Selling Company Shares to Reluctant Employees: France Telecom's Experience

In 1997, France T‚l‚com, the state-owned French telephone company, went through a partial privatization. The government offered current and prior France T‚l‚com employees the opportunity to buy portfolios of shares with various combinations of discounts, required holding periods, leverage, tax treatment, and levels of downside protection. We adapt a neoclassical model of investment decision-making that takes into account firm-specific human capital and holding period restrictions to predict how employees might respond to the share offers. Using a database that tracks over 200,000 eligible participants, we analyze the employees' characteristics and their decisions whether to participate; how much to invest; and what form of stock alternatives they selected.

Information Handling and Firm Performance: Evidence from Reverse LBOs

We investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts. As they go to the public markets for equity, such firms face an information asymmetry problem. Behavioral effects are also likely to be at work. We show that the combination of informational and behavioral effects will cause firms to handle information in particular ways, leading to an equilibrium pattern in which disappointing performance after the initial public offering should be expected. We find empirical support for this theory by studying 62 reverse LBOs that went public between 1983 and 1987. There is strong evidence that the performance of the reverse LBOs before going public overestimates their likely performance after the initial public offering. The market appears to anticipate this pattern.

Initial Public Offerings and the Firm Location

The firm geographic location matters in IPOs because investors have a strong preference for newly issued local stocks and provide abnormal demand in local offerings. Using equity holdings data for more than 53,000 households, we show the probability to participate to the stock market and the proportion of the equity wealth is abnormally increasing with the volume of the IPOs inside the investor region. Upon nearly the universe of the 167,515 going public and private domestic manufacturing firms, we provide consistent evidence that the isolated private firms have higher probability to go public, larger IPO underpricing cross-sectional average and volatility, and less pronounced long-run under-performance. Similar but opposite evidence holds for the local concentration of the investor wealth. These effects are economically relevant and robust to local delistings, IPO market timing, agglomeration economies, firm location endogeneity, self-selection bias, and information asymmetries, among others. Findings suggest IPO waves have a strong geographic component, highlight that underwriters significantly under-estimate the local demand component thus leaving unexpected money on the table, and support state-contingent but constant investor propensity for risk

The Reverse LBO Decision and Firm Performance: Theory and Evidence.

The authors investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts. They show that the information asymmetry problem firms face when they go to public markets for equity, as well as behavioral and debt overhang effects, will produce a pattern in which superior performance before an offering should be expected, with disappointing performance subsequently. The authors find empirical evidence of this phenomenon by studying sixty-two reverse leveraged buyouts that went public between 1983 and 1987. The market appears to anticipate this pattern. Copyright 1993 by American Finance Association.

The Performance of Secondary Buyouts

Buyout funds increasingly sell their portfolio companies to other buyout funds. These secondary buyouts (SBOs) underperform primary buyouts. Yet, only SBOs made late in the investment period underperform, consistent with funds using SBOs to sometimes “go for broke”. After a fund invests in late SBOs, investors appear to shun the follow-on fund. Differences in risk do not explain these results. SBOs bought by specialized funds and those bought from a fund-raising seller perform better. Some companies seem better suited to private equity ownership as we find persistence in both returns and exit channels between successive buyout transactions