We investigate the takeover strategies of high default risk acquirers and their value impact. We ... more We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this subset of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.
We provide a crosscountry evidence on the impact of corporate and personal income taxes, and corp... more We provide a crosscountry evidence on the impact of corporate and personal income taxes, and corporate governance systems on debt maturity structures and leverage using a comprehensive sample of 212,642 firm-year observations based on a sample of 19,573 firms from 24 OECD countries over the period 1990 to 2015. We find longer debt maturities, higher leverage, and, in a dynamic setting, a greater propensity to decrease short-term debt, in countries with high investor protection and where the potentials for debt tax shields and after-tax return of investors are high. Our results imply that when investors are protected, firms tend to have optimal debt maturities to maximise the gains from tax shields and minimise the tax cost of equity. In contrast, in low protection countries, investors prefer their firms to opt for low debt that is mainly short-term to mitigate the risk-shifting and debt overhang problems even if this entails forgoing the debt tax shields. Our results hold for various robustness checks including the hierarchical linear model specification, which corrects for a number of OLS biases.
Corporate governance guidelines in many countries do not specify the determinants of non-executiv... more Corporate governance guidelines in many countries do not specify the determinants of non-executive director compensation and the empirical evidence has only briefly and indirectly addressed this issue. We show that this question is fundamentally complex because (a) whilst the roles of non-executive directors are relatively well stated, their actual contributions remain unclear, (b) governance codes have not discussed the ways in which non-executive directors should undertake their roles and (c) non-executive director contribution may be unobservable. As a result, their efforts, contribution and/or performance are difficult to measure. Nevertheless, we find the literature related to non-executive directors strongly supportive of some sort of remuneration that is a function of performance and effort to align non-executive directors with their duties and make boards more efficient in undertaking their duties.
I analyze the tax systems and tax reforms in Germany and the U.K. and test the hypothesis that ex... more I analyze the tax systems and tax reforms in Germany and the U.K. and test the hypothesis that ex-day returns are related to each country's tax differential between dividends and capital gains. The results indicate that in the U.K., where this tax differential is high and short-term trading is regulated, ex-day returns are higher, and the market microstructure and short-term trading impacts are weak. In contrast, in Germany, the tax impact is mitigated by short-term trading and market microstructure effects. The results suggest that despite their dividend tax similarities, the institutional differences between the two countries lead to different determinants of ex-day returns.
We study the market valuation of bonus issues in an institutional environment of no taxation effe... more We study the market valuation of bonus issues in an institutional environment of no taxation effect. We find positive excess return on the announcement day and in the pre-ex-dividend dates and negative returns in the post-ex-day period. These abnormal returns are statistically related to the size of the bonus issue. The analysis of the abnormal trading volume is also consistent with the buying (selling) pressure before (after) the ex-dates, reflecting the increase in the supply of shares in a closely held market structure. The long-term liquidity measures indicate that the bonus issues increase the liquidity (market depth) of the stocks and the positive announcement effect provides evidence for the enhanced liquidity expectation.
This paper assesses the market valuation of an unusual form of free stock distributions called bo... more This paper assesses the market valuation of an unusual form of free stock distributions called bonus issues which are mainly financed by the revaluations of assets equity reserve in an inflationary economic setting. We detect positive excess return on the announcement day for these bonus issues similar to the market reaction to stock dividends and splits in developed and emerging markets. In an institutional environment where cash dividend substitution effect, agency cost effect, transaction cost effect and retained earnings effect are not present, we find empirical support for the enhanced liquidity hypothesis, but interestingly, no support for the attention getting hypothesis and the signaling hypothesis which is the predominant explanation for the positive market reaction to the stock distributions in developed capital markets. We also provide a unique explanation for bonus issues as corporations need to increase their eroding paid-in capital in an inflationary environment in order to have a better debt to paid-in capital ratio for more credibility and borrowing capacity in a market of limited access to external equity financing.
