http://hdl.handle.net/2451/25929 Search the Channel search http://archive.nyu.edu/simple-search http://hdl.handle.net/2451/26719 Title: WHY ARE DIVIDENDS DISAPPEARING? AN EMPIRICAL ANALYSIS<br/><br/>Baker, Malcolm; Wurgler, Jeffrey<br/><br/>Abstract: We investigate the causes of time-series fluctuations in the propensityto pay dividends,including the post-1978 decline documented by Fama andFrench (2001). We consider explanations based on fluctuations individend clienteles, agency problems, information asymmetries, executivestock options, catering incentives, tax code awareness, and short-livedidiosyncratic factors. To evaluate these explanations, we conduct threestyles of analysis. First, we count and classify influences on thepropensity to pay that were noted in the financial press. Second, weexamine time-series relationships between the propensity to pay andproxies for the driving influences in the candidate explanations. Third,we assess whether the candidate explanations are theoreticallycompatible with related time-series patterns involving dividend policy.Overall, the results are most consistent with the catering explanation.Notably, catering incentives,as measured by the stock market&quot;dividend premium,&quot; roughly line up with the four trends inthe propensity to pay between 1963 and 2000 and are able to account forthe observed magnitude of the post-1978 decline. There is also evidencethat idiosyncratic factors, including the Nixon-era dividend controlsand the recent growth in options, affected the propensity to pay inspecific periods. Wed, 13 Nov 2002 22:58:59 GMT http://hdl.handle.net/2451/26726 Title: VENTURE CAPITAL CONTRACTS AND MARKET STRUCTURE<br/><br/>Inderst, Roman; Mueller, Holger M.<br/><br/>Abstract: We examine the relation between optimal venture capital contracts andthe supply and demand for venture capital. Both the composition and typeof financial claims held by the venture capitalist and entrepreneurdepend on the market structure. Moreover, different market structuresinvolve different optimal forms of transferring utility: sometimes it isoptimal to transfer utility via equity stakes, sometimes it is optimalto use debt. Transferring utility via equity stakes affects incentives.Consequently, the net value created, the success probability, the market(or IPO) value, and the performance of venture-capital backedinvestments all depend on the supply and demand for capital. Similarly,venture capitalists face different incentives to screen projects ex anteif the capital supply is low or high. We then endogenize the capitalsupply and study the relation between venture capital contracts andentry costs, public policy, investment profitability, and markettransparency. Finally, we show that entry by inexperienced investorscreates a negative externality for the value creation in venturesfinanced by (regular) venture capitalists. Sat, 29 Dec 2001 22:58:59 GMT http://hdl.handle.net/2451/26709 Title: UNDERSTANDING THE RELATIONSHIP BETWEEN FOUNDER-CEOS AND FIRM PERFORMANCE<br/><br/>Adams, Ren&eacute;e B.; Almeida, Heitor; Ferreira, Daniel<br/><br/>Abstract: While previous empirical literature has examined the effect offounder-CEOs on firm performance, it has largely ignored the effect offirm performance on founder-CEO status. In this paper, we useinstrumental variables methods to better understand the relationshipbetween founder-CEOs and performance. Using the proportion of the&THORN;rm s founders that are dead and the number of people who foundedthe company as instruments for founder-CEO status, we find strongevidence that founder-CEO status is endogenous in performanceregressions. This implies that the direct effect of founder-CEOs on firmperformance cannot be estimated correctly without accounting for theendogeneity of founder-CEO status. Perhaps surprisingly, we find thatperformance is negatively related to the likelihood that founders retainthe CEO title. This result appears to be driven primarily by founderdepartures after periods of good performance, rather than by anentrenchment effect that allows founders to remain as CEOs followingpoor performance. After factoring out the effect of performance onfounder-CEO status, we find a residual positive correlation betweenfounder-CEO status and firm performance. This finding suggests thatthere is a positive causal link from founder-CEOs to &THORN;rm performance. Fri, 07 Nov 2008 22:58:59 GMT http://hdl.handle.net/2451/26710 Title: THE IMPACT OF INSTITUTIONAL OWNERSHIP ON CORPORATE OPERATING PERFORMANCE<br/><br/>Cornett, Marcia Millon; Marcus, Alan J.; Saunders, Anthony; Tehranian, Hassan<br/><br/>Abstract: This paper examines the relationship between institutional investorinvolvement in and the operating