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Abstract:
We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. We find that family-controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, in particular when the family's control margin is small and the wedge between votes and capital is large. Control considerations also affect security design in equity issues. We also find that firms use private placements to reduce contracting and ex post holdup costs in new product market relationships. Finally, we find that firms with higher asymmetric information about firm value are more likely to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

Seasoned equity offerings, Equity issue methods, Rights offerings, Private placements

Abstract:
We find significant persistence in various investment and financing policies. This persistence survives even the split-up of a firm through a spin-off transaction. We find that spin-off firms choose policies that are more similar to those of their parent firms than to those of their own matched peer firms. This commonality persists over a long period, is not due to inertia of initial policies, and cannot be explained by contractual and economic relationships that remain after the spin-off. We find that the commonality is stronger among internally-grown spin-off firms and those that originate from older parents, and the similarities exist even when a new outside CEO is hired to run the spin-off firm. Our evidence is consistent with theories of "corporate culture," and has implications for interpretations of firm fixed effects and more generally for future research on the impact of a firm's origin on corporate finance policies.

Economics of corporate culture, investment policies, financing policies

Abstract:
In this paper we study the changes in corporate valuation, investments, and financing choices induced by the formation of Economic and Monetary Union (EMU) in Europe. We use corporate - level data from ten countries that adopted the euro, the three EU countries that did not join EMU, as well as Norway and Switzerland. We show that the introduction of the euro has increased valuations for large firms in EMU countries, especially in countries that had experienced currency crises. Firm values have also increased for firms that were previously exposed to currency risks irrespective of size. Investments have increased for all firms, but the effects are bigger for large firms and for firms coming from countries with experiences of currency depreciations. The increase in investments has been financed mainly via debt issues. The evidence provided here supports the view that the introduction of the euro has lowered firms' cost of capital by eliminating currency risks among the countries that have adopted the common currency, and by further increasing capital market integration in Europe.

Economic and Monetary Union (EMU), The Euro, Valuation, Investment, Debt, Equity, Cost of Capital, Currency Risk

Abstract:
Based on a two-million-observation panel dataset that matches public firms with detailed data on their employees, we find that entrenched managers pay their workers more. For example, our estimates show that CEOs with more control rights (votes) than all other blockholders together, pay their workers about 6%, or $2,200 per year, higher wages. Because cash flow rights ownership by the CEO and better corporate governance are found to mitigate such behaviour, we interpret the higher pay as evidence of agency problems between shareholders and managers affecting workers' pay. The findings do not appear to be driven by endogeneity of managerial ownership and are robust to a series of robustness checks. These results are consistent with an agency model in which managers pay high wages because they come with private benefits for the manager, such as lower-effort wage bargaining and better CEO-employee relations, and suggest more broadly an important link between the external corporate governance of large public firms and labour market outcomes.

Corporate governance, agency problems, private benefits, matched employer-employee data, wages

Abstract:
Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers' pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behavior. These findings do not seem to be driven by productivity differences, and evidence around an exogenous shift in labor market relations suggests a causal interpretation of our findings. Entrenched CEOs pay more to employees (i) closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives, (ii) geographically closer to the corporate headquarters, and (iii) associated with aggressive and conflict-inclined unions. The evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain employees. More generally, our results show that managerial ownership and corporate governance can play an important role for labor market outcomes such as employee compensation.

Corporate governance, agency problems, private benefits, matched employer-employee data, wages

Abstract:
In this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in Europe. We use corporate-level data from 17 European countries of which 11 adopted the euro. We show that the introduction of the euro has increased Tobin's Q-ratios by 17.1% in the euro-area countries that previously had weak currencies. Part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity. The increases in Tobin's Q are larger for firms that would be harmed by currency devaluations.

Economic and Monetary Union (EMU), the euro, valuation, cost of capital, currency risk, currency union

Abstract:
In this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in Europe. We use corporate-level data from eleven countries that adopted the euro, the three EU countries that did not start using the euro, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios by 17.1% in the euro-area countries that previously had weak currencies. Part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity. The increases in Tobin's Q are larger for firms that would be harmed by currency devaluations.

Economic and Monetary Union (EMU), the euro, valuation, cost of capital, currency risk, currency union

Abstract:
We study how the adoption of the euro as the common currency in Europe has affected firms' investment rates. Using corporate data from the eleven countries that adopted the euro in January 1999, as well as from a control sample of five other European countries, our paper shows that: (i) the euro has increased investments for firms from countries that previously had weak currencies, (ii) the euro has had a positive impact on financially constrained firms' investments, and (iii) the euro has decreased investments for financially unconstrained firms from countries that previously had strong currencies.

