the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

on eliciting beliefs in strategic games several recent studies in experimental economics have tried to measure beliefs of subjects engaged in strategic games with other subjects using data from one such study we conduct an experiment where our experienced subjects observe early rounds of strategy choices from that study and are given monetary incentives to report forecasts of choices in later rounds we elicit beliefs using three different scoring rules linear logarithmic and quadratic we compare forecasts across the scoring rules and compare the forecasts of our trained observers to forecasts of the actual players in the original experiment we find significant differences across scoring rules the improper linear scoring rule produces forecasts closer to 0 and 1 than the proper rules and these forecasts are poorly calibrated the two proper scoring rules induce significantly different distributions of forecasts we find that forecasts by observers under both proper scoring rules are significantly different from the forecasts of the actual players in terms of accuracy calibration and the distribution of forecasts we also find evidence for belief convergence among the observers

uk directors trading the impact of dealings in smaller firms this paper reasesses the u k results of significant abnormal returns from directors trading for a new sample of directors trades 1984 86 and finds that abnormal returns tend to be concentrated in smaller firms when an appropriate benchmark portfolio is used it is found that the significance of the abnormal returns is substantially reduced with the implication that directors trading does not yield particularly high profits to either the directors themselves or to an outside investor mimicking those trades coauthors are john matatko ian tonks and richard purkis copyright 1994 by royal economic society

language friction and partner selection in cross border r d alliance formation how does language friction affect alliance formation language friction is a form of cultural friction arising from structural differences in the respective languages used by potential partners to reason and solve problems together a little language friction may prompt partners to rethink solutions thereby enhancing collaboration but excessive friction may impede collaboration we develop a language friction index lfi to quantify relative differences in linguistic structure for any language pair utilizing a unique data set of semiconductor design activities 1988 2001 our empirical analysis finds an inverted u shaped relationship between partners lfi and the likelihood of cross border research and development rd 2 the effects of language friction are economically significant and strategically consequential 3 certain aspects of language friction occur independent of language proficiency and persist despite the use of lingua franca to reduce language barriers 4 linguistic diversity is an indirect marker of cognitive diversity which is useful in boosting creativity especially in first time collaborations 5 beyond r d alliances language friction may also influence other types of strategic interactions and organizational processes

competitiveness through management of diversity effects on stock price valuation this study s premise is that firms that can lower their costs and enhance their differentiation through the effective management of their human resources have a competitive advantage using data fr

mars venus marriages culture and cross border m a using a sample of over 800 cross border acquisitions during 1991 2004 we find that contrary to general perception cross border acquisitions perform better in the long run if the acquirer and the target come from countries that are culturally more disparate we use mainly the hofstede measure of cultural dimensions to measure cultural distance but also examine alternative proxies the positive relationship of performance to cultural distance persists after controlling for several deal specific variables and country level fixed effects and is robust to alternative specifications of long term performance cash and friendly acquisitions tend to perform better in the long run there is also some evidence of synergies when acquirers are from stronger economies relative to the targets

toehold acquisitions shareholder wealth and the market for corporate control this study examines the valuation consequences of control related outcomes that fol low toehold acquisitions we find evidence that toehold acquisitions facilitate valueenhancing control transfers the types of control transfers not only include takeovers but also internal mechanisms such as proxy fights and management turnovers we find that toehold targets experiencing such control transfers exhibit an abnormal increase in share value while those not experiencing such control transfers exhibit an abnormal de crease in share value the results suggest that the positive valuation effect associated with toehold acquisitions reflects the expected benefits of subsequent control transfers

preferences dependent learning in the centipede game the persistence of mistrust abstract a candidate explanation for the persistence of heterogeneous behavior in a sequential social dilemma played many times is the existence of heterogeneous preferences preferences dependent conjectures about opponents behavior are an additional source of heterogeneity by behaving differently different preference types acquire different information thus when observing only outcomes of own past interactions heterogeneous and possibly wrong conjectures about opponents strategies may endogenously arise and persist in a centipede game experiment played for forty rounds we manipulate the type of ex post information and the method of play we find that when the game is played in its reduced normal form and subjects have only access to personal statistics heterogeneity of behavior across preference types persists in the long run in this case behavior resembles a self confirming equilibrium selfish subjects take at earlier nodes due to an unjustified lack of trust when subjects have also access to public statistics heterogeneity disappears selfish subjects tend to pass more often and play moves towards bayes nash equilibrium

voting power in the proxy process abstract the likelihood that a firm will enact a management sponsored antitakeover charter amendment depends on ownership structure this implies that the adoption of antitakeover amendments may be anticipated then announcement returns provide a biased estimate of wealth effects an estimator that corrects for the bias induced by anticipation indicates that the enactment of an antitakeover amendment is associated with a statistically significant decrease in shareholder wealth the voting power of employee stock ownership plans and the chief executive officer plays a prominent role in determining whether a firm will adopt this type of takeover defense

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

eliciting beliefs proper scoring rules incentives stakes and hedging accurate measurements of probabilistic beliefs have become increasingly important both in practice and in academia introduced by statisticians in the 1950s to promote truthful reports in simple environments proper scoring rules psr are now arguably the most popular incentivized mechanisms to elicit an agent s beliefs this paper generalizes the analysis of psr to richer environments relevant to economists more speci cally we combine theory and experiment to study how beliefs reported with a psr may be biased when i the psr payments are increased ii the agent has a nancial stake in the event she is predicting and iii the agent can hedge her prediction by taking an additional action our results reveal complex distortions of reported beliefs thereby raising concerns about the ability of psr to recover truthful beliefs in general economic environments

corporate takeover bids methods of payment and bidding firms stock returns this study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids the results reveal significant differences in the abnormal returns between common stock exchanges and cash offers the results are independent of the type of takeover bid i e merger or tender offer and of bid outcomes these findings supported by analysis of nonconvertible bonds are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment recent studies on corporate takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms 1 substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals the existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers acquisition motivations nevertheless the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue it is observed however that mergers are usually common stock exchange offers whereas tender offers are usually cash offers given that different methods of financing a project have different signalling implications myers and majluf 39 the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing

