Public information and IPO underpricing

We analyze the effect of public information on rational investors' incentives to reveal private information during the bookbuilding process and their demand for allocations in the IPO. Our model generates several new predictions. First, investors require more underpricing to truthfully reveal positive private information in bear markets than in bull markets (the incentive effect). Second, the fraction of positive private signals and of underpriced IPOs is increasing in market returns (the demand effect). Combined, these two effects can explain why IPO underpricing is positively related to pre-issue market returns, consistent with extant evidence. Using a sample of 5,000 U.S. IPOs from 1981-2008, we show that the empirical implications of the model are borne out in the data.Public information; partial adjustment; underpricing; IPOs; bookbuilding

Curriculum integration and knowledge representation in practical learning environments: continuing dilemmas for physical education in Scotland

My years teaching physical education examination awards in high school revealed some of the pedagogical complexities involved in putting into practice experiential learning approaches in a formal examination context. Furthermore, analysis of assessment results at national level indicated profound annual i mbalances between students' practical performance and analytical abilities (as assessed by written examination answers). Therefore, the central research question in this thesis examines, through a progressive programme of research, the reasons why there is such a marked imbalance in the attainment profile of students. The first phase of research collected evidence from 40 semi-structured teacher and group student interviews, completed in ten high schools. Results h ighlighted marked differences in the pedagogical practices teachers adopted when attempting to deploy practical experiential learning approaches. There were some schools where the short-term assessment pressures were determining the methodology and quality of student learning experiences. There were other schools where prescriptive assessment answers had been developed and lastly schools which were characterised by a high level of teacher expertise for practical experiential teaching. Crucially, students in these schools completed the written assessment answers in the divergent open manner expected. To understand, in detail, the effects of different pedagogical approaches on student learning and assessment, the second research phase tracked the development of students' learning in six of the original ten schools, with schools being selected from each of the types of schools previously identified. Analysis of students' assessment evidence revealed that while some schools results had improved, year-on-year improvements have proved difficult to achieve in many schools. Throughout both research phases the dominant attribution of teachers in explaining students' under-performance was the nature of the written assessment instrument used in examinations. Consequently, the third phase of research compared oral and written assessment procedures in order to Jearn more about the accuracy and authenticity of both methods of assessment. Evidence showed, that while the higher levels of attainment anticipated by many teachers were not realized, there were encouraging indications that oral assessment could enhance the quality of students' learning and assessment experience, and inform teachers' curriculum decision-making. As well as progressively investigating the central research question it was also pertinent to explore factors associated with how examination awards have been conceived, and how they might be constructed in future years. The wider conceptual analysis and framing of the central research question pointed up how current difficulties in re lation to assessment challenge existing epistemological and ontological assumptions about the nature of physical education. The concluding chapter summarizes the major findings arising from the different phases of applied research and reports on the types of interventions which might best address the shortcomings reported in the thesis. Accordingly, the major professional issues associated with teaching, learning and assessment are considered prior to reviewing how professional development opportunities for teachers could be improved. Finally, research interventions which could provide more detailed insights on how to improve practical experiential learning environments in examination awards are outlined

Merger negotiations with stock market feedback

Merger negotiations routinely occur amidst economically significant a target stock price runups. Since the source of the runup is unobservable (is it a target stand-alone value change and/or deal anticipation?), feeding the runup back into the offer price risks "paying twice" for the target shares. We present a novel structural empirical analysis of this runup feedback hypothesis. We show that rational deal anticipation implies a nonlinear relationship between the runup and the offer price markup (offer price minus runup). Our large-sample tests confirm the existence of this nonlinearity and reject the feedback hypothesis for the portion of the runup not driven by the market return over the runup period. Also, rational bidding implies that bidder takeover gains are increasing in target runups, which our evidence supports. Bidder toehold acquisitions in the runup period are shown to fuel target runups, but lower rather than raise offer premiums. We conclude that the parties to merger negotiations interpret market-adjusted target runups as reflecting deal anticipation.Merger negotiations; stock market feedback

Corporate restructuring

We survey the empirical literature on corporate nancial restructuring, including breakup transactions (divestitures, spin-o s, equity carveouts, tracking stocks), leveraged recapitalizations, and leveraged buyouts (LBOs). For each transaction type, we survey techniques, deal nancing, transaction volume, valuation e ects and potential sources of restructuring gains. Many breakup transactions are a response to excessive conglomeration and reverse costly diversi cation discounts. The empirical evidence shows that the typical restructuring creates substantial value for shareholders. The value-drivers include elimination of costly cross-subsidizations characterizing internal capital markets, reduction in nancing costs for subsidiaries through asset securitization and increased divisional transparency, improved (and more focused) investment programs, reduction in agency costs of free cash ow, implementation of executive compensation schemes with greater pay-performance sensitivity, and increased monitoring by lenders and LBO sponsors. Buyouts after the turn of the century created value similar to LBOs of the 1980s. Recent developments include consortiums of private equity funds (club deals), exits through secondary buyouts (sale to another LBO fund), and evidence of persistence in fund returns. LBO deal nancing has evolved towards lower leverage ratios. In Europe, recent deals are nanced with less leveraged loans and mezzanine debt and more high-yield debt than before. Future research challenges include integrating analyses across transaction types and nancing mixes, and producing unbiased estimates of the expected return from buyout investments in the presence of limited data on portfolio companies that do not return to public status

