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Abstract:
This study surveys the literature examining the privatization
of state-owned enterprises(SOEs). We overview the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much has privatization improved the performance of former SOEs in both non-transition and transition countries, how investors in privatizations have fared, the impact of privatization on the development of capital markets and corporate governance. We concentrate on the empirical evidence on the effects of privatization on firm performance. In most setting privatization "works" in that the firms become more efficient, more profitable, financially healthier, and reward investors. While this holds in both transition and non-transition economies, there is more variation in transition economies. Especially in transition economies, the identity of the new owners and managers is important in determining post-privatization performance.

Privatization, Transitional Economics, Equity Offering, International Finance, Corporate Governance, State Owned Enterprises, Public Ownership, Performance

Abstract:
During the second half of 1999, the cumulative value of privatization sales proceeds received by governments around the world topped $1 trillion. While it has thus significantly reduced the global fiscal burden, and has significantly altered the world's economic landscape, privatization has also raised important questions. While there is now ample empirical evidence that privatization improves the performance of divested firms, to date there has been very little study of why these performance improvements occur. We use a sample of 119 firms (from 29 countries and 28 industries), privatized via public share offering between 1961 and 1995, to address this important issue. We first contribute to the existing empirical literature by documenting significant increases in profitability, efficiency, output, and capital expenditures, and significant decreases in leverage following privatization. Unlike any other large-sample empirical study of share-issue privatization, we then study the determinants of these performance improvements using six proxies for performance changes.

Prior to privatization, governments may choose to restructure firms through ownership changes (i.e., establish relation with strategic foreign investors, implement employee share ownership plan) and/or acquisitions and divestitures and/or financial restructuring (i.e., debt write-offs). Our results confirm that both restructuring and changes in corporate governance are important determinants of post-privatization performance. Therefore, our data identify both "micro" and "macro" sources of post-privatization performance improvement.

Following privatization, firms significantly increase profitability, output per employee, and real sales. These results add to the growing empirical evidence that, following privatization firms become more profitable and efficient. Our data provide evidence of stronger profitability gains for firms with lower employee ownership and higher state ownership, stronger output gains for firms in competitive industries and for firms in countries with growing economies. Stronger efficiency gains are observed when foreign ownership is high, for firms that restructured, for firms in developing nations and when the share offer size is relatively small compared to total national market capitalization. We find that higher levels of employee ownership are associated with greater increases in capital expenditure after privatization. Finally, our results indicate that leverage increases more for firms with higher foreign ownership, those located in developing economies and those in countries with rapidly growing economies.

Abstract:
This paper examines the financial and operating performance of 31 national telecommunication companies in 25 countries that were fully or partially privatised through public share offering between October 1981 and November 1998. Using conventional pre- versus post-privatisation comparisons, we find that profitability, output, operating efficiency and capital investment spending increase significantly after privatisation, while employment and leverage decline significantly. However, these univariate comparisons do not account for separate regulatory and ownership effects (retained government stake), and almost all telecoms are subjected to material new regulatory regimes around the time they are privatised. We examine these separate effects using both random and fixed-effect panel data estimation techniques for a seven-year period around privatisation. We verify that privatisation is significantly related to higher profitability, output and efficiency, and with significant declines in leverage. However, we also find numerous separable effects for variables measuring regulation, competition, retained government ownership and foreign listing (on U.S. and U.K. exchanges). Competition significantly reduces profitability, employment and, surprisingly, efficiency after privatisation, while creation of an independent regulatory agency significantly increases output. Mandating third party access to an incumbent - network is associated with a significant decrease in the incumbent - investment and an increase in employment. Retained government ownership is associated with a significant increase in leverage and a significant decrease in employment, while price regulation significantly increases profitability. Major efficiency gains result from better incentives and productivity, rather than from wholesale firing of employees and profitability increases appear to be caused by significant reductions in costs - rather than price increases. On balance, we conclude that the financial and operating performance of telecommunications companies improves significantly after privatisation, but that a sizeable fraction of the observed improvement results from regulatory changes - alone or in combination with ownership changes - rather than from privatisation alone.

Privatisation, regulation, corporate governance, telecommunications

Abstract:
This paper examines the relation between legal risk - defined as the strength and enforcement of creditors' rights - and debt ownership concentration to understand the various governance roles played by banks as large creditors. Using a sample of 495 project finance loan tranches (worth $151 billion) to borrowers in 61 different countries, we document high absolute levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical loan tranche. We also show that syndicates in countries with weak creditor rights and poor legal enforcement are larger and more diffuse. Based on this finding, we conclude that lenders structure loan syndicates to facilitate monitoring and low-cost re-contracting in countries where creditors have strong and enforceable legal rights. In contrast, lenders attempt to deter strategic defaults by creating larger and more diffuse syndicates when they cannot resort to legal enforcement mechanisms to protect their claims.

creditor rights, international corporate governance, bank lending, project finance, syndication

Abstract:
This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Transaction Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform an event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average - 15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $66 billion on their holdings of listed stock investments alone through March 2009.

