We evaluate the impact of the 2003 SARS-CoV-1 epidemic on inbound cross-border M&As in China. Provinces that experienced high levels of SARS infection rates also suffered a significant decline in cross-border M&A activity, both in terms of the number of transactions and the overall dollar volume. The negative impact is entirely driven by a decline in deals for non-state-owned targets. The large, negative effect was short-lived, and it largely dissipated by 2005, but deals lost during the epidemic were not recouped. The negative impacts were larger and longer lasting for provinces whose neighbours were not affected much by SARS, suggesting that good substitutes in nearby unaffected provinces exacerbated the negative effects in areas deeply affected by SARS-CoV-1.

When institutional investors become distracted due to extreme returns in other portfolio firms, managers face less pressure to pursue and actively oversee risk-taking innovation that creates long-term shareholder value. We document that firms significantly reduce innovation output following increases in investor distraction, measured by both patent filings and patent citations and after controlling for firm and industry characteristics. We further show that managers respond by decreasing firm idiosyncratic risk as predicted by agency theory. However, our results examining executive compensation do not suggest that firm boards quickly alter executive compensation to adjust for changing incentives resulting from institutional distraction. Rather, executives increase their insider sale percentage.

Using 2342 PIPEs, we investigate the intended use of funds and its relation to firm characteristics and issue outcomes. We find that a slight majority of issues are for investment purposes with the rest being for purposes related to enhancing firm viability. The offer discounts to the private investors and the market’s reaction to the announcement are more related to investment quality for the invest firms and to recovery value for the viability firms. Through an examination of follow-on financing activities, we find broad evidence that PIPEs play an important function and not simply as a stopgap source of finance.

In 1900, a syndicate of investors used open market purchases and manipulative trading strategies to exploit an ongoing financial crisis at the Third Avenue Railroad Company and stealthily gain control of the company. The acquisition occurred during the first great merger wave in U.S. history and represented the street railway industry’s response to a new technology, namely electrification. The lax regulatory environment of the period allowed operators and insiders to profit handsomely and may have benefited consumers, but possibly harmed some minority shareholders. Our case study illuminates an unusual acquisition, when capital markets were less transparent.

We investigate firms that issue seasoned equity following a period of payouts to equity holders. Firms that engage in this roundtrip of equity exhibit strong growth in investment in capital expenditures. Issuing seasoned equity for payout firms does not appear to be associated with future declines in operating cash flow, but rather is associated more with large absolute increases in future cash flow. These firms tend to issue equity when their equity valuations are high, suggesting that market conditions matter. Our findings are consistent with firms issuing equity to use the capital for valuable investments in fixed assets, consistent with market assessments of growth opportunities.

The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some equity participation models. Consistent with calibration studies by Heaton and Lucas (2000) and Gomes and Michaelides (2005), mutual fund costs and indicators of background labor risk are significantly related to stock ownership over 1964-2019. Coefficient estimates and continuous data on driving variables can be used to create a continuous proxy for stock ownership, which could help researchers gauge the effects of shocks that are transmitted via equity participation. Typically omitted asset transfer costs can help analyze other aspects of household portfolio behavior.

Prior evidence indicates that proximity increases investments resulting in stronger economic growth. The introduction of a non-stop direct flight between two locations in different countries allows for faster travel and a lower cost of acquiring information, potentially facilitating acquisitions abroad. We examine this channel by considering cross-border mergers and acquisitions (M&A) activity between China and the U.S. Our results suggest that direct flights matter most in target selection. Direct flights are more important for M&A activity where information asymmetry is greater and for first time acquirers in the market. We demonstrate that endogeneity is unlikely to drive the results.

We investigate the role of financial distress in the seasoned equity market. We find that distressed firms comprise about 40% of SEOs and these distressed issuers have worse abnormal announcement returns than non-distressed issuers. Stock return volatility is an important determinant for announcement returns for non-distressed SEO issuers but not for distressed SEO issuers. Signals of firm quality are associated with better announcement returns, larger issues, increased investment, improved operating performance, and lower likelihood of delisting for distressed SEO firms as compared to non-distressed firms. Our findings suggest equity finance is valuable for financially distressed firms with strong growth prospects.

Corporate spinoffs present a unique opportunity to analyze the choice of directors from a pool of potential candidates. We find that post-spinoff unit and remaining parent firms are more likely to select pre-spinoff parent directors who have: i) relevant industry expertise; and ii) pre-spinoff parent board ties to the post-spinoff CEO. Using pre-spinoff firm performance as a proxy for director quality, the evidence also suggests that firms are more likely to retain high-quality directors. We conclude that firms select individual directors based on both their expertise relevant to firm assets and their ties to CEOs who possess specific information about their ability.

Venezuela is confronting an economic and financial crisis of unprecedented proportions. Its economy remains on a precipitous downward trajectory, national income has more than halved, imports have collapsed, hyperinflation is about to set in and the government continues to follow a policy of prioritizing the payment of external debt over imports of food, medicine and inputs needed to allow production to resume. Bad policies are complemented by bad news as oil production and prices have declined dramatically from previous highs. On the financial side, the country is burdened with an unsustainable level of debt and has lost market access. Venezuela will be unable to attract the substantial new financing and investment required to reform its economy without a comprehensive restructuring of its external liabilities. The Republic and its national oil company, PDVSA, are facing what may be the most complex and challenging sovereign debt restructuring to date. This paper, authored by Mark A. Walker, Managing Director and Head of Sovereign Advisory at Millstein & Co., and Richard J. Cooper, a Senior Partner in the Restructuring Group at Cleary Gottlieb Steen & Hamilton, LLP, proposes a framework for restructuring and discusses the key issues that will arise during the restructuring process, including the vulnerability of PDVSA assets outside Venezuela to actions by creditors, whether the restructuring should be implemented in one or two steps, the use of nontraditional techniques to seek to address sovereign and quasi-sovereign debt, incentives to and disincentives that may persuade would-be holdout creditors to join a restructuring and the admissibility and treatment of various claims.

