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Abstract:
We survey two generations of research on corporate governance systems around the world, concentrating on countries other than the United States. The first generation of international corporate governance research is patterned after the US reasearch that precedes it. These studies examine individual governance mechanisms - particularly board composition and equity ownership - in individual countries. The second generation of international corporate governance research recognizes the fundamental impact of differing legal sysems on the structure and effectiveness of corporate governance and compares systems across countries.

corporate governance, ownership, control, takeovers, block holders, boards, investor protection

Abstract:
Using a sample of 44,288 firm-years over the period 1984-1997, we document an increase in both the incidence and the extent of global diversification over time. This trend does not, however, reflect a substitution of global for industrial diversification. We also find that global diversification results in average valuation discounts of approximately the same magnitude as those for industrial diversification. Analysis of the changes in excess value associated with changes in diversification reveals that increases in global diversification reduce excess value, while reductions in global diversification increase excess value. These findings are consistent with the view that the costs of global diversification outweigh the benefits.

Abstract:
Using a sample of 224 Chapter 11 filings reported from 1985-1994, we relate operating and financial characteristics to the decision to reorganize in Chapter 11 and to measures of success following reorganization. We find that reorganization success is related to firm profitability measured as of the year-end just prior to Chapter 11 filing and to firm and industry profitability measured as of the year-end just prior to bankruptcy resolution. In addition, reductions in liability ratio while in Chapter 11 are associated with reorganization success. These results suggest that valuable information about the ability of firms to successfully restructure is revealed during Chapter 11. We find that the decision to reorganize rather than sell firms is related to the amount of restructuring done while in Chapter 11, but is unrelated to either pre-filing or pre-resolution operating profitability. The fact that decision makers, on average, do not appear to utilize valuable information about operating profitability in determining whether firms are reorganized or sold is consistent with Chapter 11 being biased towards the continuation of firms as independent entities.

Abstract:
Prior studies of stocks added to the S&P 500 Index report that Index inclusion is associated with a permanent increase in stock price. This result has been interpreted to mean that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion provides no new information about the future prospects of the newly-included companies. We examine this premise empirically by analyzing changes in analysts' eps forecasts for newly-included companies from before to after Index inclusion and by comparing post-inclusion realized earnings to pre-inclusion earnings forecasts. We find that, relative to various benchmark companies, newly-included companies experience significant increases in eps forecasts and significant improvements in realized earnings. These results indicate that S&P Index inclusion is not an information-free event and, thus, undermine tests of the downward-sloping demand curve hypothesis that are based on S&P 500 Index additions.

Abstract:
Prior studies of stocks added to the S&P 500 Index report that Index inclusion is associated with a permanent increase in stock price. This result has been interpreted to mean that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion provides no new information about the future prospects of the newly-included companies. We examine this premise empirically by analyzing changes in analysts' eps forecasts for newly-included companies from before to after Index inclusion and by comparing post-inclusion realized earnings to pre-inclusion earnings forecasts. We find that, relative to various benchmark companies, newly-included companies experience significant increases in eps forecasts and significant improvements in realized earnings. These results indicate that S&P Index inclusion is not an information-free event and, thus, undermine tests of the downward-sloping demand curve hypothesis that are based on S&P 500 Index additions.

Abstract:
Within diversified firms, the negative impact of leverage on investment is significantly greater for high q than for low q segments, and significantly greater for non-core than for core segments. This is consistent with the view that diversified firms allocate a disproportionate share of their debt service burden to their higher q and non-core segments. We also find that among low-growth firms, the positive relation between leverage and firm value is significantly weaker in diversified firms than in focused firms. We conclude that the disciplinary benefits of debt are partially offset by the additional managerial discretion in allocating debt service that is provided by the diversified organizational structure.

Leverage, diversification, investment policy

Abstract:
We empirically examine earnout contracts, which provide for contingent payments in acquisition agreements. Our analysis reveals considerable heterogeneity in the terms of earnout contracts, i.e. the potential size of the earnout, the performance measure on which the contingent payment is based, the length of the earnout period, the frequency with which performance is measured, and the form of payment for the earnout. Consistent with the costly contracting hypothesis, we find that the terms of earnout contracts are associated with measures of target valuation uncertainty, target growth opportunities, and the degree of post-acquisition integration between target and acquirer. We conclude that earnouts are structured to minimize the costs of adverse selection and moral hazard in acquisition negotiations.