performance of large firms. We confirma significant relationship between a firm&rsquo;s operating cash flowreturns and both the percent of institutional stock ownership and thenumber of institutional stockholders. However, the positive relationshipbetween the number of institutional investors holding stock andoperating cash flow returns is found only for pressure-insensitiveinstitutional investors (those with no business relationship with thefirm). The number of pressure-sensitive institutional investors (thosewith an existing or potential business relationship with the firm) hasno impact on performance. These results suggest that institutionalinvestors that need to protect actual or promote potential businessrelationships with firms in which they invest are compromised asmonitors of the firm, and lend credence to calls for greaterindependence of board members from firms. Thu, 06 Nov 2003 22:58:59 GMT http://hdl.handle.net/2451/26724 Title: THE FOUNDATIONS OF FREEZEOUT LAWS IN TAKEOVERS<br/><br/>Amihud, Yakov; Kahan, Marcel; Sundaram, Rangarajan<br/><br/>Abstract: We provide an economic basis for permitting freezeouts of non-tenderingshareholders following successful takeovers. We describe a specificfreezeout mechanism based on easily verifiable information that inducesdesirable efficiency and welfare properties in models of bothcorporations with widely dispersed shareholdings and corporations withlarge pivotal shareholders. The mechanism dominates previous proposalsalong some important dimensions. We also examine takeover premia thatarise in the presence of competition among raiders. Our mechanism isclosely related to the practice of takeover law in the U.S.; thus, ouranalysis may be thought of as analyzing the economic foundations ofcurrent regulations. Tue, 19 Aug 2003 22:58:59 GMT http://hdl.handle.net/2451/26725 Title: THE EFFECTS OF CROSS-BORDER BANK MERGERS ON BANK RISK AND VALUE<br/><br/>Amihud, Yakov; Delong, Gayle L.; Saunders, Anthony<br/><br/>Abstract: This paper examines the effects of cross border bank mergers on the riskand (abnormal)returns of acquiring banks. We find that overall, theacquirers&rsquo; risk neither increases nor decreases. In particular, onaverage neither their total risk nor their systematic risk fallsrelative to banks in their home banking market. The abnormal returns toacquirers are negative and significant, but are somewhat higher whenrisk increases relative to banks in the acquirer&rsquo;s home country. Tue, 26 Feb 2002 22:58:59 GMT http://hdl.handle.net/2451/26718 Title: THE DETERMINANTS OF TAKEOVERS: RECENT EVIDENCE FROM U.S. THRIFTS<br/><br/>Cebenoyan, Fatma; Cebenoyan, A. Sinan; Cooperman, Elizabeth S.<br/><br/>Abstract: This paper uses a two-step methodology to examine the relationshipbetween managerial cost inefficiency and the takeover of U.S. thriftsduring a period of market liberalization and widespread takeoveractivity, 1994 to 2000. In the first stage using stochastic costfrontiers, we estimate controllable managerial cost inefficiency scoresfor all stock firms operating each year in 1994 to 2000. In a secondstage, we use these scores to examine correlates of takeovers, focusingon cost inefficiency. For takeovers by banks, we find a significantnegative relationship between cost inefficiency and takeover, suggestingan exit of more cost efficient firms from the thrift industry duringthis period. However, takeovers by thrifts are associated with other characteristics. Mon, 09 Dec 2002 22:58:59 GMT http://hdl.handle.net/2451/26716 Title: THE DECLINING INFORMATION CONTENT OF DIVIDEND ANNOUNCEMENTS AND THEEFFECT OF INSTITUTIONAL HOLDINGS<br/><br/>Amihud, Yakov; Li, Kefei<br/><br/>Abstract: We propose an explanation for the &ldquo;disappearing dividend&rdquo;phenomenon: the decline in the information content of dividendannouncements. It reduces the propensity of firms to pay or increasedividends, since dividends are costly. A reason for the decline in theinformation content of dividends is the rise in holdings byinstitutional investors that are more sophisticated and informed. Weindeed find a decline in CAR at dividend change announcements since themid 1970s. Across firms, CAR declines in institutional holdings.Exploiting their superior information, institutional investors buybefore dividend increases and sell afterwards. And, dividends are lesslikely to rise in firms with high institutional holdings. Mon, 28 Apr 2003 22:58:59 GMT http://hdl.handle.net/2451/26731 Title: THE CHOICE OF OUTSIDE EQUITY: AN EXPLORATORY ANALYSIS OF PRIVATELY HELD FIRMS<br/><br/>Boehmer, Ekkehart; Ljungqvist, Alexander<br/><br/>Abstract: We analyze the choice between public and private equity financing of aunique, hand-collected sample of