decision-making (Kumar, Dixit, & Francis, 2015;Luo, 2005). ...
Unlabelled:
Although cross-border acquisitions (CBAs) are prevalent, many such acquisitions fail to complete. This challenge is even more profound for emerging market MNEs (EMNEs). Drawing upon the vicarious learning theory, we argue that EMNEs can learn from inbound foreign acquirers through the latter's demonstration, professional services firms, and employees. This learning mechanism enables EMNEs to better deal with the complexity and uncertainty in various stages of acquiring foreign firms, thus increasing the completion rate of their outbound CBAs. We also suggest that the effectiveness of vicarious learning is further enhanced by the relatedness between inbound and outbound CBAs. Our analysis of 3599 outbound CBAs from 27 emerging economies during 2000-2018 shows that prior inbound CBAs completed in an emerging economy have a positive effect on the completion likelihood of outbound CBAs conducted by EMNEs from this economy. This positive effect becomes even stronger when the percentage of (1) inbound CBAs served by the EMNE's financial advisors, (2) inbound foreign acquirers that are in the same industry as the EMNE, and (3) inbound foreign acquirers that are from the same country as a focal outbound CBA's target country, is larger. These findings offer new insights into the inbound-outbound acquisition links and the internationalization process of EMNEs.
Supplementary information:
The online version contains supplementary material available at 10.1057/s41267-022-00583-x.
... Different theories have been developed about the optimal capital structure, or the leverage that maximizes the overall market value of a company [52,75,107,48,27,21]. Key theories include Modigliani and Miller's theory of irrelevance [89] (page 268, "Proposition I"), the trade-off theory [86,67,40,66,77], the pecking order theory [92,106,107] and the market timing theory [12,116]. Over time, many extensions and complementary perspectives have been proposed (e.g., [46] and [22]). ...
Why do companies choose particular capital structures? A compelling answer to this question remains elusive despite extensive research. In this article, we use double machine learning to examine the heterogeneous causal effect of credit ratings on leverage. Taking advantage of the flexibility of random forests within the double machine learning framework, we model the relationship between variables associated with leverage and credit ratings without imposing strong assumptions about their functional form. This approach also allows for data-driven variable selection from a large set of individual company characteristics, supporting valid causal inference. We report three findings: First, credit ratings causally affect the leverage ratio. Having a rating, as opposed to having none, increases leverage by approximately 7 to 9 percentage points, or 30\% to 40\% relative to the sample mean leverage. However, this result comes with an important caveat, captured in our second finding: the effect is highly heterogeneous and varies depending on the specific rating. For AAA and AA ratings, the effect is negative, reducing leverage by about 5 percentage points. For A and BBB ratings, the effect is approximately zero. From BB ratings onwards, the effect becomes positive, exceeding 10 percentage points. Third, contrary to what the second finding might imply at first glance, the change from no effect to a positive effect does not occur abruptly at the boundary between investment and speculative grade ratings. Rather, it is gradual, taking place across the granular rating notches ("+/-") within the BBB and BB categories.
... For the H1 and H2, the main dependent variable is Tobin's Q, which is a commonly used market-based measure of firm performance (e.g., Lang et al.,1989;Chung and Pruitt, 1994). ...
This paper examines whether the presence of a lead independent director improves firm performance and reduces financial misstatements. Using a sample of Fortune 1000 companies in the year 2013, we find that the effect of lead independent directors on firm performance hinges on CEO –Chair duality. For companies with CEO-Chair duality, the existence of a lead independent director is positively associated with improved firm performance as measured by Tobin’s Q. In contrast, we do not find a similar association for companies separating the CEO and board chair positions. In addition, we do not find an association between the existence of a lead independent director and the likelihood of misstatements. These results suggest that the existence of a lead independent director helps improve a company’s corporate governance.
... Similarly, the pre-merger performance of the target is one of the characteristics that affect the post-acquisition returns of acquirers. For instance, Lang et al. (1989) and Servaes (1991) posit that acquisition abnormal returns are larger when targets have low Tobin's Q ratios. Morck et al. (1990) find that announcement abnormal returns to the bidders are negatively correlated with the pre-announcement performance of the targets in non-banking industries. ...
Acquisitions constitute substantial corporate investments, often leading to changes in ownership and top management giving rise to possible conflicts of interest. The impacts of such conflicts following an acquisition are absorbed by the acquirer and are referred to as agency costs. This study focuses on exploring the influence of the target companies on changes in the post-acquisition agency costs of acquiring companies. A panel fixed effects model is used to analyze acquisitions that took place between 2008–09 and 2019–20. The study’s findings indicate that post-acquisition changes in the agency costs of acquirers significantly vary based on the presence of domestic and foreign promoters in the target company. Further promoter groups such as domestic promoters and foreign promoters contribute to conflicting interests, exacerbating post-acquisition agency costs. The monitoring role assumed by foreign promoters of target companies plays a pivotal part in reducing the post-acquisition agency costs of acquirers. Foreign promoters also positively influence post-acquisition profitability by adversely affecting operating expenses, suggesting that they mitigate agency costs by exerting control over management through the monitoring of debt, cash, and profitability. The post-acquisition utilization of the target’s cash reserves positively correlates with the operating expenses of the acquirer. It is observed that the acquisition of larger targets magnifies agency costs.
... Gains from M&A can be substantially attributed to variations in managerial performance between the acquiring and target companies. Lang et al. (1989) investigated the association between management performance and abnormal returns of bidding and target companies involved in M&A transactions. According to them, the acquisition of a poorly managed firm by a well-managed firm can result in value creation through the relocation and better utilization of resources. ...
Purpose
This study aims to examine in depth the impact of merger activities on banks in Saudi Arabia.
Design/methodology/approach
Event study, financial ratio and efficient frontier analyses with a mixture of parametric and non-parametric tests are used for the sample period 2016Q1–2022Q4.
Findings
Event study analysis shows that merging banks (bidders) have higher positive cumulative abnormal returns than merged banks (targets), indicating that investors believe that bidding banks will benefit the most from the merger strategy. It was also found that the efficiency measures of the combined banks of Saudi British Bank and Alawwal Bank deteriorated, while they improved for the combined banks of National Commercial Bank and Saudi American Bank in the post-merger period, confirming investors' views.
