• Selected
• Entire List

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:
The 1988 Basel Accord and the proposed revisions to the Accord represent some of the most significant international regulations impacting the financial decisions of firms, in this case, financial services firms, in recent years. The revisions to the Accord incorporate operational risk into the capital, supervisory and market requirements. In our review of the issues in this area, we provide insight into the workings of an important international regulation. We also present suggestions for further research in this area that will become feasible when data on the impact of the new regulations become available after the proposed implementation in 2006.

Operational risk management, Basel Accord, Capital requirements

Abstract:
Using eight thousand public companies, we study the impact of the Sarbanes-Oxley Act (SOX) of 2002 and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased directors' workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post-SOX and Director and Officer (D&O) insurance premiums have doubled. Directors post-SOX are more likely to be lawyers/consultants, financial experts, and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.

D23, G32, G34, G38, K22, M14

Abstract:
Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.

Board, board discretion, board function, board reform, corporate governance, director liability, independent director, regulation

Abstract:
Using a comprehensive sample of nearly 7,000 firms from 1990 to 2004, this paper examines corporate board structure, its trends, and its determinants. We study how board structure has evolved over time and, more importantly, we compare board structure across small and large firms in ways suggested by recent theoretical work. Overall, our evidence suggests that firms structure their boards in response to the costs and benefits of the board's monitoring and advising roles. Our models explain as much as 45% of the observed variation in board structure. Further, small and large firms have dramatically different board structures. For example, board size was falling in the 1990s for large firms, a trend that reversed at the time of mandated reforms, while board size was relatively flat over the 1990s for small and medium-sized firms.

Board composition, board size, board leadership, duality, endogeneity, SOX, Sarbanes-Oxley, corporate governance

Abstract:
We examine how political, institutional, and economic factors are related to a country's decision to privatize state-owned banks. Using a panel of 101 countries from 1982 to 2000, we find that political factors significantly affect the likelihood of bank privatization only in developing countries. Specifically, in non-OECD countries, bank privatization is more likely the more accountable the government is to its people. In contrast, none of our political variables affects the bank privatization decision in developed countries. Economic factors (such as the quality of the nation's banking sector) are significant determinants of bank privatization in both OECD and non-OECD nations.

Privatization, bank, developing countries

Abstract:
We examine how political, institutional, and economic factors are related to a country's decision to privatize state-owned banks. Using a comprehensive panel of 101 countries from 1982 to 2000, we find that the determinants of this decision differ markedly between OECD and non-OECD nations. Political factors significantly affect the likelihood of bank privatization only in developing countries. Specifically, in non-OECD countries, a bank privatization is more likely the more accountable the government is to its people. In contrast, none of our political variables affects the bank privatization decision in developed countries. Economic factors (such as the quality of the nation's banking sector) are significant determinants of bank privatization in both OECD and non-OECD nations.

Privatization, bank, developing countries

Abstract:
Research in corporate finance is complicated by the endogenous relation between the control forces operating on a corporation and its financial decisions. In this paper we adapt a dynamic panel GMM estimator to deal with endogeneity in corporate finance research. The estimator incorporates the dynamic nature of corporate finance relationships to provide valid and powerful instruments that control for unobserved heterogeneity and simultaneity. The estimator is straightforward to implement and is more theoretically and practically appealing than many recent attempts to deal with endogeneity. Further, it may have significant advantages over commonly used fixed-effects estimators. We then demonstrate the estimator empirically by re-examining the relation between board structure and performance in a panel of more than 6,000 firms between 1991 and 2003. We find that when we control for past performance, simultaneity and unobservable heterogeneity, there is no causal relation between board structure and current firm performance. We illustrate why existing research that has found a causal relation is likely to be biased. We discuss situations where using this estimator will provide the greatest benefits.

corporate boards, inside ownership, dynamic panel data estimation, regulation, endogeneity