Earnouts, contingent payments, acquisitions

Abstract:
We find that among firms that file Chapter 11 those that are smaller, have better operating performance, and are in higher-operating-margin industries spend less time in Chapter 11. Firms are more likely to emerge as going concerns and to achieve positive post-reorganization profitability if they significantly reduce assets and liabilities while in Chapter 11. Higher pre-bankruptcy industry-adjusted operating margins and improvements in margin are associated with post-reorganization profitability but do not impact the decision to reorganize. These results reveal characteristics and actions associated with successful reorganizations. Furthermore, they suggest that Chapter 11 allows promising firms to successfully reorganize.

Chapter 11, reorganization

Abstract:
We study 130 large asset downsizings in 1985-1994. We find that downsizings are most often accomplished by selling assets. The decision to downsize is negatively related to operating performance at both the firm and industry levels and is positively related to firm debt ratio and level of diversification. Following their downsizings, the sample firms are more focused, have lower debt ratios, and experience statistically significant increases in operating performance. These results suggest that large downsizings are efficient responses to declining circumstances. However, we also find that their occurrence is strongly dependent upon an active market for corporate control.

Downsizing, Restructuring

Abstract:
We report a significant negative relation between the fractional equity ownership of top executives and the likelihood of top management turnover. In addition, the relation between prior firm performance and the likelihood of turnover is statistically insignificant for firms in which the top executive owns more than 1% of the firm's shares. These findings suggest that managers become entrenched at very low ownership levels. Consistent with this interpretation, we find that the stock price reaction to a management change is significantly greater in firms in which the departing manager owns more than 1% of the firm's shares. Moreover, in these firms, the incoming manager's fractional ownership is typically less than 1% and the firm is subject to a higher rate of post-turnover corporate control activity. We also examine the influence of other aspects of ownership structure and find that turnover rates are higher in firms with unaffiliated blockholders and lower in firms with blockholders that are affiliated with incumbent managers.

Abstract:
We report that 31% of the firms completing leveraged recapitalizations between 1985 and 1988 subsequently encounter financial distress. Following their recaps, the distressed firms exhibit (1) poor operating performance due largely to industry-wide problems, (2) surprisingly low proceeds from asset sales, and (3) negative stock price reactions to economic and regulatory events associated with the demise of the market for highly-leveraged transactions. The incidence of distress is not related to several characteristics that have previously been linked with poorly-structured deals. We thus attribute the high rate of distress primarily to unexpected macroeconomic and regulatory developments.

Abstract:
We provide evidence on the agency cost explanation for corporate diversification. We find that the level of diversification is negatively related to managerial equity ownership and to the equity ownership of outsideblockholders. In addition, we report decreases in diversification are associated with external corporate control threats, financial distress, and management turnover. These findings suggest that agency problems are responsible for firms maintaining value-reducing diversification strategies and that the recent trend towards increased corporate focus is attributable to market disciplinary forces.

Abstract:
We document that forced resignations of top managers are preceded by large and significant declines in operating performance and followed by large improvements in performance. However, forced resignations are rare and are due more often to external factors (e.g. blockholder pressure, takeover attempts, etc.) than to normal board monitoring. Following the management change, these firms significantly downsize their operations and are subject to a high rate of corporate control activity. Normal retirements are followed by small increases in operating income and are also subject to a slightly higher incidence of post-turnover corporate control activity.

Abstract:
We examine the performance of firms experiencing a top management change over the period 1985-1988. Forced resignations are preceded by large and significant declines in operating performance and followed by large improvements in performance. However, forced resignations are rare and are due more often to external factors (eg. blockholder pressure, takeover attempts, etc.) than to normal board monitoring. Following the management change these firms significantly downsize their operations and are subject to a high rate of corporate control activity. Normal retirements are followed by small increases in operating income and are also subject to a slightly higher than normal incidence of corporate control activity following the management change.