Research limitations/implications
Although the study focuses on the Saudi banking sector, its findings could be generalized to other banks in the region, as the Saudi banking sector is one of the largest in the Middle East region and is expected to grow further in the future.
Practical implications
The mere act of merging two banks does not guarantee the realization of cost synergies or efficiency gains. This research shows that mergers are not automatically cost-effective and that their success depends on good integration and restructuring strategies.
Originality/value
To the best of the author's knowledge, this is the first study to provide a comprehensive analysis of the short- and long-term impacts of merger activities in the Saudi banking sector.
... Firm value dihitung menggunakan perhitungan Tobin's Q (Brainard & Tobin, 1968). Nilai Tobin's q menggambarkan suatu kondisi peluang investasi yang dimiliki perusahaan (Lang, Stulz & Walkling, 1989), atau potensi pertumbuhan perusahaan (Tobin, 1969). Secara sederhana Tobin's q versi (Chung dan Pruitt, 1994) dapat diformulasikan secara matematis sebagai berikut: ...
This research was conducted to gain understanding and provide empirical evidence regarding the effect of earnings management and audit committee effectiveness on firm value with the control variable firm size. This study uses earnings management as a variable as measured by discretionary accruals and audit committee effectiveness as measured by the number of audit committee meetings. The discretionary accrual model used in this study uses the modified Jones model. In terms of the dependent variable, firm value is measured using the Tobins'Q. Firm size control variable is measured using total assets. The research sample used in this study were 90 companies listed on the Indonesia Stock Exchange. The research data used the period from 2012 to 2016 and was processed using the SPSS program for Windows version 22.0. The results of this study indicate that earnings management and audit committee effectiveness have a positive effect on firm value. Meanwhile, firm size has a significant negative effect on firm value.
... (2007). However, these results contradictory by Lang and al. (1989) and Doukas (1995), who report that acquirers with high Tobin's Q ratio have significantly higher returns than acquirers with low Tobin's Q ratio. Finally, the debt effect on the RAC is not significant. ...
This paper analyse bidder short-term returns of 86 takeovers bids that occur between 1997 and 2002 on the French market. Furthermore, the determinants of this performance are examined to improve understanding of the sources of value creation or destruction arising from M&A. The event study methodology is used to estimate bidder value creation. Two findings are shown in this study. First, we find strong evidence that the announcement of a takeover bid destructed of value for the bidder. Second, these results show that the relative size of the target and the announcement period transaction is associated with value destruction for the bidder.
... The firm with higher growth potential depicts its future ability to expand its workforce and increase production to generate a larger profit. Furthermore, according to Lang et al. [10], organizations with a Tobin's Q greater than 1.00 were considered to be better for investment prospects and suggested that management had performed well with the assets under its control. Therefore, Tobin's Q as market valuation can be used to summarize the firm's future performance. ...
The market valuation offers the opportunity to examine the firm performance, especially as the firm goes public. However, management often puts their interests above the interests of investors; therefore, management movement needs to be limited by a control mechanism that will reduce agency conflict. This paper develops an approach based on Tobin’s Q using the firm’s market value. The financial performance is proxied by Return On Asset (ROA). Based on the monitoring hypothesis that debt can be the control mechanism, the research results show that Tobin’s Q has a significant positive effect on ROA, but debt has the opposite effect on ROA. Tobin’s Q has a negative but not significant effect on the control mechanism. Finally, the control mechanism debt is shown to be unable to mediate between market valuation and the firm performance of the sample firm included in the SRI-KEHATI Stock Index over 2015–2019.
... These are some of the foundational topics in the literature in the market for corporate control. Specifically, the research in this cluster examines the effects on shareholder wealth of mergers in the United States (Franks et al., 1991;Jensen & Ruback, 1983), the United Kingdom (Franks & Harris, 1989), and other countries and also the role of factors such as the managerial control of voting rights (Grossman & Hart, 1988;Stulz, 1988), corporate focus (Comment & Jarrell, 1995), and Tobin's Q (Lang et al., 1989) in that relationship. Some other studies in the cluster also examine whether and how the adoption of takeover defenses (Bhagat & Jefferis, 1991;Comment & Schwert, 1995;Ryngaert, 1988) and antitakeover laws (Comment & Schwert, 1995;Szewczyk & Tsetsekos, 1992) affect the shareholder wealth. ...
This study presents an analysis of publication patterns and major themes in research on mergers and acquisitions in finance and accounting. We find that takeovers as mechanisms of governance, drivers of mergers, mechanisms of mergers, bank mergers, cross‐border mergers, shareholder wealth effects of mergers and related events, and the role of financial experts and ownership structure form major themes of research in the finance area, while in accounting area major themes are corporate governance and accounting outcomes, predicting takeovers and their outcomes, valuation, financial reporting and takeover decisions, and financial reporting and performance. This article is protected by copyright. All rights reserved.
... Tobin's q menunjukkan suatu kinerja manajemen dalam mengelola aset perusahaan. Nilai Tobin's q merupakan gambaran suatu peluang kondisi investasi yang dimiliki perusahaan (Lang, et al 1989) atau merupakan potensi pertumbuhan perusahaan (Tobin, 1969). ...