Using a sample of firms that conducted multiple seasoned equity offerings (SEOs) from 1995 to 2012, we examine whether firms can build credibility for subsequent SEOs by following through on their stated use of the proceeds from earlier SEOs. We find that firms that state their intention to invest these funds in projects and those that make no such statements, but do invest have relatively more positive announcement returns around subsequent SEO announcements. Our results suggest that the markets are aware of the potential agency costs of equity, have a long memory, and update their beliefs as to the likely use of funds raised by firms.

Using a sample of firms that conducted multiple seasoned equity offerings (SEOs) from 1995 to 2012, we examine whether firms can build credibility for subsequent SEOs by following through on their stated use of the proceeds from earlier SEOs. We find that firms that state their intention to invest these funds in projects and those that make no such statements, but do invest have relatively more positive announcement returns around subsequent SEO announcements. Our results suggest that the markets are aware of the potential agency costs of equity, have a long memory, and update their beliefs as to the likely use of funds raised by firms.

Following corporate spinoffs, unit boards are formed from scratch. We find that these "de novo" boards are smaller, more independent, include more outside directors with relevant industry expertise, and derive more industry expertise from outsiders than do industry- and size-matched peers. These differences are observed only when the unit CEO was not the CEO or a director of the pre-spinoff parent firm-that is, when there is a greater need to assess the CEO's ability and match with the firm. We conclude that the need for CEO assessment is an important element of the structure of newly formed boards.

The bombshell arrest of Ivan Boesky on November 14, 1986 signaled the intention of then-US attorney for the southern district of New York, Rudy Giuliani, to increase enforcement of laws against insider trading. Looking at concurrent stock price changes, we find that New York companies were affected especially. More interestingly, New York firms with active political arms fared better than those without them; and New York firms connected to Mr. Giuliani's Republican Party fared better still. We find no such effects for non-New York firms. These findings suggest that political connectedness was valuable in the era of more rigorous legal enforcement associated with Mr. Giuliani's attack on insider trading.

Using a unique dataset on CEO employment contract details, we find substantial heterogeneity in contract provisions and their impacts on risk-taking in MA J33; J41; M52

The public arrest of Adelphia executives on July 24, 2002 signaled tougher enforcement of laws against corporate crime. On that day and the two following days, foreign firms experienced a cumulative 1.7% decline in value. Relative to domestic firms, the loss was a much larger 4.5%. The expected cost to firms from tougher enforcement suggests three possible reasons. Foreign firms may be targeted more heavily, may face greater penalties, or may find it more costly to react to (deflect) enforcement. We find evidence consistent with foreign firms facing higher costs from tougher enforcement for each of these reasons.

We analyze board structure surrounding corporate spinoffs. Our findings indicate that there are substantial differences in the composition of the boards of spun off units and post-spinoff corporate parents. There is little overlap in the two boards and the majority of the unit directors have no prior connection to the parent company. Placement on either the parent or unit board is strongly associated with a director having expertise that is unique to that firm’s industry. These findings are consistent with the spinoff allowing the parent and unit firms to tailor their boards to the specific assets and operating needs of their firms. We also find that pre-spinoff parent board ties between individual directors and the CEO have a meaningful impact on the composition of both the parent and the unit board.

Using a sample of 438 firms that issued seasoned equity, we investigate the ex ante reasons stated by the firm for the use of capital, the actual ex post use of funds, and the market reaction to this information. We find that, regardless of the stated use of funds, firms increase capital expenditures and research and development following an SEO. In addition, firms increase their long term debt following an SEO, even when the stated reason for the capital is to pay down debt. The market reacts more favorably to the anticipated investment increases if the firm provides specific plans for the use of the soon-to-be-raised capital. The evidence is consistent with the view that agency issues are important factors in SEOs.

Article history: Received 11 May 2007 Received in revised form 1 April 2008 Accepted 2 April 2008 Available online 10 April 2008 Using a sample of 438 firms that issued seasoned equity, we investigate the ex ante reasons stated by the firm for the use of capital, the actual ex post use of funds, and the market reaction to this information. We find that, regardless of the stated use of funds, firms increase capital expenditures and research and development following an SEO. In addition, firms increase their long term debt following an SEO, even when the stated reason for the capital is to pay down debt. The market reacts more favorably to the anticipated investment increases if the firm provides specific plans for the use of the soon-to-be-raised capital. The evidence is consistent with the view that agency issues are important factors in SEOs. © 2008 Elsevier B.V. All rights reserved. JEL classifications: G31 G32

Using a sample of 102 spinoffs in the period 1981 to 1997, we investigate the relation between corporate governance and the spinoff decision. Diversified firms conducting a spinoff have characteristics previously hypothesized to be associated with more effective corporate governance, such as greater ownership by outside board members, more heterogeneous boards, and fewer board members, in comparison to a set of peer firms. Post spinoff, relative valuation measures increase a significantly greater extent than for peer firms. These findings are consistent with the view that agency problems are a contributing factor in firms maintaining value destroying diversification strategies.