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
This paper provides the first full-length empirical analysis of project finance, which is defined as "limited or non-recourse financing of a newly to be developed project through the establishment of a vehicle company." We compare the characteristics of a sample of 4,956 project finance loans (worth $634 billion) to comparable samples of non-project finance loans, all of which are drawn from a comprehensive sample of 90,784 syndicated loans (worth $13.2 trillion) booked on international capital markets since 1980. We find that project finance (PF) loans differ significantly from non-project finance loans in that PF loans have a longer average maturity, are more likely to have third-party guarantees, and are far more likely to be extended to non-US borrowers and to borrowers in riskier countries. PF credits also involve more participating banks, have fewer loan covenants, are more likely to use fixed-rate rather than floating-rate loan pricing, and are more likely to be extended to borrowers in tangible-asset-rich industries such as real estate, and electric utilities. Despite being non-recourse finance, floating-rate PF loans have lower credit spreads (over LIBOR) than do most comparable non-PF loans. Contrary to expectations, we find that PF loans are not larger than non-PF loans, but are in fact significantly smaller than corporate control or capital structure loans (two of the four non-PF loan samples examined). Loan pricing regression analysis reveals that PF and non-PF loans are funded in segmented capital markets, with spreads on PF loans being influenced both by different factors and to different degrees by common factors. PF loan spreads are directly related to borrower country risk, the use of covenants in the loan contract, and project leverage. Spreads are also higher when a borrower is in a tangible-asset-rich industry, and loan spreads and fees are shown to be complements rather than supplements. The presence of a third-party guarantee significantly reduces PF loan spreads, while loan size and maturity generally do not influence PF loan pricing. Though direct comparisons of the leverage ratios of project finance vehicle companies and the operating companies that arrange most syndicated loans are not possible, we do find that projects funded with PF loans are indeed heavily leveraged-with an average loan to project value ratio of 67 percent. Finally, when we apply an organizational choice model to a large sample of loans extended to borrowers in industries, which frequently use project finance, we are able to achieve out-of-sample predictive accuracy of almost 80 percent.

project finance, limited recourse

Abstract:
This study examines the impact of the degree of merger-related change in corporate focus on the long-run return to investors in mergers and acquisitions executed since 1977. Using a sample of 204 completed acquisitions, selected to be free of post-merger contaminating events, and a continuous measure of merger-related change in corporate focus, we find that long-run returns are strongly positively related to the change in focus. On average, focus-decreasing mergers result in over a 25% relative loss in stockholder wealth by the third post-merger year, and every 10% decrease in focus results in a 9% loss in stockholder wealth. We also find that entering entirely new lines of business is the most detrimental action for acquiring firm shareholders ? resulting in a relative wealth loss of 31% by the third post-merger year. We examine managers? incentives to pursue diversification and find that acquirers with low levels of managerial ownership appear more likely to pursue focus-decreasing activities financed with stock than are their counterparts with higher managerial ownership levels. Our results are robust across payment method, attitude of target management, and acquirers? pre-merger book-to-market ratio.

Abstract:
This paper examines how legal risk, defined as the strength of creditor rights and legal enforcement, affects debt ownership concentration in the project finance loan market. Using a sample of 495 project finance loan tranches from 61 countries, worth $151 billion, we document high levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical project finance loan tranche. We also show that weak creditor rights and poor legal enforcement are associated with more diffuse ownership structures, which leads us to conclude that international project finance lenders structure syndicates to deter strategic default rather than to enhance monitoring incentives or facilitate low-cost re-contracting in the event of default. On a more theoretical level, the results illustrate the continuous nature of debt ownership and refute the overly simplistic distinction between single bank creditors and atomistic public bondholders commonly described in the literature.

Key words: bank lending, project finance, syndication, international corporate governance, creditor rights, legal rules and enforcement

Abstract:
Using a sample selection and benchmarking methodology designed to more accurately assess merger-related changes in corporate focus, we find a significantly positive relationship between corporate focus and long-term merger performance. We find that focus-decreasing (FD) mergers result in significantly negative long-term performance. On average, FD mergers result in an over 18% loss in stockholder wealth, a 9% loss in firm value, and significant declines in operating cash flows three years after merger. Mergers that either preserve or increase focus (FPI) result in mostly insignificant changes in long-term performance. These results are consistent with prior corporate focus studies, suggesting that existing merger studies finding the opposite result are the result of measurement error. After controlling for other variables related to post-merger performance - method of payment, managerial resistance, and book-to-market ratio - we find that the positive relationship between changes in focus and long-term performance continues to hold. A continuous measure of focus change (DHI) also indicates that the magnitude of focus changes is significant. Every 10% decrease in focus results in a 9% loss in stockholder wealth, a 1+% decline in operating performance, and a 4% discount in firm value. Cash is positively related to long-term performance, but the relationship is significant only for operating performance. Cash-financed FPI mergers exhibit the best and stock-financed FD mergers the worst long-term performance. The negative performance of stock-financed FD mergers is driven by pure conglomerate mergers in the early years of our study. FPI mergers outperform FD mergers in both time periods, but differences are significant only in the earlier years. However, the DHI variable is significant in both time periods, indicating that the magnitude of corporate focus changes is the more important measure of corporate focus or diversification.

Corporate focus, Corporate diversification, Mergers, Acquisitions, Post-merger performance

Abstract:
This paper examines whether a truly global market for venture capital and private equity is emerging or whether the current situation of segmented national markets is likely to endure. We document very rapid growth in venture capital fund raising and investment over the past decade in the United States, Western Europe and in certain Asian countries, but not in Japan or in most developing countries. We compare contracting practices, investment patterns and returns between the U.S. and Europe, and find that there has been considerable convergence between these two large VC markets, particularly during the past five years. This convergence is likely to continue. Nonetheless, we conclude that the major national markets will remain effectively segmented and suggest that venture capital will continue to be much more important in common law countries than in civil law countries for the foreseeable future.

venture capital

Abstract:
This study describes the Indian corporate governance system and examines how the system has both supported and held back India's ascent to the top ranks of the world's economies. While on paper the country's legal system provides some of the best investor protection in the world, the reality is different with slow, over-burdened courts and widespread corruption. Consequently, ownership remains highly concentrated and family business groups continue to be the dominant business model. There is significant pyramiding and tunneling among Indian business groups and, notwithstanding copious reporting requirements, widespread earnings management. However, most of India's corporate governance shortcomings are no worse than in other Asian countries, and its banking sector has one of the lowest proportions of non-performing assets, signifying that corporate fraud and tunneling are not out of control. The corporate governance scenario in the country has been changing fast over the past decade, particularly with the enactment of Sarbanes-Oxley type measures and legal changes to improve the enforceability of creditor's rights. If this trend is maintained, India should have the quality of institutions necessary to sustain its impressive current growth rates.