Penelitian ini dilakukan bertujuan untuk mengetahui pengaruh pengungkapan Corporate Social Responsibility (SCR) terhadap nilai perusahaan Badan Usaha Milik Negara (BUMN) pada sektor pertambangan yang terdaftar di Bursa Efek Indonesia. Data yang digunakan adalah data tiga perusahaan pertambangan pada periode 2013-2018. Acuan pengungkapan CSR dalam penelitian ini menggunakan pedoman Global Reporting Initiative (GRI) yang terdiri dari tiga Indikator yaitu indikator ekonomi, indikator lingkungan dan indikator sosial. Teknik analisis dalam penelitian ini menggunakan regresi linear berganda. Hasil pengujian secara parsial menunjukan bawah indikator lingkungan dan indikator sosial yang berpengaruh terhadap nilai perusahaan. Hasil uji secara simultan menunjukkan bahwa CSR memiliki pengaruh terhadap nilai perusahaan. Indikator sosial merupakan indikator yang memiliki pengaruh terbesar terhadap nilai perusahaan. Kata Kunci: nilai perusahaan, corporate social responsibility, indikator ekonomi, indikator lingkungan, indikator sosial
... Tobin's q adalah indikator untuk mengukur kinerja perusahaan dari sisi potensi nilai pasar suatu perusahaan, khususnya tentang nilai perusahaan, yang menunjukkan suatu performa manajemen dalam mengelola aktiva perusahaan. Nilai Tobin's q menggambarkan suatu kondisi peluang investasi yang dimiliki perusahaan (Lang et al., 1989), atau potensi pertumbuhan perusahaan (Brainard & Tobin, 1968) serta nilai Tobin's q juga dapat menggambarkan efektif dan efisiensi penggunaan seluruh sumber daya perusahaan berupa aset -aset yang dimiliki perusahaan. ...
The purpose of this study is to determine the effect of financial performance, managerial ownership and leverage on firm value. The variables in this study are Liquidity, Managerial Ownership and Leverage. Sampling using purposive sampling technique with certain criteria. Which resulted in a sample of 24 companies listed on the Indonesia Stock Exchange in 2016-2020. The analysis in this study uses panel data regression analysis with the results that Liquidity has a positive and significant effect on firm value and Managerial Ownership has a negative and insignificant effect on firm value, while Leverage has an effect on firm value. The results of the study show that firm value (Tobins'q) is influenced by the Cash Ratio (CR). The results of the second hypothesis, namely the t test (partial test) shows the value of the t-statistic CR 2.712511 with a probability value of 0.0078, then H0 is rejected. The results of the study show that firm value (Tobins'q) is negatively and insignificantly affected by Managerial Ownership. This is evidenced by the results of the t test (partial test) which shows the t-statistic value of KM -1.012049 with a probability value of 0.3138, then H0 is accepted. The results of the study show that the value of the company (Tobins'q) is positively and significantly affected by the Debt to Equity Ratio (DER). This is evidenced by the results of the t test (partial test) which shows the t-statistic value of DER 8.649084 with a probability value of 0.0000, then H0 is rejected.Keywords: likuidity, managerial ownership, leverage, firm value
... These are some of the foundational topics in the literature in the market for corporate control. Specifically, the research in this cluster examines the effects on shareholder wealth of mergers in the United States (Franks et al., 1991;Jensen & Ruback, 1983), the United Kingdom (Franks & Harris, 1989), and other countries and also the role of factors such as the managerial control of voting rights (Grossman & Hart, 1988;Stulz, 1988), corporate focus (Comment & Jarrell, 1995), and Tobin's Q (Lang et al., 1989) in that relationship. Some other studies in the cluster also examine whether and how the adoption of takeover defenses (Bhagat & Jefferis, 1991;Comment & Schwert, 1995;Ryngaert, 1988) and antitakeover laws (Comment & Schwert, 1995;Szewczyk & Tsetsekos, 1992) affect the shareholder wealth. ...
... The impact of Tobin's on M&A returns is inconclusive. Lang et al. (1989) report a positive impact of bidder Tobin's on returns, while (Wang & Xie, 2009) do not find a significant relationship between bidder returns and Tobin's . The book to market equity ratio negatively affects returns due to a higher risk of distress (Griffin & Lemmon, 2002). ...
This paper explores the role of bargaining ability in corporate mergers and acquisitions (M&As) by focusing on acquiring firms with ex-ante market power-powerful bidders. Drawing from a bargaining power theoretical stance, we argue that powerful bidders create value from M&A activity by paying comparatively lower premiums. We test our empirical proposition using a sample of 9327 M&A deals announced between 2004 and 2016 by bidders across 30 countries. Contrary to the stylized fact that bidders do not gain from M&A activity, we uncover evidence suggesting that powerful bidders pay lower bid premiums and, consequently, earn positive (and relatively higher) cumulative announcement returns (CARs) from M&A deals. On average, the mean returns to powerful bidders (1.3%) are at least twice those of their less powerful counterparts (0.6%). We identify ''low financial constraints'' as a potential channel through which higher bidder power translates to improved deal performance. Overall, our results provide new evidence on how industry dynamics, notably bargaining power, influences M&A outcomes.
... Tobin's Q formula determined the firm's value. This ratio evaluates and identifies state-owned business investment opportunities or growth potential (Lang et al., 1989). This ratio reflects the latest financial market calculation of the return on incremental investment. ...
... Prior literature suggests opportunistic managerial behavior as one of the leading causes of inefficient capital allocation (Chen et al., 2017;Opie et al., 2019). Agency theory suggests that managers are self-interested and may not always act in the best interests of shareholders due to agency and moral hazard problems (Eisdorfer et al., 2013;Jensen and Meckling, 1976;Lang et al., 1989), which may lead to capital allocation inefficiencies. For example, Eisdorfer et al. (2013) suggest that managers can deviate from the optimal capital allocation policy to increase the value of their portfolios. ...
Based on the social norms and structural theories of social capital, this study examines the relationship between community social capital and the firms’ capital allocation efficiency. We hypothesize and find that the community social capital of a firm's headquarter area has a negative and statistically significant impact on its capital allocation inefficiency, which is robust to alternative proxies for community social capital and capital allocation inefficiency, propensity score matching, and instrumental variable regressions. In addition, we find that the effect of community social capital is more pronounced for firms with poor internal ethical culture and weak network connections to outside executives and directors, implying that community social capital becomes important in these situations. This finding links prior social norms and networks literature to capital allocation studies in that the norms and networks components of community social capital discipline self‐interested managers’ behavior and reduce information asymmetry‐two channels of capital allocation efficiency. Overall, community social capital works as a compensatory monitoring and information transfer mechanism and improves the firms’ capital allocation efficiency. This article is protected by copyright. All rights reserved
... The effect of Tobin's q on returns is ambiguous, according to the existing studies. Lang et al., (1989) show that bidder returns increase with the bidder's Tobin's q and decrease with the target's Tobin's q, while Wang and Xie (2009) do not find any relation between bidder returns and Tobin's q of the bidder. Moeller, Schlingmann, and Stulz (2004) document the bidder size negative effect on the returns as larger bidders pay higher premiums. ...