the outsourcing of r d through acquisitions in the pharmaceutical industry abstract we examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns these returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position a unique desperation index is employed to determine the current status of a firm s internal productivity we find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines

confidence and decision making in experimental asset markets abstract this paper examines how traders confidence and market confidence affect outcomes in an experimental asset market with known fundamental values in this type of market prices usually present large deviations from the fundamental value in other words bubbles are known to occur we measure beliefs by asking participants to forecast the one period ahead price as a discrete probability mass distribution we define confidence as the inverse of the dispersion of beliefs for each trader and also create a market wide measure of this to measure agreement across traders we find that confidence affects price formation and is also important in explaining the dynamics and size of the bubble moreover as traders are successful they become increasingly certain of their beliefs even if these beliefs are on non fundamental values thus increasing the likelihood of price bubbles

trust but verify monitoring inspection costs and opportunism under limited observability abstract is feedback on trustworthiness necessary for the functioning of economic relationships in many real world economic environments such feedback can at best be acquired through costly monitoring raising questions of how trust and efficiency can be maintained in the lab we conduct a modified finite horizon binary trust game in which we vary the observability of the trustee s actions in the baseline condition trustors can perfectly observe their trustee s actions we compare this to a condition in which that actions are unobservable and three conditions in which they must be actively monitored at zero low or high cost respectively counter intuitively differences in observability do not lead to significant differences in trust and efficiency but the levels are supported by very different information structures while trustors monitored every action under zero observation costs most of trusting actions were blind trustors did not learn whether their trust was honored or not under costly monitoring even under complete unobservability almost half of the available surplus was realized there are distributive impacts however the gains from trust favor trustees under the more adverse informational conditions the behavioral patterns are consistent with the fact that trustors beliefs about their trustee s conduct are almost invariant across conditions

the gains to bidding firms from merger abstract this study examines the effect of mergers on the wealth of bidding firms shareholders bidding firms gain significantly during the twenty one days leading to the announcement of each of their first four merger bids these results fail to support the capitalization hypothesis that bidders gains are captured at the beginning of merger programs bidders abnormal returns are positively related to the relative size of the merger partners and the gains during the announcement period are larger for mergers which are successful though the gains are larger prior to 1969 merger bids after 1969 also significantly increase the wealth of bidding firms shareholders the results suggest that the inconclusive findings of the earlier studies may be due to methodological deficiencies the findings of this study are consistent with value maximizing behavior by the management of bidding firms

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

strategic alliances and the rate of new product development an empirical study of entrepreneurial biotechnology firms abstract a key to success in industries populated by entrepreneurial high technology firms is the rate at which the firm develops new products rapid product development creates significant advantages for entrepreneurial firms including access to early cash flows external visibility legitimacy and early market share the higher a firm s rate of new product development the more likely the firm is to achieve and maintain these first mover advantages this is particularly true in industries such as pharmaceuticals where the effectiveness of patent protections leads to patent races in which a winner take all scenario exists but even in industries where patent protection is weak the advantages of being first in terms of market preemption reputation effects experience curve effects etc can still be of major importance we argue that one way an entrepreneurial firm can increase its rate of new product development is by entering into strategic alliances with firms that possess complementary assets the basic proposition advanced is that a firm s rate of new product development is a positive function of the number of strategic alliances that it has entered however the relationship between strategic alliances and the rate of new product development may be nonlinear specifically although strategic alliances may initially have positive effects on the rate of new product development this relationship may exhibit diminishing returns moreover past some point it is possible that negative returns may set in thus the relationship between the number of alliances and the rate of new product development may be an inverted u shape two reasons can be given to support such a relationship first not all alliances will make an equal contribution to increasing the rate of new product development the economic law of diminishing returns suggests that the more alliances a firm engages in the more likely it is to enter some alliances whose marginal contribution is relatively minor such a phenomenon on its own is enough to suggest diminishing returns second gaining access to complementary assets through strategic alliances is not without risks malperformance may occur when the firm discovers that the complementary assets provided by the partner are a poor match fail to live up to the promises made by the partner or a partner may opportunistically exploit an alliance expropriating the firm s know how while providing little in return these problems arise because the effectiveness with which the firm can select and manage alliance partners is likely to be negatively related to the number of alliances the firm is managing due to information processing requirements the quality of partner search and the ability to monitor the partners actions will decline as the firm increases the number of alliances in which it is involved this reasoning leads to a prediction that past some point alliances will be increasingly vulnerable to malperformance this raises not only the possibility of diminishing returns to the number of alliances but also negative returns as the number of alliances increases past some critical point this proposed relationship between alliances and new product development was tested on a sample of 132 biotechnology firms the results provide strong evidence to support the inverted u shaped relationship between the number of strategic alliances and the rate of new product development therefore at low levels strategic alliances are positively related to new product development but as the number of alliances increases the benefits begin to decrease and at high levels the costs of an additional alliance actually outweigh the benefits

buying shares and or votes for corporate control we explore how allowing votes to be traded separately of shares may affect the efficiency of corporate control contests our basic set up and the nature of the questions continue the work of grossman and hart 1980 harris and raviv 1988 and blair golbe and gerard 1989 we consider three cases with respect to the allowable price offers for shares and for votes when they can be traded separately unrestricted price offers quantity restricted price offers and price offers contingent on winning our main results are characterizations of the equilibria and of the circumstances under which vote buying is harmful we show that allowing votes to be traded separately of shares results in inefficiencies in all the cases we study similarly allowing quantity restricted offers is also harmful but allowing conditional offers is not in itself detrimental to efficiency the paper also makes a methodological contribution to the analysis of takeover games with atomless shareholders it provides a way of dealing with asymmetric equilibria that must be dealt with for a complete analysis and it proves existence of an equilibrium copyright 2012 oxford university press