Abstract:
We study how the adoption of the euro as the common currency in Europe has affected firms' investment rates. Using corporate data from the eleven countries that adopted the euro in January 1999, as well as from a control sample of five other European countries, our paper shows that: (i) the euro has increased investments for firms from countries that previously had weak currencies, (ii) the euro has had a positive impact on financially constrained firms' investments, and (iii) the euro has decreased investments for financially unconstrained firms from countries that previously had strong currencies.

EMU, the euro, currency union, investments

Abstract:
Existing evidence shows that the Economic and Monetary Union (EMU) has reduced the cost of capital for firms in the euro area. We study the impact of the adoption of the euro in January 1999 by 11 countries in Europe on the firms' investment rates, and show that the investment results are consistent with reduction in cost of capital. Using corporate data from the 11 EMU countries, as well as from a control sample of 5 non-EMU European countries, our paper shows that: (i) investments for EMU-firms have grown 2.5% more than for non-EMU firms, after 1999; and (ii) the benefits of the euro accrue especially to small, domestic firms from countries with previously weak currencies.

Economic and Monetary Union (EMU), the euro, investments, cost of capital, currency union

Abstract:
We study how the adoption of the euro as the common currency in Europe has affected firms' investment rates. Using corporate data from the eleven countries that adopted the euro in January 1999, as well as from a control sample of five other European countries, our paper shows that: (i) the euro has increased investments for firms from countries that previously had weak currencies, (ii) the euro has had a positive impact on financially constrained firms' investments, and (iii) the euro has decreased investments for financially unconstrained firms from countries that previously had strong currencies.

EMU, the euro, investments, currency union, financial constraints

Abstract:
In this Paper we study the changes in corporate valuation induced by the formation of Economic and Monetary Union (EMU) in Europe. We use corporate-level data from ten countries that adopted the euro, the three EU countries that did not join EMU, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios in EMU countries by 7.4%. The effects prevail even if we account for the decrease in long-term interest rates. The increases in Tobin's Q are larger for firms that are ex-ante expected to benefit more, i.e. firms from countries that had weak currencies and firms that were exposed to intra-European currency risks. Finally, the increases are also more significant for firms that are financially unconstrained. The evidence provided here supports the view that the introduction of the euro has lowered firms' cost of capital in EMU-countries.

Economic and monetary union (EMU), the euro, valuation, cost of capital, currency risk, currency union

Abstract:
In this paper, we study the changes in corporate valuations induced by the adoption of the euro as the common currency in Europe. We use corporate-level data from seventeen European countries, of which eleven adopted the euro. We show that the introduction of the euro has increased Tobin's Q-ratios by 17.1% in the {euro-area} countries that previously had weak currencies. Part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity. The increases in Tobin's Q are larger for firms that would be harmed by currency devaluations.

F33, F36, G32

Abstract:
Analyzing a panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers' pay. CEOs with more control pay their workers more, but financial incentives through cash flow rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer in the corporate hierarchy, geographically closer to the headquarters, and associated with conflict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation.

Corporate governance, agency problems, private benefits, matched employer-employee data, wages

Abstract:
This paper estimates the agency costs of controlling minority shareholders (CMSs), who have control of a firm's votes, while owning only a minority of the cash flow rights. Analyzing a panel of 309 listed Swedish firms during 1991 - 1997, for which we have complete and detailed data on ownership and corporate control instruments, we provide three results: (i) Families employ CMS structures, via dual-class shares and other corporate control instruments, about 1.5 - 2 times more often than other categories of owners (corporations, financial institutions). (ii) Estimated agency costs of controlling shareholders are 6 - 25% of firm value (Tobin's q) for the median firm among the different categories of controlling owners, ceteris paribus. Family CMSs are associated with the largest discount on firm value. (iii) The source of the discount seems to be partly what such owners/firms do: return on assets (ROA) is significantly lower for firms with concentrated vote control. It also seems as if the discount is related to what such owners/firms do not do. Family CMSs seem to hang on to the control too long from non-controlling shareholders' perspective; e.g., firms with family CMSs are about 50% less likely to be taken over compared to other firms.

Agency costs, Corporate control, Ownership structures, Corporate governance

Abstract:
We study diversification within the real estate industry because of its relative transparency: portfolio management of assets with well-defined market prices. Diversification is over property types and geographical regions. The major cause of the diversification discount is not diversification per se but anticipated costs due to rent dissipation in future diversifying acquisitions. Firms expected to pursue non-focusing strategies do indeed diversify more; are valued ex ante at a 20% discount over firms anticipated to follow a focusing strategy; are predominantly privately controlled and extensively using dual-class shares. The ex ante diversification discount is therefore a measure of agency costs.

Diversification, diversifying strategy, ex ante discounts, rent dissipation, agency costs, private control