We study the corporate governance portability from bidders to targets in Mergers and Acquisitions and its impact on bidder announcement returns. We find that the bidder’s cumulative abnormal returns are higher in acquisitions where the bidder’s corporate governance quality exceeds that of the target. This result suggests a positive valuation effect for bidder shareholders resulting from the portability of good firm corporate governance from bidders to targets. We also find that this effect is stronger when bidders are domiciled in countries with better corporate governance. The results pass several robustness tests, including alternative measures of firm corporate governance and different sample periods.
... Panel A of Table 11 presents results for H2 and H3. Columns (1)-(3) in this panel, examine whether more value can be created when the gap in the management practices between the acquirer and the target is large ( Lang et al., 1989 ). Using differences in our index between acquirers and targets, as well as the same controls and fixed effects (we cannot use acquirer fixed effects because our sample only has 344 observations), we end up with a coefficient that is positive and statistically significant, again consistent with Q-theory. ...
We study whether management practices determine merger and acquisition (M&A) success. We model management as an unobserved (latent) variable in a standard microeconomic model of the firm and derive firm-year management estimates. We validate these estimates against benchmark survey data on management practices and by using Monte Carlo simulation. We show that our measure is among the most important determinants of value creation in M&A deals, substantially increasing the predictive power of models that explain cumulative abnormal returns. Thus, we offer a measure of management practices that identifies the best-performing M&As. Our results are robust to the inclusion of acquirer fixed effects and many control variables, and to several other sensitivity tests. We identify the Q-theory as the key mechanism driving our results.
Existing research has suggested seemingly contradictory conclusions about the efficacy of impression management (IM) tactics. While a growing body of research highlights the potential benefits of IM, other studies imply that the effectiveness of these tactics in shaping stakeholder perceptions may be limited. Our study advances theory on IM by drawing upon expectancy violations theory to develop a contingency theory of IM efficacy. Concentrating on CEOs’ positive portrayal of merger and acquisition (M&A) activity, we hypothesize that the effectiveness of this IM tactic hinges on factors related to the communicator (CEO duality), context (acquisition foreshadowing), and audience (investor type). Our results indicate that investor reactions to CEOs’ positive portrayal are more favourable when M&A activity has been foreshadowed or when the institutional investor is transient. Conversely, reactions are less favourable for CEOs also serving as board chair. Our findings provide novel insights into IM theory, suggesting that potential expectancy violations associated with IM tactics could be shaped by the attributes of communicator, context, and audience.
em>This study uses a quantitative approach, in determining the sample of this study using non-probability sampling method with purposive sampling technique. The research data obtained were 21 consumer goods companies listed on the Indonesia Stock Exchange for the period 2015-2017, so the data obtained were 63. The data obtained were analyzed through outer and inner model tests, as well as hypothesis testing in PLS analysis. The results revealed that Intellectual Capital has an effect on Firm Value. There is an influence of Intellectual Capital on Corporate Governance. There is an influence of Corporate Governance on Company Value. And there is an influence of Intellectual Capital on Firm Value through Corporate Governance..</em
This study aims to examine sales, purchases, accounts receivable and payable have an effect on company performance. The population in this study are manufacturing companies listed on the IDX in 2014-2018. Sampling was carried out using purposive sampling method with the number of companies as many as 61 companies and a sample size of 60. The type of data used in this study is secondary data. The data collection method is done through a documentation approach. The data analysis technique used descriptive statistical analysis, classical assumption test, and multiple linear regression analysis with the help of SPSS. The results of this study indicate that sales to special parties have an effect on company performance, purchases to special parties have an effect on company performance, receivables to special parties have an effect on company performance and payable to special parties have an effect on company performance.Keywords: sales, purchases, accounts payable, receivables and company performance.
The paper examines the effect of Corporate Governance on profitability of Ashaka Cement Company in Nigeria. The variables studied were profitability as proxy of performance (dependent variable) and Corporate Governance proxies as (independent variables). Data was collected from secondary sources. Statistical tools employed were; Performance Trend Analysis and OLS regression. The Trend Analysis result suggests that, profitability was higher pre privatization, no remarkable improvement in profitability post privatization, government is the major consumer of cement product and unfavorable macroeconomic environment affects the general performance of the company. Inferential Statistics Result suggests that, minority ownership and percentage of non executive direct have positive and significant impact on profitability. However, total market value of shares, board size and privatization has negative and significant impact on profitability. The study concludes that, there are other factors affecting firm performance more than corporate governance and that post privatisation corporate governance has negative and significant impact on the profitability. The study recommends that, Nigerian government should ensure favorable macroeconomic environment, improve private sector activities, and allow the Company to create subsidiary in construction industry to increase demand for cement products. Foreign Investors should secure global cement market opportunities to justify investment and enhance companies' earnings. The findings may be useful to corporate stakeholders and government policy makers.
This study analyzes the merger-related hypotheses which are managerial overconfidence hypothesis, controlling shareholder interest hypothesis, synergy hypothesis, financial constraint hypothesis, and momentum hypothesis through long-term performance analysis of acquiring firms. As a result of empirical analysis, first, the three-year event-time buy-andhold excess return (BHAR) was about -10% for both the average and median values which is statistically significant. Second, through both calendar-time portfolio excess return and BHAR, we find that the stronger the management's overconfidence is, the lower the longterm performance is. On the other hand, in the case of mergers by horizontal combinations, there was a positive synergy effect. This means that the management overconfidence hypothesis, the financial constraint hypothesis, the momentum hypothesis of merger performance, and the synergy hypothesis are established. Despite the poor long-term performance of mergers between domestic companies, this study provides implications that the merger may be mainly due to unreasonable overconfidence of managers and short-term perspectives of management.