proxy contests and corporate democracy abstract a proxy contest is a fight between two management teams to gain proxies from shareholders the management team which accumulates a majority of votes wins the competition for corpo rate control this paper attempts to construct a formal model of proxy contests and analyze their implications for the shareholders benefit and power of control over the firm

the changing empirical definition of money some estimates from a model of the demand for money substitutes interest bearing checkable deposits are examined to test whether they should be included in measures of the u s money stock both divisia and traditional simple sum aggregates are constructed on the basis of tests for weak separability in a model of the demand for financial assets using nonparametric demand analysis we find that several groups of assets are compatible with aggregation theory we find empirical support for a narrow measure consisting of the components of current mia in tests based on a st louis equation and in terms of controllability a divisia aggregate performs better than the simple sum mia measure

timing and payoff of patent purchases the role of firm size and composition while large pharmaceutical companies continue to dominate drug development and patent acquisition their timing of drug patent acquisition and subsequent payoffs remain poorly understood we analys

beliefs and actions in the trust game creating instrumental variables to estimate the causal effect in many economic contexts an elusive variable of interest is the agent s expectation about relevant events e g about other agents behavior recent ex perimental studies as well as surveys have asked participants to state their beliefs explicitly but little is known about the causal relation between beliefs and other behavioral variables this paper discusses the possibility of creating exogenous in strumental variables for belief statements by shifting the probabilities of the rele vant events we conduct trust game experiments where the amount sent back by the second player trustee is exogenously varied by a random process in a way that informs only the rst player trustor about the realized variation the procedure allows detecting causal links from beliefs to actions under plausible assumptions the iv estimates indicate a signi cant causal eect comparable to the connection between beliefs and actions that is suggested by ols analyses

heterogeneity in risky choice behaviour in a broad population we analyse risk preferences using an experiment with real incentives in a representative sample of 1 422 dutch respondents our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics utility curvature loss aversion preferences towards the timing of uncertainty resolution and the propensity to choose randomly rather than on the basis of preferences we find that all four parameters contribute to explaining choice behaviour the structural parameters are significantly associated with socio economic variables but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data

ideas for rent an overview of markets for technology this article surveys some of the recent literature on technology markets and summarizes its main issues and insights we structure our analysis in three parts the supply and demand of technology the factors that condition the formation and growth of technology markets industry structure and dynamic issues in addition we summarize some of the studies that have tried to document the size and growth of these markets we find that the literature has focused mainly on the supply of technology but several other aspects of these markets remain under studied including the demand for external technology the role of uncertainty in technology markets and the dynamic interaction between industry structure and the market for technology understanding these will illuminate whether markets for technology will continue to grow or remained confined to pockets of the economy copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the timing of option repricing we investigate whether executive stock option repricings are systematically timed to coincide with favorable movements in the company s stock price for a sample of 236 repricing events we observe sharp increases in stock price in the 20 day period following the repricing date in addition repricing dates tend to either precede the release of good news or follow the release of bad news in the quarterly earnings announcements since information about stock option repricing is not generally released to the public around the repricing date these findings suggest that ceos opportunistically manage the timing of the option repricing date

the costs of inefficient bargaining and financial distress abstract this study provides the first large sample analysis of the stock market reactions to interfirm litigation when a suit is filed the common stock of the typical defendant declines by about 1 while the plaintiff experiences no significant gains for the average pair of firms the combined drop in value upon filing is 21 million much of the loss is regained if the suit is settled the findings suggest that bargaining among firm claimants sometimes leads to very inefficient outcomes part of the leakage is explained by the costs of increased financial distress imposed on the defendant

shareholder wealth effects of directors liability limitation provisions the adoption of liability limitation provisions llps is associated with insignificant stock price reactions for all firms but with positive stock price reactions for poorly performing firms this result is consistent with the hypothesis that the net benefit of llps is larger for financially troubled firms than for other firms because outside directors are valuable to the distressed firm and llps substantially affect experts expected costs of serving as directors

the impact of antitrust litigation on shareholder return the hypothesis that antitrust litigation will redistribute economic power is examined using an event study framework district and appellate court findings involving firms litigating antitrust issues and the telex v ibm case are examined the results indicated that shareholders of firms involved in the litigation experienced decreases increases in return when either court finding was unfavorable favorable the telex v ibm results indicated that the district court s finding against ibm resulted in significant positive abnormal returns for computer industry firms abnormal negative returns were also found in the period surrounding the appellate court reversal copyright 1989 by blackwell publishing ltd

the effect of private antitrust litigation on the stock market valuation of the firm the authors study the implications for shareholder wealth of interfirm antitrust litigation and how the costs of the dispute affect the propensity to settle upon filing defendants experience significant wealth losses that are ten million dollars larger than the wealth gains of plaintiffs financial distress behavioral constraints and follow on suits are sources of wealth leakage and influence settlement behavior since the threat of a monetary transfer has little power to explain either wealth effects or the likelihood of settlement the central concern of defendants may be the potential prohibition of profitable business practices copyright 1995 by american economic association

incentives in experiments a theoretical analysis experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks we provide a theoretical framework for analyzing this question assuming statewise mo

technological innovation and acquisitions i examine whether technological innovation is a motivating factor in firms acquisition decisions and how an acquisition or an acquisition withdrawal affects technological innovation in subsequent years i find that firms engaging in acquisition activities are less innovative and have often experienced declines in technological innovation during the years prior to the bid among the bidders the relatively more innovative ones are less likely to complete a deal during the three years after the bid successful bidders do not underperform matching firms whereas failed bidders significantly underperform their nonbidding peers i further find that formerly less innovative bidders benefit more from acquisitions these findings suggest that technological innovation affects firms acquisition decisions and in turn acquisitions help firms innovation efforts