Using the agency framework, I test the hypotheses that boards of directors are either shareholder... more Using the agency framework, I test the hypotheses that boards of directors are either shareholders' or managements' agents by identifying determinants of the number of full boards of directors' meetings. Without any external requirement, boards of the UK's largest listed firms consistently choose to have fewer full board meetings and are choosing common frequencies for their meetings. My results show that firm financial factors (e.g. performance) affect the number of board meetings, however, I find stronger negative correlations for non-financial factors on the number of full board meetings (e.g. the addition of foreign non-executive directors strongly influences fewer board meetings). I suggest that a trade-off between increased advisory (diverse members) and reduced monitoring (fewer meetings) has occurred weakening the agency framework. 1.0.0. Introduction Marconi 2 plc's 1999 annual report noted: "The non-executive Directors meet with the Chairman and Chief Executive at least once a year to discuss a wide range of matters affecting the Company." i Marconi plc's 2000 annual report noted: "The non-executive Directors meet with the Chairman and Chief Executive at least twice a year to discuss a wide range of matters affecting the Company….." ii How frequently should the board of directors of a large public corporation meet? The board of directors, in theory, provides an internal governance mechanism that is expected to mitigate the agency conflict between managers and shareholders (Fama and Jensen (1983)). However, empirical evidence provided to date on the role, composition, and functioning of the board is mixed with literature surveys on the effectiveness of the board illustrating conflicting results and demonstrating the lack of consensus on what the board does contribute (John and Senbet (1998), and more recently, Hermalin and Weisbach (2003)); the literature, at best, is inconclusive on the value added of the board. Yet the board is the most visible form of corporate governance and is clearly established in UK law and commercial practice. 1 The author thanks his supervisor and friend, Professor Meziane Lasfer, Cass Business School, for his guidance and comments. 2 During the year financial years 1998-2000, General Electric Company plc, one of the twenty largest listed firms in the United Kingdom, sold its largest revenue and profit generating businesses, primarily in the defence industry, and made substantial speculative acquisitions adding to its existing telecommunications and technology businesses renaming itself Marconi plc. Marconi plc defaulted in 2001.
In this paper we analyze the monitoring role of different types of shareholder groups in the UK. ... more In this paper we analyze the monitoring role of different types of shareholder groups in the UK. We relate the objectives, structure and overall share holding of each shareholder group to their incentives to monitor companies in which they hold large stakes. We find that shareholder groups are not homogeneous in their investment style. In addition, our results show that some group of shareholders monitor companies in which they hold large stakes while others actually reduce value. Our results are consistent with the hypothesis that some shareholders are pressure-resistant while others are pressure-sensitive.
In this paper we document a significant decrease in the ownership structure of a large sample of ... more In this paper we document a significant decrease in the ownership structure of a large sample of companies in the UK over the last decade. We analyze the reasons for such changes and show that the increase in firm size and risk and the decrease in firm's performance have lead managers, pressure-resistant, pressure-sensitive and other investors to reduce their stakes in our sample firms. We also find that the dilution of ownership through new issues rather than sales of stakes is the main reason for the decrease in management ownership and the holdings of pressure-resistant investors. We report that the fundamental determinants of ownership structure has not shifted in the 1990s but the relationship between firm value and ownership structure became weak or negative in the late 1990s.
We analyze the time-series distribution of large blockholders and managerial ownership in the UK ... more We analyze the time-series distribution of large blockholders and managerial ownership in the UK over the last decade. We find a significant decrease in the size of block ownership of a large number of companies. We show that the increase in firm's size and risk and the decrease in performance explain a large proportion of this change. We also find that the dilution of ownership through new issues rather than sales of stakes are the main reasons for the decrease in management ownership and the holdings of pressure-resistant investors, such as fund managers and pension funds. Overall, our results are consistent with the contractual hypothesis as companies appear to consider ownership by different categories as substitute means of resolving agency conflicts.
In this paper we analyse why French companies issue units when they raise additional capital. We ... more In this paper we analyse why French companies issue units when they raise additional capital. We find that over the last decade nearly a quarter of companies had units seasoned equity offerings. We show that the vast majority of companies that offer the units are from the secondary or New market, the two markets for smaller companies. Our results also show that companies issues units when they have public offers but also when they have rights issues. In addition we find that firms chose unit offerings when there is a risk that the issue will not succeed and when the probability of the use of the proceeds is high. The results suggest that companies issue units to overcome the costs of normal public offerings.