privately held firms that haveindicated their willingness to raise outside equity. We document thatthese firms are remarkably similar at the time of the announcement, yet71% complete an IPO, 18% sell equity privately, and the remaining firmsdo not raise capital at all. To understand what determines the ultimateoutcome, we follow these firms over time and record what they mightlearn up to their final decision. We identify the marginal conditionsthat favor raising outside equity, and those that determine the choicebetween public and private equity. Our results show that firms reactsystematically to changes in market conditions, such as equity returnsand the cost of capital, that occur after the announcement, controllingfor capital constraints, ownership structure, and the motivation forraising outside capital. Tue, 10 Apr 2001 22:58:59 GMT http://hdl.handle.net/2451/26715 Title: The cash flow, return and risk characteristics of private equity<br/><br/>Ljungqvist, Alexander; Richardson, Matthew<br/><br/>Abstract: Using a unique dataset of private equity funds over the last twodecades, this paper analyzes the cash flow, return, and riskcharacteristics of private equity. Unlike previous studies, we havedetailed cash flow data for each fund, rather than aggregate oraccounting returns. We also know the exact timing of investments andcapital returns to investors and the number and types of companies eachfund invested in. We document the draw down and capital return schedulesfor the typical private equity fund, and show that it takes severalyears for capital to be invested, and over ten years for capital to bereturned to generate excess returns. We provide several determiningfactors for these schedules, including existing investment opportunitiesand competition amongst private equity funds. In terms of performance,we document that private equity generates excess returns on the order offive to eight percent per annum relative to the aggregate public equitymarket. Moreover, while we estimate the betas of the private equityfunds&rsquo; portfolios to be greater than one, we show that on arisk-adjusted basis the excess value of the typical private equity fundis on the order of 24 percent relative to the present value of theinvested capital. One interpretation of this magnitude is that itrepresents compensation for holding a 10-year illiquid investment. Wed, 08 Jan 2003 22:58:59 GMT http://hdl.handle.net/2451/26714 Title: TENDER OFFERS AND LEVERAGE<br/><br/>Mueller, Holger M.; Panunzi, Fausto<br/><br/>Abstract: We examine the role of leverage in tender offers for widely held firms.Leverage allows raiders to appropriate part of the value gains arisingfrom takeovers, hence reducing the takeover premium and mitigating thefree-rider problem. Leveraged takeovers may thus be profitable even iftarget shareholders are dispersed. Bankruptcy costs, incentive problemson the part of the raider, and defensive leveraged recapitalizations andasset sales by the target management all limit the raider&rsquo;sability to borrow, thus shifting takeover gains to target shareholdersand reducing the takeover likelihood. While bankruptcy costs are asocial cost,the takeover premium is merely a wealth transfer to targetshareholders. As the raider does not maximize social welfare, he usestoo much debt compared to the social optimum. Sat, 28 Jun 2003 22:58:59 GMT http://hdl.handle.net/2451/26720 Title: REMUNERATION, RETENTION, AND REPUTATION INCENTIVES FOR OUTSIDE DIRECTORS<br/><br/>Yermack, David<br/><br/>Abstract: I study incentives received by outside directors in Fortune 500 firmsfrom compensation,replacement, and the opportunity to obtain otherdirectorships. Changes over time in the value of equity compensationcreate considerable variation in director pay. Board members of the mostsuccessful firms earn millions of dollars within their first five years,a marked change in the historical pattern of rewards for directors. Ialso find statistically significant evidence that outsidedirectors&rsquo; replacement and total board seats held are associatedgenerally with company performance. Previous research had only shownthese relations to apply under extreme circumstances such as financial distress. Sat, 28 Sep 2002 22:58:59 GMT http://hdl.handle.net/2451/26727 Title: Private Information Trading and Corporate Governance in Emerging Markets<br/><br/>Grishchenko, Olesya V.; Litov, Lubomir P.; Mei, Jianping<br/><br/>Abstract: We apply the theoretical framework of Llorente, Michaely, Saar, and Wang(2002) to analyze the relation between daily volume and first-orderreturn autocorrelation for individual stocks in emerging markets. Wefind strong evidence of return continuation following high volume days,suggesting the