eliciting informative feedback the peer prediction method many recommendation and decision processes depend on eliciting evaluations of opportunities products and vendors a scoring system is devised that induces honest reporting of feedback each rater merely reports a signal and the system applies proper scoring rules to the implied posterior beliefs about another rater s report honest reporting proves to be a nash equilibrium the scoring schemes can be scaled to induce appropriate effort by raters and can be extended to handle sequential interaction and continuous signals we also address a number of practical implementation issues that arise in settings such as academic reviewing and online recommender and reputation systems

markup pricing in mergers and acquisitions this paper studies the relation between the premiums in takeover bids involving exchange listed target firms from 1975 91 and the pre announcement stock price runups the evidence shows that the pre bid runup and the postannouncement increase in the target s stock price the markup are generally uncorrelated with little substitution between the runup and the markup the runup is an added cost to the bidder this finding has important implications for assessing the costs of insider trading it also raises interesting questions about the role of information from public capital markets in private takeover negotiations

the changing empirical definition of money a comment in a recent issue of this journal belongia and chalfant 1989 suggested that several groups of financial assets formed monthly economic monetary aggregates from january 1983 through february 1986 they based these findings on nonparametric revealed preference tests developed by varian 1982 1983 they implemented these tests using nominal assets data implementing these tests with nominal data is inconsistent with a neoclassical framework of consumer choice based on real variables we find that their use of nominal data led belongia and chalfant to obtain results different from those they would have obtained if they had used real assets data we reran their tests using real data and found that none of the monetary aggregates they identified can be shown to be consistent with the existence of an economic aggregate

effects of announcements of reorganization outcome less is known about whether the market perceives the final resolution of post reorganization filing to be idiosyncratic or to carry endemic implications for the corresponding industries this study observes the presence of intra industry information transfers the magnitude and direction of the reactions in response to three separate resolution outcome differs in a systematic way across industry portfolios specifically portfolio rivals that are affected by competitive realignments in the industry experience stock price reactions in the opposite manner to those of the distressed firms thus suggesting dominant competitive effects in addition this study reveals that the discriminatory power and forecast performance of three hybrid neuro fuzzy models are stable and unimpaired across time and are generally superior in classifying rival cumulative prediction error rcpe candidates

the effect of changes in reserve requirements on bank stock prices abstract the present study re examines the tax burden effects of reserve requirements on bank profitability it differs from previous work in two ways 1 changes in stock prices rather than accounting data are used to measure profitability effects and 2 emphasis is placed on changes in reserve requirements as opposed to their level regarding the latter distinction two kinds of changes are considered 1 temporary changes in reserve requirements for the purpose of discretionary monetary policy and 2 more permanent changes in reserve requirement levels based on the event study methodology temporary changes were found to have little effect on security prices whereas more permanent changes had a stronger influence on bank stock prices reflecting a tax burden effect

performance changes around bank mergers revenue enhancements versus cost reductions this paper examines operating performance around commercial bank mergers we find that industry adjusted operating performance of merged banks increases significantly after the merger large bank mergers produce greater performance gains than small bank mergers activity focusing mergers produce greater performance gains than activity diversifying mergers geographically focusing mergers produce greater performance gains than geographically diversifying mergers and performance gains are larger after the implementation of nationwide banking in 1997 further we find improved performance is the result of both revenue enhancements and cost reduction activities however revenue enhancements are most significant in those mergers that also experience reduced costs

corporate governance through the proxy contest evidence and implications the current literature concerning proxy contests provides little evidence that shareholders suffer materially from sub par performance prior to a contest furthermore no study has thoroughly examined the long term performance of targeted firms subsequent to a proxy contest using a sample of ninety seven election contests during the period 1968 87 the authors find negative abnormal returns and deteriorating operating performance prior to the announcement of a contest following the contest negative abnormal returns are observed these negative returns are driven by cases in which dissident shareholders successfully acquire board seats the results for accounting based operating performance measures confirm these findings copyright 1993 by university of chicago press

issuing costs to existing shareholders in competitive and negotiated underwritten public utility equity offerings abstract this paper presents the results of an empirical investigation of whether there is any difference in the cost incurred by public utilities if they issue new equity through a negotiated or competitive underwriting we conclude that the expected cost of a competitive offer is less than the expected cost of a negotiated offer but that the variance of the cost is substantially greater with a competitive offer these results are interesting because most public utilities use negotiated underwriting unless forced by regulation to use competitive offers this paper is also an addition to the growing agency theory literature

overcoming coordination failure in a critical mass game strategic motives and action disclosure abstract we study whether coordination failure is more often overcome if players can disclose their actions at a lower cost in an experiment subjects first choose their action and then choose whether to disclose this action to other group members and disclosure costs are varied between treatments we find that no group overcomes coordination failure when action disclosure costs are high but half of the groups do so when the costs are low simulations with a belief learning model can predict which groups will overcome coordination failure but only if it is assumed that players are either farsighted risk seeking or pro social to distinguish between these explanations we collected additional data on individual preferences and the degree of farsightedness we find that in the low cost treatment players classified as more farsighted more often deviate from an inefficient convention and disclose this action while the effect of risk and social preferences is not significant

life after takeover economic consequences of takeovers are investigated by analyzing profitability of enterprises acquired a s a direct or indirect white knight consequence of tender offer s target companies pre tender profitability averaged 0 97 percentag e points below peer industry norms nine years after takeover acquir ed lines of business had operating income assets percentages 3 10 poi nts below those of non tender lines with similar industry bases mark et shares and merger accounting methods most of the targets postta keover profit decline stemmed from asset value writeups there is no indication that on average the acquirers raised their targets operat ing profitability net of merger related accounting adjustments copyright 1987 by blackwell publishing ltd