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:
The most important development in international corporate governance in the past 20 years has been the privatization of state-owned enterprises. There is evidence that privatization has resulted in improved firm performance but the source of this improvement is difficult to isolate. We argue that one of the most important results of privatization for corporate governance is the potential entry of those firms into the market for corporate control as targets and bidders, which can result in improved firm performance for numerous reasons. We document the magnitude and the wealth effects of the mergers of privatized firms, attempting to find every privatized firm that was either a target or a bidder in a merger. We find 52 privatized firms that subsequently become targets of takeovers and 90 privatized firms that became bidders in 341 mergers. In general, we find that privatized firms operate very much as non-privatized firms have in the market for corporate control. Target firms experience a 12 percent increase in equity value at the announcement of a merger. Bidding firms experience a positive but insignificant change in equity value at merger announcement. The results indicate that mergers result in net wealth creation for privatized firms and are indicative that one effect of privatization is wealth-creating mergers.

Privatization, corporate control, mergers

Abstract:
We review an explanation for the causes of the stock market crash in 1987, update the empirical support for that argument, and compare to recent market developments. While the market crash on October 19, 1987 was the largest one-day S&P 500 drop in percentage terms in history (20.47%) there was also a large market drop (10.12%) in the three trading days before the 1987 crash. Mitchell and Netter (1989) show that the three-day decline was the largest in more than 40 years, large enough that the drop was news itself (the October 16, 1987 drop immediately before the crash was also an extremely large one-day decline). The theoretical model of Jacklin, Kleidon, and Pfleiderer (1992) shows how a surprise significant drop in the market could have provided information to the market that could directly lead to an immediate crash. Here we follow the stock market for 20 years after 1987, and find the magnitude of the market decline immediately preceding October 19, 1987 was still a significant outlier - only one three-day period in the 20 years after 1987 had as large a market decline. We also document the large market movements and volatility in the period beginning in October 2008 and suggest that this "crash" is different than what occurred in 1987. The 1987 crash was due in part to characteristics news but also of the market and trading strategy, 2008 is more likely a response to fundamental economic news.

crash, stock market, Black Monday, volatility

Abstract:
This paper estimates the determinants of the contributions made by top executives to their firm's Political Action Committee (PAC). We find that executive's personal PAC contributions (proxy for the interest of the firm) are positively related to their shareholdings, income and option holdings (proxies for the interests of the executive). Contributions are also higher for CEOs and board members. This is direct evidence that the structure of the contracts between the firm and management, especially compensation, aligns manager's personal behavior with the interests of the firm.

Executive compensation, political contribution

Abstract:
This paper estimates the determinants of the contributions made by top executives to their firm's Political Action Committee (PAC). We find that executive's personal PAC contributions (proxy for the interest of the firm) are positively related to their shareholdings, income and option holdings (proxies for the interests of the executive). Contributions are also higher for CEOs and board members. This is direct evidence that the structure of the contracts between the firm and management, especially compensation, aligns manager's personal behavior with the interests of the firm.

Executive compensation, political contribution

Abstract:
This article has two related tasks. First, we review the articles published in this Special Issue on Corporate Control, Mergers, and Acquisitions. These articles provide new evidence on several aspects of corporate control and governance including the value and performance effects of various ownership groups, the impact of internal governance structures, the effects of regulatory changes on specific industries and evidence on bidding strategies in takeovers. This analysis leads us to our second task - to examine the evolution of corporate control research, broadly defined. Our analysis shows a movement in research from mergers and acquisitions to a broader analysis of corporate governance, especially internal governance features. We suggest that there is a trend toward an increase in the relative importance of internal governance compared to discipline from the market from corporate control. This trend reflects an important change over the past several decades in the means through which the market disciplines corporate behavior.