This study aims to provide empirical evidence regarding the effect of financial performance and corporate social responsibility disclosure as mediating the effect of environmental performance on firm value. The population of this study are companies that participate in the PROPER program established by the Ministry of Environment for the period 2018-2022, with a total sample that meets the criteria of 77 companies, so that a sample of 385 is obtained through purposive sampling method. Data collected using non-participant observation method. Hypothesis testing conducted in this study using the Partial Least Square (PLS) method with the SmartPLS 4.0 program tool. The results of the analysis provide evidence that environmental performance has no effect on firm value and corporate social responsibility disclosure, but has a positive effect on financial performance. Financial performance and corporate social responsibility disclosure have a positive effect on firm value. Financial performance mediates the indirect effect of environmental performance on firm value. Disclosure of corporate social responsibility does not mediate the indirect effect of environmental performance on firm value.
This empirical study investigates whether mandatory nonfinancial disclosure (NFD) impacts financial performance using the Hong Kong 2016 “Comply or Explain” mandatory ESG disclosure policy. We use a total of 4712 observations from balanced panel data obtained from combined sources: Refinitiv and manually collected databases from 2013 to 2020. We employ the difference-in-difference (DID) as an identification strategy to explore the average treatment effect on the treated (ATET) of mandatory ESG disclosure policy. The treatment group is dual-listed companies (A/H shares) from Hong Kong, and the control group is domestic-list-only companies (A shares) from Mainland China. The results suggest that a mandatory ESG disclosure policy positively affects corporate financial performance (Tobin’s Q). From heterogeneity analysis, we also find that mandatory disclosure varies across ownership status, economic development regions and industrial sectors. We find that Hong Kong’s 2016 "Comply or Explain" mandatory ESG disclosure policy positively impacts corporate financial performance. Our findings demonstrate the effectiveness of regulatory-driven nonfinancial information disclosure on corporate financial performance.
To what extent should investors be concerned about the personal behavior of the top managers of the companies they invest in? In a study published recently in the Journal of Financial Economics , the authors shed light on this question by examining the market responses to revelations of over 300 cases of personal misconduct by senior executives and directors, including episodes of domestic violence, DUIs, extramarital affairs, and public dishonesty. In so doing, they provide suggestive evidence of how “tone at the top” can affect corporate policy by way of its culture and how a manager's reputation spills over to that of the firm.
The authors' findings show that the companies employing these executives experienced meaningful financial and product market penalties following the disclosure of their unethical behavior. Following the revelation of an indiscretion, investors suffered immediate losses in shareholder wealth—on the order of 4% in cases involving CEOs—and the company's stock continued to underperform during the ensuing year, with total losses amounting to 12 %–14% of firm value. Such companies also tended to lose joint venture partnerships and major customers following these scandals, thereby forcing them into lower‐margin lines of business. The authors also find that such companies were more likely later to commit fraud and be targeted in shareholder class‐action lawsuits.
The offending managers themselves were disciplined by the labor market for their missteps in that they faced a higher likelihood of dismissal, and those who were retained earned around $400,000 less pay following the indiscretion. Nevertheless, it is notable that a majority of these executives were not fired, implying that their supervising boards felt they contributed more value to the firm than the damage they caused through their off‐the‐job behavior. Interestingly, the board members supervising these executives were also held accountable for managerial indiscretions in that they received less shareholder support in director elections following the scandals.
Cash is an important strategic asset for firms and scholars have a longstanding interest in the optimum level of a firm's cash holdings. In this study, we revisit the relationship between cash holdings and firm value by conducting a re-examination of Kim and Bettis , who hypothesized and found positive but decreasing marginal returns of cash. We argue and demonstrate that the regression model configuration of Kim and Bettis leads to distorted regression results. Once we adjust their regression model configuration, our results show that the benefits of cash do not diminish but instead increase with increasing cash holdings. In further analyses, we find indicative evidence that these results may be driven by firms with very high investment opportunities. We also employ a larger sample over a longer period of time to corroborate the time generalizability of our findings, we perform several checks to establish their robustness, and we discuss their theoretical implications.
This research aims to measure the impact on the value of banks in light of the integration of the application between the international financial reporting standards IFRS and the financial standards for sustainability accounting SASB, as well as measuring the performance indicators of the research sample banks, by means of the impact and correlation measurement model. Accordingly, the study was conducted on a sample of 20 Iraqi commercial and investment banks listed in the Iraq Stock Exchange for the period (2015-2021), that is, by 136 observations (bank/year). The research variables were measured based on the models developed by the previous literature, where the effect of applying the International Financial Reporting Standards IFRS was measured by means of financial performance indicators (return on assets - return on equity - financial leverage - company size (total assets) -the share profitability {before the year of application 2015 until 2021{. Hence, the variable of financial sustainability accounting standards, the percentage of disclosure of sustainability accounting information for commercial and investment banks was measured according to the standards of commercial banks FN-CB (14 indicators) and the standard of investment banks FN-IB (18 indicators). The dependent variable which is the value of the company, was measured using the measurement model (Tobin's Q) for the research sample companies (Sauaia & Junior, 2002). Additionally, the integration effect between the criteria for the two groups was measured by means of the multiple regression model, as well as the statistical methods to test the research hypotheses and knowing the size of the correlation and the coefficient of determination using both the statistical package for social sciences (SPSS v23) and the spreadsheet program (Excel). This study is significant because it showed that there is a correlation and impact between the integration of international financial reporting standards and financial sustainability accounting standards and the value of the company, and this correlation varies between positive and negative, strong and medium. Perhaps the reason for the inconsistency is due to the size of the company, its management, and the cultural awareness of investors, customers, and regulatory bodies.
This study considered how several aspects of corporate governance impact the financial performance of a few manufacturing companies in a developing country leading to sustainable innovations.