excess asset reversions and shareholder wealth the ownership of pension assets in a defined benefit pension plan is an unresolved issue in corporate finance the issue is important because it defines the appropriate investment policy for a pension fund in this paper we summarize the ownership debate in the form of two mutually exclusive theories we then focus on a recently popular event in pension finance excess asset reversions our paper demonstrates the valuation effects associated with this event in a stochastic dominance framework under certain conditions a reversion constitutes an expropriation of wealth from the participants and beneficiaries of the plan to the firm using data provided by the pension benefit guaranty corporation and the center for research in security prices tape we examine the returns to the shareholders of 58 companies which conducted excess asset reversions between 1980 and 1984 our results show that large abnormal returns accrued to these shareholders around the time of the reversion these findings have implications both for the appropriate investment policy of pension funds and for public policy with respect to plan terminations

proxy contests and the governance of publicly held corporations abstract analysis of 60 proxy contests for seats on the boards of exchange listed firms during 1978 1985 shows that three years after the contest less than one fifth of the sample firms remain independent publicly held corporations run by the same management team proxy contests are typically followed by managerial resignations even when dissidents fail to obtain a majority of board seats and are often followed by sale or liquidation of the firm the average stockholder wealth gains associated with proxy contests are largely attributable to gains by companies in which dissident activity leads to sale or liquidation

do bad bidders become good targets this paper empirically examines one motive for takeovers to change control of firms that make acquisitions that diminish the value of their equity firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value and firms that do not become takeover targets make acquisitions that raise their equity value within the sample of acquisition by targets the acquisitions that reduce equity value the most are those that are later divested either in bust up takeovers or restructuring programs to thwart the takeover this evidence is consistent with theories advanced by marris manne and jensen concerning the disciplinary role played by takeovers

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

optimal forecasting incentives an agent of unknown expertise is requested to forecast the mean of an uncertain outcome the agent can refine forecasts at a constant marginal cost per unit precision but neither cost nor precision can be verified by the planner the problem is to induce both truthful revelation and an appropriate degree of learning so as to minimize the expected sum of direct planning losses and agent payments optimal contracts are derived with and without self screening of expertise and with and without competition between agents self screening tends to be much less valuable than competition

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

the price is right updating inflation expectations in a randomized price information experiment abstract using a unique randomized information experiment embedded in a survey this paper investigates how consumers inflation expectations respond to new information we find that respondents on average update their expectations in response to certain types of information and do so sensibly in a manner consistent with bayesian updating as a result of information provision the distribution of inflation expectations converges toward its center and cross sectional disagreement declines we document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss our results provide support for expectation formation models in which agents form expectations rationally but face information constraints

governance forms drivers in bio pharmaceutical inter firm relationships abstract since the first theoretical papers on transaction cost economy several studies have addressed the problem of designing governance forms in inter firm relationship scholars have deeply investigated the problem and several theories have been proposed to face with it the biopharmaceutical industry is one of the most interesting testbeds for understanding dynamics and rationality of governance forms in ifrs indeed in this industry the advent of the biotechnology has not been disruptive as in other industries so that the newcomers the biotech companies and the incumbents the pharmaceutical ones have incurred in several types of ifrs such as licensing agreements non equity alliances equity alliances and mergers and acquisitions thus several papers have tried to investigate what kind of drivers influence the choice of the governance form in this industry but most of them have focused on general characteristics of inter firm agreements such as the investment specificity the number of prior ties the technology distance and so forth differently from other researches in this paper we focus on specific characteristics of ifrs in the biopharma industry and we build a theoretical framework consisting of 13 drivers that are able to influence the governance mode of ifrs in this industry we test our theoretical framework through an explorative empirical analysis even if more confirmative empirical analysis is needed the empirical results evidence the validity of the theoretical framework proposed in this paper and provide some interesting managerial implications

the impact of r d cooperations and mergers in pharmaceuticals on research activities and drugs offered on the market in the last 10 years the pharmaceutical industry has experienced steep unprecedented price increases which are frequently attributed to increasing drug development costs to cope with rocketing development costs companies engage in research and development r d cooperations we study the impact of r d cooperations on firms research activities and drugs offered on the market using a comprehensive dataset we find that r d cooperations formed at the early stage of the drug development process increase the number of r d projects and the number of drugs offered on the market late stage r d cooperations formed among larger firms in technology and product markets increase firms research activities but reduce the number of drugs launched on the product market results suggest that large firms cooperating in the late research stage re optimize their r d pipelines and eliminate similarly aligned research projects

wealth effects of regulatory reform abstract this paper investigates the effect of california s proposition 103 on the market value of publicly traded property and liability insurance companies the passage of this referendum on november 8 1988 moved california from a market oriented to a heavily regulated insurance pricing system during the period surrounding the election the average stock price of insurance companies doing business in california declined by 6 91 the decline is positively related to the proportion of a firm s premiums affected by the referendum and the proportion generated in other states where insurance regulation is likely to change and negatively related to the firm s profitability

the competitive impact of air crashes stock market evidence abstract we examine stock market reactions to commercial air crashes to test the hypothesis that consumers respond by switching to rival airlines and or flying less we focus on the stock price reactions of airlines not involved in the crash if switching occurs noncrash airlines should benefit to the extent that they are direct competitors of the crash airline we develop a measure of market overlap and regress individual non crash airline abnormal returns on this measure allowing the constant term to capture any negative spillovers the evidence supports both a switching effect and a spillover

why regulate insider trading evidence from the first great merger wave 1897 1903 we use event time methodology to study legal insider trading associated with mergers circa 1900 for mergers with prospective disclosures similar to today s we find substantial value gains at announcement implying participation by outside shareholders despite the absence of insider constraints furthermore preannouncement stock price runups relative to total value gain are no more than those observed for modern mergers insider regulation apparently has produced little benefit for outsiders with the inside information pricing function and related gains shifting to external information specialists other results suggest market penalties for nondisclosure i e insider trading is less successful in a restricted information environment