Corporate Governance, International Financial Markets, Government Policy and Regulation

Abstract:
This study has two objectives: to estimate the impact of share issue privatisations on the growth of world capital markets (especially stock markets), and to examine the effect privatisation has had on the pattern of share ownership by individuals and institutional investors. We begin by documenting the increasing importance of capital markets, and the declining role of commercial banks, in corporate financial systems around the world. We then show that privatisation programmes have had a dramatic impact both on the development of non-U.S. stock markets and on the participation of individual and institutional investors in those markets. Our research documents the following key points: (1) the fraction of total domestic credit provided by the banking sector, as a percent of GDP, remained virtually constant (125 percent) between 1990 and 1998 for the world as a whole, as well as for most major country groupings. (2) During that same time period, stock market capitalisation as a percent of GDP increased from 52 to 82 percent for the world as a whole, and from 56 to 95 percent for high income countries. Market capitalisation is now over $39 trillion, which almost certainly exceeds world capitalisation. (3) Share trading volume (value of shares traded) increased even more dramatically, from 29.0 percent of world GDP in 1980 to 79.3 percent in 1998, when it reached $22.9 trillion. (4) The total market value of privatised firms grew from less than $50 billion in 1983 to almost $2.5 trillion in 1999-roughly 10 percent of the world's aggregate market capitalisation, and 21 percent of the non-U.S. total. (5) Privatised firms are the most valuable companies in seven of the ten largest non-U.S. stock markets, including the four largest, as well as in most developing countries. (6) Share issue privatisations (SIPs) have transformed international equity issuance and investment banking practices. The 25 largest - and 35 of the 39 largest - common stock issues in history have all been privatisations, and governments have raised over $700 billion through some 750 SIPs since 1977 - and over $1 trillion through all privatisation methods. (7) Academic research has now clearly established that, in most countries, SIP investors earn significantly positive excess (market-adjusted) returns on the shares they purchase - over both short and long term holding periods. (6) Privatisations have dramatically increased the number of shareholders in many countries. Almost two-thirds of the 54 non-U.S. firms (67 including US companies) with over 500,000 shareholders are privatised companies, and roughly a dozen SIPs have more than 1,000,000 initial shareholders. SIPs generally have a far larger number of stockholders than do capitalisation-matched private firms in the same country. (7) However, we also find that the extremely large numbers of shareholders created by many SIPs are not a stable ownership structure. For the 47 offers that initially yield over 250,000 shareholders, the total number of shareholders declines by one-third within five years.

Abstract:
Using a unique database of over 3400 listed industrial companies, we examine the evolution of dividend policy from 1989 to 2003 in the fifteen nations that were members of the European Union in May 2004. As in the United States, the fraction of European firms paying dividends declines dramatically over this period, from 91 to 62 percent of listed companies, while total real dividends paid and dividend payments as a fraction of total corporate profits increase significantly. Dividends and earnings are concentrating as sharply among European as among American companies, and similar company characteristics like size, profitability, and firm age increase both the propensity to pay dividends and the amount of dividends paid. Asset growth rate, leverage and being headquartered in a civil law country reduce dividend amounts and propensities to pay, but we find neither systematic dividend catering effects in Europe nor conclusive evidence of continent-wide convergence in dividend policy.

Payout policy, economic integration, international financial markets, corporation and securities law

Abstract:
Using a unique database of over 3400 listed industrial companies, we examine the evolution of dividend policy from 1989 to 2003 in the fifteen nations that were members of the European Union in May 2004. As in the United States, the fraction of European firms paying dividends declines dramatically over this period, from 91 to 62 percent of listed companies, while total real dividends paid and dividend payments as a fraction of total corporate profits increase significantly. Dividends and earnings are concentrating as sharply among European as among American companies, and similar company characteristics like size, profitability, and firm age increase both the propensity to pay dividends and the amount of dividends paid. Asset growth rate, leverage and being headquartered in a civil law country reduce dividend amounts and propensities to pay, but we find neither systematic dividend catering effects in Europe nor conclusive evidence of continent-wide convergence to dividend policy.

Payout policy, economic integration, international financial markets, corporation and securities law

Abstract:
This paper surveys the empirical literature examining bank privatization. We begin by documenting the extent of, theoretical rationale for, and measured performance of state-owned banks around the world, and then assess why many governments have chosen to privatize their often very large state owned banking sectors. The empirical evidence clearly shows that state owned banks are far less efficient than privately owned banks, and that state domination of banking imposes increasingly severe penalties on those countries with the largest state banking sectors. On the other hand, there is little in the empirical record to suggest that privatization alone transforms the efficiency of divested banks, especially when these are only partially privatized. Privatization generally improves performance, but by far less than is typically observed in studies of non-financial industries. An increasingly common outcome of large-scale bank privatization programs is foreign ownership of many nations' banking sector, which evidence suggests is usually positive in an economic sense, but problematic politically.

Bank, privatization, state owned, ownership

Abstract:
This study adds to the empirical evidence that privatization improves the performance of divested firms and offers preliminary evidence as to why these performance improvements occur. Using a sample of 129 share-issue privatizations from 23 developed (OECD) countries, we first document significant increases in profitability, efficiency, output, and capital expenditure following privatization. Our data indicate that ownership (both private and foreign), degree of economic freedom, and level of capital market development significantly affect post-privatization performance. A comparison to the findings of Boubakri, Cosset, and Guedmani (2004) suggests that several determinants of post-privatization performance improvements differ between developed and developing countries.

Privatization, corporate governance

Abstract:
The average underpricing of Chinese IPOs is 267 percent, the highest of any major world market. Using a sample of 1,124 IPOs listed on the Shanghai and Shenzhen Stock Exchanges between 1991 and 2000, we examine empirically the determinants of this extreme level of underpricing. We find it is caused partly by very high investment risks, of the type documented in many other markets, but mostly results from uniquely Chinese regulatory risks and costs. The government regulator sets a cap on pricing IPO shares and stipulates IPO allocation quotas to control the supply of IPO shares. There is also a very long time gap (34 day median, 305 days average) between going public and the actual listing of shares for trading, causing high lockup risk. Investors in China's primary market also discount IPO shares for extreme tunneling and grabbing risks, since these high initial returns benefit governmental political and financial interests and maximize the private benefits of key social elites.