We investigate the takeover strategies of high default risk acquirers and their value impact. We ... more We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this subset of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.
We provide a crosscountry evidence on the impact of corporate and personal income taxes, and corp... more We provide a crosscountry evidence on the impact of corporate and personal income taxes, and corporate governance systems on debt maturity structures and leverage using a comprehensive sample of 212,642 firm-year observations based on a sample of 19,573 firms from 24 OECD countries over the period 1990 to 2015. We find longer debt maturities, higher leverage, and, in a dynamic setting, a greater propensity to decrease short-term debt, in countries with high investor protection and where the potentials for debt tax shields and after-tax return of investors are high. Our results imply that when investors are protected, firms tend to have optimal debt maturities to maximise the gains from tax shields and minimise the tax cost of equity. In contrast, in low protection countries, investors prefer their firms to opt for low debt that is mainly short-term to mitigate the risk-shifting and debt overhang problems even if this entails forgoing the debt tax shields. Our results hold for various robustness checks including the hierarchical linear model specification, which corrects for a number of OLS biases.
Corporate governance guidelines in many countries do not specify the determinants of non-executiv... more Corporate governance guidelines in many countries do not specify the determinants of non-executive director compensation and the empirical evidence has only briefly and indirectly addressed this issue. We show that this question is fundamentally complex because (a) whilst the roles of non-executive directors are relatively well stated, their actual contributions remain unclear, (b) governance codes have not discussed the ways in which non-executive directors should undertake their roles and (c) non-executive director contribution may be unobservable. As a result, their efforts, contribution and/or performance are difficult to measure. Nevertheless, we find the literature related to non-executive directors strongly supportive of some sort of remuneration that is a function of performance and effort to align non-executive directors with their duties and make boards more efficient in undertaking their duties.
I analyze the tax systems and tax reforms in Germany and the U.K. and test the hypothesis that ex... more I analyze the tax systems and tax reforms in Germany and the U.K. and test the hypothesis that ex-day returns are related to each country's tax differential between dividends and capital gains. The results indicate that in the U.K., where this tax differential is high and short-term trading is regulated, ex-day returns are higher, and the market microstructure and short-term trading impacts are weak. In contrast, in Germany, the tax impact is mitigated by short-term trading and market microstructure effects. The results suggest that despite their dividend tax similarities, the institutional differences between the two countries lead to different determinants of ex-day returns.
We study the market valuation of bonus issues in an institutional environment of no taxation effe... more We study the market valuation of bonus issues in an institutional environment of no taxation effect. We find positive excess return on the announcement day and in the pre-ex-dividend dates and negative returns in the post-ex-day period. These abnormal returns are statistically related to the size of the bonus issue. The analysis of the abnormal trading volume is also consistent with the buying (selling) pressure before (after) the ex-dates, reflecting the increase in the supply of shares in a closely held market structure. The long-term liquidity measures indicate that the bonus issues increase the liquidity (market depth) of the stocks and the positive announcement effect provides evidence for the enhanced liquidity expectation.
This paper assesses the market valuation of an unusual form of free stock distributions called bo... more This paper assesses the market valuation of an unusual form of free stock distributions called bonus issues which are mainly financed by the revaluations of assets equity reserve in an inflationary economic setting. We detect positive excess return on the announcement day for these bonus issues similar to the market reaction to stock dividends and splits in developed and emerging markets. In an institutional environment where cash dividend substitution effect, agency cost effect, transaction cost effect and retained earnings effect are not present, we find empirical support for the enhanced liquidity hypothesis, but interestingly, no support for the attention getting hypothesis and the signaling hypothesis which is the predominant explanation for the positive market reaction to the stock distributions in developed capital markets. We also provide a unique explanation for bonus issues as corporations need to increase their eroding paid-in capital in an inflationary environment in order to have a better debt to paid-in capital ratio for more credibility and borrowing capacity in a market of limited access to external equity financing.