mergers and the market for organization capital abstract in this paper mergers are an equilibrium outcome in which acquirers marry targets so as to gain access to their organization capital firms with lower learning costs about the new technology are not necessarily those that manage it best once it is mature since there are gains from trade a market for organization capital can arise through mergers this model generates a merger wave after a shock to technology and is consistent with several other stylized facts on mergers documented in the literature

the effect of collusion on efficiency in experimental auctions abstract this paper examines the effect of collusion on allocative efficiency in a second price sealed bid auction in which bidders valuations have both private and common value components we present a theoretical model which shows that explicit collusion improves average efficiency furthermore a reduction in common value signal variance increases the efficiency of allocations when a cartel is present we test for the presence of these patterns in a laboratory experiment subjects can choose whether to compete or to form a cartel colluding bidders can communicate and make side payments using a knockout auction our results show that a large majority of bidders joins a cartel and collusion has a negative impact on efficiency

an experimental test of combinatorial information markets while a simple information market lets one trade on the probability of each value of a single variable a full combinatorial information market lets one trade on any combination of values of a set of variables including any conditional or joint probability in laboratory experiments we compare the accuracy of simple markets two kinds of combinatorial markets a call market and a market maker isolated individuals who report to a scoring rule and two ways to combine those individual reports into a group prediction we consider two environments with asymmetric information on sparsely correlated binary variables one with three subjects and three variables and the other with six subjects and eight variables thus 256 states

the effect of two tier collective bargaining agreements on shareholder equity this study uses an event time methodology to examine the impact of two tier agreements on shareholder equity from 1981 through 1986 following announcements of two tier agreements about half of the firms in the sample had negative abnormal returns returns with values below the expected market returns and half had positive abnormal returns because the positive returns exceeded the negative returns in absolute value however there was a statistically significant increase in mean firm value the abnormal returns averaged between 2 and 4 over a 10 to 12 week period following the announcement a figure that approximately equals the transactions cost of a stock purchase the authors speculate that this rather low average gain may help explain the marked decline of new two tier agreements during the latter half of the 1980s

syndicated loan announcements and the the market value of the banking firm this paper examines valuation effects on the stocks of fifteen participating money center banks of 774 announcements of syndicated loans representing announcements of investment decisions for the lenders the authors find that announcements of ldc loans in the 1970s especially those to latin american borrowers are associated with negative abnormal returns to the lending banks while announcements of loans to u s corporate borrowers in the 1980s especially those for takover finance are associated with positive abnormal returns while a number of testable predictions are consistent with the negative abnormal returns for latin american loans they explain response to takeover loans with a return to liquidity hypothesis copyright 1995 by ohio state university press

is there complementarity or substitutability between internal and external r d strategies abstract the various strands of extant empirical research are inconclusive about the complementarity or substitutability between different innovation mechanisms such as internal and external r d using a panel sample of 83 incumbent pharmaceutical firms covering the period 1986 2000 our empirical analysis suggests that instead of a clear cut answer to the question of whether internal and external r d are complementary or substitutive innovation activities there appears to be a contingent relationship between internal and external r d strategies in shaping a firm s innovative output the results from our study indicate that the level of in house r d investments which is characterized by decreasing marginal returns is a contingency variable that critically influences the association between internal and external r d strategies in particular internal r d and external r d through either r d alliances or r d acquisitions are complementary innovation activities at higher levels of in house r d investments whereas at lower levels of in house r d efforts internal and external r d turn out to be substitutive strategic options

security price reactions to initial reviews of common stock by the value line investment survey this study examines daily price reactions to initial reviews of securities by the value line investment survey the reviews are found to convey information to the market as significant abnormal returns are found over a 3 day period around release of the information furthermore there is no statistically significant subsequent price reation after this 3 day period consistent with market efficiency

stock market reaction to capital investment decisions evidence from business relocations we investigate the stock market reaction to 447 announcements of business relocation decisions in the 1978 1990 period we find that the stock market reaction to such decisions is tied to the motive for the relocation and the implied prospects for the firm with the type of facility being relocated playing an insignificant role our finding reconciles several results in the literature concemmg the stock market reaction to announcements of capital investment decisions

outcome manipulation in corporate prediction markets this paper presents a framework for applying prediction markets to corporate decision making the analysis is motivated by the recent surge of interest in markets as information aggregation devices and their potential use within firms we characterize the amount of outcome manipulation that results in equilibrium and the impact of this manipulation on market prices jel d71 d82 d83 d84

communication costs information acquisition and voting decisions in proxy contests this article synthesizes some recent progress in the theories of corporate control and political lobbying to model the proxy campaign as a political campaign the model yields a number of testable implications only some of which have been examined in the literature for example if the loss from voting for a bad dissident exceeds the gain from voting for a good dissident the model predicts that as communication costs fall the number of proxy fights increases announcement day returns decrease and the fraction of dissident wins first increases and then decreases article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

short sale restrictions and market reaction to short interest announcements according to the diamond verrecchia hypothesis if increases in short interest are correlated with information that is not yet public they should precipitate a price adjustment stocks with unexpected increases in short interest are found to generate statistically significant but small negative abnormal returns for a short period around the announcement date when the sample is divided into stocks with and without tradable options nonoptioned stocks closely mimic these results but the optioned stocks do not in a cross sectional analysis of individual firms the short term negative abnormal returns are found to be 1 more negative the higher the degree of unexpected short interest and 2 less negative if the firm has tradable options