IPO Underpricing, Regulation, Investment Risks, Privatizations, Corporate Governance

Abstract:
Using a sample of 2477 privatizations from 108 countries that raised $1.2 trillion between 1977 and 2000, we analyze the choice between raising funds in public versus private capital markets. This choice is influenced by capital market, political, and firm-specific factors. Share issue privatizations (sales of shares through public equity markets) are more likely in less developed capital markets, probably as a way to help develop capital markets, and for larger and more profitable state-owned enterprises. In contrast, asset sales (sales to a small group of investors using private capital markets) are more likely to occur where governments respect property rights, and are thus not expected to expropriate the privatized assets.

Abstract:
Using a sample of 161 firms (privatized from 1961-1999), our study offers evidence regarding how restructurings and corporate governance changes affect the firm's post-privatization performance. Prior to privatization, governments may choose to restructure firms through governance changes (i.e., establish relation with strategic foreign investors, implement employee share ownership plans) and/or restructurings (i.e., acquisitions, divestitures, re-capitalizations). We first extend the existing privatization research by documenting and describing these restructurings. We then conduct preliminary tests to examine whether such restructurings/governance changes have contributed to improvements in post-privatization operating performance. Our results suggest that both restructuring and changes in corporate governance are important determinants of post-privatization performance. We feel that our multi-national, multi-industry sample provides a broad perspective of share-issue privatizations and offers opportunities to identify potential sources of efficiency improvements in newly privatized firms.

International financial markets, performance, privatization

Abstract:
This study describes the newly created FEEM-Monitor Sovereign Wealth Fund Database and discusses the investment patterns and performance achieved for 1,216 individual investments, worth over $357 billion, made by 28 sovereign wealth funds (SWFs) between January 1986 and September 2008. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted American, British, or Singaporean company, made by a SWF from Singapore or the United Arab Emirates in June 2005. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes, with only 23 deals worth $677 million being listed as open market purchases of stock in listed firms. We also perform an event study using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year risk-adjusted abnormal returns of SWFs average a significantly negative 26%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. SWFs have collectively lost over $98 billion-fully 78% of original value-on their holdings of listed stock investments alone through February 2009

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average -15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $57 billion on their holdings of listed stock investments alone through March 2009.

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
Using a database of over 4100 listed industrial companies, we examine the evolution of cash dividends and share repurchases from 1989 to 2005 in the fifteen nations that were members of the European Union before May 2004. As in the United States, the fraction of European firms paying dividends declines over this period, while total real dividends paid increase significantly. Most strikingly, share repurchases have surged in the EU, rising to over half the value of cash dividend payments in 2005. We also show that financial reporting frequency has steadily increased and is associated with higher payout, and that privatized companies account for almost one-quarter of total EU cash dividend payments but only two percent of the number of listed firms. Our logistic regression analyses of the likelihood to pay dividends and repurchase shares, and our panel data analyses of the payout amounts, verify that similar influences affect payout in the EU as in America, but that increasing fractions of retained earnings to total equity do not increase the likelihood of cash payouts, whereas company age does.

Payout policy, international financial markets, economic integration

Abstract:
We examine certification by lead arrangers of project finance (PF) syndicated loans, because PF vehicle companies are stand-alone entities, created for a single purpose, with all valuation impacts contained in the project financing package. Using a sample of 4,122 project finance loans, worth $769 billion, arranged between 1991 and 2005, we show that certification by prestigious lead arranging banks creates economic value by reducing overall loan spreads compared to loans arranged by less prestigious arrangers. Banks participating in these loan syndicates, rather than the project sponsors, are the parties that pay for certification, and do so by allowing top-tier arrangers to keep larger fractions of the up-front arranging fees, though overall fees are reduced when a prestigious bank arranges a loan. Our results are robust to correcting for endogenous choice of loans by prestigious arrangers, and we show that certification is most valuable during periods of extreme financial stress.

international corporate governance, bank lending, project finance, syndication

Abstract:
We examine certification by lead arrangers of project finance (PF) syndicated loans, because PF vehicle companies are stand-alone entities, created for a single purpose, with all valuation impacts contained in the project financing package. Using a sample of 4,122 project finance loans, worth $769 billion, arranged between 1991 and 2005, we show that certification by prestigious lead arranging banks creates economic value by reducing overall loan spreads compared to loans arranged by less prestigious arrangers. Banks participating in these loan syndicates, rather than the project sponsors, are the parties that pay for certification, and do so by allowing top-tier arrangers to keep larger fractions of the up-front arranging fees, though overall fees are reduced when a prestigious bank arranges a loan. Our results are robust to correcting for endogenous choice of loans by prestigious arrangers, and we show that certification is most valuable during periods of extreme financial stress.

International corporate governance, bank lending, project finance, syndication

Abstract:
The primary purpose of this study is to evaluate the signaling powers of technology and traditional factors and their stability. The results show that traditional factors dominate the signaling process. In addition, they are also relatively stable over periods of changing investor's sentiment. Among the technology factors, R&D personnel exhibit the most consistent results. However, even this factor is affected by investor sentiment as shown by its insignificance in the 'after crash' period. On the other hand, two of the traditional factors, underpricing and underwriters' reputation, display reliable results in different models and different sub periods. Reasons for the results can be linked to several explanations, such as the superior information conveyed by the traditional factors and the long-term effect of technology factors.

Venture capital, signaling

Abstract:
Seasoned equity offerings (SEOs) executed through accelerated underwritings have increased global market share recently, raising over $850 billion since 1998, and now account for over half (two-thirds) of the value of U.S. (European) SEOs. We examine 31,242 global SEOs, executed during 1991-2004, which raise over $2.9 trillion for firms and selling shareholders. Compared to fully marketed deals, accelerated offerings occur more rapidly, raise more money, and require fewer underwriters. Importantly, accelerated deals reduce total issuance cost by about 250 basis points. Accelerated deals sell equal fractions of primary and secondary shares, whereas in traditional SEOs primary shares dominate. Announcement period returns are comparable for traditional and accelerated offerings, while secondary and mixed offerings trigger more negative market responses than do primary offerings. We conclude that this rapid, worldwide shift towards accelerated underwriting creates a spot market for SEOs, and represents the long-predicted shift towards an auction model for seasoned equity sales.