The foreign experience of state support for innovative activities of enterprises at both the macro and micro levels is discussed in the article.An important condition for the dynamic development of the country at the macro level is the accelerated introduction of modern innovative technologies in the economic, social and other spheres with the wide use of the achievements of science and technology.All rapidly developing spheres of public and state life of the country require close support of the reforms on the basis of modern innovative ideas, developments and technologies that ensure a quick and high-quality breakthrough of the country in this area of activity.State regulation of the economy and innovation processes on the macro level,according to scientists, is one of the main conditions for transferring the functioning of the economy to market relations. The main function of the state in the conditions of market relations is the protection of individual freedom, property and entrepreneurship. The government is obliged to work with the market in one harness.To overcome the crisis on the macro level, it is necessary to develop a strategy for maintaining and developing the scientific, technical and innovative potential of the country in the following areas: restructuring the scientific and technical potential in various sectors of the economy, taking into account the concentration of material, financial and intellectual resources; creation of a science and innovation property fund; development of a system for the use of leasing as an effective market mechanism for subjects of innovative activity; improving the mechanisms of the system for attracting bank loans to expand innovation and create conditions for the development of the capital market; creation in financial and industrial groups along with the system of consolidation of financial and production potentials of special innovation centers coordinating and implementing innovative projects; formation of an institute of developers of innovative projects from among scientific and technical workers, scientists and specialists; formation on the basis of funds supporting innovative activity, associations of funds with developed financial capital to help innovative projects; formation of a system for the targeted use of depreciation fund funds to finance activities related to R&D, experimental and other types of work, development of innovations, patenting of new solutions; improvements in tax legislation, which will increase innovation activity.In recent years, in the economically developed countries of the world, there has been a trend towards the widespread use of indirect stimulation methods on a par with direct ones. This is due to the fact that tax benefits involve much less intervention by the state in the economic life of an enterprise and they encourage already embodied actions, while subsidies only those that have yet to be implemented.An important role on the macro and micro level is played by tax incentives, which are used to develop the activities of enterprises that are aimed at stimulating scientific and technological progress and innovation.Some foreign countries use both types of tax discounts at the same time – both volumetric and incremental, but in relation to different types of expenses:in the USA, for private sector expenditures on fundamental research funding, the general incremental discount was supplemented by a volume discount of 20%;in France, newly established small and medium-sized companies are temporarily exempted from paying income tax or have a «tax holiday» with a reduction of 50% of the income tax they pay for the first five years of their activity;in Great Britain, the tax for innovative startups has been reduced from 20%to 1%.The experience of the USA, where the state encourages the interaction of enterprises and higher education institutions in the field of scientific and research work by providing tax benefits, should be used in Ukraine.Businesses provide necessary equipment to universities free of charge and are able to deduct the cost of this equipment from their gross income. This will make it possible to create powerful research centers on the basis of higher educational institutions of the country.In France, the state encourages personnel training:25% of the increase in personnel training costs are exempt from taxes;personnel training costs are not taxed at all if there is high unemployment.One of the methods that has the greatest value as a benefit is the accelerated depreciation method:in Germany, accelerated depreciation is applied in agriculture (up to 50% of the cost of equipment is written off in the first year, up to 80% in the first three years).Among the indirect economic measures of state regulation of innovative activity in the EU countries is the policy of industrial protectionism for the protection and implementation of innovations in the country.Keywords: state support, micro-macroeconomic aspect, innovation activity, strategy, world economy.
This study considered how several aspects of corporate governance impact the financial performance of a few manufacturing companies in a developing country leading to sustainable innovations. Nigeria was considered for the study since it is a fast-growing economy and the most populous country in Africa. Tobin's Q methods of analysis and purposive sampling techniques were utilized for analyzing the data gathered from annual reports of companies selected between 2011-2020. Both descriptive statistics and econometric analysis employing panel data techniques were used in the study. Results indicate that board independence and board size had substantial negative impact on Tobin's Q of manufacturing firms in Nigeria. The chapter reveales that audit committees should comprise people with the necessary accounting or finance knowledge and experience to embrace corporate governance procedures since they help interpret business performance in terms of Tobin's Q ratio.
We study whether the meteoric rise of boutique advisors in mergers and acquisitions (M&As) is justified by their buy‐side performance. We find that acquiring firms represented by boutique advisors generate superior short‐ and long‐run abnormal returns over those employing full‐service advisors. This effect is mainly prominent in private deals, interindustry mergers, and deals involving inexperienced acquirers, where valuation uncertainty tends to be higher. Overall, our results reflect that acquirer shareholders benefit from boutique investment banks' high level of industry expertise and independent advice, supporting the rising demand for their financial advisory services.
This study aims to examine the effect of corporate social responsibility, profitability, tax planning, and capital structure on firm value with managerial ownership as a moderating variable in manufacturing companies listed on the Indonesian Stock Exchange. This research is a quantitative research that uses secondary data. The population in this study are all manufacturing companies listed on the Indonesia Stock Exchange (IDX) in the 2018-2020 period. The research sample was selected using purposive sampling method, so that the samples obtained were 53 samples. The data was obtained through the official website of the Indonesian Stock Exchange and other related websites as well as by studying literature related to research issues, both printed and electronic media software (Statistical Package for Social Science) The results show that the independent variables, namely CSR, profitability, tax planning, and capital structure affect the dependent variable, namely firm value. The moderating variable, namely managerial ownership, is known to be able to moderate the effect of CSR, profitability, tax planning, and capital structure on firm value.
I study the effect of patent-infringement claims by patent trolls on acquisitions of small firms. Exploiting staggered adoption of state anti-patent troll laws, I find that the laws have two effects. First, the number of acquisitions of small firms declines after these laws are adopted. Second, the anti-troll laws increase the acquisition price for acquirers. The market reflects the increased cost of acquisition as measured by lower acquisition announcement returns. Large firms increase R&D after the adoption of state laws, replacing external innovation. Using a sample of acquisitions that are plausibly unaffected by the laws, I disentangle alternative explanations.