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

the gains from merger or collusion in product differentiated industries a merger in an industry with differentiated products increases the market power of the merging firms to the extent that their products are close substitutes and that other firms produce only more distant substitutes such a merger makes the residual demand curve of each partner steeper by shifting each in the direction of the industry demand curve 2 the extent of this increase in market power depends upon the own elasticity of demand for each merging firm s product as well as the cross elasticity of demand for each with all other firms products as a result evaluating the effect of a merger between two firms with n 2 other competitors would seem to require the estimation of at least n2 parameters all of the price elasticities of demand a formidable task that extremely difficult estimation task is unnecessary however the necessary information is contained in the slopes of the two single firm residual demand curves before the merger and the extent to which the merged firm will face a steeper demand curve for example suppose a merger between two u s brewing firms say pabst and anheuser busch were proposed it is not particularly important to determine whether it is competition from miller or competition from stroh or from heileman or which puts the most effective brake on anheuser busch s pricing only the total effect of these other firms and the particular effect of competition from pabst are of interest this paper proposes econometric procedures for estimating the demand system that merger partners will face based only on pre merger data the key to the procedures is that the effects of all other firms in the industry are summed together formally we start with a model of an n firm product differentiated industry manipulation of the model removes the prices and quantities of all but two firms this reduces the dimensionality of the problem to manageable size rather than an n firm demand system we estimate a two firm residual demand system in this way the technique extends our econometric method for

changes in organizational structure and shareholder wealth the case of limited partnerships this paper analyzes the consequence for shareholders of a change in organizational form the conversion of a corporation or the spin off of a unit into a limited partnership theory suggests that prior to the tax reform act of 1986 the tax benefits of conversion to a limited partnership and the creation of a new entity separate from the parent corporation should have a positive effect on shareholder wealth on the other hand the increase in agency costs of such an organizational change should decrease the wealth of shareholders empirical results lend support to hypotheses that predict an increase in stock price at the announcement of the conversion but cannot identify the source of the gain

the social construction of market value institutionalization and learning perspectives on stock market reactions this study advances a social constructionist view of financial market behavior the paper suggests that the market s reaction to particular corporate practices such as stock repurchase plans are not as financial economists contend simply a function of the inherent efficiency of such practices rather stock market reactions are also influenced by the prevailing institutional logic and the degree of institutionalization of the practice the theory first predicts that the emergence of the agency perspective on corporate governance in the mid 1980s represented a powerful new institutional logic that would lead the market to reverse its prior aggregate reaction to stock repurchase plans in the united states the paper then considers the potential for institutional decoupling of repurchase plans and develops competing hypotheses about how the market value of these policies might have changed as more firms formally adopted but did not implement the plans over time in contrast to a financial economic pers

conglomerate mergers managerial motives and stockholder wealth managerial theories of conglomerate mergers suggest that such mergers are motivated by the manager s desire to reduce his firm s and thus his income risk yet the application of optimal contracting models e g diamond and verrecchia 1982 to this issue suggests that the stockholders who bear the cost of uncertainty may also benefit from reducing the firm s risk examining the market reaction to congomerate mergers announcements we cannot support the hypothesis that managers initiate conglomerate mergers solely for their own benefit to the detriment of stockholders

differential gains between partners in joint ventures role of resource appropriation and private benefits i examine why there are differences in wealth gains between firms when they announce a joint venture jv building on transaction cost economics and the resource based view i argue that because jvs often involve incomplete contracts differences in wealth gains arise due to resource appropriation and private benefits as a result two factors become important in understanding whether a firm earns higher lower wealth gains than its partner 1 its potential for earning private benefits and 2 its ability to extract private benefits as a test of the impact of the first factor i propose that when a jv is formed the partner that possesses more valuable resources is likely to earn lower wealth gains whereas the partner that possesses less valuable resources is likely to earn higher wealth gains because its potential for earning private benefits over the course of the venture is also higher i then argue that the partner with less valuable resources is likely to extract higher private benefits and gain more when it has greater bargaining power and absorptive capacity conversely the partner with more valuable resources is likely to protect itself better from appropriation when it has jv capabilities i find support for these arguments in a sample of 344 ventures the implications are that private benefits significantly influence value creation in jvs and that a broad array of contingencies and factors affect these benefits which need to be considered when entering into a cooperation

a controlled field experiment on corruption abstract this paper reports on a controlled field experiment on corruption designed to address two important issues the experimenter s scrutiny and the unobservability of corruption in the experiment a grader is offered a bribe along with a demand for a better grade we find that graders respond more favorably to bigger bribes while the effect of higher wages is ambiguous it lowers the bribe s acceptance but it fosters reciprocation monitoring and punishment can deter corruption but we cannot reject that it may also crowd out intrinsic motivations for honesty when intensified finally our results suggest several micro determinants of corruption including age ability religiosity but not gender

auctions and bidding a primer maybe the contractor was right to think bid jobs are different but it is more likely that he suffered from too simple a view of what is involved in preparing a competitive bid our analysis will show that even an experienced estimator working in familiar terrain can lose money if he doesn t understand the subtleties of competitive bidding the phenomenon experienced by the painting contractor known as the winner s curse is just one of the surprising and puzzling conclusions that have been turned up by modern research into auctions another is the theoretical proposition supported also by some experimental evidence that for example a sealed bid treasury bill auction in which each buyer pays a price equal to the highest rejected bid would yield more revenue to the treasury than the current procedure in which the winning bidder pays the seemingly higher amount equal to his own bid there are also subtle results that demonstrate the equivalence of such apparently different institutions as the standard sealed bid auction in which the auctioneer seller sells the goods to the highest bidder for a price equal to his bid and the dutch auction in which the auctioneer seller begins by asking a high price and gradually lowers the price until

