• Selected
• Entire List

Abstract:
The paper measures the growth in open-market stock repurchases and the manner in which stock repurchases and dividends are used in U.S. corporations. We find that aggregate repurchases have increased dramatically over this period: the number and value of repurchase program announcements has grown from 115 and $15.4 billion in 1985 to 755 and $115 billion in 1996. Actual share repurchases have grown from approximately $8.8 billion in 1985 to over $63 billion in 1996. These repurchases represent an economically important source of payouts, and are responsible for much of the variation in aggregate payouts. Nonetheless they are still small relative to the $142 billion in dividends paid by industrial firms listed on Compustat in 1996. Stock repurchases and dividends are used at different times from one another, by different kinds of firms. Stock repurchases are very pro-cyclical, while dividends increase steadily over time. Dividends are paid by firms with higher "permanent" operating cash flows, while repurchases are used by firms with higher "temporary", non-operating cash flows. Repurchasing firms also have much more volatile cash flows and distributions. These results are consistent with the view that the flexibility inherent in repurchase programs is one reason why they are sometimes used instead of dividends.

Abstract:
Little is known about the risk and return characteristics of private equity investments. In this paper we examine 52,322 financing rounds in 23,208 unique firms, over the period 1980 through 2000 by venture and buyouts funds and estimate the probability of exit, the exit multiples and the expected gains from private equity investments. We find that the gains from venture-backed investments depend upon the industry, the stage of the firm being financed, the financing amount, the valuation at the time of financing, and the prevailing market sentiment. The expected multiple ranges from a low of 1.12 for late-stage firms to a high of 5.12 for firms financed in their early stages. Our study is the first step in understanding the risk premium required for the valuation of private equity investments. It will be of particular interest to the VC community and valuation practitioners.

Private Equity Discount

Abstract:
We examine the number of external appointments held by corporate directors. Directors who serve larger firms and sit on larger boards are more likely to attract additional directorships. Consistent with Fama and Jensen (1983), we find that firm performance has a positive effect on the number of appointments held by a director. We find no evidence that multiple directors shirk their responsibilities to serve on board committees. We also do not find that multiple directors are associated with a greater likelihood of securities fraud litigation. We conclude that the evidence does not support calls for limits on directorships held by an individual.

Abstract:
We examine the number of external appointments held by corporate directors. Directors who serve larger firms and sit on larger boards are more likely to attract additional directorships. Consistent with Fama and Jensen (1983), we find that firm performance has a positive effect on the number of appointments held by a director. We find no evidence that multiple directors shirk their responsibilities to serve on board committees. We also do not find that multiple directors are associated with a greater likelihood of securities fraud litigation. We conclude that the evidence does not support calls for limits on directorships held by an individual.

Abstract:
We examine differences in motives, firm characteristics, market performance, and subsequent operating performance of firms that repurchase shares frequently versus firms that repurchase only occasionally or infrequently. Frequent repurchasers are much larger, have significantly less variation in operating income, and higher dividend payout ratios. Infrequent repurchases are made by smaller firms with more volatile operating income, lower institutional ownership, lower market-to-book ratios and high degrees of asymmetric information. Although most repurchases are viewed favorably by the market, infrequent repurchases receive a much stronger positive reaction. Finally, we find little evidence of improved operating performance following repurchase announcements.

Abstract:
This paper examines the differences in motives, firm characteristics, market performance and subsequent operating performance of firms that repurchase shares frequently versus firms that repurchase only occasionally or infrequently. With the growing popularity of open market repurchase programs it has become relatively common for firms to repurchase shares on a regular or frequent basis. Frequent repurchases appear to be motivated by a different rationale from more infrequent repurchases. Frequent repurchasers are much larger, have significantly less variation in operating income and higher dividend payout ratios. Infrequent repurchases are made by smaller firms with potentially high degrees of asymmetric information. The firms that repurchase infrequently have more volatile operating income, significantly lower institutional ownership and significantly higher managerial ownership. Further, infrequent repurchasers have lower market-to-book ratios suggesting that they are more likely to be undervalued. The market reactions to the repurchase announcements are consistent with these ideas. Although on average all repurchases appear to be viewed favorably by the market, infrequent repurchases are greeted with a much stronger positive reaction. Infrequent repurchases are preceded by negative abnormal returns suggesting that undervaluation, or a depressed stock price, may indeed motivate these repurchases, while frequent repurchases are preceded by relatively normal rates of return. Not only do we find no evidence of improved operating performance following frequent repurchase announcements, but we also find no evidence of improved operating performance for the less frequent repurchases.

payout policy, repurchase, signaling

Abstract:
We document that investment banker directorships are mutually beneficial to the investment bank and the firm. Investment bankers serve on boards of larger, higher growth firms. These firms benefit from lower gross spreads and smaller underpricing when issuing equity, and raise more external capital. The benefits are often larger when top-tier investment bankers serve as directors. Firms with investment bankers are also less financially constrained. This result is robust to controlling for self-selection. The affiliated investment bank benefits by underwriting a larger fraction of the firms' securities issues, but does not appear to extract monopoly rents in the form of higher fees. Our results are consistent with firms selecting specialist directors with complementary expertise that benefits both the firm and the investment bank.

Financing Constraints, SEO underpricing,Underwriting Fees, Investment Bankers, Board of Directors

Abstract:
Critics have charged that state competition in corporate law, which Delaware clearly dominates, leads to a “race to the bottom” promoting management entrenchment at shareholders’ expense. We present evidence here that is inconsistent with this hypothesis. CEO turnover rates in Delaware are significantly higher than in other states. We also explore causal mechanisms for Delaware’s higher turnover rate: we show that Delaware attracts higher demand directors, firms without founder influence, and higher institutional ownership. We find that the last two of these characteristics explain the higher CEO turnover for Delaware companies..

Corporate governance, CEO turnover, Investor Protection

Abstract:
In this paper, we test whether managerial entrenchment-based agency reasons explain why some firms have low levels of leverage. We use a unique sample of firms that had zero debt for three consecutive years and find no evidence to support the managerial entrenchment explanation. These firms do not have weak internal control mechanisms and do not face less external monitoring. The decision to issue debt by these firms is not associated with changes in internal governance mechanisms or measures of external threats to entrenchment. We find that relatively few new outside blockholders emerge in the two years around the debt initiation. Further, fewer than 2% of the firms have blockholders who could be considered hostile to managerial entrenchment and fewer than 2% of the firms are subject to takeover attempts. In contrast to the prediction of the managerial entrenchment hypothesis, the debt proceeds are not paid out to shareholders. We show that the zero-debt firms issue debt to finance a higher level of investments. Our evidence is supportive of firms retaining financial flexibility to fund expected future growth opportunities.

Abstract:
In this paper we examine 52,322 financing rounds in 23,208 unique firms, over the period 1980 through 2000 by venture and buyouts funds and estimate the probability of exit, time to exit, exit multiples and the expected gains from private equity investments. The expected multiple (after accounting for dilution and the probability of exit) ranges from a low of 1.12 for late-stage firms to a high of 5.12 for firms financed in their early stages. We find that the gains from venture-backed investments depend upon the industry, the stage of the firm being financed, the valuation at the time of financing, and the prevailing market sentiment. Our study is a first step in understanding the risk premium required for the valuation of private equity investments.

Private Equity