Using the agency framework, I test the hypotheses that boards of directors are either shareholder... more Using the agency framework, I test the hypotheses that boards of directors are either shareholders' or managements' agents by identifying determinants of the number of full boards of directors' meetings. Without any external requirement, boards of the UK's largest listed firms consistently choose to have fewer full board meetings and are choosing common frequencies for their meetings. My results show that firm financial factors (e.g. performance) affect the number of board meetings, however, I find stronger negative correlations for non-financial factors on the number of full board meetings (e.g. the addition of foreign non-executive directors strongly influences fewer board meetings). I suggest that a trade-off between increased advisory (diverse members) and reduced monitoring (fewer meetings) has occurred weakening the agency framework. 1.0.0. Introduction Marconi 2 plc's 1999 annual report noted: "The non-executive Directors meet with the Chairman and Chief Executive at least once a year to discuss a wide range of matters affecting the Company." i Marconi plc's 2000 annual report noted: "The non-executive Directors meet with the Chairman and Chief Executive at least twice a year to discuss a wide range of matters affecting the Company….." ii How frequently should the board of directors of a large public corporation meet? The board of directors, in theory, provides an internal governance mechanism that is expected to mitigate the agency conflict between managers and shareholders (Fama and Jensen (1983)). However, empirical evidence provided to date on the role, composition, and functioning of the board is mixed with literature surveys on the effectiveness of the board illustrating conflicting results and demonstrating the lack of consensus on what the board does contribute (John and Senbet (1998), and more recently, Hermalin and Weisbach (2003)); the literature, at best, is inconclusive on the value added of the board. Yet the board is the most visible form of corporate governance and is clearly established in UK law and commercial practice. 1 The author thanks his supervisor and friend, Professor Meziane Lasfer, Cass Business School, for his guidance and comments. 2 During the year financial years 1998-2000, General Electric Company plc, one of the twenty largest listed firms in the United Kingdom, sold its largest revenue and profit generating businesses, primarily in the defence industry, and made substantial speculative acquisitions adding to its existing telecommunications and technology businesses renaming itself Marconi plc. Marconi plc defaulted in 2001.
In this paper we analyze the monitoring role of different types of shareholder groups in the UK. ... more In this paper we analyze the monitoring role of different types of shareholder groups in the UK. We relate the objectives, structure and overall share holding of each shareholder group to their incentives to monitor companies in which they hold large stakes. We find that shareholder groups are not homogeneous in their investment style. In addition, our results show that some group of shareholders monitor companies in which they hold large stakes while others actually reduce value. Our results are consistent with the hypothesis that some shareholders are pressure-resistant while others are pressure-sensitive.
In this paper we document a significant decrease in the ownership structure of a large sample of ... more In this paper we document a significant decrease in the ownership structure of a large sample of companies in the UK over the last decade. We analyze the reasons for such changes and show that the increase in firm size and risk and the decrease in firm's performance have lead managers, pressure-resistant, pressure-sensitive and other investors to reduce their stakes in our sample firms. We also find that the dilution of ownership through new issues rather than sales of stakes is the main reason for the decrease in management ownership and the holdings of pressure-resistant investors. We report that the fundamental determinants of ownership structure has not shifted in the 1990s but the relationship between firm value and ownership structure became weak or negative in the late 1990s.
We analyze the time-series distribution of large blockholders and managerial ownership in the UK ... more We analyze the time-series distribution of large blockholders and managerial ownership in the UK over the last decade. We find a significant decrease in the size of block ownership of a large number of companies. We show that the increase in firm's size and risk and the decrease in performance explain a large proportion of this change. We also find that the dilution of ownership through new issues rather than sales of stakes are the main reasons for the decrease in management ownership and the holdings of pressure-resistant investors, such as fund managers and pension funds. Overall, our results are consistent with the contractual hypothesis as companies appear to consider ownership by different categories as substitute means of resolving agency conflicts.
In this paper we analyse why French companies issue units when they raise additional capital. We ... more In this paper we analyse why French companies issue units when they raise additional capital. We find that over the last decade nearly a quarter of companies had units seasoned equity offerings. We show that the vast majority of companies that offer the units are from the secondary or New market, the two markets for smaller companies. Our results also show that companies issues units when they have public offers but also when they have rights issues. In addition we find that firms chose unit offerings when there is a risk that the issue will not succeed and when the probability of the use of the proceeds is high. The results suggest that companies issue units to overcome the costs of normal public offerings.
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