the price and profit effects of horizontal merger a case study the economic rationale behind antitrust concern for horizontal mergers rests primarily on the familiar structure performance paradigm that links market concentration with supra competitive profits and implicitly with higher prices a vast empirical literature has demonstrated a positive statistical relationship between measures of industry structure such as entry barriers and concentration and average industry profit using cross section data a small number of cross section studies most dealing with banking services have claimed to find a positive relationship between concentrated market structure and price measures aspinwall 1970 bell and murphy i969 heggestak and mingo 1976 hester i979 lamm i98i landon i97i marion et al 1979 and marvel 1978 but we are unaware of any study that traces the effect of an actual change in market structure on prices or profits in this paper we exploit an unusual opportunity to test for price effects and estimate profit consequences of two acquisitions that resulted in substantial increases in the market share of the acquiring firm the evidence we examine arises from a recent federal trade commission antitrust suit against xidex corporation the world s largest producer of duplicating microfilm the xidex case is unusual in three respects i although the size of the market is small sales under ioo million the acquisitions involved greater changes in market shares than are usual in antitrust actions 2 the suit was brought five years after the first acquisition and two years after the second so a post acquisition record of price behavior exists for this example furthermore the price data used in this study are actual transaction prices 3 special characteristics of the products allow a relatively straightforward test for price effects of the acquisitions the next section provides background information concerning the firms and products involved following that we describe the data and methodology used to estimate the price effects of the acquisitions and present results which indicate significant price increases traceable to the acquisitions we then offer estimates of the incremental profits attributable to those price increases a final section provides a summary the analysis and conclusions set forth in this study are those of the authors and do not necessarily reflect the views of federal trade commission staff or the commission itself all data and other information used in the study are in the public domain this includes information obtained by the commission which has become part of the public record for helpful comments we thank allan fisher ron lafferty paul pautler and rich sciacca of the bureau of economics federal trade commission

empirical evidence on on vertical foreclosure i introduction prior to the 1980s the united states department of justice and the federal trade commission actively challenged vertical mergers on the theory that such mergers foreclosed unintegrated rivals in the downstream market from access to inputs supplied by the merged firm this policy changed when critics of the foreclosure theory claimed that vertically integrated firms have no incentive to transfer products between the upstream and downstream markets at a price other than the market price and therefore vertical mergers have no effect on the price charged to consumers 1 the arguments against attacking vertical mergers were also supported by research that demonstrated that vertical integration can enhance efficiency 2 as a result vertical mergers currently receive very little if any attention from the enforcement agencies recent contributions by ordover saloner and salop 1990 krattenmaker and salop 1986 and salinger 1988 1989 have reopened the debate about the competitive effects of vertical mergers they each use theoretical models to show that vertical foreclosures can raise costs to unintegrated rivals and lead to higher prices for consumers although these models demonstrate that foreclosure can be a profitable strategy that injures competition to date these theories have not been tested empirically if vertical foreclosure rarely occurs or if it occurs only in a narrow set of circumstances changes in current policy on vertical mergers may not be justified a necessary but not sufficient condition for anticompetitive foreclosure is that the vertical merger cause the unintegrated rivals to be less profitable this result from previous theoretical work is tested here on a sample selected from all vertical merger cases challenged by the justice department and the federal trade commission during the period 1963 to 1982 we find no evidence of anticompetitive market foreclosure for the sample of cases challenged by the antitrust agencies one possible explanation for our results is that the tests over the entire sample are significantly affected by a few weak cases brought by the government during a period of aggressive antitrust enforcement we test this by examining variables that have been identified by krattenmaker and salop 1986 and the department of justice merger guidelines as being conducive to foreclosure such as barriers to entry and industry concentration even the cases with high industry concentration and barriers to entry which potentially should exhibit substantial market power provide no evidence of foreclosure while this does not preclude anticompetitive foreclosure as a possibility it does call into question the cases brought by the antitrust agencies during the 1960s and the 1970s until the proponents of the more rigorous economic version of the foreclosure theory provide clearer guidelines about the conditions under which vertical mergers are likely to injure competition continuation of the current policy of not contesting these mergers seems justified ii theory of anticompetitive foreclosure the foreclosure arguments used to challenge vertical mergers during the 1950s and 1960s were easily discredited because no formal theory was used to support them more recent attempts to reconstruct the foreclosure theory have used economic models to demonstrate that vertical foreclosure can reduce competition the key to each of these models is that foreclosure raises the costs to the unintegrated rivals of the merged firm and this under certain conditions raises the price of the final product to the consumer the legal definition of foreclosure focuses on the ability of unintegrated firms to buy from or sell to integrated rivals while the economic definition of anticompetitive foreclosure focuses on whether prices to consumers increase salinger 1988 has provided a model that demonstrates the conditions under which anticompetitive foreclosure will occur

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

a market based evaluation of the election versus appointment of regulatory commissioners this paper examines the elected versus appointed commissioner dichotomy from a market value perspective previous empirical analysis tends to concentrate on rates rather than examining the impact on shareholders wealth we examine life insurance industry data during the period surrounding the passage of california s proposition 103 the primary impact of the referendum on life insurers is to change the method of commissioner selection from appointment to popular vote we find that this change significantly reduced the value of life insurers doing business in california this result is consistent with the recent findings of boyes and mcdowell 1989 and smartt 1994 using alternative evaluation procedures for firms in other regulated industries this implies that the change to a popular election of commissioners either increases the level of risk and or decreases the expected cash flows of regulated firms

the effect of pre emptive right amendments on shareholder wealth abstract pre emptive rights allow existing shareholders to purchase a new offering of shares before the general public this paper investigates the effect on shareholder wealth of removing pre emptive rights from corporate charters two hypotheses are constrasted 1 shareholder wealth maximization suggests that management uses this extra degree of freedom to pick the least cost method for raising new equity hence the amendment increases shareholder wealth 2 management welfare maximization holds that management will use the passage of the amendment to maximize their own welfare sometimes to the detriment of shareholders hence the amendment decreases shareholder wealth the evidence indicates that the amendment decreases shareholder wealth

a reexamination of the conglomerate merger wave in the 1960s an internal capital markets view one possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets examining 392 bidder firms during the 1960s we find the highest bidder returns when financially unconstrained buyers acquire constrained targets this result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing we also find that bidders generally retain target management suggesting that management may have provided companyspecific operational information while the bidder provided capital budgeting expertise