Activism mergers

Shareholder value creation from hedge fund activism occurs primarily by influencing takeover outcomes for targeted firms. Controlling for selection decisions, activist interventions substantially increase the probability of a takeover offer. Third-party bids for targets have higher returns, premia, and completion rates, but these patterns reverse when the activist is the bidder. Failed bids for activism targets lead to improvements in operating performance, financial policy, and positive long-term abnormal returns, suggesting that activism enhances value. The positive long-term performance from hedge fund activism arises from monitoring target management during merger and acquisition contests and not from target undervaluation or bidder overpayment

Did Structured Credit Fuel the LBO Boom?

We demonstrate a link between the twin storms underlying the current financial crisis – the market for collateralized debt obligations (CDOs) and the market for leveraged loans. We show that structural changes in credit markets that led to the explosion in CDOs created an increased supply of bank loans for funding LBOs. This structured lending supported by CDOs led to cheaper credit, looser covenants, and more aggressive use of bank loans in financing LBOs. However, in sharp contrast to the LBO boom in the late 1980s, this easy credit did not lead to riskier LBO deals or deal structures. Our findings point to the effects of disintermediation of banks as they switched from an originate-and-hold to an originate-to-distribute lending model

How Do Pensions Affect Corporate Capital Structure Decisions?

This paper examines the capital structure implications of defined benefit corporate pension plans. The magnitude of the liabilities arising from these pension plans is substantial. We show that leverage ratios for firms with pension plans are about 35% higher when pension assets and liabilities are incorporated into the capital structure. We estimate that the tax shields from pension contributions are about a third of those from interest payments. Pension contributions have a modest effect in lowering firms’ marginal corporate tax rates. Once pensions are considered, firms are less conservative in their choice of leverage than has been previously thought. We show that firms incorporate the magnitude of their pension assets and liabilities into their capital structure decisions

REVISE AND RESUBMIT Corporate Governance and Investor Rationality: Evidence from the 1990s' Technology Bubble

Several studies document irrational investor behavior related to Internet firms during the 1990s' technology bubble. This paper investigates whether investors display the same behavior towards nonInternet firms that adopt Internet technology in the same time period. I find a positive association between short-and long-term metrics of firm performance related to the launching of commercial web sites by non-Internet companies. However, the extent to which this positive association exists is largely driven by the quality of the firms' corporate governance. These results indicate that investors were not universally irrational during the 1990s technology bubble. In addition, my findings also highlight the relevance of corporate governance in mitigating information asymmetry when technological innovations with an uncertain impact on firm value affect the economy. Why did the launching of a commercial web site generate opposite market responses for two retailers in the same industry? Differences between the two firms, reported in Another difference of potential importance between ShopKo and Cost Plus is the level of protection these firms grant their shareholders as measured by the Gompers, Ishii, and Metrick 2 In this paper, I use a broad sample of firms to study whether, based on the way companies are governed, investors react differently to firms' adoptions of new technologies. I also study whether investors' reactions to the adoption of new technologies are rational. The 1990s technology bubble provides an excellent setting to study these research questions. This period witnessed the emergence of the Internet as new commercial medium. The efficacy of this new technology was the source of considerable uncertainty. Several finance studies, discussed in the next section, document irrational investor behavior around tech stocks during the 1990s technology bubble. 2 However, none of the existing studies document whether investors were universally irrational during the period. That is, whether the irrational behavior was limited to tech stocks or whether investors were able to moderate uncertainty and act rationally. To address my research questions, as in the case-study of ShopKo and Cost Plus, I examine the effect of launching a commercial web site during the 1990s on firm value in non-Internet companies. This choice is motivated by the notion that establishing a web site is a necessary --though not sufficient--condition for any firm in order to adopt and implement the new technology and perhaps conduct business on the Internet. 3 I recognize that results supporting irrational investor behavior might also be consistent with investors' short-term or myopic behavior, (Stein (1989)), and with the notion that stock prices fail to reflect future earnings 4 Both short-and long-term payoffs are necessary to test for rational investor behavior because, under efficient markets, one would only expect to observe meaningful short term stock revaluations for events that investors believe will have a lasting and positive effect on the firm's future cash flows and profitability. In addition, the study of short-and long-term performance metrics enables me to dispel concerns over myopic investor behavior. 2. For example, 3 My initial proxy for corporate governance is the G-index, which counts restrictions on shareholder rights. Therefore, a lower (higher) G-index is commonly interpreted to proxy for strong (weak) shareholder rights and stronger (weaker) governance quality. I am aware that the use of the Gindex as an appropriate proxy for corporate governance is also the subject of debate. In robustness tests, the G-index is replaced with alternative governance metrics which yield qualitatively similar results. Initial results show that, on average, investors receive the introduction of commercial web sites enthusiastically, but I also find that operating performance declines in the years following the launching. Taken together, these results suggest that investors were overly excited in their initial evaluation of the impact of web sites on firm value and profitability, and appear consistent with both irrational and myopic behavior by investors. However, further tests which incorporate corporate governance to the analysis, do not lend support to the either one of these conjectures and allow me to reject irrational and myopic behavior hypotheses. Subsequent analyses show that the extent to which investors react positively to web site introductions is largely driven by whether the firm's level of investor protection is strong. Moreover,

SOX2 is an amplified lineage-survival oncogene in lung and esophageal squamous cell carcinomas

Lineage survival oncogenes are activated by somatic DNA alterations in cancers arising from the cell lineages in which these genes play a role in normal development.1,2 Here we show that a peak of genomic amplification on chromosome 3q26.33, found in squamous cell carcinomas (SCCs) of the lung and esophagus, contains the transcription factor gene SOX2—which is mutated in hereditary human esophageal malformations3 and necessary for normal esophageal squamous development4, promotes differentiation and proliferation of basal tracheal cells5 and co-operates in induction of pluripotent stem cells.6,7,8 SOX2 expression is required for proliferation and anchorage-independent growth of lung and esophageal cell lines, as shown by RNA interference experiments. Furthermore, ectopic expression of SOX2 cooperated with FOXE1 or FGFR2 to transform immortalized tracheobronchial epithelial cells. SOX2-driven tumors show expression of markers of both squamous differentiation and pluripotency. These observations identify SOX2 as a novel lineage survival oncogene in lung and esophageal SCC

Hedgehog signalling, TGF-β signalling and spermatogenesis in Drosophila melanogaster

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Divestitures and divisional investment policies

We study a sample of divestitures that alter the divisional organizational structure of diversified firms. We find that these firms experience substantial increases in firm value around the reorganization. Firms that continue to operate as diversified firms cut back on divisional investment levels and display improvements in the allocation of capital across divisions. Firms that refocus to become single segment firms significantly increase the investment of the surviving division. We find that improvements in the efficiency with which internal capital markets allocate investment are an important determinant of the gains from divestitures. Divestitures also enhance firm value by providing a source of funding for financially constrained segments. 2 Divestitures and Divisional Investment Policie