We investigate whether high-risk-taking firms choose to acquire low-risk-taking firms by paying higher premiums and how the governance environment – embedded in country legal institutions and ownership structures – affects the perceived valuation effect of such acquisitions. We find evidence of a higher perceived valuation effect from an M&A deal when a higher risk-taking firm acquires lower risk-taking targets, which we call risk-taking transfer. However, benefits from such perceived valuation effects go entirely to the targets. The valuation impact of risk-taking transfer is greater when bidders feature better ownership quality (lower fraction of closely held shares), and the acquirer country strongly protects investors’ rights. The results are stronger for vertical and cross-border M&As and when acquirers secure full control of targets.
We investigate the implications for serial entrepreneurs in terms of IPO valuation. Using the sample of 2,017 firms that went public in U.S. between 1998 and 2017, our findings show that the positive impact of board members’ entrepreneurial track record on the the valuation of IPO is more salient in young and mid-age firms. Moreover, small and medium-sized businesses benefit more from entrepreneurial expertise than large corporations. Finally, the relation between an established track record and IPO valuation is more significant for firms with venture capital backing.
We hypothesize that corporate takeover markets create significant constraints for short sellers. Both short sellers and corporate bidders often target firms with declining economic prospects. Yet, a target firm’s stock price generally increases upon a takeover announcement, resulting in losses for short sellers. Therefore, short sellers should require higher rates of return when the takeover likelihood is higher. Consistent with this prediction, the return predictability of monthly short interest increases with industry-level takeover probability and decreases as takeover defenses are implemented. Our results suggest that efficient takeover markets create trading frictions for short sellers and can therefore inhibit overall market efficiency.
This article investigates whether firms commit ex-ante to higher levels of investment transparency and the impact of transparency on stock returns and information asymmetry. We construct a novel measure of investment transparency based upon the extensiveness of profitability forecasts and cost disclosures in new project-level capital investment announcements. Using cross-sectional regression, we find that prior to announcement greater investment transparency is associated with lower information asymmetry. We further show that rather than reporting information strategically on a project-by-project basis, managers commit ex-ante to a disclosure policy that influences the disclosure level of new project announcements, and that a firm-level commitment to fuller disclosure reduces information asymmetry in the days surrounding the announcement. Using event study methodology, we also find that investors react more positively to announcements displaying greater investment transparency.
JEL Classification
G14, D83, G31, G30, G38
While the gains to acquirers in public mergers and aquisitions (M&A) tend to be small or non-existent, acquirers of unlisted targets have been a notable, robust exception. Prior studies often point to an illiquidity discount as the reason why these non-public targets are good deals for acquirers. This paper examines acquirer wealth gains and bid premia in M&A involving unlisted/listed firms over the past three decades. Our findings show that, while target listing status was a significant determinant of acquirer wealth gains and bid premium in early years, it no longer has significant shareholder wealth implications for either acquirers or targets in M&A. These results are consistent with recent studies that suggest a changing landscape in the public funding markets and an increased availability of alternative funding sources for unlisted firms.
We test the cash flow signalling and free cash flow/overinvestment explanations of the impact of dividend announcements on stock prices. We use Tobin's Q ratios less than unity to designate overinvestors. The average return associated with announcements of large dividend changes is significantly larger for firms with Q's less than unity than for other firms. This evidence, the results of further tests involving a finer partition of the data, and an analysis of changes in analysts' earning forecasts surrounding dividend announcements support the overinvestment hypothesis over the cash flow signalling hypothesis.
The market for corporate control is fundamentally changing the corporate landscape. Transactions in this market in 1985 were at a record level of $180 billion. These transactions involve takeovers, mergers, and leveraged buyouts. Closely associated are corporate restructurings involving divestitures, spinoffs, and large stock repurchases for cash and debt. The changes associated with these control transactions are causing considerable controversy. Some argue that takeovers are damaging to the morale and productivity of organizations and are therefore damaging to the economy. Others argue that takeovers represent productive entrepreneurial activity that improves the control and management of assets and helps move assets to more productive uses. The controversy has been accompanied by strong pressure on regulators and legislatures to enact restrictions that would curb activity in the market for corporate control. In the spring of 1985 there were over 20 bills under consideration in Congress that proposed new restrictions on takeovers. Within the past several years the legislatures of New York, New Jersey, Maryland, Pennsylvania, Connecticut, Illinois, Kentucky, and Michigan has passed antitakeover laws. The Federal Reserve Board entered the fray early in 1986 when it issued its controversial new interpretation of margin rules that restricts the use of debt in society. This paper analyzes the controversy surrounding takeovers and provides both theory and evidence to explain the central phenomena at issue. The paper is organized as follows. Section 2 contains basic background analysis of the forces operating in the market for corporate control -- analysis which provides an understanding of the conflicts and issues surrounding takeovers and the effects of activities in this market. Section 3 discusses the conflict between managers and shareholders over the payout of free cash flow and how takeovers represent both a symptom and a resolution of the conflict. Sections 4, 5, and 6 discuss the relatively new phenomena of, respectively, junk-bond financing, the use of golden parachutes, and the practice of greenmail. Section 7 analyzes the problems the Delaware court is having in dealing with the conflicts that arise over control issues and its confused application of the business judgment rule to these cases. The following topics are discussed: - The reasons for takeovers and mergers in the petroleum industry and why they increase efficiency and thereby promote the national interest. - The role of debt in bonding management's promises to pay out future cash flows, to reduce costs, and to reduce investments in low-return projects. - The role of high-yield debt (junk bonds) in helping to eliminate mere size as a takeover deterrent. - The effects of takeovers on the equity markets and claims that managers are pressured to behave myopically. - The effects of antitakeover measures such as poison pills. - The misunderstandings of the important role that golden parachutes play in reducing the conflicts of interests associated with takeovers and the valuable function they serve in alleviating some of the costs and uncertainty facing managers. - The damaging effects of the Delaware court decision in Unocal vs. Mesa that allowed Unocal to make a self-tender offer that excluded its largest shareholder (reverse greenmail). - The problems the courts are facing in applying the model of the corporation subsumed under the traditional business judgment rule to the conflicts of interest involved in corporate controversies.