Equity offerings, underwriting, investment banking

Abstract:
Seasoned common stock sales executed through accelerated underwitings have dramatically increased global market share recently. Block trades, bought deals and accelerated bookbuilt offerings have raised over $750 billion since 1998, and now account for over half of U.S. seasoned equity offerings (SEOs) and over two-thirds of European SEOs. We examine 31,242 SEOs, executed around the world during 1991-2004, which raised over $2.6 trillion for issuing firms (in primary offers) and selling shareholders (in secondary offers). Compared to fully marketed deals, the 5,110 accelerated offerings are sold much more rapidly, raise significantly more per offering, have lower underwriting spreads and require fewer underwriting banks. Roughly equal fractions of primary and secondary shares are offered in accelerated deals, whereas newly issued primary shares represent over three-fourths of traditional SEOs. In the United States, accelerated deals (overwhelmingly block trades of shelf-registered, primary shares) have significantly lower spreads, less negative announcement period excess returns than marketed SEOs, and are less underpriced, so their total issuance costs are 300 basis points lower. Total issuance costs for non-US accelerated offers are also significantly lower than for marketed SEOs, but less dramatically so. We conclude that this rapid, worldwide shift towards accelerated underwriting is commoditizing seasoned equity sales, and represents the long-predicted shift towards an auction model for seasoned equity sales.

Investment banking, government policy and regulation, financial policy

Abstract:
French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company have the right to elect one director whenever they hold at least 3% of outstanding shares. These two rights have engendered substantial employee representation on the boards of over one-quarter of the largest French companies. Using a comprehensive sample of firms in the Soci¿t¿ des Bourses Fran¿aises (SBF) 120 Index from 1998 to 2005, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders unambiguously increase firm valuation and profitability, but do not significantly impact corporate payout (dividends and share repurchases) policy or board organization and performance. Directors elected by employees by right significantly reduce payout ratios, increase overall staff costs, and increase board size, complexity, and meeting frequency but do not significantly impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and even value-enhancing in the case of directors elected by employee shareholders.

Employee Ownership, Payout Policy, Privatization, Corporate Boards

Abstract:
French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company have the right to elect one director whenever they hold at least 3% of outstanding shares. These two rights have engendered substantial employee representation on the boards of over one-quarter of the largest French companies. Using a comprehensive sample of firms in the Societe des Bourses Francaises (SBF) 120 Index from 1998 to 2005, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders unambiguously increase firm valuation and profitability, but do not significantly impact corporate payout (dividends and share repurchases) policy or board organization and performance. Directors elected by employees by right significantly reduce payout ratios, increase overall staff costs, and increase board size, complexity, and meeting frequency - but do not significantly impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and even value-enhancing in the case of directors elected by employee shareholders.

Employee Ownership, Payout Policy, Privatization, Corporate Boards

Abstract:
This paper investigates the long-run stock returns of privatization initial public offering (IPO) firms using a sample of 241 privatization IPOs from 42 countries during the period 1981-2003. We compare one- three-, and five-year holding period returns of the privatization IPOs to those of the domestic stock market indices and to those of size and size-and-book-to-market equity ratio (BM)-matched firms of respective countries. Consistent with previous studies, privatization IPOs significantly outperform their domestic stock markets in the long-run. However, they do not show any significant abnormal long-term stock performance relative to their size- or size-and-BM-matched benchmark firms. The results in the paper suggest that previous results on the long-run stock performance of privatization IPOs should be interpreted with caution. In addition, being different from private companies' IPOs, the market seems to value privatization IPO firms without much systematic bias after the IPO. This is consistent with privatization IPOs having less information asymmetry problems compared to private IPOs.

Privatization, IPO, CAR, BHAR, Matched firm

Abstract:
This paper investigates the long-run stock returns of privatization initial public offering (IPO) firms using a sample of 241 privatization IPOs from 42 countries during the period 1981-2003. We compare one-, three-, and five-year holding period returns of privatization IPOs to those of the domestic stock market indices and to those of size and size-and-book-to-market equity ratio (BM)-matched firms from the same countries. Consistent with previous studies, we find that privatization IPOs significantly outperform their domestic stock markets in the long-run. However, they show less consistent abnormal long-term stock performance relative to their size- or size-and-BM-matched benchmark firms. These results confirm the problems inherent in estimating long-run abnormal returns. Additionally, the market values privatization IPOs without much systematic bias after the IPO, in contrast to private companies' IPOs. This is consistent with privatization IPOs having less information asymmetry than private IPOs

Privatization, International financial markets, Government policy and regulation

Abstract:
We initiate a discussion on the new trends in private equity fundraising practices. Private equity industry in the U.S. has witnessed tremendous growth in recent years fueled by the availability of cheap credit during the early 2000s. However, a combination of tightening credit conditions and the eagerness of existing investors to sell out led private equity firms to look for alternate sources of funds such as listing their shares on stock markets and attracting investments from passive investors like Sovereign Wealth Funds. We review the short-term performance of IPOs of Blackstone group and Fortress group, two leading private equity firms in the U.S. While the initial evidence on the success of these IPOs is not encouraging, we argue that the prevailing market conditions played an important role in explaining their underperformance. We substantiate our claim by analyzing the long-term performance of 3i group, a U.K. based private equity firm which has been listed on the London Stock Exchange for over 15 years. Finally, we briefly discuss the evolution and structure of Sovereign Wealth Funds (SWFs) and their impact on the private equity industry. SWFs are acting as both complements and substitutes to private equity industry by being a source of funds and at the same time by buying equity interests in individual companies.

