The Determinants of Takeovers: Recent Evidence from U.S. Thrifts

This paper uses a two-step methodology to examine the relationship between managerial cost inefficiency and the takeover of U.S. thrifts during a period of market liberalization and widespread takeover activity, 1994 to 2000. In the first stage using stochastic cost frontiers, we estimate controllable managerial cost inefficiency scores for all stock firms operating each year in 1994 to 2000. In a second stage, we use these scores to examine correlates of takeovers, focusing on cost inefficiency. For takeovers by banks, we find a significant negative relationship between cost inefficiency and takeover, suggesting an exit of more cost efficient firms from the thrift industry during this period. However, takeovers by thrifts are associated with other characteristics

Risk Management, Capital Structure and Lending at Banks

We test how active management of bank credit risk exposure through the loan sales market affects capital structure, lending, profits, and risk. We find that banks that rebalance their C&I loan portfolio exposures by both buying and selling loans – that is, banks that use the loan sales market for risk management purposes rather than to alter their holdings of loans -- hold less capital than other banks; they also make more risky loans (loans to businesses) as a percentage of total assets than other banks. Holding size, leverage and lending activities constant, banks active in the loan sales market have lower risk and higher profits than other banks. We conclude that increasingly sophisticated risk management practices in banking are likely to improve the availability of bank credit but not to reduce bank risk.

Managerial Stock Ownership As A Corporate Control Device: When Is Enough, Enough?

It has long been accepted that managerial stock ownership, beyond some range of possible entrenchment, can be an effective means of aligning the interests of professional managers with those of a firm’s outside owners to the benefit of firm performance. In this paper, we offer evidence on the effectiveness of managerial stock ownership as a corporate control device by analyzing the behavior of 81 thrift institutions operating over the six-year period, 1989-1994. Based on the estimation of stochastic cost and profit frontiers, as well as other performance measures, our results suggest that managerial stock ownership provides an effective corporate control device. However, this device is only effective as managerial holdings surpass about 33% of outstanding shares for improvements in cost efficiency and about 40% for profit efficiency

Managerial Stock Ownership As A Corporate Control Device: When Is Enough, Enough?

It has long been accepted that managerial stock ownership, beyond some range of possible entrenchment, can be an effective means of aligning the interests of professional managers with those of a firm’s outside owners to the benefit of firm performance. In this paper, we offer evidence on the effectiveness of managerial stock ownership as a corporate control device by analyzing the behavior of 81 thrift institutions operating over the six-year period, 1989-1994. Based on the estimation of stochastic cost and profit frontiers, as well as other performance measures, our results suggest that managerial stock ownership provides an effective corporate control device. However, this device is only effective as managerial holdings surpass about 33% of outstanding shares for improvements in cost efficiency and about 40% for profit efficiency

Target company cross-border effects in acquisitions into the UK

We analyse the abnormal returns to target shareholders in crossborder and domestic acquisitions of UK companies. The crossborder effect during the bid month is small (0.84%), although crossborder targets gain significantly more than domestic targets during the months surrounding the bid. We find no evidence for the level of abnormal returns in crossborder acquisitions to be associated with market access or exchange rate effects, and only limited support for an international diversification effect. However, the crossborder effect appears to be associated with significant payment effects, and there is no significant residual crossborder effect once various bid characteristics are controlled for

"Subordinated debt, uninsured deposits, and market discipline: evidence from U.S. bank holding companies"

We investigate market discipline in banking through uninsured depositors and subordinated debt holders, using U.S. bank holding companies data from 1996 to 2005. We test to see both the monitoring and influencing aspects of market discipline. Although our results overall support the presence of monitoring through uninsured deposits, the evidence of influencing is mixed at best. We find some disciplining effect of changes in uninsured deposit levels and prices on bank fundamentals. We find no evidence of any disciplinary influences by subordinated debt holders. JEL Classification: G21, G28, G32 Key Words: Subordinated debt; Uninsured deposits; Market discipline; Banks.

Regulatory Regimes and Takeovers of U.S. Thrifts

This paper examines the effect of regulatory regime changes on the attributes of acquired thrifts for periods of stringency in 1990 to 1993, and deregulation in 1994 to 2000, with the removal of significant impediments for bank takeovers of thrifts. We test a regime change hypothesis that predicts a more effective takeover market in the later regime. Consistent with the hypothesis, we find bank acquirers to engage in diverse motivations for takeovers in the later regime, including revenue turnaround motives, allowing discipline of profit inefficient firms. The results suggest greater takeover discipline in the later regime, but also suggest a complimentary role for regulatory discipline, with acquirers avoiding more cost inefficient and risky thrifts. In contrast in the early regime, regulatory concerns for building up capital dominate acquisition decisions.Regulatory Regimes, Thrifts, Takeovers, Profit and Cost Efficiency