Abnormal returns earned by target firms at the time of initial acquisition announcements are related to form of payment, degree of resistance, and type of offer. Results indicate that interdependence among these characteristics is important. Previous research suggests that tender-offer targets earn higher abnormal returns than merger targets. After controlling for payment method and degree of resistance, however, the difference in abnormal returns between tender offers and mergers is insignificant. Resisted offers are associated with insignificantly higher returns than unresisted offers. Abnormal returns associated with cash offers are significantly higher than those associated with stock offers.
This study attempts to assess differences in the financial characteristics of target and non-target firms using logit analysis and a case-control methodology in which control groups are matched by size or industry. The results indicate that unregulated non-financial target firms are characterized by low q ratios (market/replacement values) and to a lesser extent high current financial liquidity. Measures of financial leverage were not found to be significant.
We investigate the relationship between management ownership and market valuation of the firm, as measured by Tobin's Q. In a 1980 cross-section of 371 Fortune 500 firms, we find evidence of a significant nonmonotonic relationship. Tobin's Q first increases, then declines, and finally rises slightly as ownership by the board of directors rises. For older firms, there is evidence that Q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder.
It is increasingly recognized that Tobin's conjecture that investment is a function of marginal q is equivalent to the firm's optimal capital accumulation problem with adjustment costs. This paper formalizes this idea in a very general fashion and derives the optimal rate of investment as a function of marginal q adjusted for tax parameters. An exact relationship between marginal q and average q is also derived. Marginal q adjusted for tax parameters is then calculated from data on average q assuming the actual U.S. tax system concerning corporate tax rate and depreciation allowances.
Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.
This paper documents that a successful tender offer increases the combined value of the target and acquiring firms by an average of 7.4%. We also provide a theoretical analysis of the process of competition for control of the target and empirical evidence that competition among bidding firms increases the returns to targets and decreases the returns to acquirers, that the supply of target shares is positively sloped, and that changes in the legal/institutional environment of tender offers have had no impact on the total (percentage) synergistic gains created but have significantly affected their division between the stockholders of the target and acquiring firms.
This paper reviews much of the scientific literature on the market for corporate control. The evidence indicates that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose. The gains created by corporate takeovers do not appear to come from the creation of market power. With the exception of actions that exclude potential bidders, it is difficult to find managerial actions related to corporate control that harm shareholders. Finally, we argue the market for corporate control is best viewed as an arena in which managerial teams compete for the rights to manage corporate resources.
Riklis Chair in Business and Associate Professor of Finance, The Ohio State University, and Assistant Professor of Finance, San Diego State University, respectively. We are grateful to Anup Agrawal, Warren Bailey, John Byrd, K. C. Chan, Larry Dann, Harry DeAngelo, Mike Fishman, Gerald Garvey, Rob Heinkel, Mike Jensen, Gregg Jarrell, Jon Karpoff, Mike Long, Francis Longstaff, Wayne Marr, David Mayers, Wayne Mikkelson, Patricia Reagan, Richard Ruback, Andrei Shleifer, Bill Schwert, Rex Thompson, and Mark Wolfson for useful discussions and comments, to participants at sessions at the American Finance Association and the Western Finance Association, and to the seminar participants at Harvard University, Indiana University, the Ohio State University, Southern Methodist University, the University of Rochester, and the Washington State University for helpful comments.
In the 1980s, the market for corporate control has been increasingly active, and the quantity of output of academic researchers studying corporate control questions has mirrored the market activity. This review examines the returns to bidders and targets, and the effects of defending against hostile takeovers.
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 a nd cash offers. The results are independent of the type of takeover b id, i.e., merger or tender offer, and of bid outcomes. These findings supported by analysis of nonconvertible bonds, are attributed mainl y to signaling effects and imply that the inconclusive evidence of ea rlier studies on takeovers may be due to their failure to control for the method of payment. Copyright 1987 by American Finance Association.
Lawrence R. Klein pioneered the work on aggregation, in particular in production functions, in the 1940s. He paved the way for researchers to establish the conditions under which a series of micro production functions can be aggregated so as to yield an aggregate production function. This work is fundamental in order to establish the legitimacy of theoretical (neoclassical) growth models and empirical work in this area (e.g., growth accounting exercises, econometric estimation of aggregate production functions). This is because these models depend on the assumption that the technology of an economy can be represented by an aggregate production function, i.e., that the aggregate production function exists. However, without proper aggregation one cannot interpret the properties an aggregate production function. The aggregation literature showed that the conditions under which micro production functions can be aggregated so as to yield an aggregate production function are so stringent that it is difficult to believe that actual economies can satisfy them. These results question the legitimacy of growth models and their policy implications. Scientifi c work cannot proceed as if production functions existed. For this reason, the profession should pause before continuing to do theoretical and applied work with no sound foundations and dedicate some time to studying other approaches to estimating the impact of economic policies in order to understand what questions can legitimately be posed to the empirical aggregate data. Lawrence R. Klein fue uno de los pioneros del campo de la agregaci�n, en particular en el �rea de las funciones de producci�n, durante la d�cada de los 40. Sus contribuciones ayudaron a defi nir el problema de la agregaci�n para que investigadores posteriores establecieran formalmente las condiciones formales bajo las que funciones de producci�n microecon�micas con propiedades neocl�sicas pudieran ser agregadas con el fi n de generar una funci�n
The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows--more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidation-motivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.
Tobin's q, agency costs and corporate control: An empirical analysis of firm-specific parameters, Unpublished working paper
- Servaes
- Henri
Servaes, Henri, 1988, Tobin's q, agency costs and corporate control: An empirical analysis of firm-specific parameters, Unpublished working paper (Purdue University, West Lafayette, IN).
Tobin's q, agency costs and corporate control: An empirical analysis of firm-specific parameters
- Henri Servaes
Servaes, Henri, 1988, Tobin's q, agency costs and corporate control: An empirical analysis of
firm-specific parameters, Unpublished working paper (Purdue University, West Lafayette, IN).
Agency costs of free cash flow, corporate finance, and the market for takeovers, Amen,ran
- Michael Jensen
Jensen, Michael, 1986a. Agency costs of free cash flow, corporate finance, and the market for
takeovers, Amen,ran Economic Review 76, 323-329.