IPO, Private Equity, Sovereign Wealth Funds

Abstract:
This paper explores whether retained government ownership affects the cost of debt for fully and partially privatized companies over a five-year period. On average, a decrease in government ownership by one percentage point is associated with an increase in the credit spread, used as a proxy for the cost of debt, by one-half of a basis point. However, fully privatized companies exhibit lower credit spreads when compared to partially privatized firms, suggesting the cost of a lengthy privatization process. Evidence indicates these findings result from decreasing government guarantees, firm improvements, ownership uncertainty, and bondholder-shareholder conflict.

Privatization, Government Ownership, Bonds, Cost of Debt

Abstract:
This study compares the SEO activity of young dual- and single-class firms. Because they hold stock with superior voting rights, dual-class insiders weigh different costs and benefits when issuing equity. Most importantly, the marginal dilution of voting power resulting from an SEO is lower in dual-class firms. This suggests that dual-class firms may issue equity more frequently, or under a different set of circumstances than singles. We find dual-class firms require a significantly lower post-IPO run-up in stock price to trigger an SEO issuance than do single-class firms. Moreover, returns prior to SEO announcements are smaller for dual-class firms, suggesting that the threshold at which SEO benefits outweigh costs is lower for these firms. We interpret this finding as evidence that single-class issuers signal more severe overvaluation when they sell their own shares in an SEO compared to dual-class insiders. Overall, SEO announcement returns are similar for both firm types.

Seasoned equity offerings (SEOs), Announcement Effects, Dual class, Reduced monitoring, Governance

Abstract:
This study presents the first comprehensive compilation of the number of people around the world owning shares voluntarily. We document that at least 317 million people in 70 countries (24 developed and 46 emerging market nations) invest in equity of publically listed companies or mutual funds. Accounting for contributors of voluntarily pension schemes investing in equity increases the number of shareholders to over 544 million. We also test for determinants of personal shareholdings and find that (i) the legal origin matters (common law countries have statistically significantly higher percentage of population investing in equity), (ii) GDP per capita also matters but its significance is driven by emerging markets (in particular those opened before 1985), and (iii) privatisation does not contribute to higher levels of shareholder participation in the medium- and long-run.

Government policy and regulation, Capital and ownership structure, Property rights, Legal origin, International finance, Emerging markets

Abstract:
We study dividend policies and dividend flexibility and use the annual abnormal return methodology to investigate the impact of more or less flexible policies for stock returns. We focus on the European Union which accommodates two corporate governance systems. We show that common law companies focus on cash dividends while civil law companies are more frequent repurchasers. This indicates that common law companies have more rigid dividend policies. Common law companies also have larger target payout ratios and smaller speeds of adjustment than civil law companies. Concomitantly, stockholders' reactions to cash dividends initiations and changes are fiercer in common law companies. In civil law companies relatively large repurchase amounts increase average abnormal returns, while a frequent use of repurchases diminishes abnormal returns. Common law shareholders strongly prefer an increase of cash dividends above an increase in repurchases, if a company already distributed through repurchases and cash dividends in the previous year. In civil law companies, repurchase increases are then slightly preferred.

payout flexibility, shareholder returns, cash dividends, repurchases, European Union

Abstract:
This study presents the first comprehensive compilation of the number of people around the world who own shares directly and indirectly. We document that at least 310 million people in 59 countries (24 developed and 35 emerging market nations) own stock directly [Table 1]. Nearly 173 million of these investors live in countries with developed stock markets and the remaining 137 million reside in countries with emerging stock markets. We also document that at least 503 million individuals in 64 countries own stock indirectly through pension fund holdings [Table 2]. Additionally, we describe the evolution of shareholdings in several key countries. We present preliminary regression analyses of the determinants of personal shareholdings, and plan to expand these tests dramatically over the next several months. Clearly direct shareholdings increase with national income and are higher in common law than civil law countries, but the presence of privatization programs has surprisingly little observable impact.

government policy and regulation, capital and ownership structure, property rights

Abstract:
This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchased stock in a privatized company. We show how sales programs have changed during the three historical eras of privatization: 1979-1990, 1992-2000, and 2002-2008, describe the principal methods that governments use to sell state-owned enterprises to private investors, and examine how governments choose between selling SOEs directly to existing operating companies or investor groups through direct sales (asset sales) or selling stock to investors through share issue privatizations (SIPs). We document and examine the role privatization has played in increasing the total market capitalization of global stock exchanges from $3.2 trillion in 1983 to over $62 trillion in 2007 - and to $45 trillion in late 2009 - and increasing the total value of shares traded increased from $1.2 trillion to $111 trillion over much the same period. SIPs have been the largest share offerings in history, particularly in emerging markets, and divestment programs have been so impactful that (fully and partially) privatized companies now account for roughly half of the entire market capitalization of non-U.S. stock markets. Privatized companies also dominate share trading in many non-U.S. markets, especially China - which now has the second highest annual value of shares traded. We show that investors have benefited from purchasing SIP shares, both in the short and long term, and attempt to answer the critical question: “what do governments have left to sell?” EU governments alone hold stakes in partially privatized firms worth over $650 billion, and emerging market governments (especially China’s) hold two to three times as much more.

Cross-listing, Privatization, ADR

Abstract:
Frequently the largest equity offerings in the world, share-issue privatizations (SIPs) are sometimes conducted entirely on domestic exchanges and are sometimes cross-listed on foreign exchanges. In this paper, we examine the determinants of a privatizing government’s actions regarding whether to cross-list. Using data from 821 SIPs from 76 countries during 1985-2007, we identify firm-level and institution-level factors that affect the cross-listing decisions in these equity offerings. The data indicate that offering size, industry, and product market are the firm-level characteristics most closely related to the cross-listing decisions. We also find that institution-level factors (such as the country’s level of economic development and capital market development) significantly impact the likelihood of cross-listings in share-issue privatizations. We further identify that the factors affecting cross-listing decisions vary significantly between developed and developing nations.

