Determinants of the Size and Structure of Corporate Boards: 1935-2000

We argue that the size and composition of corporate boards are determined by tradeoffs involving the information that directors bring to boards versus the coordination costs and free rider problems associated with their additions to boards. Our hypotheses lead to predictions that firm size and growth opportunities are important determinants of these board characteristics. Using a sample of 82 U.S. firms that survived over the period of 1935 through 2000, we find strong support for the hypotheses. The hypotheses also find support in the relation between changes in board size and firms' merger and divestiture activity, and changes in the geographical diversification of firms. We find no robust relation between firm performance and either board size or composition after accounting for the determinants of these board characteristics.Board size, board composition, mergers and acquisitions, firm size, growth opportunities, diversification, geographical diversification, firm performance, endogeneity

Information Asymmetries, Rule 13e-3, and Premiums in Going-Private Transactions

Among the questions we examine are the following: Are premiums lower in going-private transactions initiated by managers than in going-private transactions initiated by third parties? Did premiums in management-led going-private transactions increase following the adoption of Rule 13e-3? Are premiums in third-party going-private transactions in which management is likely to be an equity participant (i.e., going-private transactions that presently are exempt from Rule 13e-3) lower than premiums in Rule 13e-3 transactions

The Economics of Leveraged Takeovers

Financing of hostile takeovers has emerged as a central issue in the ongoing debate concerning corporate takeovers. Concomitant with the increase in the dollar value of takeovers during the past few years has been a significant increase in the percentage of tender offer financing accounted for by bank borrowing and the issuance of high yield debt, (that is, debt securities which are rated below Standard and Poor\u27s BBB-or Moody\u27s Baa3), hereafter referred to as junk bonds, have accounted for an increasingly greater percentage of takeover financing. This Article examines these concerns about debt financing of corporate takeovers from an efficient markets perspective. The efficient-market hypothesis has important implications for public policy toward corporate takeovers. Because a takeover involves the payment of premiums to target shareholders, prospective bidders must perceive a way to raise the target firm\u27s value, that is, the discounted cash flow of the target firm. We argue that junk-bond financing facilitates takeovers which in turn promote economic efficiency. Critics of leveraged takeovers, in our view, exaggerate the risks associated with these transactions, and in some instances, misunderstand the nature of corporate debt. After illustrating the structure of a leveraged takeover with an analysis of Mesa Petroleum\u27s unsuccessful bid for Unocal, this Article seeks to correct the misperceptions about corporate debt with a discussion of the economics of corporate leverage. Finally, we use the Mesa-Unocal case to evaluate the claims made by critics of leveraged takeovers

Financial Characteristics of Companies Audited by Large Audit Firms

Purpose “ The purpose of this paper is to examine how financial characteristics associated with the choice of a big audit firm with further investigation on the agency costs of free cash flows.Design/methodology/approach “ The sample used for this work includes industrial listed companies from Germany and France. To test our hypothesis, we used a number of logit models, extending the standard model selection audit firm, to include the variables of interest. Following previous work, our dependent dummy variable is Big4 or non-Big4.Findings “ We observed that most independent variables in the German companies show similar results to previous work, but we did not have the same results for the French industry. Moreover, our findings suggest that the total debt and dividends can be an important reason for determining the choice of a large audit firm, reducing agency costs of free cash flows.Research limitations/implications “ This study has some limitations on the measurements of the cost of the audit fees and also generates opportunities for additional searching.Originality/value “ The paper provides only one aspect to explain the relationship between the problems of agency costs of free cash flow and influence in choosing a large auditing firm, which stems from investors\u27 demand for higher quality audits