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Abstract:
We study the movement of assets from private to public ownership through two alternative means: the acquisition of private companies by firms that are public (sellouts) or by initial public share offerings (IPOs). We consider firm-specific characteristics for 1,074 IPOs and 735 sellouts from 1995 through 2004 to identify differences in growth, capital constraints, and asymmetric information between the two types of transactions. Our results suggest that firms move to public ownership through an IPO when they have greater growth opportunities, and face more capital constraints. Previous analyses of U.S. companies have focused on broad aggregate and industry-level trends while our work allows a better understanding of the firm-specific characteristics leading to firms choosing to go public through an IPO and the costs of accessing the public capital markets.

initial public offerings, sellouts, going public, acquisitions

Abstract:
We show that acquirer returns are significantly higher in stock-swap acquisitions of difficult-to-value targets, as measured by R&D intensity and idiosyncratic return volatility. This finding contributes to an explanation of the determinants of, and value gains from, using stock as a method of payment. The effects of target-valuation uncertainty on both the method of payment and the market reaction to acquisitions are more likely to be apparent in samples of private acquisitions, and that these effects can be masked in samples of acquisitions of publicly held targets. Nevertheless, our results hold for publicly traded targets in multivariate analysis.

Acquisitions, Private firms, Method of payment, Intangibles

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 study takeover sequences that contain at least five acquisitions made by an individual acquirer over a period greater than 12 months with no two acquisitions separated by more than 24 months. Acquisitions made in the context of such sequences represent more than 25% of takeover activity by U.S. public firms from 1982 to 1999. Our findings suggest takeover sequences are made in the context of time-varying changes in an acquiring firm's growth opportunity set. Specifically, our results indicate that takeover sequences begin subsequent to an expansion of this opportunity set and end when this opportunity set closes off. Our evidence does not support a proposition that a low quality acquisition is what causes a takeover sequence to end.

Abstract:
We examine acquisitions of private firms with valuation histories and find a positive relation between acquirer announcement returns and target valuation revisions. Similar to other studies, acquirer announcement returns are positive, on average. However, positive acquirer announcement returns are mainly driven by targets that are acquired for more than their prior valuation. This relation is consistent with pricing effects associated with target valuation uncertainty and behavioral biases in negotiation outcomes.

Private acquisitions, Withdrawn IPOs, Underpricing, Valuation uncertainty

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:
Although the SEC's main charge is to ensure the disclosure of material information, the SEC has not always consistently defined materiality. We show that acquisitions of privately-held targets classified as "insignificant" by the SEC appreciably affect market prices, and therefore are "material" by the SEC's definition. We find significant returns in transactions with targets as small as 2% -- compared with the SEC's disclosure threshold of 20% -- of the acquirer. Further, an average of 19 undisclosed private acquisitions per year exceed the median IPO value in the same year for our sample period. However, because the SEC deems these transactions insignificant, information like target financial statements remains undisclosed to the market. Disclosure rules regarding target financial statements thus create a regulatory disconnect, in which information that is "material" is "insignificant" and therefore not disclosed.

Takeover, SEC, disclosure, acquisition, merger

Abstract:
Protective governance structure is often viewed as costly to minority shareholders who bear the costs of opportunism by entrenched managers. A less common view is that protective governance structures encourage value-enhancing initiative, allowing risk-averse managers to pursue projects they would otherwise forgo. To assess these views we examine the acquisition decisions of S&P 500 firms between 1994 and 2005 and document two entrenching dimensions of governance: founding family presence and larger boards with more inside directors. We find that family firms destroy value when they acquire, consistent with an agency cost explanation for acquisitions. In contrast, firms with large boards and more insiders are more likely to acquire and to create value when they do acquire. These results are consistent with benefits to managerial initiative when managers are insulated from discipline. Finally, we find no systematic evidence that shareholder right limiting provisions either facilitate managerial entrenchment or lead to wealth losses through acquisition activity.

Acquisitions, Governance, Family, Ownership, Shareholder Rights

Abstract:
While there are innumerable theories on the best remedy for the current financial crisis, there is agreement on one point, at least: increased transparency is good. We look at a provision from the last round of financial regulation, the Sarbanes Oxley Act of 2002 (SOX), which imposed disclosure requirements tailored to prevent some of the kinds of abuses that led to the downfall of Enron. In response to Enron's self-dealing transactions, Section 406 of SOX required a public company to disclose its code of ethics and to disclose immediately any waivers from that code the company grants to its top three executives. These waivers offer a unique window not only into ethical practices at public U.S. companies, but also into how disclosure works on the ground - whether companies are actually complying with disclosure rules and whether these rules prevent self-dealing transactions.

Out of 200 randomly selected firms, we found only one waiver over 4 years disclosed pursuant to Section 406. However, by exploiting an overlap in disclosure regulations, we were able to cross check our sample companies' waiver disclosure. We find 30 instances where companies appear to be violating the law, and another 74 where companies evade illegality by watering down their codes to an arguably impermissible degree - their codes of ethics do not forbid the same Enron-style conflicts of interest that led to the adoption of Section 406 in the first place. Finally we study all waivers filed by all public companies with the SEC in the four years following SOX's passage - and find only 36 total. Event studies reveal that the market generally does not react to these transactions, suggesting that companies only use waivers to disclose innocuous, immaterial information.

We draw two lessons, one specific, one general. First, the current regime is a bad one, long on costly and burdensome disclosure but short on demonstrable benefit. Section 406's disclosure requirement is not functioning as intended. Either by mistake or manipulation, companies are evading its requirements and not providing information to the market. We suggest eliminating the code of ethics waiver disclosure requirements, and substituting a requirement of immediate disclosure of related-party transactions involving the CEO, CFO, and CAO. Second, our study casts light more generally on the limited utility of regulating by means of disclosure alone.

Ethics, disclosure, Enron, Sarbanes-Oxley, directors

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