Cross-listing, Privatization, ADR

Abstract:
We survey empirical studies examining privatisations effects in developing economies. Most of these studies find that privatisation yields improvements in the operating and financial performance of divested firms, and only a handful document outright performance declines after privatisation. Almost all studies that examine post-privatisation changes in output, efficiency, profitability, capital investment spending and leverage document significant increases in the first four measures and significant declines in leverage. The studies examined here are far less unanimous regarding the impact of privatisation on employment levels in privatised firms. Studies that explicitly address the sources of post-privatisation performance improvement using data from multiple non-transition economies tend to find stronger efficiency gains for firms in regulated industries, in firms that restructure operations after privatisation, and in countries providing greater amounts of shareholder protection.

Abstract:
Recent evidences indicate that privatization leads to enormous benefits to society almost without undesirable costs. However, stakeholders of privatization seem not to satisfy the resulting performance of privatized firms. Using data from 202 firms privatized from 37 countries during the period 1980-2002, we follow long-run operating performance of privatized companies up to 10 years and study costs and benefits of privatization. Privatization is followed by a 1.1-percentage-point increase in the 5-year mean ratio of operating income to sales as firms catch up with global standard of industry-matched control groups, and by a 2.3-percentage-point decrease in the next 5-year mean ratio. Indeed, previously documented striking achievements were mere reflection of the world business cycle, the pace of economic activity in general and technological innovations during the last three decades.

privatization, operating performance, external governance, dregulation

Abstract:
Since 1994 the Italian government has sold equity stakes in some 75 large state enterprises, in the process raising over $125 billion - more than any other country during the same period. In this article, a U.S. academic collaborates with the Italian government's Director of Privatization in summarizing the accomplishments and disappointments of Italy's privatization program, assessing its impact on Italian capital markets, and offering lessons for other countries embarking on new privatization programs. The article also describes the share issuance methods used by the government to execute several massive offerings, including the largest IPO in history.

The principal benefits of Italian privatization have been dramatic increases in the size and efficiency of Italy's stock markets and in the safety and stability of its banking system. Despite such improvements, however, privatization has failed to bring about the increased competition in key industries and lower prices for consumers its planners originally envisioned. And based on this experience, the authors offer a number of lessons for government planners.

Perhaps most important, privatization is likely to yield decisive benefits only if the divestment program is properly designed and sequenced. Governments should begin by privatizing state-owned banks and other financial institutions, and as quickly as economically and politically feasible. Especially in less developed economies, commercial banks are for many companies both the only suppliers of credit and the only effective source of market discipline - which explains why results have often been disastrous when governments have retained control of banks while privatizing other industries. Privatizing governments should also emphasize privatizations accomplished through share issuances rather than asset sales, with the aim of developing liquid and efficient stock markets and promoting effective corporate governance.

Abstract:
Frequently the largest equity offerings in the world, share-issue privatizations (SIPs) are sometimes conducted entirely on domestic exchanges and are sometimes cross-listed on foreign exchanges. In this paper, we examine the determinants of a privatizing government’s actions regarding whether to cross-list. Using data from 821 SIPs from 76 countries during 1985-2007, we identify firm-level and institution-level factors that affect the cross-listing decisions in these equity offerings. The data indicate that offering size, industry, and product market are the firm-level characteristics most closely related to the cross-listing decisions. We also find that institution-level factors (such as the country’s level of economic development and capital market development) significantly impact the likelihood of cross-listings in share-issue privatizations. We further identify that the factors affecting cross-listing decisions vary significantly between developed and developing nations.

Cross-listing, Privatization, ADR

Abstract:
Several signaling models predict that firms underprice their initial offerings of equity deeply so that they can subsequently issue seasoned equity at more favorable terms. We test the implications of those models. We find a positive relation between IPO underpricing and the possibility of and the size of subsequent seasoned equity offerings. These results tend to consistent with the implications of the signaling hypotheses. The probability and size of subsequent seasoned equity offerings are closely related to stake sold at the initial public offering and to the external corporate governance variables. Those results are in sharp contrast with the market-feedback hypothesis raised by Jegadeesh, Weinsein, and Welch (1993). Curiously, aftermarket performance is irrelevant to subsequent stock issue decisions.

underpricing, signaling, market-feedback, seasoned equity offering, market timing

Abstract:
Among more recent changes, the enactment of Sarbanes Oxley type measures in 2004 which includes protections for minority shareholders in family- or promoter-led businesses has contributed to recent increases in institutional and foreign stock ownership. And while family- and government-controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third-largest number of trades in the world, just behind the NASDAQ and NYSE. The Indian corporate governance system has both supported and held back India's ascent to the top ranks of the world's economies. While on paper the country's legal system provides some of the best investor protection in the world, enforcement is a major problem, with overburdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model, with significant pyramiding and evidence of tunneling activity that transfers cash flow and value from minority to controlling shareholders. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third-largest number of trades in the world, just behind the NASDAQ and NYSE. Among more recent changes, the enactment of Sarbanes Oxley type measures in 2004which includes protections for minority shareholders in family- or promoter-led businesses has contributed to recent increases in institutional and foreign stock ownership. And while family and government-controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus.

Abstract:
With more businesses going public, the certification of their value and offering price is a necessity, acting as a means of attracting investors and of enhancing further financial success. While auditors and underwriters typically certify the value of an initial public offering (IPO), venture capitalists, as investors in a firm, also have knowledge of the firm's value, leading researchers to explore the potential role of venture capitalists in certifying an IPO's offering price. The process of venture capital (VC) firm certification is described. Utilizing Investment Dealer's Digest Corporate Database (IDD), a representative sample of both VC backed and non-VC backed firms (320 each) is compiled, and matched for industry and offering size. The role of underwriters and auditors in certifying a firm's value is scrutinized, including their respective relationships with VC backed firms. The data regarding initial returns and offering expenses for IPOs are analyzed for both VC backed and non-VC backed firms. Venture capitalists are found to play a significant role in firm certification, including an implication of firm quality due to their investment in the firm. The data suggest that VC backed firms, when compared to non-VC backed firms, tend to be younger, typically comprised of assets of greater median book value, and have attained a larger percentage of equity in the IPO's capital structure. Additionally, VC backing often results in the utilization of higher quality underwriters and auditors, while simultaneously experiencing a decrease in costs associated with underpricing and underwriting. Although a few venture capitalists may cash-out of their investment following IPO, the majority of venture capitalists typically maintain their holdings in firms following the initial public offering. (AKP)

Auditors, Institutional shareholders, Valuation, Venture capitalists, Initial public offerings (IPO), Venture capital, Underwriting, Rates of return, Certification

Abstract:
This paper provides support for the certification role of venture capitalists in initial public offerings. Consistent with the certification hypothesis, a comparison of venture capital backed IPOs with a matched control sample of nonventure capital backed IPOs from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads. In effect, the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm. In addition, we document that venture capitalists retain a significant portion of their holdings in the firm after the IPO.