Corporate Governance, Corporate Control, Mergers, Acquisition

Abstract:
In May 2009, the SEC proposed the most significant amendments to proxy rules since 1942. We build comprehensive samples of US and UK shareholder proposals for the period 2000-2006 to study the relation between proxy rules and proxy practices and the effect of shareholder proposals on firm performance. We find that, despite perceived negligible power, US shareholder proposals have more significant and positive impact on firms than UK ones, which have greater legal power to effect changes. US shareholder proposals have a significant impact on long-term stock performance, CEO turnover and board structure.

Shareholder proposal, shareholder activism, proxy voting, proxy reform, corporate governance

Abstract:
This paper addresses the basic question of whether sample selection influences the implications of studies of mergers and acquisitions (M&A). We base our analysis on reporting data compiled by SDC on all M&A from 1992- 2008 (extended to 2009 in some cases). We provide evidence on the full set of M&A (concentrating on the U.S.) as reported by the Securities Data Corporation (SDC) rather than the limitations imposed in most previous empirical work, and discuss the limitations of the SDC data classifications. Most empirical work screens the data based on size of the deal and data availability. We show the result is a screening out of most M&A and what remains often represents larger transactions, generally involving publicly traded firms. This undercount may lead to incorrect assumptions about what M&A represents and how frequently firms are involved in the corporate control market: most M&A papers analyze less than 5% of acquisitions made by domestic acquirers. For example, a screen that uses the years 1992-2008 and restricts the sample to deals between U.S. public acquirers and targets with a deal value greater than $50 million results in a sample of 3,009 deals, a small fraction of the total number of deals by U.S. acquirers (public or private) which is 122,276. If the sample is restricted to only CRSP acquirers, the number is 65,225. Some commonly reported results change with the more complete sample. First, the result that mergers occur in waves is attenuated. Second, average acquirer announcement returns are negative only when the sample is restricted to public targets, and on the whole, takeover activity increases the overall wealth of stockholders. Third, the result that negative acquirer returns are associated with deals where stock is a means of payment is not a general finding. Stock as a method of payment in M&A is used twice as much as cash in deals associated with the highest cumulative abnormal returns. Further, the use of stock is as frequent in the greatest value reducing deals as in the deals that create the most value.

Mergers, Acquisitions, Takeovers

Abstract:
We study shareholder returns for firms that acquired five or more public, private, and/or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market.

merger, acquisition, private firms, public firms, liquidity discount

Abstract:
This article illustrates the use of event study methodology in securities fraud litigation, specifically SEC enforcement actions. It first outlines the legal basis for the use of financial economics in securities fraud law. Areas of securities fraud law where event study evidence may be relevant include the establishment of materiality and the estimate of damages (or disgorgement). The article then demonstrates how financial economics was used in five SEC enforcement actions including insider trading around a CEO replacement, insider trading in the target and the bidder around an acquisition, and a delinquent 13D filing. The article also serves as a primer in event studies for non -financial economists and lawyers.

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 examines the relationships between various owner, firm, and industry characteristics of private-sector Hungarian firms and their difficulty in obtaining bank loans in 1991. We identify several factors that are related to the difficulty firms face in obtaining bank loans including the personal history of the owner of the firm, and characteristics of the firm and its industry. Firms whose owners had business experience or who were past members of the nomenklatura had less difficulty obtaining bank loans than other firms. It was more difficult to obtain loans for firms that leased their plant than firms that did not. Further, the greater the competition faced by a firm the more difficult it was for the firm to get a loan. Finally, there is evidence that the difficulty of obtaining a loan varies by industry.

Abstract:
We examine the relation between managers' personal beliefs about their firm's prospects, decisions by managers to make acquisitions, and decisions by managers to resist takeover offers for their firms. Using insider-trading data, we analyze whether managers are willing to stake their own money in addition to the firm's on the firm's acquisition strategy. Acquiring firm managers generally increase purchases of their own firm's stock, but this optimism is concentrated in firms that are eventually targets of hostile bids themselves. This optimism is inconsistent with explanations of takeover resistance that rest on managerial entrenchment or non-value-maximizing behavior.