Shareholder Welfare in Minority Freeze-Out Bids: Are Legal Protections Sufficient? Evidence from the U.S. Market

Anlegerschutz, Kleinaktionär, Diskriminierung, Vereinigte Staaten, Investor protection, Small shareholders, Discrimination, United States

Vertical Integration to Avoid Contracting with Potential Competitors: Evidence from Bankers’ Banks

We examine a vertical integration decision within the commercial banking industry. During the last quarter of the 20th century, some community banks reduced their traditional reliance on correspondent banks for upstream products and services by joining bankers’ banks, a form of business cooperative. Research on vertical integration focuses primarily on firm-specific investment, market power, and government regulation. However, this case is difficult to explain in terms of these standard vertical integration motives. Our evidence suggests that bankers’ banks are a response to technological change and deregulation that results in increased costs faced by community banks in dealing with correspondent banks as both suppliers and potential competitors. For instance, loan participations require sharing proprietary information about major loan customers, something a community bank would not want to provide to a potential competitor.

Do Managers Listen to the Market?

There are competing theories as to whether managers learn from stock prices. Dye and Sridhar (2002), for example, argue that capital markets can be better informed than the firm itself, while Roll (1986) argues managers may ignore market signals due to hubris. In this paper, we examine whether managers listen to the market in making major corporate investments, and whether agency costs and corporate governance mechanisms help explain managers\u27 propensity to listen. We find that, on average, managers listen to the market: they are more likely to cancel investments when the market reacts unfavorably to the related announcement. Further, we find mixed evidence consistent with the notion that managers\u27 propensity to listen is related to agency costs. We find that firms tend to listen to the market more when more of their shares are held by large blockholders, and when their CEOs have higher pay-performance sensitivities

Boundaries of the Firm: Evidence from the Banking Industry

Agency theory implies that asset ownership and decision authority are complements. Using 1998 data from Texas commercial banks, we test whether the likelihood of local ownership of bank offices increases with the importance of granting local managers greater decision authority (for example, due to location or customer base). Our empirical evidence is consistent with this hypothesis. It suggests that complementarities between strategy and organizational structure can foster differentiation among firms in terms of location, customers, and products. It also supports the growing view that small locally-owned banks have a comparative advantage over large banks within specific environments

The Determinants of Board Structure

Using a comprehensive sample of nearly 7,000 firms from 1990 to 2004, this paper examines corporate board structure, its trends, and its determinants. We study how board structure has evolved over time and, more importantly, we compare board structure across small and large firms in ways suggested by recent theoretical work. Overall, our evidence suggests that firms structure their boards in response to the costs and benefits of the board\u27s monitoring and advising roles. Our models explain as much as 45% of the observed variation in board structure. Further, small and large firms have dramatically different board structures. For example, board size was falling in the 1990s for large firms, a trend that reversed at the time of mandated reforms, while board size was relatively flat over the 1990s for small and medium-sized firms.

The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors

Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.