Managerial compensation and shareholder wealth consequences of white knight behavior.

This dissertation investigates the manager motivations involved in the participation of White Knights (WKs) in corporate control contests. The three features of WK bids, viz. (i) it is a subsequent bid, (ii) it is a friendly bid and (iii) it follows a hostile bid, combine uniquely to provide the context for varying bidding motivations of WK managers relative to the hostile bidders (HBs). An analysis of the sequence of bidding in these contests reveals a category called HHW WKs who make their bid after two consecutive bids by the HB, and tend to take relatively more time in doing so. The non-HHW WKs make their bid in relative haste after the first HB bid. Overpayments by WKs, for which statistical evidence is documented, are observed to be much more pervasive, and of considerably greater economic magnitudes, for non-HHW WKs. The managers of HHW WKs are thus more likely to be firm value maximizers; any observed overpayments could be the result of hubris or the winner\u27s curse. However, the managers of non-HHW WKs may not be maximizing firm value through their bids, implying an absence of proper ex-ante incentive alignments for minimizing agency conflicts. These managers may thus have a lower proportion of annual expected income from their separate holdings of stock and stock options relative to their annual cash compensation (defined as variables COM and OP respectively). An examination of the structure of compensation packages of managers reveals that COM is lower for non-HHW WKs as compared to HHW WKs. OP is unable to directly distinguish between non-HHW WKs and HHW WKs. Yet, OP (as well as COM) are lower for non-HHW WKs relative to HBs. Further, neither COM nor OP is able to differentiate between HHW WKs and HBs. Thus, if HBs are considered as firm value maximizers, then HHW WKs are likely to be governed by similar motivations. In contrast, size maximization goals leading to higher proportions of cash compensation for their managers may dominate the acquisition activity of non-HHW WKs. External monitoring to limit agency conflicts, as proxied by relative debt levels, is also lower for non-HHW WKs

Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave

In the first time-event analysis of the great merger wave of 1897-1903, we find that the consolidations created value for merger participants of 12% to 18%. We next find that the competitors suffered significant value losses inconsistent with conventional monopoly behavior (i.e., trust-induced output reductions and price increases). This result might be explained by apprehensions of trust predation rather than expected efficiency, but further analysis suggests that this is unlikely. Revelation of trust membership or prior stock market mispricing are also unlikely alternative explanations. On balance, therefore, the evidence indicates that these mergers were generally motivated by more efficient operations, rather than monopoly power.

Why Regulate Insider Trading? Evidence from the First Great Merger Wave (1897-1903)

We use event-time methodology to study legal insider trading associated with mergers circa 1900. For mergers with "prospective" disclosures similar to today's, we find substantial value gains at announcement, implying participation by "outside" shareholders despite the absence of insider constraints. Furthermore, preannouncement stock-price runups, relative to total value gain, are no more than those observed for modern mergers. Insider regulation apparently has produced little benefit for outsiders, with the inside information-pricing function and related gains shifting to external "information specialists." Other results suggest market penalties for nondisclosure; i.e., insider trading is less successful in a restricted information environment.