Search

This study examines how antitrust law adoptions affect horizontal merger and acquisition outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers' 5-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers' announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement. The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare. [ABSTRACT FROM AUTHOR]

Banks rely on soft information when assessing loan applications, making it crucial to evaluate the trustworthiness of potential borrowers in order to set loan conditions, even in a legal environment where contractual rights are straightforwardly enforced. Given the common belief that certain personality traits—such as trustworthiness, reliability, loyalty, thriftiness, and stinginess—are more often linked to conservatives (Republicans) than to liberals (Democrats), we investigate whether companies with conservative chief executive officers (CEOs) secure more advantageous loan terms compared to others. Our findings indicate that firms with conservative CEOs are able to negotiate bank loans with lower interest spreads and upfront fees. While we do not observe a direct impact of CEO overconfidence on loan pricing, we reveal that the combined influence of CEO conservatism and overconfidence contributes to our primary findings. Additionally, we discovered that conservative CEOs tend to receive more favorable non-price conditions (fewer covenants) and are less inclined to offer collateral. [ABSTRACT FROM AUTHOR]

Question/Issue: This study investigates the role of board‐level employee representatives (BLERs), a common corporate governance practice in Europe, in determining the pay ratio between CEOs and average employees. Research Findings/Insights: Using 15,340 firm‐year observations from 17 European countries between 2001 and 2019, we find that BLERs provide greater bargaining power to the board for dealing with CEOs and use this power to reduce the pay gap between CEOs and employees. Subsample analyses indicate that bargaining power is more apparent when BLERs are more socially connected, have longer tenure, and hold more seats on the board. Theoretical/Academic Implications: This study supports the role of BLERs in providing workers with more bargaining power to create fairer wage distribution in firms. Furthermore, it supports the fair wage–effort theory, indicating a positive effect of lower pay ratios on firm value following the presence of BLERs. Practitioner/Policy Implications: This study demonstrates the effects of a unique corporate governance practice, the presence of BLERs, on companies' wage distribution, with significant policy implications. In particular, the results indicate that when presented with opportunities in affecting companies decision‐making BLERs provide fairer environments for the workers who they represent. [ABSTRACT FROM AUTHOR]

In this study, we investigate the relationship between debt governance and overinvestment. We use net cash flows to debtholders as a proxy for debt governance and find that an increase in these cash flows mitigates firms' overinvestment. We also show that free cash flows lead cash‐rich and cash‐poor firms to overinvest but that debt governance attenuates this problem. Finally, we find that the mitigating effect of net cash flows to debtholders on overinvestment is highly pronounced in firms with poor governance. These findings suggest that net cash flows to debtholders are particularly effective when shareholder governance is weak. We conclude that cash flows to debtholders can effectively prevent overinvestment and reduce the agency costs of free cash flows. [ABSTRACT FROM AUTHOR]

We quantify a production-based asset pricing model with fixed and variable capitals based on the GMM structural estimation. The estimation results match the stylized characteristics of the U.S. stock market return and help enlighten the equity premium puzzle. In addition, the model performance is reliable throughout the business cycle. [ABSTRACT FROM AUTHOR]

Research Question/Issue: We examine whether bond‐blockholders provide additional, distinct monitoring roles in merger and acquisition (M&A) processes beyond those of equity‐blockholders. Using a sample of 4309 M&A deals reported between 2001 and 2010, we shed new light on the monitoring spillover effects of bondholders to shareholders in the context of M&As. Research Findings/Insights: Our findings demonstrate a positive relationship between the presence of bond‐blockholders (or a change in their position) and acquiring firms' abnormal return announcements, which supports the monitoring spillover effects from bondholders to shareholders in M&A processes. Our subsample analyses indicate that bond‐blockholders are better monitors of (1) overconfident CEOs engaging in M&As, (2) CEOs exhibiting risk‐taking behavior in M&As, and (3) entrenched managers participating in M&As. Moreover, we discover a positive association between the previous quarter's changes in "monitoring" bond‐blockholders' positions and the acquiring firms' 3‐day cumulative abnormal returns (CARs). Theoretical/Academic Implications: In corporate finance literature, equity‐blockholders have long been recognized as effective monitors. Despite the importance of debt as most firms' primary funding source, the benefits of debt for monitoring the efficiency of managers and their organizations have been largely overlooked in the existing literature. Thus, this study provides evidence on the additional and distinct monitoring roles of bond‐blockholders beyond those of equity‐blockholders in M&A processes and the impact of bond‐blockholders on shareholders' wealth around M&A announcements. Practitioner/Policy Implications: This study offers insights to policymakers interested in enhancing the legitimacy of corporate governance on the monitoring spillover effects of bondholders to shareholders in the context of M&As. In addition, our findings suggest that bondholders can have a long‐term perspective beyond the limited time horizon of bond maturity and influence M&A processes positively. Thus, this study has significant implications for managers and practitioners interested in which investors positively affect M&As. [ABSTRACT FROM AUTHOR]

This study investigates institutional distance as a factor of investors' monitoring of corporate earnings attributes. We analyze the US cross‐listing market to determine whether institutional monitoring depends on geographic or market proximity. We find that shareholdings of non‐US institutions headquartered in the same country as the investee firm are significantly and positively related to earnings quality. However, we do not find such a monitoring role in the United States, or in institutions not incorporated in the investee firm's home country. Our findings support a geographic proximity advantage over market proximity, which is more pronounced when firms' information opacity is more severe; the results are not altered by the choice of earnings attribute variables. [ABSTRACT FROM AUTHOR]

Expanding on current research, this study finds that firms with better financial report readability demonstrate a stronger relationship between institutional blockholder monitoring and information asymmetry. This result supports our hypothesis that enhanced readability improves firm information and aids the institutional investor monitoring of firms, reducing information asymmetry. By demonstrating that readability amplifies the marginal effect of institutional blockholder monitoring, we highlight the significance and policy implications of better corporate disclosure readability. [ABSTRACT FROM AUTHOR]