Agency Conflicts in Closed-End Funds: The Case of Rights Offerings

We study 120 rights offerings by closed-end funds over 1988-1998. On average, rights offerings are announced when funds trade at a premium. This premium turns into a discount over the course of the offering. The premium decline is more severe when the increases in investment advisor’s compensation are larger and when the fund uses affiliated broker-dealers to solicit subscriptions to the offer. A clinical analysis shows that rights offerings allow investment advisors to sidestep fee rebates and increase pecuniary benefits to affiliated entities. Overall, our results suggest the presence of significant conflicts of interests in rights offerings by closed-end funds

An empirical investigation of the uniqueness of bank financing: The case of syndicated Euro-loans

Many papers have focused on the uniqueness of bank loans, but the economic rationale for the existence of financial intermediaries has not yet been fully explained. Leland and Pyle (1977), and Campbell and Kracaw (1980), show that banks and other financial intermediaries may exist because of an advantage over outsiders in the production of information. They assume that banks have cost advantages in the analysis and production of information and that they may possess proprietary information about the borrower. As a consequence, the bank loan decision is viewed as a positive signal about the borrower\u27s financial condition, because the banks put their own capital at risk. These theoretical results are supported by the empirical findings of Mikkelson and Partch (1986) and James (1987) for the announcement of new bank loan agreements and Lummer and McConnell (1988) for the announcement of favorable loan revisions. This study further extends the analysis of the uniqueness of bank financing by investigating empirically syndicated Euro-loans. The abnormal returns associated with the announcement of this type of bank loans as well as the unexpected changes in annual earnings of borrowers after they arranged the loan are analyzed. The hypothesis that banks possess private information about the borrower is also tested by examining the relation between the spread over a reference rate borrowers pay, and the post-financing earnings changes of the borrowers. The results of this analysis are relevant because of both the type of the loans which is being analyzed as well as because of the methodology that is used to analyze the uniqueness of bank financing. The major findings of the present analysis are: First, bank loan announcements are not associated with significant stock price reactions, except when the purpose of the loan is to serve as a takeover defense. In addition, bank loans set up by foreign banks only are associated with a significantly lower stock price reaction. Second, borrowers in the sample have significant negative unexpected annual earnings changes in the years following the bank financing arrangement. Third, the unexpected changes in earnings are negatively related to the maturity of the bank loan. Finally, the spread over the London Interbank Office Rate (Libor) is positively related to the maturity of the arrangement, and the increase in leverage of the borrower, but it is not significantly related to the unexpected earnings changes of the borrower. Overall, the above findings do not support the uniqueness of bank loans hypothesis

CREATING VALUE WITH MERGERS AND ACQUISITIONS

This report addresses two key questions for today's top executives: Do acquisitions create value for acquirers? And under what circumstances have acquisitions created the most value for acquiring shareholders? 2004 Morgan Stanley.

Creating Value Through Best-In-Class Capital Allocation-super-1

With the economy showing signs of recovery, companies are shifting their focus from liquidity and balance sheet concerns back towards capital allocation and value creation. This article provides a comprehensive framework to examine shareholder value creation through capital allocation, and discusses important capital allocation lessons that have re-emerged over the last few years. Copyright Copyright (c) 2009 Morgan Stanley.