Voluntary Corporate Environmental Initiatives and Shareholder Wealth

Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA\u27s Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value

Gains to Bidder Firms Revisited: Domestic and Foreign Acquisitions in Canada

We present large sample evidence on the performance of domestic and U.S. (foreign) bidder firms acquiring Canadian targets. Domestic bidders earn significantly positive average announcement period abnormal returns, while U.S. bidder returns are indistinguishable from zero. Measures of pre- and post-acquisition abnormal accounting performance are also consistent with a superior domestic bidder performance. Domestic bidder announcement returns are, on average, greatest for offers involving stock payment and for the bidders with the smallest equity size relative to the target. Neither direct foreign investment controls, horizontal product market relationships, nor acquisition propensities explain why domestic bidders outperform their U.S. competitors

Creditor Financing and Overbidding in Bankruptcy Auctions: Theory and Test

We present unique empirical tests for auction overbidding using data from Sweden\u27s auction bankruptcy system. The main creditor (a bank) can neither bid in the auction nor refuse to sell in order to support a minimum price. However, we argue that the bank may increase its expected revenue by financing a bidder in return for a joint bid strategy, and we show that the optimal coalition bid exceeds the bidder\u27s private valuation (overbidding) by an amount that is increasing in the bank\u27s ex ante debt impairment. We find that bank–bidder financing arrangements are common, and our cross-sectional regressions show that winning bids are increasing in the bank-debt impairment as predicted. While, in theory, overbidding may result in the coalition winning against a more efficient rival bidder, our evidence on post-bankruptcy operating performance fails to support such allocative inefficiency effects. We also find that restructurings by bank-financed bidders are relatively risky as they have greater bankruptcy refiling rates, irrespective of the coalition\u27s overbidding incentive

Corporate Restructuring

We survey the empirical literature on corporate financial restructuring, including breakup transactions (divestitures, spinoffs, equity carveouts, tracking stocks), leveraged recapitalizations, and leveraged buyouts (LBOs). For each transaction type, we survey techniques, deal financing, transaction volume, valuation effects and potential sources of restructuring gains. Many breakup transactions appear to be a response to excessive conglomeration and attempt to reverse a potentially costly diversification discount. The empirical evidence shows that the typical restructuring creates substantial value for shareholders. The value-drivers include elimination of costly cross-subsidizations characterizing internal capital markets, reduction in financing costs for subsidiaries through asset securitization and increased divisional transparency, improved (and more focused) investment programs, reduction in agency costs of free cash flow, implementation of executive compensation schemes with greater pay-performance sensitivity, and increased monitoring by lenders and LBO sponsors. Buyouts after the 1990s on average create value similar to LBOs of the 1980s. Recent developments include consortiums of private equity funds (club deals), exits through secondary buyouts (sale to another LBO fund), and evidence of persistence in fund returns. LBO deal financing has evolved toward lower leverage ratios. In Europe, recent deals are financed with less leveraged loans and mezzanine debt and more high-yield debt than before. Future research challenges include integrating analyses across transaction types and financing mixes, and producing unbiased estimates of the expected return from buyout investments in the presence of limited data on portfolio companies that do not return to public status. DOI:10.1561/050000002

How Costly is Corporate Bankruptcy for the CEO?

We examine chief executive officer (CEO) career and compensation changes for large firms filing for Chapter 11. One-third of the incumbent CEOs maintain executive employment, and these CEOs experience a median compensation change of zero. However, incumbent CEOs leaving the executive labor market suffer a compensation loss with a median present value until age 65 of $7 million (five times pre-departure compensation). The likelihood of leaving decreases with profitability and CEO share ownership. Furthermore, creditor control rights during bankruptcy (through debtor-in-possession financing and large trade credits) are associated with CEO career change. Despite large equity losses (median$11 million for incumbents who stay until filing), the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy

Automatic Bankruptcy Auctions and Fire-Sales

We test for fire-sale tendencies in automatic bankruptcy auctions. We find evidence consistent with fire-sale discounts when the auction leads to piecemeal liquidation, but not when the bankrupt firm is acquired as a going concern. Neither industry-wide distress nor the industry affiliation of the buyer affect prices in going-concern sales. Bids are often structured as leveraged buyouts, which relaxes liquidity constraints and reduces bidder underinvestment incentives in the presence of debt overhang. Prices in “prepack” auctions (sales agreements negotiated prior to bankruptcy filing) are on average lower than for in-auction going-concern sales, suggesting that prepacks may help preempt excessive liquidation when the auction is expected to be illiquid. Prepack targets have a greater industry-adjusted probability of refiling for bankruptcy, indicating that liquidation preemption is a risky strategy