Abstract:
We measure flexibility of dividend policy and study its impact on abnormal shareholders' returns in the European Union. When we use relative repurchase frequency and relative repurchase amounts as a measure of flexibility, civil law companies are more flexible. A more frequent use of repurchases does not increase company value, while persevering in relatively high repurchase amounts does, in particular in civil law companies. If changes in dividend policies are considered as measures of flexibility, we expect (and find) larger shareholders' reactions in common law countries. If changes in the speed of adjustment to target payout ratios and the change in target payout ratios under net income increases and decreases are used as a measure of flexibility, common law countries are less flexible than civil law companies. Shareholders evaluate fast adjustment to a new target payout ratio under net income reductions in civil law companies with a long track record, while common law shareholders in such companies prefer a higher target payout ratio with increases in net income.

Dividend policy, flexibility, abnormal returns, European Union

Abstract:
This paper examines empirically whether the dividend initiation decisions of a sample of newly-public firms are best explained by the predictions of the Miller and Rock (1985) cash flow signalling model, or by the competing agency cost models presented by Easterbrook (1984), Jensen (1986), and Rozeff (1982). Our results strongly support the agency cost models of dividend initiation. We document that dividend-initiating (DI) firms are older, larger, more profitable, and have higher levels of free cash flow at their initiation date than a matched set of non-dividend- initiating (NDI) companies. In the years after initiation, the DI firms issue equity and convertible securities more frequently, have higher levels of free cash flow, and have lower levels of--and greater post-IPO reductions in--insider shareholdings than do the matching NDI companies. These results suggest that firms begin paying dividends as a response to changes in the company's financial success and ownership structure.

Abstract:
This paper analyzes the use and terms of "share-issue privatizations (SIPs)" during the period 1961-1994. We present a theory of SIPs implying their terms are designed to build the political support necessary to privatize a state-owned enterprise (SOE). We then investigate the extent to which the terms of our sample SIPs deviate from terms observed in share offerings by publicly-held corporations. Our sample includes 168 SIPs made by 137 companies from 34 countries, with a total market value exceeding one-quarter trillion dollars. SIPs tend to be very large ($1.552 billion average), and typically restrict foreign ownership levels. Most SIPs explicitly favor employees and small investors in share allocations and pricing, and the degree of underpricing is related to share allocations. Furthermore, privatizing governments often retain veto power over firm decisions, though they design SIPs to establish an ownership structure that discourages state interference in ordinary business affairs. Overall, the terms of SIPs appear designed to meet both political and economic objectives.

Abstract:
This paper compares the pricing of traditional, on-balance- sheet loans (TL) with a corresponding sample of project finance loans (PFL), where project finance is defined as "limited or non-recourse financing of a newly to be developed project through the establishment of a vehicle company." We study 123 PFLs and 207 TLs announced between 1979 and 1993 that were designed to finance an identifiable project. This study makes three principal contributions. First, we document that the pricing factors are the same for TL and PFL, suggesting that both types of loans are priced in a single market--rather than in segmented markets. Second, as predicted by the limited recourse nature of PF lending, we find that PFL have, on average, higher loan rates than TL. Finally, we document that loan prices (rates) are significantly positively related to loan maturity and project country risk, and negatively related to the degree of output price risk and the presence of a project sponsor loan guarantee.

Abstract:
Alfred Chandler once described the U.S. conglomerate movement of the 1960s and '70s as an "historical aberration and a "disaster." And the recent trend in corporate mergers and acquisitions away from "diversifying" acquisitions would seem to confirm Chandler's argument. In what constitutes yet another piece of evidence in support of Chandler's argument, the authors of this article conducted a study of changes in debt and equity values in 260 stock-for-stock mergers completed between 1963 and 1996. With a sample almost evenly divided between conglomerate and "related" mergers, the authors report significant net wealth gains for all securityholders as a group in "related" mergers, but generally insignificant net gains for securityholders in conglomerate mergers. Not surprisingly, target firm shareholders experienced net wealth gains in both kinds of acquisitions; but for acquiring company shareholders, there was a striking difference: economically and statistically significant gains for acquirers in related transactions, and significant losses for acquirers in conglomerate deals. Perhaps the biggest surprise of the study, however, was that even the bondholders of acquirers in related mergers benefited more than bondholders in conglomerate deals. The result is surprising because, to the extent bondholders benefit from corporate diversification, one would expect the opposite result. That bondholders in related mergers experience larger wealth increases than those of conglomerate acquirers is just one more sign of the dramatic differences in total value created by the two kinds of mergers.

Abstract:
This paper examines the performance of newly public firms and compares those firms that initiated dividends with those that did not. Earnings increases following the dividend initiation and earnings surprises for initiating firms are more favorable than those for noninitiating firms. Furthermore, had noninitiating firms declared dividends that matched the dividend yield, dividend-to-sales ratio, or dividend-to-assets ratio of initiating firms, the promised dividend would have equaled about 8.5% of earnings, significantly above the 5% level for initiating firms. In contrast to DeAngelo, DeAngelo, and Skinner (1996), these results suggest that dividends signal differences in performance between otherwise comparable fims.