presence of private information trading for many emergingmarket stocks. We discover that private information trading isespecially strong around major corporate event dates. In addition, wefind stocks that provide better investor protection and informationdisclosure exhibit less private information trading. These resultssuggest return autocorrelation and trading volume carry usefulinformation about corporate governance in emerging market. Sat, 28 Sep 2002 22:58:59 GMT http://hdl.handle.net/2451/26722 Title: OWNERSHIP AND PERFORMANCE IN CLOSE CORPORATIONS: A NATURAL EXPERIMENT INEXOGENOUS OWNERSHIP STRUCTURE<br/><br/>Nagar, Venky; Petroni, Kathy; Wolfenzon, Daniel<br/><br/>Abstract: Close corporations account for 51 percent of the private sector outputand 52 percent of all private employment in the US. Understandinggovernance issues facing these firms is therefore of considerableimportance. Legal scholars extensively recommend that the mainshareholder in close firms surrender some control to minorityshareholders at the outset in order to improve overall firm performance.With shared control rights, no shareholder can take unilateral actionsfor her own benefit at the expense of the firm and other shareholders.In two independent samples of close corporations, we find this to be thecase, with shared ownership firms reporting substantially larger returnon assets (by 4 to 12 percentage points) and lower expense-to-salesratios. An important reason why this result establishes the role ofownership in firm performance is the absence of a ready market forshares in close corporations. This illiquidity makes the ownershipstructure a historical, statistically predetermined measure, allowing usto sidestep the ownership endogeneity problem confrontingownership-performance studies of public firms Tue, 29 Jan 2002 22:58:59 GMT http://hdl.handle.net/2451/26723 Title: ON RESCISSIONS IN EXECUTIVE STOCK OPTIONS<br/><br/>Brenner, Menachem; Sundaram, Rangarajan; Yermack, David<br/><br/>Abstract: We study executive stock options that permit the option holder torescind an exercise decision, returning the shares acquired to thecompany and obtaining a refund of the exercise price. Rescissionsoccurred at a number of U.S. companies in 2000 after the large declinein internet stocks, and have been widely condemned as a weakening ofincentives. To the contrary, we find that in many situations rescindableoptions dominate ordinary options by delivering greater value andstronger incentives to the employee at a lower cost to the firm. Theattractiveness of rescindable options arises as a consequence of theincome tax treatment of most executive stock options in the U.S. Sun, 14 Apr 2002 22:58:59 GMT http://hdl.handle.net/2451/26729 Title: MANAGING ETHICAL RISK: THE SECURITIES INDUSTRY AND THE LAW<br/><br/>Bear, Larry Alan; Maldonado-Bear, Rita<br/><br/>Abstract: We examine the interplay of markets, ethics and law, and rising demandfor ethical behavior in a market driven society coping with the promiseand peril of rapid technological innovation. We analyze the marketaffecting role of our Common Law/Rule of Law System, its adaptability tosocial need and resultant legal and regulatory action promotingadherence to the spirit as well as the letter of the law. We provideexamples of manager and firm harm from sanctions imposed despiteadherence to &ldquo;the rules.&rdquo; Finally, we discuss competitivemarket/common law interplay in the coming era of the genome. Fri, 28 Sep 2001 22:58:59 GMT http://hdl.handle.net/2451/26717 Title: Limited Partnerships and Reputation Formation<br/><br/>Kallberg, Jarl G.; Liu, Crocker H.; Srinivasan, Anand<br/><br/>Abstract: This paper analyzes the optimal quality decision of a producer in amulti-period setting with reputation effects. Using a unique database ofreturns on real estate limited partnerships (RELPs), we empiricallyexamine alternative theoretical predictions of optimal producerstrategy. In particular, we test whether the producers in our marketinvest in reputation building by initially selling high quality goodsand then lowering quality. Using a variety of statistical tests, we findevidence for reputation building, both in the aggregate and forindividual developers. Thu, 21 Nov 2002 22:58:59 GMT http://hdl.handle.net/2451/26730 Title: FALLIBLE EXECUTIVES, CENTRALIZATION OF DECISION-MAKING AND CORPORATE PERFORMANCE<br/><br/>Adams, Ren&eacute;e B.; Almeida, Heitor; Ferreira, Daniel<br/><br/>Abstract: In this paper we explore some possible consequences of fallibility inmanagerial decisionmaking for firm performance. Based on Sah andStiglitz (1991), we develop the hypothesis that if managers arefallible, firm performance will be more variable as the number ofmanagers