Cash holdings, corporate governance and financial constraints.

We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.Governance; Financial Constraints; Cash Holdings;

Share repurchase regulations: do firms play by the rules?

Open market share repurchases are strictly regulated to prevent companies from profiting from insider information. We examine compliance with these rules in France, where the mandatory disclosure of share repurchases provides detailed information on repurchases actually undertaken. Using a database containing 36,848 repurchases made by 352 French firms over the period 2000-2002, we show that very few firms fully comply with the regulations for all their buybacks. Non-compliance has an adverse effect on liquidity only for the smallest and least liquid firms.open market share repurchases, insider trading, regulations, liquidity

Actual share repurchases, timing and liquidity

Research on the impact of open market share repurchases has been hindered by the lack of data available on actual share repurchases in many countries, including the US. Using a previously unused database containing detailed information on 36,848 repurchases made by 352 French firms, we show that corporate share repurchases have a significant adverse effect on liquidity as measured by bid–ask spread or depth. Our results also indicate that share repurchases largely reflect contrarian trading rather than managerial timing ability.Repurchase; Timing; Liquidity; Euronext Paris

Cash holdings, corporate governance and financial constraints

We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.cash holdings; financial constraints; governance

Seasoned Equity Issues in a Closely Held Market: Evidence from France.

This paper examines seasoned equity offerings in France. Even though a rights offering is the primary flotation method, French companies are increasingly using the relatively expensive public offering method. We show that the market reaction to the announcement of seasoned equity issues is significantly negative for rights issues and insignificantly negative for public offerings. Our results suggest that the adverse selection effect is greater for rights issues than for public offerings, due to stronger underwriter certification for the public offerings. We find that the share price effect is positively related to blockholders take-up renouncements for firms with prior concentrated ownership. For these firms, the favourable ownership dispersion effect offsets the adverse selection effect.Corporate SEOs; Risk management; Rights offerings; Flotation methods; Ownership structure; Seasoned equity issues;

Seasoned equity issues in a closely held market: evidence from France

This paper examines seasoned equity offerings in France. Even though a rightsoffering is the primary flotation method, French companies are increasingly using therelatively expensive public offering method. We show that the market reaction to theannouncement of seasoned equity issues is significantly negative for rights issues andinsignificantly negative for public offerings. Our results suggest that the adverseselection effect is greater for rights issues than for public offerings, due to strongerunderwriter certification for the public offerings. We find that the share price effect ispositively related to blockholders take-up renouncements for firms with priorconcentrated ownership. For these firms, the favourable ownership dispersion effectoffsets the adverse selection effect.seasoned equity issues, flotation methods, ownership structure.

Employee Ownership, Board Representation, and Corporate Financial Policies.

French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company have the right to elect one director whenever they hold at least 3% of outstanding shares. These two rights have engendered substantial employee representation on the boards of over one-quarter of the largest French companies. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2005, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders unambiguously increase firm valuation and profitability, but do not significantly impact corporate payout (dividends and share repurchases) policy or board organization and performance. Directors elected by employees by right significantly reduce payout ratios, increase overall staff costs, and increase board size, complexity, and meeting frequency—but do not significantly impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and even value-enhancing in the case of directors elected by employee shareholders.Employee Ownership; Corporate Boards; Privatization; Payout Policy;

Employee Ownership, Board Representation, and Corporate Financial Policies

French law mandates that employees of publicly listed companies can elect two types of directors to represent employees. Privatized companies must reserve board seats for directors elected by employees by right of employment, while employee-shareholders can elect a director whenever they hold at least 3% of outstanding shares. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2008, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders increase firm valuation and profitability, but do not significantly impact corporate payout policy. Directors elected by employees by right significantly reduce payout ratios, but do not impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and perhaps value-enhancing in the case of directors elected by employee shareholders.Employee ownership ; Payout policy ; Privatization ; Corporate boards

Stock market liquidity and the rights offer paradox.

This paper contributes to the resolution of the rights offer paradox, using a database of French SEOs. We first document higher direct flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. We find that blockholder renouncements to subscribe to new shares and stock market liquidity are important determinants of flotation method choice. After controlling for endogeneity in the choice of flotation method, we find that public offerings are cost effective and more liquidity improving than standby rights whereas an uninsured rights offering is the best choice for low liquidity, closely held firms. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.bid-ask spread; Security offering; SEO; flotation method; flotation costs; rights issues; public offerings; liquidity;

Why do Companies Include Warrants in Seasoned Equity Offerings: The case of French Unit Offerings.

We analyse the reasons why companies issue units when they raise additional capital. In contrast to previous evidence, our results show that units are not offered to mitigate the agency conflicts or to signal security mispricing as they are predominantly issued during cold periods, in public rather than in rights offerings, and when the issue is underwritten. In contrast, the results indicate that companies choose to offer units to circumvent the offer price regulation and to underprice their seasoned equity offering so as to minimise the issue cost and the risk of failure of the issue. These results provide support for the net proceeds maximization hypothesis.Warrants; Equity Issue; Flotation Method; Unit Offerings;