participating in decision-making decreases, i.e. as the&THORN;rm becomes more centralized. We use characteristics of theExecutive Office to develop a proxy for the number of executivesparticipating in top decision-making. For example, we argue that if theChairman of the Board is not the CEO, decision-making in the &THORN;rmwill be more decentralized because the Chairman will also participate indecision-making. We test our hypothesis using this proxy (which we callthe centralization index), and find that the evidence is consistent withour hypothesis. Firm performance (measured by Tobin s Q, stock returnsand ROA) is signif- icantly more variable for &THORN;rms with greatervalues of our centralization index. The results are consistent acrossvarious tests designed to detect differences in variability. Sat, 08 Sep 2001 22:58:59 GMT http://hdl.handle.net/2451/26713 Title: CORPORATE GOVERNANCE OVER THE BUSINESS CYCLE<br/><br/>Philippon, Thomas<br/><br/>Abstract: I provide empirical evidence that badly governed firms respond more toaggregate shocks than do well governed firms. I build a simple modelwhere managers are prone to overinvest and where shareholders are morewilling to tolerate such a behavior in good times. The modelsuccessfully explains the average profit differences as well as thecyclical behavior of sales, employment and investment for firms withdifferent governance qualities. The quantitative results suggest thatgovernance conflicts can explain 30% of aggregate volatility. Sat, 28 Jun 2003 22:58:59 GMT http://hdl.handle.net/2451/26712 Title: CONFLICTS OF INTEREST AND MARKET DISCIPLINE AMONG FINANCIAL SERVICES FIRMS<br/><br/>Walter, Ingo<br/><br/>Abstract: There has been substantial public and regulatory attention of late toapparent exploitation of conflicts of interest involving financialservices firms based on financial market imperfections and asymmetricinformation. This paper proposes a workable taxonomy of conflicts ofinterest in financial services firms, and links it to the nature andscope of activities conducted by such firms, including possiblecompounding of interest-conflicts in multifunctional clientrelationships. It lays out the conditions that either encourage orconstrain exploitation of conflicts of interest, focusing in particularon the role of information asymmetries and market discipline, includingthe shareholder-impact of litigation and regulatory initiatives.External regulation and market discipline are viewed as both complementsand substitutes &ndash; market discipline can leverage the impact ofexternal regulatory sanctions, while improving its granularity thoughdetailed management initiatives applied under threat of marketdiscipline. At the same time, market discipline may help obviate theneed for some types of external control of conflict of interestexploitation. JEL G21, G24, G28, L14. Sun, 28 Sep 2003 22:58:59 GMT http://hdl.handle.net/2451/26721 Title: Conflicts of interest and efficient contracting in IPOs<br/><br/>Ljungqvist, Alexander<br/><br/>Abstract: We study the role of underwriter compensation in mitigating conflicts ofinterest between companies going public and their investment bankers.Making the bank&rsquo;s compensation more sensitive to theissuer&rsquo;s valuation should reduce agency conflicts and thusunderpricing. Consistent with this prediction, we show that contractingon higher commissions in U.K. IPOs leads to significantly lowerunderpricing: a one percentage point increase in the commission ratereduces the initial return by 11 percentage points, after controllingfor other influences on underpricing. Moreover, we present evidenceconsistent with issuers choosing commission rates optimally. Overall,our results indicate that issuers and banks contract efficiently in U.K. IPOs. Thu, 19 Sep 2002 22:58:59 GMT http://hdl.handle.net/2451/26728 Title: AN ANALYSIS OF SHAREHOLDER AGREEMENTS<br/><br/>Chemla, Gilles; Habib, Michel; Ljungqvist, Alexander<br/><br/>Abstract: Shareholder agreements govern the relations among shareholders inprivately-held companies, such as joint ventures or venturecapital-backed firms. We provide an economic explanation for the use ofput and call options, pre-emption rights, catch-up clauses, drag-alongrights, demand rights, and tag-along rights in shareholder agreements.We view these clauses as a response to a problem of dynamic, doublemoral hazard, whereby the value of the venture depends on ex anteinvestments and ex post transfers. Contract clauses i) preserve theincentives to make ex ante investments and ii) minimize ex posttransfers. We extend our framework to discuss the use of other clauses,such as the option to extend the life of a business alliance. (JEL: G34). Sun, 06 Jan 2002 22:58:59 GMT